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. 34
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 34
----
(Check appropriate box or boxes.)
COUNTRYWIDE STRATEGIC TRUST
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(Exact name of Registrant as Specified in Charter)
FILE NOS. 811-3651 and 2-80859
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312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 629-2000
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Robert H. Leshner, 312 Walnut Street, 21st Floor,
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Cincinnati, Ohio 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 75 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
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COUNTRYWIDE STRATEGIC TRUST
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FORM N-1A
CROSS REFERENCE SHEET
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ITEM SECTION IN PROSPECTUS
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1........................... Cover Page
2........................... Expense Information
3........................... Performance Information
4........................... Operation of the Fund, Investment
Objective and Policies
5........................... Operation of the Fund
6........................... Cover Page, Dividends and Distributions,
Taxes, Operation of the Fund
7........................... How to Purchase Shares, Shareholder
Services, Exchange Privilege, Operation
of the Fund, Calculation of Share
Price and Public Offering Price,
Distribution Plan, Application
8........................... How to Redeem Shares, Shareholder
Services
9........................... None
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
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10.......................... Cover Page
11.......................... Table of Contents
12.......................... The Trust
13.......................... Definitions, Policies and Risk
Considerations, Investment Limitations,
Portfolio Turnover
14.......................... Trustees and Officers
15.......................... None
16.......................... The Investment Manager and Underwriter,
The Investment Adviser, Distribution Plan,
Custodian, Auditors, Transfer Agent
17.......................... Securities Transactions
18.......................... The Trust
19.......................... Calculation of Share Price and Public
Offering Price, Other Purchase
Information, Redemption in Kind
20.......................... Taxes
21.......................... The Investment Manager and Underwriter
22.......................... Historical Performance Information
23.......................... None
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PROSPECTUS
December 31, 1997
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
INTERNATIONAL EQUITY FUND
The International Equity Fund (the "Fund"), a separate series of
Countrywide Strategic Trust, seeks to provide long-term capital growth by
investing primarily in foreign equity securities (or other securities with
equity characteristics). The production of any current income is incidental to
this objective.
Bankers Trust Company (the "Adviser") manages the Fund's investments
under the supervision of Countrywide Investments, Inc. (the "Manager"). See
"Operation of the Fund."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANKING OR DEPOSITORY INSTITUTION. SHARES ARE NOT FEDERALLY
GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING
THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about
the Fund that investors should know before investing. Please retain this
Prospectus for future reference. A Statement of Additional Information dated
December 31, 1997 has been filed with the Securities and Exchange Commission and
is hereby incorporated by reference in its entirety. A copy of the Statement of
Additional Information can be obtained at no charge by calling one of the
numbers listed below.
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For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . 800-543-0407
Cincinnati . . . . . . . . . . . . . . . . . . . . . 513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE INFORMATION
Shareholder Transaction Expenses
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Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . 4%
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price) . None*
Sales Load Imposed on Reinvested Dividends . . None
Exchange Fee . . . . . . . . . . . . . . . . . None
Redemption Fee . . . . . . . . . . . . . . . . None**
* Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of .75% if a redemption
occurred within 12 months of purchase and a commission was paid by the
Manager to a participating unaffiliated dealer.
** A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares".
Annual Fund Operating Expenses (as a percentage of average net assets)
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Management Fees After Waivers(A) %
12b-1 Fees(B) .25%
Other Expenses %
Total Fund Operating Expenses After Waivers(C) %
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(A) Absent waivers of management fees, such fees would be _____%.
(B) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales loads permitted by the National Association of
Securities Dealers.
(C) Absent waivers of management fees, total Fund operating expenses would be
___%.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on estimated amounts for the current fiscal year. THE EXAMPLE BELOW SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
1 Year
3 Years
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INVESTMENT OBJECTIVE AND POLICIES
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The International Equity Fund, a separate series of Countrywide Strategic
Trust (the "Trust"), seeks long-term capital appreciation from investment in
foreign equity securities (or other securities with equity characteristics); the
production of any current income is incidental to this objective. The Fund is
not intended to be a complete investment program, and there is no assurance that
the investment objective of the Fund can be achieved. The Fund's investment
objective may be changed by the Board of Trustees without shareholder approval,
but only after notification has been given to shareholders and after this
prospectus has been revised accordingly. If there is a change in the Fund's
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their current financial position and needs.
Unless otherwise indicated, all investment practices and limitations of the Fund
are nonfundamental policies which may be changed by the Board of Trustees
without shareholder approval.
The Fund invests primarily in established companies based in developed
countries outside the United States, but the Fund also invests in securities of
issuers in emerging markets. See "Risks of Investing in Foreign Securities"
below. Under normal circumstances, at least 65% of the Fund's total assets will
be invested in the equity securities of issuers based in at least three
countries other than the United States. The Fund's investments will generally be
diversified among several geographic regions and countries.
In countries and regions with well-developed capital markets where more
information is available, the Adviser will seek to select individual investments
for the Fund. Criteria for selection of individual securities include the
issuer's competitive position, prospects for growth, managerial strength,
earnings quality, underlying asset value, relative market value and overall
marketability.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Fund may choose
to invest only at the market level. Here, to the extent available and consistent
with applicable regulations, the Fund may seek to achieve country exposure
through use of options or futures based on an established local index or through
investment in other registered investment companies rather than investing
directly in individual securities. Investment in other investment companies is
limited in amount by the Investment Company Act of 1940, will involve the
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies and may result in a duplication of fees and expenses.
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The Fund may invest in securities of companies having various levels of net
worth, including smaller companies whose securities may be more volatile than
securities offered by larger companies with higher levels of net worth. While
smaller companies generally have potential for rapid growth, they often involve
higher risks because they lack the management experience, financial resources,
product diversification and competitive strengths of larger corporations. In
addition, in many instances, the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
wider price fluctuations. When making large sales, the Fund may to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time.
The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets
and may invest in restricted or unlisted securities.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings and
other factors beyond the control of the Adviser. As a result, the return and net
asset value of the Fund will fluctuate.
When the Adviser believes substantial price risks exist for common stocks
and other equity securities because of uncertainties in the investment outlook
or when in the judgment of the Adviser it is otherwise warranted in selling to
manage the Fund's portfolio, the Fund may temporarily hold for defensive
purposes all or a portion of its assets in short-term obligations such as bank
debt instruments (certificates of deposit, bankers' acceptances and time
deposits), commercial paper, U.S. Government obligations having a maturity of
less than one year, shares of money market investment companies or repurchase
agreements collateralized by U.S. Government obligations.
RISKS OF INVESTING IN FOREIGN SECURITIES
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Investors should realize
that the value of the Fund's foreign investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change
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in) exchange control or tax regulations in foreign countries. In addition,
changes in government administrations or economic or monetary policies in the
United States or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or unfavorably affect the Fund's
operations. Furthermore, the economies of individual foreign nations may differ
from the U.S. economy, whether favorably or unfavorably, in areas such as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position; it may also be more difficult
to obtain and enforce a judgment against a foreign issuer. In general, less
information is publicly available with respect to foreign issuers than is
available with respect to U.S. companies. Most foreign companies are also not
subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. Any foreign investments made by the
Fund must be made in compliance with U.S. and foreign currency restrictions and
tax laws restricting the amounts and types of foreign investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the Fund as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is authorized to enter into certain
foreign currency exchange transactions. Furthermore, the Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. The settlement periods
for foreign securities, which are often longer than those for securities of U.S.
issuers, may affect the Fund's liquidity. Finally, there may be less government
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.
The world's industrialized markets generally include but are not limited to
the following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States; the world's emerging markets generally include but are not
limited to the following: Argentina, Bolivia, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, the Czech Republic, Ecuador, Egypt, Greece, Hungary,
India, Indonesia, Israel, the Ivory Coast, Jordan, Malaysia, Mexico, Morocco,
Nicaragua, Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Romania,
Russia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.
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<PAGE>
Investment in securities of issuers based in underdeveloped emerging
markets entails all of the risks of investing in securities of foreign issuers
outlined in this section to a heightened degree. These heightened risks include:
(i) greater risks of 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 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 or industries deemed sensitive to relevant national
interests; and (iv) in the case of Eastern Europe and in China and other Asian
countries, 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.
So long as the Communist Party continues to exercise a significant or, in
some countries, dominant role in Eastern European countries or in China and
other Asian 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 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 to the actual market values and may be
adverse to Fund shareholders.
In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a security due to settlement problems could result
either in losses to the Fund due to subsequent declines in the value of the
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
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<PAGE>
ADDITIONAL INVESTMENT INFORMATION
EQUITY SECURITIES. As used herein, "equity securities" are defined as
common stock, preferred stock, trust or limited partnership interests, rights
and warrants to subscribe to or purchase such securities, sponsored or
unsponsored ADRs, EDRs, GDRs, and convertible securities, consisting of debt
securities or preferred stock that may be converted into common stock or that
carry the right to purchase common stock. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial conditions and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
CONVERTIBLE SECURITIES. A convertible security is a bond or preferred stock
which may be converted at a stated price within a specific period of time into a
specified number of shares of common stock of the same or different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed income stream--generally higher in yield than in the
income derived from a common stock but lower than that afforded by a
non-convertible debt security-- a convertible security also affords an investor
the opportunity, through its conversion feature, to participate in the capital
appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increase as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
PREFERRED STOCK. Preferred stock has a preference in liquidation (and,
generally dividends) over common stock but is subordinated in liquidation to
debt. As a general rule the market value of preferred stocks with fixed dividend
rates and no conversion rights varies inversely with interest rates and
perceived credit risk, with the price determined by the dividend rate. Some
preferred stocks are convertible into other securities, for example common
stock, at a fixed price and ratio
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<PAGE>
or upon the occurrence of certain events. The market price of convertible
preferred stocks generally reflects an element of conversion value. Because many
preferred stocks lack a fixed maturity date, these securities generally
fluctuate substantially in value when interest rates change; such fluctuations
often exceed those of long-term bonds of the same issuer. Some preferred stocks
pay an adjustable dividend that may be based on an index, formula, auction
procedure or other dividend rate reset mechanism. In the absence of credit
deterioration, adjustable rate preferred stocks tend to have more stable market
values than fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks of
the issuer as corporate bonds. In addition, because preferred stock is junior to
debt securities and other obligations of an issuer, deterioration in the credit
rating of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar yield characteristics.
Preferred stocks may be rated by S&P and Moody's although there is no minimum
rating which a preferred stock must have (and a preferred stock may not be
rated) to be an eligible investment for the Fund. The Adviser expects, however,
that generally the preferred stocks in which the Fund invests will be rated at
least CCC by S&P or Caa by Moody's or, if unrated, of comparable quality in the
opinion of the Adviser. Preferred stocks rated CCC by S&P are regarded as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations and represent the highest degree of speculation among
securities rated between BB and CCC; preferred stocks rated Caa by Moody's are
likely to be in arrears on dividend payments. Moody's rating with respect to
preferred stocks does not purport to indicate the future status of payments of
dividends.
WARRANTS are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant tends to
be more volatile than its underlying securities and ceases to have value if it
is not exercised prior to its expiration date. In addition, changes in the value
of a warrant do not necessarily correspond to changes in the value of its
underlying securities.
ADRS, GDRS AND EDRS are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively, ADRs,
GDRs and EDRs are alternatives to the purchase of the underlying securities in
their national markets and currencies. ADRs, GDRs and EDRs are subject to the
same risks as the foreign securities to which they relate. See "Risks of
Investing in Foreign Securities" herein.
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<PAGE>
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements.
Repurchase agreements are transactions by which the Fund purchases a security
and simultaneously commits to resell that security to the seller at an agreed
upon time and price, thereby determining the yield during the term of the
agreement. In the event of a bankruptcy or other default of the seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying security and losses. To minimize these possibilities, the Fund
intends to enter into repurchase agreements only with its Custodian, banks
having assets in excess of $10 billion and the largest and, in the judgment of
the investment adviser most creditworthy primary U.S. Government securities
dealers. The Fund will enter into repurchase agreements which are collateralized
by U.S. Government obligations. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Fund's Custodian at the Federal
Reserve Bank. At the time the Fund enters into a repurchase agreement, the value
of the collateral, including accrued interest, will equal or exceed the value of
the repurchase agreement and, in the case of a repurchase agreement exceeding
one day, the seller agrees to maintain sufficient collateral so the value of the
underlying collateral, including accrued interest, will at all times equal or
exceed the value of the repurchase agreement. The Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 15% of the value of the net assets of the Fund would be invested in
such securities and other illiquid securities.
RULE 144A SECURITIES. Rule 144A Securities are 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. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the 15% limit on illiquid securities.
Under the supervision of the Board of Trustees, the Adviser determines the
liquidity of restricted securities and, through reports from the Adviser, the
Board will monitor trading activity in restricted securities. If institutional
trading in restricted securities were to decline, the liquidity of the Fund
could be adversely affected.
DELAYED SETTLEMENT TRANSACTIONS. Obligations issued on a when-issued or
to-be-announced basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. In a to-be-announced transaction, the
Fund has committed to purchasing or selling securities for which all specific
information is not yet known at the time of the trade, particularly the face
amount in transactions involving mortgage-related securities. The Fund will only
make commitments to
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purchase obligations on a when-issued or to-be-announced basis with the
intention of actually acquiring the obligations, but the Fund may sell these
securities before the settlement date if it is deemed advisable as a matter of
investment strategy or in order to meet its obligations, although it would not
normally expect to do so. The Fund will not enter into a delayed settlement
transaction which settles in more than 120 days.
Purchases of securities on a when-issued or to-be-announced basis are
subject to market fluctuations and their current value is determined in the same
manner as other portfolio securities. When effecting such purchases for the
Fund, a segregated account of cash or liquid securities of the Fund in an amount
sufficient to make payment for the portfolio securities to be purchased will be
maintained with the Fund's Custodian at the trade date and valued daily at
market for the purpose of determining the adequacy of the securities in the
account. If the market value of segregated securities declines, additional cash
or securities will be segregated on a daily basis so that the market value of
the Fund's segregated assets will equal the amount of the Fund's commitments to
purchase when-issued obligations and securities on a to-be-announced basis. The
Fund's purchase of securities on a when-issued or to-be-announced basis may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date or if the
broker-dealer selling the securities fails to deliver after the value of the
securities has risen.
BORROWING AND PLEDGING. The Fund may borrow money from banks, provided
that, immediately after any such borrowings, there is asset coverage of 300% for
all borrowings of the Fund. The Fund will not make any borrowing which would
cause its outstanding borrowings to exceed one-third of the value of its total
assets. The Fund may pledge assets in connection with borrowings but will not
pledge more than one-third of its total assets. Borrowing magnifies the
potential for gain or loss on the portfolio securities of the Fund and,
therefore, if employed, increases the possibility of fluctuation in the Fund's
net asset value. This is the speculative factor known as leverage. The Fund's
policies on borrowing and pledging are fundamental policies which may not be
changed without the affirmative vote of a majority of its outstanding shares. It
is the Fund's present intention, which may be changed by the Board of Trustees
without shareholder approval, to borrow only for emergency or extraordinary
purposes and not for leverage.
LENDING PORTFOLIO SECURITIES. The Fund may, from time to time, lend
securities on a short-term basis (i.e., for up to seven days) to banks, brokers
and dealers and receive as collateral cash, U.S. Government obligations or
irrevocable bank
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<PAGE>
letters of credit (or any combination thereof), which collateral will be
required to be maintained at all times in an amount equal to at least 100% of
the current value of the loaned securities plus accrued interest. Such loans
will not be made if as a result the aggregate of all outstanding loans exceeds
one-third of the value of the Fund's total assets. Securities lending will
afford the Fund the opportunity to earn additional income because the Fund will
continue to be entitled to the interest payable on the loaned securities and
also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in recovering the securities lent or even loss of rights in the
collateral in the event of the insolvency of the borrower of the securities. The
Fund will have the right to regain record ownership of loaned securities in
order to exercise beneficial rights. The Fund may pay reasonable fees in
connection with arranging such loans.
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. There are, in fact, many different types of derivatives and many
different ways to use them. There are 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 Adviser will use derivatives only in circumstances where they offer
the most efficient means of improving the risk/reward profile of the Fund and
when consistent with the Fund's investment objective and policies. The use of
derivatives for non-hedging purposes may be considered speculative.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may enter into foreign
currency exchange 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
contracts to purchase or sell foreign currencies.
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<PAGE>
A forward foreign currency exchange contract is an obligation by the Fund
to purchase or to sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange 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 foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. Neither spot transactions nor forward foreign
currency exchange 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. Although these transactions tend to minimize
the risk of loss due to a decline in 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 price matching of the forward
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 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.
OPTIONS ON FOREIGN CURRENCIES. The Fund may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the U.S. dollar value of portfolio securities
and against increases in the U.S. dollar cost of securities to be acquired. The
Fund may use options on foreign currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of options, however,
the writing of an option on a foreign currency will constitute only a partial
hedge up to the amount of the premium received, and the Fund could be required
to purchase or sell a foreign currency at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may be
used to hedge against fluctuations in exchange rates although, in the event of
exchange rate movements adverse to the Fund's position it may
- 12 -
<PAGE>
forfeit the entire amount of the premium plus related transaction costs. In
addition, the Fund may purchase call options on a foreign currency when the
Adviser anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Fund is unable to effect a
closing purchase transaction with respect to covered options it has written, the
Fund will not be able to sell the underlying currency or dispose of assets held
in a segregated account until it closes out the options or the options expire or
are exercised. Similarly, if the Fund is unable to close out options it has
purchased, it would have to exercise the options in order to realize any profit
and will incur transaction costs. The Fund pays brokerage commissions or spreads
in connection with its options transactions.
OPTIONS ON STOCKS. The Fund may write and purchase options on stocks. A
call option gives the purchaser of the option the right to buy, and obligates
the writer to sell, the underlying stock at the exercise price at any time
during the option period. Similarly, a put option gives the purchaser of the
option the right to sell, and obligates the writer to buy the underlying stock
at the exercise price at any time during the option period. A covered call
option with respect to which the Fund owns the underlying stock sold by the Fund
exposes the Fund during the term of the option to possible loss of opportunity
to realize appreciation in the market price of the underlying stock or to
possible continued holding of a stock which might otherwise have been sold to
protect against depreciation in the market price of the stock. A covered put
option sold by the Fund exposes the Fund during the term of the option to a
decline in price of the underlying stock.
OPTIONS ON STOCK INDICES. The Fund may purchase and write put and call
options on stock indices listed on domestic and foreign stock exchanges, in lieu
of direct investment in the underlying securities or for hedging purposes. The
Fund may also purchase and write over-the-counter options ("OTC Options") on
domestic or foreign stock indices. A stock index fluctuates with changes in the
market values of the stocks included in the index.
In some circumstances, the Fund's ability to terminate OTC Options may be
more limited than with exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are not covered by the Fund's 15%
limit on illiquid securities. Under the supervision of the Board of Trustees,
the Adviser determines the
- 13 -
<PAGE>
liquidity of restricted securities and, through reports from the Adviser, the
Board will monitor trading activity in restricted securities. With respect to
options written with primary dealers in U.S. Government securities pursuant to
an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term exercise price,
premium, guaranties and security, are set by negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty function
is involved in an OTC Option. As a result, if a Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Thus, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC Option will be met.
Options on stock indices are generally similar to options on stocks except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of securities at a specified price, an option on a stock
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier."
Successful use by the Fund of options on stock indices will be subject to
the Adviser's ability to predict correctly movement in the direction of the
security market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
securities.
- 14 -
<PAGE>
FUTURES CONTRACTS ON STOCK INDICES. The Fund may enter into contracts
providing for the making and acceptance of a cash settlement based upon changes
in the value of an index of domestic or foreign stocks ("Futures Contracts").
This investment technique may be used as a low-cost method of gaining exposure
to a particular securities market without investing directly in those securities
or to hedge against anticipated future changes in general market prices which
otherwise might either adversely affect the value of securities held by the Fund
or adversely affect the prices of securities which are intended to be purchased
at a later date for the Fund. A Futures Contract may also be entered into to
close out or offset an existing futures position.
When used for hedging purposes, each transaction in Futures Contracts
involves the establishment of a position which will move in a direction opposite
to that of the investment being hedged. If these hedging transactions are
successful, the futures position taken for the Fund will rise in value by an
amount which approximately offsets the decline in value of the portion of the
Fund's investments that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized.
The risks of Futures Contracts also include a potential lack of liquidity
in the secondary market and incorrect assessments of market.
Brokerage costs will be incurred and "margin" will be required to be posted
and maintained as a good faith deposit against performance of obligations under
Futures Contracts written for the Fund. The Fund may not purchase or sell a
Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts, other than Futures Contracts used for hedging
purposes, would exceed 5% of the market value of the Fund's total assets.
OPTIONS ON FUTURES CONTRACTS. The Fund may invest in options on futures
contracts for similar purposes.
There can be no assurance that the use of these portfolio strategies will
be successful.
ASSET COVERAGE. To assure that the Fund's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment leverage, the
Fund will cover such transactions, as required under applicable interpretations
of the Securities and Exchange Commission, either by owning the
- 15 -
<PAGE>
underlying securities, entering into an offsetting transaction, or by
segregating with the Fund's custodian liquid securities in an amount at all
times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
PORTFOLIO TURNOVER. The Fund does not intend to use short-term trading as a
primary means of achieving its investment objectives. However, the Fund's rate
of portfolio turnover will depend upon market and other conditions, and it will
not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. Although the annual portfolio turnover rate of the
Fund cannot be accurately predicted, it is not expected to exceed 100%, but may
be either higher or lower. A 100% turnover rate would occur, for example, if all
the securities of the Fund were replaced once in a one-year period. High
turnover involves correspondingly greater commission expenses and transaction
costs. 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 shareholders in order to maintain its
status as a regulated investment company and to avoid the imposition of federal
income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
- ----------------------
The minimum initial investment in the Fund must ordinarily be at least
$1,000 ($250 for tax-deferred retirement plans). However, the minimum initial
investment in the Fund for employees, shareholders and customers of Countrywide
Credit Industries, Inc. or any affiliated company, including members of the
immediate family of such individuals, is $50. Investors may purchase additional
shares through the Open Account Program described below. Investors may open an
account and make an initial investment through securities dealers having a sales
agreement with the Trust's principal underwriter, Countrywide Investments, Inc.
(the "Manager"). Investors may also make a direct initial investment by sending
a check and a completed account application form to Countrywide Fund Services,
Inc. (the "Transfer Agent"), P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks
should be made payable to the "International Equity Fund". An account
application is included in this Prospectus.
The Trust mails confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust and the
Manager reserve the right to limit the amount of investments and to refuse to
sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, the Transfer Agent and certain of their
affiliates, excluding such
- 16 -
<PAGE>
entities from certain liabilities (including, among others, losses resulting
from unauthorized shareholder transactions) relating to the various services
(for example, telephone exchanges) made available to investors.
Should an order to purchase shares be canceled because the check does not
clear, the investor will be responsible for any resulting losses or fees
incurred by the Trust or the Transfer Agent in the transaction.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services
described in this section to the Transfer Agent at the address or numbers
listed below.
After an initial investment, all investors are considered participants in
the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Fund over a period of years and permits the automatic
reinvestment of dividends and distributions of the Fund in additional shares
without a sales load.
Under the Open Account Program, investors may purchase and add shares to
their account at any time either through a securities dealer or by sending a
check to the Transfer Agent, P.O. Box 5354, Cincinnati, Ohio 45201-5354. The
check should be made payable to the "International Equity Fund."
Under the Open Account Program, investors may also purchase shares of the
Fund by bank wire. Please telephone the Transfer Agent (Nationwide call
toll-free 800-543-0407; in Cincinnati call 629-2050) for instructions. The
investor's bank may impose a charge for sending the wire. There is presently no
fee for receipt of wired funds, but the Transfer Agent reserves the right to
charge shareholders for this service upon thirty days' prior notice to
shareholders.
Each additional purchase request must contain the name of the account and
the account number to permit proper crediting to the shareholder's account.
While there is no minimum amount required for subsequent investments, the Trust
reserves the right to impose such requirement. All purchases under the Open
Account Program are made at the public offering price next determined after
receipt of a purchase order by the Trust. If a broker-dealer received
concessions for selling shares of the Fund to a current shareholder, such
broker-dealer will receive the concessions described above with respect to
additional investments by the shareholder.
- 17 -
<PAGE>
Shares of the Fund are sold on a continuous basis at the public offering
price next determined after receipt of a purchase order by the Trust. Purchase
orders received by dealers prior to 4:00 p.m., Eastern time, on any business day
and transmitted to the Manager by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Manager by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by the
Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's public
offering price. Direct investments received by the Transfer Agent after 4:00
p.m., Eastern time, and orders received from dealers after 5:00 p.m., Eastern
time, are confirmed at the public offering price next determined on the
following business day.
The public offering price of shares of the Fund is the next determined net
asset value per share plus a sales load as shown in the following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- -------------------- -------- -------- -------
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but a
contingent deferred sales load of .75% may apply if a commission was paid
by the Manager to a participating unaffiliated dealer and the shares are
redeemed within twelve months from the date of purchase.
Under certain circumstances, the Manager may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Manager retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For initial purchases of $1,000,000 or more and subsequent purchases
further increasing the size of the account, a dealer's commission of .75% of the
purchase amount may be paid by the Manager to participating unaffiliated dealers
through whom such
- 18 -
<PAGE>
purchases are effected. In determining a dealer's eligibility for such
commission, purchases of shares of the Fund may be aggregated with concurrent
purchases of shares of other funds of Countrywide Investments. Dealers should
contact the Manager concerning the applicability and calculation of the dealer's
commission in the case of combined purchases. An exchange from other funds of
Countrywide Investments will not qualify for payment of the dealer's commission,
unless such exchange is from a Countrywide fund with assets as to which a
dealer's commission or similar payment has not been previously paid. Redemptions
of shares may result in the imposition of a contingent deferred sales load if
the dealer's commission described in this paragraph was paid in connection with
the purchase of such shares. See "Contingent Deferred Sales Load for Certain
Purchases of Shares" below.
REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing shares of the load funds distributed by the Manager with
the amount of his current purchases in order to take advantage of the reduced
sales loads set forth in the table above. Purchases made in any load fund
distributed by the Manager pursuant to a Letter of Intent may also be eligible
for the reduced sales loads. The minimum initial investment under a Letter of
Intent is $10,000. The load funds currently distributed by the Manager are
listed in the Exchange Privilege section of this Prospectus. Shareholders should
contact the Transfer Agent for information about the Right of Accumulation and
Letter of Intent.
PURCHASES AT NET ASSET VALUE. An investor may purchase shares of the
Fund at net asset value when the payment for the investment represents the
proceeds from the redemption of shares of any other mutual fund which has a
front-end sales load and is not distributed by the Manager. The investment will
qualify for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within one year of the
purchase of such shares and no more than sixty days prior to the purchase of
shares of the Fund. To make a purchase at net asset value pursuant to this
provision, the investor must submit photocopies of the confirmations (or similar
evidence) showing the purchase and redemption of shares of the other fund.
Payment may be made with the redemption check representing the proceeds of the
shares redeemed, endorsed to the order of the Fund. The redemption of shares of
the other fund is, for federal income tax purposes, a sale on which the investor
may realize a gain or loss. These provisions may be modified or terminated at
any time. Contact a securities dealer or the Trust for further information.
- 19 -
<PAGE>
Banks, bank trust departments and savings and loan associations, and
employees of such institutions, in their fiduciary capacity or for their own
accounts, may purchase shares of the Fund at net asset value. To the extent
permitted by regulatory authorities, a bank trust department may charge fees to
clients for whose account it purchases shares at net asset value. Federal and
state credit unions may also purchase shares at net asset value.
In addition, shares of the Fund may be purchased at net asset value by
broker-dealers who have a sales agreement with the Manager and their registered
personnel and employees, including members of the immediate families of such
registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
shares of the Fund at net asset value if their investment adviser or financial
planner has made arrangements to permit them to do so with the Trust and the
Manager. The investment adviser or financial planner must notify the Transfer
Agent that an investment qualifies as a purchase at net asset value.
Employees, shareholders and customers of Countrywide Credit Industries,
Inc. or any affiliated company, including members of the immediate family of
such individuals and employee benefit plans established by such entities, may
also purchase shares of the Fund at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES. A
contingent deferred sales load is imposed upon certain redemptions of shares of
the Fund (or shares into which such shares were exchanged) purchased at net
asset value in amounts totaling $1 million or more, if the dealer's commission
described above was paid by the Manager and the shares are redeemed within
twelve months from the date of purchase. The contingent deferred sales load will
be paid to the Manager and will be equal to .75% of the lesser of (1) the net
asset value at the time of purchase of the shares being redeemed or (2) the net
asset value of such shares at the time of redemption. In determining whether the
contingent deferred sales load is payable, it is assumed that shares not subject
to the contingent deferred sales load are the first redeemed followed by other
shares held for the longest period of time. The contingent deferred sales load
will not be imposed upon shares representing reinvested dividends or capital
gains distributions, or upon amounts representing share appreciation. If a
purchase of shares is subject to the contingent deferred sales load, the
investor will be so notified on the confirmation for such purchase.
- 20 -
<PAGE>
Redemptions of such shares of the Fund held for at least 12 months will
not be subject to the contingent deferred sales load and an exchange of such
shares into another fund of Countrywide Investments is not treated as a
redemption and will not trigger the imposition of the contingent deferred sales
load at the time of such exchange. A fund will "tack" the period for which such
shares being exchanged were held onto the holding period of the acquired shares
for purposes of determining if a contingent deferred sales load is applicable in
the event that the acquired shares are redeemed following the exchange; however,
the period of time that the redemption proceeds of such shares are held in a
money market fund will not count toward the holding period for determining
whether a contingent deferred sales load is applicable. See "Exchange
Privilege".
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code) of a shareholder (including one who owns the shares with his or
her spouse as a joint tenant with rights of survivorship) from an account in
which the deceased or disabled is named. The Manager may require documentation
prior to waiver of the charge, including death certificates, physicians'
certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the initial
investment requirements and the applicable sales load and for purposes of the
Letter of Intent and Right of Accumulation privileges, a purchaser includes an
individual, his spouse and their children under the age of 21, purchasing shares
for his or their own account; a trustee or other fiduciary purchasing shares for
a single fiduciary account although more than one beneficiary is involved;
employees of a common employer, provided that economies of scale are realized
through remittances from a single source and quarterly confirmation of such
purchases; or an organized group, provided that the purchases are made through a
central administration, or a single dealer, or by other means which result in
economy of sales effort or expense. Contact the Transfer Agent for additional
information concerning purchases at net asset value or at reduced sales loads.
SHAREHOLDER SERVICES
- ---------------------
Contact the Transfer Agent (Nationwide call toll-free 800- 543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
Automatic Withdrawal Plan
-------------------------
If the shares in an account have a value of at least $5,000, a
shareholder may elect to receive, or may designate another
- 21 -
<PAGE>
person to receive, monthly or quarterly payments in a specified amount of not
less than $50 each. There is no charge for this service. Purchases of additional
shares of the Fund while the plan is in effect are generally undesirable because
a sales load is incurred whenever purchases are made.
Tax-Deferred Retirement Plans
-----------------------------
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
--------------------
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
--------------------------
Shareholders may make automatic monthly investments in the Fund from
their bank, savings and loan or other depository institution account. The
minimum initial and subsequent investments must be $50 under the plan. The
Transfer Agent pays the costs associated with these transfers, but reserves the
right, upon thirty days' written notice, to make reasonable charges for this
service. The depository institution may impose its own charge for debiting the
account which would reduce a shareholder's return from an investment in the
Fund.
Reinvestment Privilege
----------------------
If a shareholder has redeemed shares of the Fund, he or she may
reinvest all or part of the proceeds without any additional sales load. This
reinvestment must occur within ninety days of the redemption and the privilege
may only be exercised once per year.
- 22 -
<PAGE>
HOW TO REDEEM SHARES
- --------------------
Shareholders may redeem shares of the Fund on each day that the Trust
is open for business by sending a written request to the Transfer Agent. The
request must state the number of shares or the dollar amount to be redeemed and
the account number. The request must be signed exactly as the shareholder's name
appears on the Trust's account records. If the shares to be redeemed have a
value of $25,000 or more, the shareholder's signature must be guaranteed by any
eligible guarantor institution, including banks, brokers and dealers, municipal
securities brokers and dealers, government securities brokers and dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations.
Shareholders may also redeem shares by placing a wire redemption
request through a securities broker or dealer. Unaffiliated broker-dealers may
impose a fee on the shareholder for this service. The shareholder will receive
the net asset value per share next determined after receipt by the Trust or its
agent of the wire redemption request. It is the responsibility of broker-dealers
to properly transmit wire redemption orders.
If a shareholder's instructions request a redemption by wire, the
shareholder will be charged an $8 processing fee by the Fund's Custodian. The
Trust reserves the right, upon thirty days' written notice, to change the
processing fee. All charges will be deducted from the shareholder's account by
redemption of shares in the account. The shareholder's bank or brokerage firm
may also impose a charge for processing the wire. In the event that wire
transfer of funds is impossible or impractical, the redemption proceeds will be
sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in a shareholder's account with a commercial bank or other depository
institution via an Automated Clearing House (ACH) transaction. There is
currently no charge for ACH transactions. Contact the Transfer Agent for more
information about ACH transactions. A contingent deferred sales load may apply
to a redemption of certain shares purchased at net asset value. See "How to
Purchase Shares."
Shares are redeemed at their net asset value per share next determined
after receipt by the Transfer Agent of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment is
normally made within three business days after tender in such form, provided
that payment in redemption of shares purchased by check will be effected only
after the check has been collected, which
- 23 -
<PAGE>
may take up to fifteen days from the purchase date. To eliminate this delay,
shareholders may purchase shares of the Fund by certified check or wire.
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
At the discretion of the Trust or the Transfer Agent, corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization. The Trust
reserves the right to require shareholders to close their account if at any time
the value of the shares is less than the minimum amount required by the Trust
(based on actual amounts invested including any sales load paid, unaffected by
market fluctuations) or such other minimum amount as the Trust may determine
from time to time. After notification to the affected shareholder of the Trust's
intention to close the account, the shareholder will be given thirty days to
increase the value of the account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
- ------------------
Shares of the Fund and of any other fund of Countrywide Investments may
be exchanged for each other.
Shares of the Fund which are not subject to a contingent deferred sales
load may be exchanged for shares of any other fund and for shares of any other
fund which offers only one class of shares (provided such shares are not subject
to a contingent deferred sales load). A sales load will be imposed equal to the
- 24 -
<PAGE>
excess, if any, of the sales load rate applicable to the shares being acquired
over the sales load rate, if any, previously paid on the shares being exchanged.
Shares of the Fund subject to a contingent deferred sales load may be
exchanged, on the basis of relative net asset value per share, for shares of any
other fund which imposes a contingent deferred sales load and for shares of any
fund which is a money market fund. A fund will "tack" the period for which the
shares being exchanged were held onto the holding period of the acquired shares
for purposes of determining if a contingent deferred sales load is applicable in
the event that the acquired shares are redeemed following the exchange. The
period of time that shares are held in a money market fund will not count toward
the holding period for determining whether a contingent deferred sales load is
applicable.
The following are the funds of Countrywide Investments currently
offered to the public. Funds which may be subject to a front-end or contingent
deferred sales load are indicated by an asterisk.
Countrywide Tax-Free Trust Countrywide Strategic Trust
Tax-Free Money Fund *Equity Fund
Ohio Tax-Free Money Fund *Utility Fund
California Tax-Free Money Fund *Government Mortgage Fund
Florida Tax-Free Money Fund *International Equity Fund
*Kentucky Tax-Free Fund *Aggressive Growth Fund
*Tax-Free Intermediate Term Fund *Growth/Value Fund
*Ohio Insured Tax-Free Fund
Countrywide Investment Trust
Short Term Government Income Fund
Money Market Fund
Institutional Government Income Fund
*Intermediate Term Government Income Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
*Intermediate Bond Fund
Shareholders may request an exchange by sending a written request to
the Transfer Agent. The request must be signed exactly as the shareholder's name
appears on the Trust's account records. Exchanges may also be requested by
telephone. If shareholders are unable to execute their transaction by telephone
(for example during times of unusual market activity) they should consider
requesting the exchange by mail or by visiting the Trust's offices at 312 Walnut
Street, 21st Floor, Cincinnati, Ohio 45202. An exchange will be effected at the
next determined net asset value (or offering price, if sales load is applicable)
after receipt of a request by the Transfer Agent.
- 25 -
<PAGE>
Exchanges may only be made for shares of funds then offered for sale in
the shareholder's state of residence and are subject to the applicable minimum
initial investment requirements. The exchange privilege may be modified or
terminated by the Board of Trustees upon 60 days' prior notice to shareholders.
An exchange results in a sale of fund shares, which may cause the shareholder to
recognize a capital gain or loss. Before making an exchange, contact the
Transfer Agent to obtain a current prospectus for any of the other funds of
Countrywide Investments and more information about exchanges among Countrywide
Investments.
DIVIDENDS AND DISTRIBUTIONS
- ----------------------------
The Fund expects to distribute substantially all of its net investment
income, if any, annually. The Fund expects to distribute any net realized
long-term capital gains at least once each year. Management will determine the
timing and frequency of the distributions of any net realized short-term capital
gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
Shareholders should indicate their choice of option on the application.
If no option is specified, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If a shareholder selects the Income Option or the Cash Option and the
U.S. Postal Service cannot deliver the shareholder's checks or if the checks
remain uncashed for six months, the dividends may be reinvested in the
shareholder's account at the then-current net asset value and the account will
be converted to the Share Option. No interest will accrue on amounts represented
by uncashed distribution checks.
An investor who has received in cash any dividend or capital gains
distribution from the Fund may return the distribution
- 26 -
<PAGE>
within thirty days of the distribution date to the Transfer Agent for
reinvestment at the net asset value next determined after its return. The
investor or his dealer must notify the Transfer Agent that a distribution is
being reinvested pursuant to this provision.
TAXES
- -----
The Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed to
shareholders. The Fund intends to distribute substantially all of its net
investment income and any net realized capital gains to its shareholders.
Distributions of net investment income as well as from net realized short-term
capital gains, if any, are taxable as ordinary income. Dividends distributed by
the Fund from net investment income may be eligible, in whole or in part, for
the dividends received deduction available to corporations. Distributions
resulting from the sale of foreign currencies and foreign obligations, to the
extent of foreign exchange gains, are taxed as ordinary income or loss. If these
transactions result in reducing the Fund's net income, a portion of the income
may be classified as a return of capital (which will lower your tax basis). If
the Fund pays nonrefundable taxes to foreign governments during the year, the
taxes will reduce the Fund's net investment income but still may be included in
your taxable income. However, shareholders may be able to claim an offsetting
tax credit or itemized deduction on their return for their portion of foreign
taxes paid by the Fund. Distributions of net realized long-term capital gains
are taxable as long-term capital gains regardless of how long a shareholder has
held Fund shares. Redemptions and exchanges of shares of the Fund are taxable
events on which a shareholder may realize a gain or loss.
Under applicable tax law, the Fund's use of hedging techniques in
foreign currency forwards, futures and options involves greater risk of
unfavorable tax consequences than funds not engaging in such techniques. Hedging
may also result in the application of the mark-to-market and straddle provisions
of the Internal Revenue Code. These provisions could result in an increase (or
decrease) in the amount of taxable dividends paid by the Fund as well as affect
whether dividends paid by the Fund are classified as capital gains or ordinary
income.
The Fund will mail to each of its shareholders a statement indicating
the amount and federal income tax status of all distributions made during the
year. In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions. Shareholders should consult their tax
- 27 -
<PAGE>
advisors about the tax effect of distributions and withdrawals from the Fund and
the use of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
OPERATION OF THE FUND
- ----------------------
The Fund is a diversified series of Countrywide Strategic Trust, an
open-end management investment company organized as a Massachusetts business
trust on November 18, 1982. The Board of Trustees supervises the business
activities of the Trust. Like other mutual funds, the Trust retains various
organizations to perform specialized services for the Fund.
The Trust retains Countrywide Investments, Inc. (the "Manager"), 312
Walnut Street, Cincinnati, Ohio 45202, to provide general investment supervisory
services to the Fund and to manage the Fund's business affairs. The Manager was
organized in 1974 and is also the investment adviser to five other series of the
Trust, seven series of Countrywide Investment Trust and seven series of
Countrywide Tax-Free Trust. The Manager is an indirect wholly-owned subsidiary
of Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending. The Fund
pays the Manager a fee equal to the annual rate of . % of the average value of
its daily net assets up to $ million; . % of such assets from $ million to $
million; . % of such assets from $ million to $ million; and . % of such assets
in excess of $ million.
The Manager serves as principal underwriter for the Fund and, as such,
is the exclusive agent for the distribution of shares of the Fund. Angelo R.
Mozilo, Robert H. Leshner, Robert G. Dorsey and John F. Splain are officers of
both the Manager and the Trust.
Bankers Trust Company (the "Adviser"), 280 Park Avenue, New York, New
York 10017, has been retained by the Manager to manage the Fund's investments.
The Adviser conducts a variety of general banking and trust activities and is a
major wholesale supplier of financial services to the international and domestic
institutional market. The Adviser is a wholly-owned subsidiary of Bankers Trust
New York Corporation, the seventh largest bank holding company in the United
States with total assets of approximately $120 billion. The Adviser is one of
the nation's largest and most experienced investment managers, with
approximately $227 billion is assets under management globally. The Manager (not
the Fund) pays the Adviser a fee equal to the rate of .50% of the average value
of the Fund's daily net assets.
- 28 -
<PAGE>
Mr. Michael Levy, Manager Director of Bankers Trust Global Investment
Management, heads the Adviser's international equity team, which is responsible
for the day to day management of the Fund. Since joining the Adviser, Mr. Levy
has been the head of this team and International Equity Strategist. Prior to
joining the Adviser in March 1993, Mr. Levy was an investment banker and an
equity analyst with Oppenheimer & Company. He has twenty-six years of business
experience, of which fifteen years have been in the investment industry.
Mr. Robert Reiner, Vice President of Bankers Trust Global Investment
Management, is the co-manager of the Fund. Since joining the Adviser, he has
been responsible for managing global portfolios and developing analytical and
investment tools for the group's global equity team. His primary focus has been
on Japanese and European markets. Prior to joining the Adviser, he was an equity
analyst and also provided macroeconomic coverage for Scudder, Stevens & Clark.
He previously served as Senior Analyst at Stanford C. Bernstein & Co. and was
instrumental in the development of Bernstein's International Value Fund. Mr.
Reiner spent more than nine years at Standard & Poor's Corporation, where he was
a member of its international ratings group. His tenure included managing the
day to day operations of Standard & Poor's Corporation's Tokyo office for three
years.
The Fund is responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained Countrywide Fund Services, Inc. (the "Transfer
Agent"), P.O. Box 5354, Cincinnati, Ohio 45201-5354, to serve as the Fund's
transfer agent, dividend paying agent and shareholder service agent. The
Transfer Agent is an indirect wholly-owned subsidiary of Countrywide Credit
Industries, Inc.
- 29 -
<PAGE>
The Transfer Agent also provides accounting and pricing services to the
Fund. The Transfer Agent receives a monthly fee from the Fund for calculating
daily net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, the Transfer Agent has been retained by the Manager to
assist the Manager in providing administrative services to the Fund. In this
capacity, the Transfer Agent supplies executive, administrative and regulatory
services, supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission and state securities authorities. The Manager
(not the Fund) pays the Transfer Agent a fee for these administrative services.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Fund as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Fund. Subject to the requirements of the
Investment Company Act of 1940 (the "1940 Act") and procedures adopted by the
Board of Trustees, the Fund may execute portfolio transactions through any
broker or dealer and pay brokerage commissions to a broker (i) which is an
affiliated person of the Trust, or (ii) which is an affiliated person of such
person, or (iii) an affiliated person of which is an affiliated person of the
Trust, the Manager or the Adviser.
Shares of the Fund have equal voting rights and liquidation rights. The
Fund shall vote separately on matters submitted to a vote of the shareholders
except in matters where a vote of all series of the Trust in the aggregate is
required by the 1940 Act 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 1940 Act in order to facilitate
communications among shareholders.
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan
of distribution (the "Plan") under which the Fund may directly incur or
reimburse the Manager for certain
- 30 -
<PAGE>
distribution-related expenses, including payments to securities dealers and
others who are engaged in the sale of shares of the Fund and who may be advising
investors regarding the purchase, sale or retention of Fund shares; expenses of
maintaining personnel who engage in or support distribution of shares or who
render shareholder support services not otherwise provided by the Transfer
Agent; expenses of formulating and implementing marketing and promotional
activities, including direct mail promotions and mass media advertising;
expenses of preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports for recipients
other than existing shareholders of the Fund; expenses of obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is
.25% of the Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by the
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Manager after the date the Plan
terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass- Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Fund, no preference will be shown for
such securities.
- 31 -
<PAGE>
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules require fund-level accounting in which all sales charges -
front-end load, 12b-1 fees or contingent deferred load - terminate when a
percentage of gross sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
On each day that the Trust is open for business, the public offering
price (net asset value plus applicable sales load) of the shares of the Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange, currently 4:00 p.m., Eastern time. The Trust is open for
business on each day the New York Stock Exchange is open for business.
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 per share of the Fund may be significantly affected
by trading on days when the Trust is not open for business. The net asset value
per share of the Fund is calculated by dividing the sum of the value of the
securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent.
The Fund's portfolio securities are valued as follows: (i) securities
which are traded on stock exchanges or are quoted by NASDAQ are valued at the
last reported sale price as of the close of the regular session of trading on
the New York Stock Exchange on the day the securities are being valued, or, if
not traded on a particular day, at the closing bid price, (ii) securities traded
in the over-the-counter market, and which are not quoted by NASDAQ, are valued
at the last sale price (or, if the last sale price is not readily available, at
the last bid price as quoted by brokers that make markets in the securities) as
of the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (iv) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. Foreign securities are valued on the basis of quotations from the
primary market in which they are traded and are translated from the local
currency into U.S. dollars using currency exchange rates. The net asset value
per share of the Fund will fluctuate with the value of the securities it holds.
- 32 -
<PAGE>
PERFORMANCE INFORMATION
- ------------------------
From time to time, the Fund may advertise its "average annual total
return." The Fund may also advertise "yield." Both yield and average annual
total return figures are based on historical earnings and are not intended to
indicate future performance.
The "average annual total return" of the Fund refers to the average
annual compounded rates of return over the most recent 1, 5 and 10 year periods
or, where the Fund has not been in operation for such period, over the life of
the Fund (which periods will be stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions and the
deduction of the current maximum sales load from the initial investment. The
Fund may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. A nonstandardized quotation of total return may
also indicate average annual compounded rates of return over periods other than
those specified for "average annual total return." These nonstandardized returns
do not include the effect of the applicable sales load which, if included, would
reduce total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's "average annual total return" as described above.
The "yield" of the Fund is computed by dividing the net investment
income per share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period.
From time to time, the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as
- 33 -
<PAGE>
determined by Lipper, or recognized indicators such as the Europe, Australia and
Far East ("EAFE") Index compiled by Morgan Stanley Capital International, the
Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index. In
connection with a ranking, the Fund may provide additional information, such as
the particular category of funds to which the ranking relates, the number of
funds in the category, the criteria upon which the ranking is based, and the
effect of fee waivers and/or expense reimbursements, if any. The Fund may also
present its performance and other investment characteristics, such as volatility
or a temporary defensive posture, in light of the Adviser's view of current or
past market conditions or historical trends.
PRIOR PERFORMANCE OF ADVISER. The investment performance illustrated below
represents the performance of the International Equity Fund (the "BT
International Fund"), a series of BT Investment Trust, which is managed with
investment objectives, policies and strategies substantially similar to those
to be employed by the Adviser in managing the Fund. The investment personnel
primarily responsible for the management of the Fund are the same persons who
manage the BT International Fund.
The BT International Fund is separate and distinct from the Fund. The following
performance data does not represent the historical performance of the Fund. It
is also not intended that the performance data be relied upon by investors as
an indication of future performance of the Fund.
Average Annual Total Returns
- ----------------------------
Europe, Australia
Periods ended BT International and Far East Index
9/30/97 Fund ("EAFE Index")*
-------------- ---------------- --------------------
1 year _____% _____%
3 years _____% _____%
5 years _____% _____%
Since
inception _____% _____%
(August 4, 1992)
* The EAFE Index is generally considered to be
representative of the performance of common stocks that are
publicly traded in the securities markets located outside
the United States. The EAFE Index is an unmanaged
portfolio, and the public is not able to invest in the Index
itself.
- 34 -
<PAGE>
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide (Toll-Free) 800-543-8721
Cincinnati 513-629-2000
Board of Trustees
Donald L. Bogdon, M.D.
John R. Delfino
H. Jerome Lerner
Robert H. Leshner
Angelo R. Mozilo
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
Investment Manager/Underwriter
Countrywide Investments, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Investment Adviser
Bankers Trust Company
280 Park Avenue
New York, New York 10017
Transfer Agent
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-543-0407
Cincinnati: 513-629-2050
Countrywide Always Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
- 35 -
<PAGE>
TABLE OF CONTENTS
Page
EXPENSE INFORMATION.......................................... 2
INVESTMENT OBJECTIVE AND POLICIES............................ 3
HOW TO PURCHASE SHARES....................................... 16
SHAREHOLDER SERVICES......................................... 24
HOW TO REDEEM SHARES......................................... 25
EXCHANGE PRIVILEGE........................................... 27
DIVIDENDS AND DISTRIBUTIONS.................................. 28
TAXES .................................................... 29
OPERATION OF THE FUND........................................ 30
DISTRIBUTION PLAN............................................ 33
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE......... 35
PERFORMANCE INFORMATION...................................... 36
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 36 -
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1997
International Equity Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the International Equity Fund of
Countrywide Strategic Trust dated December 31, 1997. A copy of the Fund's
Prospectus can be obtained by writing the Trust at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202-4094, or by calling the Trust nationwide toll-free
800-543-0407, or in Cincinnati 629-2050.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
PAGE
THE TRUST................................................................. 3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS............................. 4
INVESTMENT LIMITATIONS.................................................... 29
TRUSTEES AND OFFICERS..................................................... 31
THE INVESTMENT MANAGER AND UNDERWRITER.................................... 34
INVESTMENT ADVISER........................................................ 35
DISTRIBUTION PLAN......................................................... 36
SECURITIES TRANSACTIONS................................................... 37
PORTFOLIO TURNOVER........................................................ 39
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE...................... 39
OTHER PURCHASE INFORMATION................................................ 40
TAXES ................................................................. 41
REDEMPTION IN KIND........................................................ 43
HISTORICAL PERFORMANCE INFORMATION........................................ 44
CUSTODIAN................................................................. 46
AUDITORS ................................................................. 46
TRANSFER AGENT............................................................ 46
- 2 -
<PAGE>
THE TRUST
- ---------
Countrywide Strategic Trust (the "Trust"), formerly Midwest Strategic
Trust, was organized as a Massachusetts business trust on November 18, 1982. The
Trust currently offers six series of shares to investors: the Government
Mortgage Fund (formerly the U.S. Government Securities Fund), the Utility Fund,
the Equity Fund, the Growth/Value Fund, the Aggressive Growth Fund and the
International Equity Fund. This Statement of Additional Information provides
information relating to the International Equity Fund (referred to the "Fund").
Information relating to the Government Mortgage Fund, the Utility Fund, the
Equity Fund, the Growth/Value Fund and the Aggressive Growth Fund is contained
in a separate Statement of Additional Information. Each Fund has its own
investment objective(s) and policies.
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities belonging to the Fund with each other share of the
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
the Fund into a greater or lesser number of shares of the Fund 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 the
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.
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
- 3 -
<PAGE>
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.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objective and Policies")
appears below:
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.
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.
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
- 4 -
<PAGE>
agreements having a remaining 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. Mutual funds do not typically hold a significant
amount of these restricted 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 a mutual
fund 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. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting 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 of resales of certain securities to qualified institutional buyers. The
Adviser 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.
The Adviser will monitor the liquidity of Rule 144A securities in the
Fund's holdings under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser 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 or sellers of 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).
- 5 -
<PAGE>
WHEN-ISSUED SECURITIES. The Fund will only make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities. In addition, the Fund may purchase securities on a when-issued basis
only if delivery and payment for the securities takes place within 60 days after
the date of the transaction. In connection with these investments, the Fund will
direct its Custodian to place cash or liquid portfolio securities in a
segregated account in an amount sufficient to make payment for the securities to
be purchased. When a segregated account is maintained because the Fund purchases
securities on a when-issued basis, the assets deposited in the segregated
account will be valued daily at market for the purpose of determining the
adequacy of the securities in the account. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's commitments to purchase securities on a when-issued basis. To the
extent funds are in a segregated account, they will not be available for new
investment or to meet redemptions. Securities purchased on a when-issued basis
and the securities held in the Fund's portfolio are subject to changes in market
value. Therefore, if in order to achieve higher returns, the Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will experience greater fluctuation. The purchase of securities on
a when-issued basis may involve a risk of loss if the seller fails to deliver
after the value of the securities has risen.
When the time comes for the Fund to make payment for securities
purchased on a when-issued basis, the Fund will do so by using then available
cash flow, by sale of the securities held in the segregated account, by sale of
other securities or, although it would not normally expect to do so, by
directing the sale of the securities purchased on a when-issued basis themselves
(which may have a market value greater or less than the Fund's payment
obligation). Although the Fund will only make commitments to purchase securities
on a when-issued basis with the intention of actually acquiring the securities,
the Fund may sell these securities before the settlement date if it is deemed
advisable by the Adviser as a matter of investment strategy.
SHORT-TERM INSTRUMENTS. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may invest in short-term
instruments for a limited time pending availability of such portfolio
securities. Short-term instruments consist of foreign or domestic: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalites, authorities or political subdivisions; (ii) other short-term
debt securities rated AA or higher by Standard & Poor's Rating Group ("S&P") or
Aa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of
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comparable quality in the opinion of the Adviser; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and banker's acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated AA or higher by
S&P of Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of the
Adviser. These instruments may be denominated in U.S. dollars or in foreign
currencies.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Fund's
Custodian at the Federal Reserve Bank. The Fund will not enter into a repurchase
agreement not terminable within seven days if, as a result thereof, more than
15% of the value of its net assets would be invested in such securities and
other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the Fund's investment criteria for portfolio
securities and will be held by the Custodian or in the Federal Reserve Book
Entry System.
For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the
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seller subject to the repurchase agreement and is therefore subject to the
Fund's investment restriction applicable to loans. It is not clear whether a
court would consider the securities purchased by the Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the securities before
repurchase of the security under a repurchase agreement, the Fund may encounter
delay and incur costs before being able to sell the security. Delays may involve
loss of interest or decline in price of the security. If a court characterized
the transaction as a loan and the Fund has not perfected a security interest in
the security, the Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in the transaction. As with any unsecured debt obligation
purchased for the Fund, the Adviser seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case, the seller. Apart from the risk of bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the security, in
which case the Fund may incur a loss if the proceeds to it of the sale of the
security to a third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Fund receives amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower, and that
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the fees are not used to compensate the Adviser or any affiliated person of the
Trust or an affiliated person of the Adviser or other affiliated person. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and permit the Fund to reacquire loaned securities on five days' notice or
in time to vote on any important matter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The successful use
of such instruments draws upon the Adviser's skill and experience with respect
to such instruments and usually depends on the Adviser's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
FUTURES CONTRACTS. The Fund may enter into contracts for the purchase
or sale for future delivery of foreign currencies or contracts based on stock
indices listed on domestic and foreign stock exchanges. U.S. futures contracts
have been designed by exchanges which have been designated "contracts markets"
by the Commodity Futures Trading Commission ("CFTC"), and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
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transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract is to
attempt to protect the Fund from fluctuations in securities prices or foreign
exchange rates without actually buying or selling the securities or foreign
currencies. Since the futures market is more liquid than the cash market, the
use of futures contracts as an investment technique allows the Fund to maintain
a defensive position without having to sell its portfolio securities.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast by the Adviser may still not result in a successful
transaction.
In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Fund, if the Adviser's
investment judgment about the general direction of securities prices or foreign
exchange rates is incorrect, the Fund's overall performance would be poorer than
if it had not entered into any such contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write options
on futures contracts for hedging purposes. The purchase of a call option on a
futures contact is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying securities, it may or may not be less risky than ownership of the
futures contract or underlying securities. As with the purchase of futures
contracts, when the Fund is not fully invested it may purchase a call option on
a futures contract to hedge against a market advance.
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The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of a market decline.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees has adopted a further restriction that the Fund
will not enter into any futures contracts or options on futures contracts if
immediately thereafter the amount of margin deposits on all the futures
contracts of the Fund and premiums paid on outstanding options on futures
contracts owned by the Fund (other than those entered into for bona fide hedging
purposes) would exceed 5% of the market value of the total assets of the Fund.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options
on foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency
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does decline, the Fund will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the adverse
effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options should offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option
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<PAGE>
is also covered if the Fund has a call on the same foreign currency and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or (b)
is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or liquid portfolio securities in a segregated
account with its Custodian.
The Fund also intends to write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign currency
is for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, the Fund collateralizes the option by maintaining in a segregated
account with its Custodian, cash or liquid portfolio securities in an amount not
less than the value of the underlying foreign currency in U.S.
dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by the Fund in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in
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options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. The
Fund's ability to terminate over-the-counter options will be more limited than
the exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Fund will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin
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requirements than in the United States; and (v) lesser trading volume.
OPTIONS ON SECURITIES. The Fund may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund.
When the Fund writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Fund will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price. By
writing a covered call option, the Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above the
exercise price.
When the Fund writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Fund will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision over
which the Fund has no control, the Fund must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option,
the Fund, in exchange for the net premium received, accepts the risk of a
decline in the market value of the underlying security below the exercise price.
The Fund will only write put options involving securities for which a
determination is made at the time the option is written that the Fund wishes to
acquire the securities at the exercise price.
The Fund may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." The Fund will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchase of an option, the Fund may make a "closing sale
transaction" which involves liquidating the Fund's position by selling the
option previously purchased. Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
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<PAGE>
When the Fund writes an option, an amount equal to the net premium
received by the Fund is included in the liability section of the Fund's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction, the Fund will
realize a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold), and the deferred credit related
to such option will be eliminated. If a call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security and the proceeds
of the sale will be increased by the premium originally received. The writing of
covered call options may be deemed to involve the pledge of the securities
against which the option is being written. Securities against which call options
are written will be segregated on the books of the Custodian for the Fund.
The Fund may purchase call and put options on any securities in which
it may invest. The Fund would normally purchase a call option in anticipation of
an increase in the market value of such securities. The purchase of a call
option would entitle the Fund, in exchange for the premium paid, to purchase a
security at a specified price during the option period. The Fund would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Fund, in exchange for the premium paid, to sell a
security, which may or may not be held in the Fund's holdings, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Fund's
holdings. Put options also may be purchased by the Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which the
Fund does not own. The Fund would ordinarily recognize a gain if the value of
the securities decreased below the exercise price sufficiently to cover the
premium and would recognize a loss if the value of the securities remained at or
above the exercise price. Gains and losses on the purchase of protective put
options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Fund has adopted certain other nonfundamental policies concerning
option transactions which are discussed below.
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The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Fund will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of ) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with whom the Fund enters into such options
transactions under the general supervision of the Board of Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities,
the Fund may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and value of the index. Such options will be used for the purposes
described above under "Options on Securities."
The Fund may, to the extent allowed by Federal securities laws, invest
in securities indices instead of investing directly in individual foreign
securities.
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Fund generally will only purchase or write such an option if the Adviser
believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
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trading in such options is no greater than the risk of trading in
options on securities.
Price movement in the Fund's holdings may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because the Fund may buy
and sell 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 foreign currency exchange
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 contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange 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 foreign currency
exchange 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 foreign
currency exchange 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 assets in an amount at least equal to it
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange 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 Adviser's long-term investment
decisions, the Fund will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Adviser
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 the value of the hedged currency, at the same
time
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<PAGE>
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 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 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 contracts. In such event
the Fund's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward 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 foreign currency forward contracts may not eliminate fluctuation 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 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 foreign currency forward
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.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE.
The Fund may invest in foreign securities issued by Eastern European countries.
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
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<PAGE>
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 (consisting of the Republics of the former
Union of Soviet Socialist Republics).
The economic situation remains difficult for Eastern European countries
in transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free- market economies. But key aspects of the
reform and stabilization efforts have not yet been fully implemented, and there
remain risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.
In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the early
stages of the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal situation. A
reversal of these adverse factors is not anticipated in the near term, and
output is expected to decline further in most of these countries. In the Russian
Federation and most other countries of the former Soviet Union, economic
conditions are of particular concern because of economic instability due to
political unrest and armed conflicts in many regions. Further, no accounting
standards exist in Eastern European countries. Although certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the Fund's
shareholders.
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<PAGE>
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING LATIN AMERICA.
Investing in securities of Latin America issuers may entail risks relating to
the potential political and economic instability of certain Latin American
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
by any country, the Fund could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The economies of Latin American countries may be predominantly based in
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Securities of issuers located in Latin America may have limited
marketability and may be subject to more abrupt or erratic price movements.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the fee conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's securities are denominated may have a detrimental
impact on the Fund's net asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-
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<PAGE>
sufficiency and balance of payments position. Certain Latin American countries
have experienced high levels of inflation which can have a debilitating effect
on an economy. Furthermore, certain Latin American countries may impose
withholding taxes on dividends payable to the Fund at a higher rate than those
imposed by other foreign countries. This may reduce the Fund's investment income
available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of the principal and/or interest on outstanding debt. Investment
in sovereign debt can involve a high degree of risk. The governmental entity
that controls the repayment of sovereign debt may not be able or willing to
repay the principal and/or interest when due in accordance with the terms of
such debt. A governmental entity's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the governmental entity's
policy towards the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the
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<PAGE>
denial of access to new foreign capital. Although a number of Latin American
countries are currently experiencing lower rates of inflation and higher rates
of real growth in gross domestic product ("GDP") than they have in the past,
other Latin American countries continue to experience significant problems,
including high inflation rates and high interest rates. Capital flight has
proven a persistent problem and external debt has been forcibly rescheduled.
Political turmoil, high inflation, capital repatriation restrictions and
nationalization have further exacerbated conditions.
Large budget deficits and a high level of state ownership in many
productive and service areas have given way to balanced budgets and
privatization in Mexico, Brazil, Chile and Argentina. Changes in political
leadership have encouraged the implementation of market oriented economic
policies such as balanced budgets. Privatization, trade reform and monetary
reform have been among the steps taken to modernize the Latin American economies
and to regenerate growth in the region. However, governments of many Latin
American countries have exercised and continue to exercise substantial influence
over many aspects of the private sector through the ownership or control of many
companies, including some of the largest in those countries. As a result,
government actions in the future could have a significant effect on economic
conditions which may adversely affect prices of certain portfolio securities.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments, such as military coups, have
occurred in the past and could also adversely affect the Fund's investments in
this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left the
home country) has begun to return. Inflation control efforts have also been
implemented. Free trade zones are being discussed in various areas around the
region, the most notable being a free trade zone between Mexico and the U.S.
Various trade agreements have also been formed within the region such as the
Andean Pact, Mercosur and North American Free Trade Agreement (NAFTA). The
largest of these is NAFTA, which was implemented on January 1, 1994. Latin
American equity markets can be extremely volatile and in the past have shown
little correlation with the U.S. market. Currencies are typically weak, but most
are now relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to changes in
the market.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING THE PACIFIC
BASIN. Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the
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<PAGE>
case in the United States and European countries. Such instability may result
from (i) authoritarian governments or military involvement in political and
economic decision-making; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection.
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
Thailand has been transformed into one of the fastest growing stock
markets in the world. On February 23, 1991, the military staged its 17th coup
since the overthrow of the absolute monarchy in 1932. The newly appointed
government quickly focused on the economy and enacted major tax revisions,
slashing personal income tax and reducing taxes on imports. Most significantly,
it pushed through a 7% value added tax. Released from political consideration by
the coup, the Bank of Thailand was finally able to implement a monetary
tightening. As a result, interest rates rose and GDP declined to 7.7% from 10%
the previous year. The government continues to move ahead with new projects -
especially telecommunications, roads and port facilities - needed to refurbish
the country's overtaxed infrastructure. Nonetheless, political unrest coupled
with the shooting of anti-government demonstrators in May 1992 has caused many
international businesses to question Thailand's political stability.
Hong Kong's return to Chinese dominion in 1997 has not initially had a
positive effect on its economic growth which was vigorous in the 1980's.
However, authorities in Beijing have agreed to maintain a capitalist system for
50 years that, along with Hong Kong's economic growth, continued to further
strong stock market returns. Hong Kong has to develop trade with China, where it
was the largest foreign investor, while also maintaining its long-standing
export relationship with the United States. Spending on infrastructure
improvements is a significant priority of the colonial government while the
private sector continues to diversify abroad based on its position as an
established international trade center in the Far East.
In terms of GDP, industrial standards and level of education, South
Korea is second only to Japan in Asia. It enjoys the benefits of a diversified
economy with well developed sectors in electronics, automotive, textiles and
shoe manufacturing, steel and shipbuilding among others. The driving force
behind the economy's dynamic growth has been the planned
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<PAGE>
development of an export-oriented economy in a vigorously entrepreneurial
society. Real GDP grew about 7.5% in 1991. Labor unrest was noticeably calmer,
unemployment averaged a low of 2.3%, and investment was strong. Inflation rates,
however, are beginning to challenge South Korea's strong economic performance.
In addition, the international situation between South and North Korea continues
to improve. Both Koreas joined the United Nations separately in late 1991,
creating another forum for negotiation and joint cooperation.
Indonesia is a mixed economy with many socialist institutions and
central planning, but has recently placed emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet with a
large and rapidly increasing population, it remains a poor country. Agriculture,
including forestry and fishing, is an important sector, accounting for 21% of
GDP and over 50% of the labor force. Once the world's largest rice importer,
Indonesia is now nearly self-sufficient.
The Malaysian economy continued to perform well, growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of the
fastest growing economies in the Asian- Pacific region. Malaysia has become the
world's third-largest producer of semiconductor devices (after the U.S. and
Japan) and the world's largest exporter of semiconductor devices. More
remarkable is the country's ability to achieve rapid economic growth with
relative price stability (2% inflation over the past five years) as the
government followed prudent fiscal/monetary policies. Malaysia's high export
dependence level leaves it vulnerable to a recession in the OECD countries or a
fall in world commodity prices.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
entrepot history. During the 1970's and early 1980's, the economy expanded
rapidly, achieving an average annual growth rate of 9%. Per capita GDP is among
the highest in Asia. Singapore holds a position as a major oil refining and
services center.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING CHINA AND CHINA
REGION. China's economic reform plan was designed to bring in foreign investment
capital and technological skills. The result has been a move towards a more
mixed economy away from the previous centrally planned economy. The process of
devolving responsibility for all aspects of enterprise to local management and
authorities continues, even though the system of socialism with Chinese
characteristics involves considerable influence by the central government on
production and marketing.
In order to attract foreign investment, China has since 1978 designated
certain areas of the country where overseas investors can receive special
investment incentives and tax concessions. There are five Special Economic
Zones (Shenzhen, Shantou and
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<PAGE>
Zhuhai in Guangdong Province, Xiamen in Fujian Province and Hainan Island, which
itself is a province). Fourteen coastal cities have been designated as "open
cities" and certain Open Economic Zones have been established in coastal areas.
Shanghai has established the Pudong New Area. Twenty-seven High and New
Technology Industrial Development Zones have been approved where preferential
treatment is given to enterprises which are confirmed as technology intensive.
China has had for many centuries a well deserved reputation for being
closed to foreigners, with trade with the outside world being carried on under
terms of extreme restriction and under central control. Such conditions were
maintained in the first thirty years of the Communist regime which began in
1949; however, there have been several stages of evolution, from the institution
of an industrialization program in the 1950s to modernization policy commencing
in 1978 which combined economic development with the beginnings of opening the
country.
The securities markets in the China region are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. A high proportion of the shares of many Chinese issuers may be held by a
limited number of persons and financial institutions, which may limit the number
of shares available for investment by the Portfolio. Similarly, volume and
liquidity in the bond markets in China are less than in the United States and,
at times, price volatility can be greater than in the United States. A limited
number of issuers in Chinese securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in China may also affect the Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so. Accordingly, during periods of rising securities prices in the more
illiquid Chinese securities markets, the Fund's ability to participate fully in
such price increases may be limited by its investment policy of investing not
more than 15% of its net assets in illiquid securities. Conversely, the Fund's
inability to dispose fully and promptly of positions in declining markets will
cause the Fund's net asset value to decline as the value of the unsold positions
is marked to lower prices. In addition, the Chinese securities markets are
susceptible to being influenced by large investors trading significant blocks of
securities.
The Chinese, Hong Kong and Taiwan stock markets are undergoing a period
of growth and change which may result in trading volatility and difficulties in
the settlement and recording of transactions, and in interpreting and applying
the relevant law and regulations.
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<PAGE>
China governmental actions can have a significant effect on the
economic conditions in China, which could adversely affect the value and
liquidity of the Fund's investments. Although the Chinese government has
recently begun to institute economic reform policies, there can be no assurances
that it will continue to pursue such policies or, if it does, that such policies
will succeed.
The securities industry in China is not well developed. China has no
securities laws of nationwide applicability. The municipal securities
regulations adopted by Shanghai and Shenzhen municipalities are very new, as are
their respective securities exchanges and other self-regulatory organizations.
In addition, Chinese stockbrokers and other intermediaries may not perform as
well as their counterparts in the United States and other more developed
securities markets. The prices at which the Fund may acquire investments may be
affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the Fund
in particular securities.
China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The corporate
form of organization has only recently been permitted in China and national
regulations governing corporations were introduced only in May 1992. Prior to
the introduction of such regulations, Shanghai had adopted a set of corporate
regulations applicable to corporations located or listed in Shanghai, and the
relationship between the two sets of regulations is not clear. Consequently,
until a firmer legal basis is provided, even such fundamental corporate law
tenets as the limited liability status of Chinese issuers and their authority to
issue shares remain open to question. Laws regarding fiduciary duties of
officers and directors and the protection of shareholders are not well
developed. China's judiciary is relatively inexperienced in enforcing the laws
that exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in China, it may be
impossible to obtain swift and equitable enforcement of such law, or to obtain
enforcement of the judgment by a court of another jurisdiction. The bankruptcy
laws pertaining to state enterprises have rarely been used and are untried in
regard to an enterprise with foreign shareholders, and there can be no assurance
that such shareholders, including the Fund, would be able to realize the value
of the assets of the enterprise or receive payment in convertible currency. As
the Chinese legal system develops, the promulgation of new laws, changes to
existing laws and the preemption of local laws by national laws may adversely
affect foreign investors, including the Fund. The uncertainties faced by foreign
investors in China are exacerbated by the fact that many laws, regulations and
decrees of China are not publicly available, but merely circulated internally.
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<PAGE>
Exports continue to rise strongly, although China remains vulnerable to
United States economic conditions and possible trade sanctions, unless it
liberalizes current import restrictions and improves its human rights record.
However, imports are also expected to rise and may outstrip exports in terms of
growth rates.
There are currently two officially recognized securities exchanges in
China -- The Shanghai Securities Exchange which opened in December 1990 and The
Shenzhen Stock Exchange which opened in July 1991. Shares traded on these
Exchanges are two types --"A" shares which can be traded only by Chinese
investors and "B" shares which can be traded only by individuals and
corporations not resident in China.
In Shanghai, all "B" shares are denominated in Chinese renminbi
("RMB"), but all transactions in "B" shares must be settled in U.S. dollars, and
all distributions made on "B" shares are payable in U.S. dollars, the exchange
rate being the weighted average exchange rate for the U.S. dollar as published
by the Shanghai Foreign Exchange Adjustment Centre.
In Shenzhen, the purchase and sale prices for "B" shares are quoted in
Hong Kong dollars. Dividends and other lawful revenue derived from "B" shares
are calculated in RMB but payable in Hong Kong dollars, the rate of exchange
being the average rate published by Shenzhen Foreign Exchange Adjustment Centre.
There are no foreign exchange restrictions on the repatriation of gains
made on or income derived from "B" shares, subject to the payment of taxes
imposed by China thereon.
Company law relating to companies limited by shares and regulations
regarding the issuing of shares by equity joint ventures have not yet been
developed on a national basis. The Shenzhen municipality issued regulations in
1992 relating to joint stock companies, and the Shanghai municipality has a
draft joint stock company law under review. Regulations governing the trading of
securities on both the Shenzhen and the Shanghai stock exchanges have been
issued by each municipality; there is no national securities legislation as yet.
Economies of countries in the China region may differ favorably or
unfavorably from the U.S. economy in such respects as rate of growth of gross
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As an export-driven economy,
the economy of China is affected by developments in the economies of its
principal trading partners. Revocation by the United States of China's "Most
Favored Nation" trading status, which the U.S. President and Congress reconsider
annually, would adversely affect the trade and economic development of China and
Hong Kong. Hong Kong and Taiwan have limited natural resources, resulting in
dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.
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<PAGE>
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
the Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the Fund) present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust (or the Fund) are present or represented at such
meeting or (2) more than 50% of the outstanding shares of the Trust (or the
Fund).
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Fund. These limitations may
not be changed with respect to the Fund without the affirmative vote of a
majority of its outstanding shares.
THE LIMITATIONS APPLICABLE TO THE FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of a Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause outstanding borrowings to exceed one-third
of the value of its total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in
any manner transfer, as security for indebtedness, any security owned or held by
the Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Options. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in the
Prospectus and this Statement of Additional Information.
4. Underwriting. The Fund will not act as underwriters of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of its portfolio securities, the Fund may be
deemed an underwriter under certain federal securities laws.
5. Concentration. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
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<PAGE>
6. Commodities. The Fund will not purchase, hold or deal in
commodities and will not invest in oil, gas or other mineral explorative or
development programs.
7. Real Estate. The Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, except it may purchase(a) securities of companies
which deal in real estate, or (b) securities which are secured by interests in
real estate or by interests in mortgage loans including securities secured by
mortgage-backed securities.
8. Loans. The Fund will not make loans to other persons if, as a
result, more than one-third of the value of its total assets would be subject to
such loans. This limitation does not apply to (a) the purchase of marketable
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness which are part of an issue for the public or (b) entry
into repurchase agreements.
9. Investing for Control. The Fund will not invest in companies for the
purpose of exercising control.
10. Senior Securities. The Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemptions of securities, or
to arrangements with respect to transactions involving options, futures
contracts and other similar permitted investments and techniques.
THE FOLLOWING INVESTMENT LIMITATIONS FOR THE FUND ARE NONFUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL:
1. Illiquid Investments. The Fund will not purchase securities for
which there are legal or contractual restrictions on resale or for which no
readily available market exists if, as a result thereof, more than 15% of the
value of the Fund's net assets would be invested in such securities. This
restriction does not include (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: (i) is not traded flat or in default
as to interest or principal; and (ii) is rated in one of the two highest
categories by at least two nationally recognized statistical rating
organizations and the Board of Trustees has determined the commercial paper to
be liquid; or (iii) is rated in one of the two highest categories by one
nationally recognized statistical rating organization and the Board of Trustees
has determined that the commercial paper is of equivalent quality and is liquid.
2. Margin Purchases. The Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities or to the extent necessary to engage in transactions
described in the Prospectus and Statement of Additional Information which
involve margin purchases.
- 30 -
<PAGE>
3. Short Sales. The Fund will not make short sales of securities.
4. Other Investment Companies. The Fund will not invest more than 5% of its
total assets in the securities of any investment company and will not invest
more than 10% of the value of its total assets in securities of other investment
companies.
With respect to the percentages adopted by the Trust as maximum limitations
on the Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money) will not be a violation of the policy or restriction unless the excess
results immediately and directly from the acquisition of any security or the
action taken.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the
Trust, their compensation from the Trust and their aggregate compensation from
Countrywide Investments (consisting of the Trust, Countrywide Tax-Free Trust and
Countrywide Investment Trust) for the fiscal year ended March 31, 1997. Each
Trustee who is an "interested person" of the Trust, as defined by the Investment
Company Act of 1940, is indicated by an asterisk. Each Trustee is also a Trustee
of Countrywide Tax- Free Trust and Countrywide Investment Trust.
AGGREGATE
COMPENSATION
COMPENSATION FROM
POSITION FROM COUNTRYWIDE
NAME AGE HELD TRUST INVESTMENTS
- ---- --- ---- ------------ -----------
Donald L. Bodgon, MD 66 Trustee $ 0 $ 0
John R. Delfino 63 Trustee 0 0
+H. Jerome Lerner 58 Trustee 2,983 9,030
*Robert H. Leshner 57 President/Trustee 0 0
*Angelo R. Mozilo 58 Chairman/Trustee 0 0
+Oscar P. Robertson 57 Trustee 2,583 7,750
John F. Seymour, Jr. 59 Trustee 0 0
+Sebastiano Sterpa 67 Trustee 0 0
Robert G. Dorsey 40 Vice President 0 0
John F. Splain 40 Secretary 0 0
Mark J. Seger 35 Treasurer 0 0
* Mr. Leshner and Mr. Mozilo, as officers and directors of
Countrywide Investments, Inc., are each an "interested
person" of the Trust within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940.
+ Member of Audit Committee.
- 31 -
<PAGE>
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
DONALD L. BOGDON, M.D., 435 Arden Avenue, Glendale, California is a
physician with Hematology Oncology Consultants and a Director of Verdugo VNA (a
hospice facility). Until 1996 he was President of Western Hematology/Oncology
and until 1993 he was Chairman of the Board of Glendale Memorial Hospital.
JOHN R. DELFINO, 2029 Century Park East, Los Angeles, California is
President of Concorde Capital Corporation (an investment firm). Until 1993 he
was a director of Cypress Financial and Chairman of Rancho Santa Margarita,
mortgage banking firms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc., a manufacturer of
electronic connectors.
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is President and
a director of Countrywide Investments, Inc. (the investment adviser and
principal underwriter of the Trust) and Countrywide Financial Services, Inc.
(a financial services company and parent of Countrywide Investments, Inc. and
Countrywide Fund Services, Inc.). He is Vice Chairman and a director of
Countrywide Fund Services, Inc. (a registered transfer agent) and President and
a Trustee of Countrywide Tax-Free Trust and Countrywide Investment Trust,
registered investment companies.
ANGELO R. MOZILO, 4500 Park Granada Road, Calabasas, California is Vice
Chairman and Executive Vice President of Countrywide Credit Industries, Inc. (a
holding company). He is a director of Countrywide Home Loans, Inc. (a
residential mortgage lender), CTC Foreclosure Services Corporation (a
foreclosure trustee) and LandSafe, Inc. (the parent company of fifteen LandSafe
entities which provide property appraisals, credit reporting services, title
insurance and/or closing services for residential mortgages), each a subsidiary
of Countrywide Credit Industries, Inc. He is Chairman and a director of
Countrywide Financial Services, Inc., Countrywide Investments, Inc., Countrywide
Fund Services, Inc., Countrywide Servicing Exchange (a loan servicing broker),
Countrywide Capital Markets, Inc., (parent company of Countrywide Securities
Corporation and Countrywide Servicing Exchange) and various LandSafe
subsidiaries and is Chairman and Chief Executive Officer of Countrywide
Securities Corporation (a registered broker-dealer), each a subsidiary of
Countrywide Credit Industries, Inc. He is also Vice Chairman of CWM Mortgage
Holdings, Inc. (a publicly-held real estate investment trust).
- 32 -
<PAGE>
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is President
of Orchem Corp., a chemical specialties distributor, and Orpack Stone
Corporation, a corrugated box manufacturer.
JOHN F. SEYMOUR, JR., 46-393 Blackhawk Drive, Indian Wells, California
is Chief Executive Officer of the Southern California Housing Development Agency
and a consultant for Orange Coast Title Co. (a title insurance company). He is
also a director of Irvine Apartment Communities (a real estate investment trust)
and Inco Homes (a home builder). Until 1994 he was a director of the California
Housing Finance Agency.
SEBASTIANO STERPA, 200 West Glenoaks Boulevard, Glendale, California is
Chairman of Sterpa Realty, Inc. and Chairman and a director of the California
Housing Finance Agency. He is also a director of Real Estate Business Services
and a director of the SunAmerica Mutual Funds.
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio is President and
Treasurer of Countrywide Fund Services, Inc., Vice President - Finance and
Treasurer of Countrywide Financial Services, Inc. and Treasurer of Countrywide
Investments, Inc. He is also Vice President of Countrywide Tax-Free Trust,
Countrywide Investment Trust, Brundage, Story and Rose Investment Trust, Markman
MultiFund Trust, PRAGMA Investment Trust, Maplewood Investment Trust, a series
company, The Thermo Opportunity Fund, Inc., The Dean Family of Funds and The New
York State Opportunity Funds and Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust, The Tuscarora Investment Trust, The
Gannett Welsh & Kotler Funds and Interactive Investments, all of which are
registered investment companies.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio is Vice President,
Secretary and General Counsel of Countrywide Fund Services, Inc. and Secretary
and General Counsel of Countrywide Investments, Inc. and Countrywide Financial
Services, Inc. He is also Secretary of Countrywide Tax-Free Trust, Countrywide
Investment Trust, Brundage, Story and Rose Investment Trust, Williamsburg
Investment Trust, Markman MultiFund Trust, The Tuscarora Investment Trust,
PRAGMA Investment Trust, Maplewood Investment Trust, a series company, and The
Thermo Opportunity Fund, Inc. and Assistant Secretary of Schwartz Investment
Trust, The Gannett Welsh & Kotler Funds, Interactive Investments, the
New York State Opportunity Funds and the Dean Family of Funds.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio is Vice
President and Fund Controller of Countrywide Fund Services, Inc. He is also
Treasurer of Countrywide Tax-Free Trust, Countrywide Investment Trust, Brundage,
Story and Rose Investment Trust, Williamsburg Investment Trust, Markman
MultiFund Trust, PRAGMA Investment Trust, Maplewood Investment Trust, a series
company, The Thermo Opportunity Fund, Inc., the New York State Opportunity Funds
and the Dean Family of Funds and
- 33 -
<PAGE>
Assistant Treasurer of Schwartz Investment Trust, The Tuscarora Investment
Trust, The Gannett Welsh & Kotler Funds and Interactive Investments.
Each Trustee, except for Messrs. Leshner and Mozilo, receives a
quarterly retainer of $1,500 and a fee of $1,500 for each Board meeting
attended. Such fees are split equally among the Trust, Countrywide Tax-Free
Trust and Countrywide Investment
Trust.
THE INVESTMENT MANAGER AND UNDERWRITER
- --------------------------------------
Countrywide Investments, Inc. (the "Manager") performs management,
statistical, portfolio adviser selection and other services for the Fund. The
Manager is responsible for placing orders for the purchase and sale of
securities of the Fund. The Manager is a subsidiary of Countrywide Financial
Services, Inc., which is a wholly-owned subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending. Messrs. Mozilo and Leshner may
be deemed to be affiliates of the Manager by reason of their position as
Chairman and President, respectively, of the Manager. Messrs. Mozilo and
Leshner, by reason of such affiliation, may directly or indirectly receive
benefits from the management fees paid to the Manager.
Under the terms of the management agreement between the Trust and the
Manager, the Fund pays the Manager a fee computed and accrued daily and paid
monthly at an annual rate of ____% of its average daily net assets up to
$__,000,000, ___% of such assets from $___,000,000 to $___,000,000, ___% of such
assets from $___,000,000 to $___,000,000 and ___% of such assets in excess of
$___,000,000. The total fees paid by the Fund during the first and second halves
of each fiscal year of the Trust may not exceed the semiannual total of the
daily fee accruals requested by the Manager during the applicable six month
period.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the performance of their
duties. The Manager bears promotional expenses in connection with the
distribution of the Fund's shares to the extent that such expenses are not
assumed by the Fund under its plan of distribution (see below). The compensation
and expenses of any officer, Trustee or employee
- 34 -
<PAGE>
of the Trust who is an officer, director, employee or stockholder of the Manager
are paid by the Manager.
By its terms, the Fund's management agreement will remain in force
until February 28, 1999 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of 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 management 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 Manager. The management agreement automatically terminates
in the event of its assignment, as defined by the Investment Company Act of 1940
and the rules thereunder.
The Manager is also the principal underwriter of the Fund and, as such,
the exclusive agent for distribution of shares of the Fund. The Manager 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 Manager currently allows concessions to dealers who sell shares of
the Fund. The Manager receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Fund. The Manager retains the
entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
The Fund may compensate dealers, including the Manager and its
affiliates, based on the average balance of all accounts in the Fund for which
the dealer is designated as the party responsible for the account. See
"Distribution Plan" below.
INVESTMENT ADVISER
- ------------------
Bankers Trust Company, (the "Adviser") has been retained by the Manager to
serve as the discretionary portfolio adviser of the Fund. The Adviser 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 Manager. The Adviser receives a fee equal to the annual rate of .50% of the
Fund's average daily net assets. The services provided by the Adviser are paid
for wholly by the Manager. The compensation of any officer, director or employee
of the Adviser who is rendering services to the Fund is paid by the Adviser.
- 35 -
<PAGE>
The employment of the Adviser will remain in force until February 28, 1999
and from year to year thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of 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 Adviser 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 Manager, or by
the Adviser. The agreement with the Adviser automatically terminates in the
event of its assignment, as defined by the Investment Company Act of 1940 and
the rules thereunder.
DISTRIBUTION PLAN
- -----------------
As stated in the Prospectus, the Fund has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940 which permits the Fund to pay for expenses incurred in the
distribution and promotion of the Fund's shares, including but not limited to,
the printing of prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing and sales expenses, and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Manager. The Plan expressly limits payment of the
distribution expenses listed above in any fiscal year to a maximum of .25% of
the Fund's average daily net assets. Unreimbursed expenses will not be carried
over from year to year.
Agreements implementing the Plan (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Fund's shares, are in writing and have been approved
by the Board of Trustees. All payments made pursuant to the Plan are made in
accordance with written agreements.
The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated at any
time by a vote of a majority of the Independent Trustees or by a vote of the
holders of a majority of the outstanding shares of the Fund. In the event the
Plan is terminated in accordance with its terms, the Fund will not be required
to make any payments for expenses incurred by the Manager after the termination
date. Each Implementation
- 36 -
<PAGE>
Agreement terminates automatically in the event of its assignment and may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of the Fund on not
more than 60 days' written notice to any other party to the Implementation
Agreement. The Plan may not be amended to increase materially the amount to be
spent for distribution without shareholder approval. All material amendments to
the Plan must be approved by a vote of the Trust's Board of Trustees and by a
vote of the Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Fund pursuant to
the Plan and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. The selection and nomination
of those Trustees who are not interested persons of the Trust are committed to
the discretion of the Independent Trustees during such period.
Angelo R. Mozilo and Robert H. Leshner, as interested persons of the
Trust, may be deemed to have a financial interest in the operation of the Plan
and the Implementation Agreements.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund are made by the
Adviser. The placing of the Fund's securities transactions and negotiation of
commission rates where applicable are made by the Adviser and are subject to
review by the Board of Trustees of the Trust. In the purchase and sale of
portfolio securities, the Adviser seeks best execution for the Fund, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), the execution capability, financial responsibility and
responsiveness of the broker or dealer and the brokerage and research services
provided by the broker or dealer. The Adviser generally seeks favorable prices
and commission rates that are reasonable in relation to the benefits received.
- 37 -
<PAGE>
Generally, the Fund attempts to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer.
The Adviser is specifically authorized to select brokers who also
provide brokerage and research services to the Fund and/or other accounts over
which the Adviser exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Adviser determines in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided. The determination
may be viewed in terms of a particular transaction or the Adviser's overall
responsibilities with respect to the Fund and to accounts over which it
exercises investment discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effect securities transactions may be
used by the Adviser in servicing all of its accounts and not all such services
may be used by the Adviser in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Manager, the Adviser and
other affiliates of the Trust, the Adviser or the Manager may effect securities
transactions which are executed on a national securities exchange or
transactions in the over-the-counter market conducted on an agency basis. The
Fund will not effect any brokerage transactions in its portfolio securities with
the Adviser if such transactions would be unfair or unreasonable to its
shareholders. Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers. Although the Fund does not
anticipate any ongoing arrangements with other brokerage firms, brokerage
business may be transacted from time to time with other firms. Neither the
Adviser nor affiliates of the Trust, the Manager or the Adviser will receive
reciprocal brokerage business as a result of the brokerage business transacted
by the Fund with other brokers.
CODE OF ETHICS. The Trust and the Manager have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act of
- 38 -
<PAGE>
1940. The Code significantly restricts the personal investing activities of all
employees of the Manager and, as described below, imposes additional, more
onerous, restrictions on investment personnel of the Manager. The Code requires
that all employees of the Manager 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 Manager include a ban on acquiring any
securities in an initial public offering and a prohibition from profiting on
short-term trading in securities. Furthermore, the Code provides for trading
"blackout periods" which prohibit trading by investment personnel of the Manager
within periods of trading by the Fund in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
Because the Fund is actively managed by the Adviser in light of the
Adviser's investment outlook for common stocks, there may be a very substantial
turnover of the Fund's portfolio. The Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund. A 100% turnover rate would
occur if all of the Fund's portfolio securities were replaced once within a one
year period.
If warranted by market conditions, the Fund may engage in short-term
trading if the Adviser believes the transactions, net of costs, will result in
improving the income or the appreciation potential of the Fund's portfolio.
Because of the possibility of short-term trading, there may be a very
substantial turnover of the Fund's portfolio.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
The share price (net asset value) and the public offering price (net
asset value plus applicable sales load) of the shares of the Fund are determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence
- 39 -
<PAGE>
Day, Labor Day, Thanksgiving and Christmas. The Trust may also be open for
business on other days in which there is sufficient trading in the Fund's
portfolio securities that its net asset value might be materially affected. For
a description of the methods used to determine the share price and the public
offering price, see "Calculation of Share Price and Public Offering Price" in
the Prospectus.
The value of non-dollar denominated portfolio instruments held by the
Fund will be determined by converting all assets and liabilities initially
expressed in foreign currency values into U.S. dollar values at the mean between
the bid and offered quotations of such currencies against U.S. dollars as last
quoted by any recognized dealer. If such quotations are not available, the rate
of exchange will be determined in accordance with policies established in good
faith by the Board of Trustees. Gains or losses between trade and settlement
dates resulting from changes in exchange rates between the U.S. dollar and a
foreign currency are borne by the Fund. To protect against such losses, the Fund
may enter into forward foreign currency exchange contracts, which will also have
the effect of limiting any such gains.
OTHER PURCHASE INFORMATION
- --------------------------
The Prospectus describes generally how to purchase shares of the Fund.
Additional information with respect to certain types of purchases of shares of
the Fund is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
shares of the Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing shares of the load funds distributed by
the Manager with the amount of his current purchases in order to take advantage
of the reduced sales loads set forth in the tables in the Prospectus. The
purchaser or his dealer must notify the Transfer Agent that an investment
qualifies for a reduced sales load. The reduced load will be granted upon
confirmation of the purchaser's holdings by the Transfer Agent.
LETTER OF INTENT. The reduced sales loads set forth in the tables in
the Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of the Fund who submits a Letter of Intent to the Transfer
Agent The Letter must state an intention to invest within a thirteen month
period in any load fund distributed by the Manager 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
- 40 -
<PAGE>
to the level of investment covered by such Letter of Intent as if the entire
amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Trust to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases
at the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. The Trust does not impose a front-end sales load or
imposes a reduced sales load in connection with purchases of shares of the Fund
made under the reinvestment privilege or the purchases described in the "Reduced
Sales Load," "Purchases at Net Asset Value" or "Exchange Privilege" sections in
the Prospectus because such purchases require minimal sales effort by the
Manager. Purchases described in the "Purchases at Net Asset Value" section may
be made for investment only, and the shares may not be resold except through
redemption by or on behalf of the Trust.
TAXES
- -----
The Prospectus describes generally the tax treatment of distributions
by the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund intends to qualify annually for the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. To so qualify the Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currency, or certain other
income
- 41 -
<PAGE>
(including but not limited to gains from options, futures and forward contracts)
derived with respect to its business of investing in stock, securities or
currencies; and (ii) diversify its holdings so that at the end of each quarter
of its taxable year the following two conditions are met: (a) at least 50% of
the value of the Fund's total assets is represented by cash, U.S. Government
securities, securities of other regulated investment companies and other
securities (for this purpose such other securities will qualify only if the
Fund's investment is limited in respect to any issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer) and (b) not more than 25% of the value of the Fund's assets is
invested in securities of any one issuer (other than U.S. Government securities
or securities of other regulated investment companies).
The Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
Investments by the Fund in certain options, futures contracts and options
on futures contracts are "section 1256 contracts." Any gains or losses on
section 1256 contracts are generally considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Section 1256 contracts held by the Fund at
the end of each taxable year are treated for federal income tax purposes as
being sold on such date for their fair market value. The resultant paper gains
or losses are also treated as 60/40 gains or losses. When the section 1256
contract is subsequently disposed of, the actual gain or loss will be adjusted
by the amount of any preceding year-end gain or loss. The use of section 1256
contracts may force the Fund to distribute to shareholders paper gains that have
not yet been realized in order to avoid federal income tax liability.
Foreign currency gains or losses on non-U.S. dollar denominated
securities and on any non-U.S. dollar denominated futures contracts, options and
forward contracts that are not section 1256 contracts generally will be treated
as ordinary income or loss.
Certain hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred,
rather than being taken into account in calculating taxable income for the
taxable year in which such losses are realized. Because only
- 42 -
<PAGE>
a few regulations implementing the straddle rules have been promulgated, the tax
consequences of hedging transactions to the Fund are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by the Fund which is taxed as ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Internal
Revenue Code of 1986, as amended, which are applicable to straddles. If the Fund
makes any of the elections, the amount, character and timing of the recognition
of gains or losses from the affected straddle positions will be determined under
rules that vary according to the elections made. The rules applicable under
certain of the elections operate to accelerate the recognition of gains or
losses from the affected straddle positions. Because application of the straddle
rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to shareholders, and which will
be taxed to shareholders as ordinary income or long-term capital gain in any
year, may be increased or decreased substantially as compared to a fund that did
not engage in such hedging transactions.
The Fund may be subject to a tax on income received from securities of
a non-U.S. issuer withheld by a foreign country at the source. The United States
has entered into tax treaties with many foreign countries which entitle the Fund
to a reduced rate of tax or exemption from tax on such income. It is impossible
to determine the effective rate of foreign tax in advance since the amount of
the Fund's assets to be invested within various countries is not known.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If
- 43 -
<PAGE>
any such redemption in kind is to be made, the Fund intends to make an election
pursuant to Rule 18f-1 under the Investment Company Act of 1940. This election
will require the Fund to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90 day period for
any one shareholder. Should payment be made in securities, the redeeming
shareholder will generally incur brokerage costs in converting such securities
to cash. Portfolio securities which are issued in an in-kind redemption will be
readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions 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 "nonstandardized
quotation") which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable sales load which, if included, would reduce total
return. A nonstandardized quotation may also indicate average annual compounded
rates of return without including the effect of the applicable sales load or
over periods other than those specified for average annual total return. A
nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
- 44 -
<PAGE>
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:
Yield = 2[(a-b/cd +1)6 -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
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 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.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and
average current yield for the mutual fund industry and rank individual mutual
fund performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. In addition, the Fund may also use
comparative
- 45 -
<PAGE>
performance information of relevant indices, including the following:
S&P 500 Index is an unmanaged index of 500 stocks, the purpose of which
is to portray the pattern of common stock price movement.
The Europe, Australia and Far East Index (the "EAFE Index") is
generally considered to be representative of the performance of unmanaged common
stocks that are publicly traded in the securities markets located outside the
United States.
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 their
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
CUSTODIAN
- ---------
Bankers Trust Company, 280 Park Avenue, New York, New York 10017, has
been retained to act as Custodian for the Fund's investments. Bankers Trust
Company acts as the Fund's depository, safekeeps its portfolio securities,
collects all income and other payments with respect thereto, disburses funds as
instructed and maintains records in connection with its duties.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent
auditors for the Trust for the fiscal year ending March 31, 1998. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Trust as to certain accounting
matters.
TRANSFER AGENT
- --------------
The Trust's transfer agent, Countrywide Fund Services, Inc. ("CFS"),
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. CFS is an affiliate of the Adviser by
reason of common ownership. CFS receives for its services as transfer agent a
fee payable monthly at an annual rate of $17 per account, provided, however,
that the minimum fee is $1,000 per month. In addition, the Fund pays
out-of-pocket
- 46 -
<PAGE>
expenses, including but not limited to, postage, envelopes, checks, drafts,
forms, reports, record storage and communication lines.
CFS also provides accounting and pricing services to the Fund. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable CFS to perform its duties, the Fund pays CFS
a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $2,500
50,000,000 - 100,000,000 3,000
100,000,000 - 150,000,000 3,500
150,000,000 - 200,000,000 4,000
200,000,000 - 250,000,000 4,500
Over 250,000,000 5,500
In addition, the Fund pays all costs of external pricing services.
CFS is retained by the Manager to assist the Manager in providing
administrative services to the Fund. In this capacity, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. CFS supervises
the preparation of tax returns, reports to shareholders of the Fund, reports to
and filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For the
performance of these administrative services, CFS receives a fee from the
Manager. The Manager is solely responsible for the payment of these
administrative fees to CFS, and CFS has agreed to seek payment of such fees
solely from the Manager.
- 47 -
<PAGE>
PART C. OTHER INFORMATION
- ------ -----------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) (i) Financial Statements included in Part A:
None
(ii) Financial Statements included in Part B:
None
(b) Exhibits:
(1)(i) Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 25, is hereby incorporated by
reference.
(ii) Amendment No. 1, dated May 24, 1994, to
Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 29, is hereby incorporated by
reference.
(iii) Amendment No. 2, 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. 32, is hereby incorporated by
reference.
(iv) Amendment No. 3, dated August 11, 1997, to
Registrant's Restated Agreement and
Declaration of Trust is filed herewith.
(2) (i) Registrant's Bylaws, which were filed as an
Exhibit to Registrant's Pre-Effective
Amendment No. 1, are hereby incorporated by
reference.
(ii) Amendments to Registrant's Bylaws adopted
July 17, 1984, which were filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 4, are hereby incorporated by
reference.
(iii) Amendment to Registrant's Bylaws adopted
April 5, 1989, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 14, is hereby incorporated by
reference.
(3) Voting Trust Agreements - None.
(4) Specimen Share Certificate - None.
<PAGE>
(5)(i) Registrant's Management Agreement with
Countrywide Investments, Inc. for the
Government Mortgage Fund, which was filed
as an Exhibit to Registrant's Post-
Effective Amendment No. 32, is hereby
incorporated by reference.
(ii) Registrant's Management Agreement with
Countrywide Investments, Inc. for the
Utility Fund, which was filed as an Exhibit
to Registrant's Post-Effective Amendment No.
32, is hereby incorporated by reference.
(iii) Registrant's Management Agreement with
Countrywide Investments, Inc. for the
Equity Fund, which was filed as an Exhibit
to Registrant's Post-Effective Amendment
No. 32, is hereby incorporated by
reference.
(iv) Registrant's Management Agreement with
Countrywide Investments, Inc. for the
Growth/Value Fund is filed herewith.
(v) Registrant's Management Agreement with
Countrywide Investments, Inc. for the
Aggressive Growth Fund is filed herewith.
(vi) Form of Registrant's Management Agreement
with Countrywide Investments, Inc. for the
International Equity Fund is filed
herewith.
(vii) Subadvisory Agreement between Countrywide
Investments, Inc. and Mastrapasqua &
Associates, Inc. for the Growth/Value Fund
is filed herewith.
(viii) Subadvisory Agreement between Countrywide
Investments, Inc. and Mastrapasqua &
Associates, Inc. for the Aggressive Growth
Fund is filed herewith.
(ix) Form of Subadvisory Agreement between
Countrywide Investments, Inc. and Bankers
Trust Company for the International Equity
Fund is filed herewith.
(6)(i) Registrant's Underwriting Agreement with
Countrywide Investments, Inc., which was
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 32, is hereby
incorporated by reference.
(ii) Form of Underwriter's Dealer Agreement is
filed herewith.
<PAGE>
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or
Officers - None.
(8) Custody Agreement with The Fifth Third Bank,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
31, is hereby incorporated by reference.
(9)(i) Registrant's Accounting and Pricing Services
Agreement with Countrywide Fund Services,
Inc. is filed herewith.
(ii) Registrant's Transfer, Dividend Disbursing,
Shareholder Service and Plan Agency
Agreement with Countrywide Fund Services,
Inc. is filed herewith.
(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. 32, is hereby incorporated
by reference.
(iv) License Agreement with Countrywide Credit
Industries, Inc., which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 32, is hereby incorporated by
reference.
(10) Opinion and Consent of Counsel, which was
filed as an Exhibit to Registrant's Pre-
Effective Amendment No. 1, is hereby
incorporated by reference.
(11) Consent of Independent Auditors is filed
herewith.
(12) Financial Statements Omitted from Item 23 -
None.
(13) Copy of Letter of Initial Stockholder, which
was filed as an Exhibit to Registrant's Pre-
Effective Amendment No. 1, is hereby
incorporated by reference.
(14)(i) Copy of Midwest Group Individual Retirement
Account Plan, including Schedule of Fees,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
22, is hereby incorporated by reference.
(ii) Copy of Midwest Group 403(b) Plan,
including Schedule of Fees, which was filed
as an Exhibit to Registrant's Post-Effective
<PAGE>
Amendment No. 22, is hereby incorporated by
reference.
(iii) Copy of the Midwest Group Prototype Defined
Contribution Plan, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 19, is hereby incorporated by
reference.
(15)(i) Registrant's Plans of Distribution Pursuant
to Rule 12b-1, which were filed as Exhibits
to Registrant's Post-Effective Amendment No.
32, are hereby incorporated by reference.
(ii) Form of Administration Agreement with respect
to the administration of shareholder accounts
is filed herewith.
(16) Computations of each performance quotation
provided in response to Item 22, which were
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 12, are hereby
incorporated by reference.
(17) (i) Financial Data Schedules for Government
Mortgage Fund, Utility Fund and Equity
Fund, which were filed as Exhibits to
Registrant's Post-Effective Amendment No.
33, are hereby incorporated by reference.
(ii) Financial Data Schedule for Growth/Value
Fund and Aggressive Growth Fund, which were
filed as Exhibits to Registrant's Post-
Effective Amendment No. 32, are hereby
incorporated by reference.
(18) Amended Rule 18f-3 Plan Adopted with Respect
to the Multiple Class Distribution System,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
33, is hereby incorporated by reference.
Item 25. Persons Controlled by or Under Common Control with the
Registrant
-------------------------------------------------------
None
<PAGE>
Item 26. Number of Holders of Securities (as of September 30,
1997)
- ------- -----------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
Government Mortgage Fund 699
Utility Fund
Class A Shares 1,681
Class C Shares 161
Equity Fund
Class A Shares 806
Class C Shares 126
Growth/Value Fund 158
Aggressive Growth Fund 172
International Equity Fund 0
Item 27. Indemnification
- ------- ---------------
(a) Article VI of the Registrant's Restated Agreement and
Declaration of Trust provides for indemnification of officers
and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers, etc.
----------- ------------------------------------------
The Trust shall indemnify each of its Trustees and officers,
including persons who serve at the Trust's request as
directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise (hereinafter 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
<PAGE>
the duties involved in the conduct of such Covered Person's
office ("disabling conduct"). Anything herein contained to the
contrary notwithstanding, no Covered Person shall be
indemnified for any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject unless
(1) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of disabling
conduct or, (2) in the absence of such a decision, a
reasonable determination is made, based upon a review of the
facts, that the Covered Person was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum
of Trustees who are neither "interested persons" of the
Company as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a written
opinion.
Section 6.5 Advances of Expenses.
----------- --------------------
The Trust shall advance attorneys' fees or other expenses
incurred by a Covered Person in defending a proceeding, upon
the undertaking by or on behalf of the Covered Person to repay
the advance unless it is ultimately determined that such
Covered Person is entitled to indemnification, so long as one
of the following conditions is met: (i) the Covered Person
shall provide security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of any
lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found
entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
----------- -----------------------------------
The right of indemnification provided by this Article VI shall
not be exclusive of or affect any other rights to which any
such Covered Person may be entitled. As used in this Article
VI, "Covered Person" shall include such person's heirs,
executors and administrators, an "interested Covered Person"
is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the
same 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
<PAGE>
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 standard mutual fund and investment
advisory professional and directors and officers liability
policy. The policy provides coverage to the Registrant, its
trustees and officers and Countrywide Investments, Inc.
(the "Adviser") in its capacity as investment adviser and
principal underwriter, among others. Coverage under the policy
includes losses by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
The Registrant may not pay for insurance which protects the
which protects the Trustees and officers against liabilities
rising from action involving willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved
in the conduct of their offices.
The Advisory Agreements and the Subadvisory Agreements provide
that the Adviser (or Subadvisor) shall not be liable for any
error of judgment or mistake of law or for any loss suffered
by the Registrant in connection with the matters to which the
Agreements relate, except a loss resulting from willful
misfeasance, bad faith or gross negligence of the Adviser (or
Subadvisor) in the performance of its duties or from the
reckless disregard by the Adviser (or Subadvisor) of its
obligations under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by the Adviser (or
Subadvisor) in defending a proceeding, upon the undertaking by
or on behalf of the Adviser (or Subadvisor) to repay the
advance unless it is ultimately determined that the Adviser is
entitled to indemnification.
The Underwriting Agreement with the 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
<PAGE>
such person to repay the advance if it is ultimately
determined that such person is not entitled to
indemnification.
Item 28. Business and Other Connections of the Investment
Advisers
------------------------------------------------
A. Countrywide Investments, Inc. (the "Adviser") is a
registered investment adviser providing investment
advisory services to the Registrant. The Adviser
acts as the investment adviser to seven series of
Countrywide Tax-Free Trust and seven series of
Countrywide Investment Trust, both of which are
registered investment companies. The Adviser
provides investment advisory services to individual
and institutional accounts and is a registered
broker-dealer.
The following list sets forth the business and other
connections of the directors and executive officers of the
Adviser. Unless otherwise noted with an asterisk(*), the
address of the corporations listed below is 312 Walnut
Street, Cincinnati, Ohio 45202.
*The address of each corporation is 4500 Park Granada
Road, Calabasas, California 91302.
(1) Angelo R. Mozilo - Chairman and a Director of the
Adviser.
(a) Chairman and a Trustee of Countrywide
Strategic Trust, Countrywide Investment Trust
and Countrywide Tax-Free Trust, registered
investment companies.
(b) Chairman and a Director of Countrywide
Financial Services, Inc., a financial
services company, Countrywide Fund Services,
Inc., a registered transfer agent,
Countrywide Servicing Exchange,* a loan
servicing broker and Countrywide Capital
Markets, Inc.,* a holding company.
(c) Vice Chairman, Director and Executive Vice
President of Countrywide Credit Industries,
Inc.,* a holding company which provides
residential mortgages and ancillary
financial products and services.
(d) A Director of Countrywide Home Loans, Inc.,*
a residential mortgage lender and CTC
Foreclosure Services Corporation,* a
foreclosure trustee.
(e) A Director of LandSafe, Inc.* and Chairman
and a director of various Landsafe
<PAGE>
subsidiaries which provide residential
mortgage title and closing services.
(f) Chairman and CEO of Countrywide Securities
Corporation,* a registered broker-dealer.
(g) Vice Chairman of CWM Mortgage Holdings,
Inc.,* a real estate investment trust.
(2) Robert H. Leshner - President and a Director of the
Adviser.
(a) President and a Trustee of Countrywide
Strategic Trust, Countrywide Investment Trust
and Countrywide Tax-Free Trust.
(b) President and a Director of Countrywide
Financial Services, Inc.
(c) Vice Chairman and a Director of Countrywide
Fund Services, Inc.
(3) Andrew S. Bielanski - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc. and
Countrywide Agency, Inc.,* an insurance
agency.
(b) Managing Director - Marketing of Countrywide
Credit Industries, Inc. and Countrywide Home
Loans, Inc.
(4) Thomas H. Boone - A Director of the Adviser.
(a) A Director of Countrywide Financial
Services, Inc., Countrywide Fund Services,
Inc., Countrywide Agency, Inc.,* Countrywide
Tax Services Corporation,* a residential
mortgage tax service provider and
Countrywide Lending Corporation,* a lending
institution.
(b) Managing Director - Chief Loan Administration
Officer of Countrywide Credit Industries,
Inc. and Countrywide Home Loans, Inc.
(c) A Director and Executive Vice President of
CWABS, Inc.,* an asset-backed securities
issuer and CWMBS, Inc.,* a mortgage-backed
securities issuer.
(d) CEO and a Director of CTC Foreclosure
Services Corporation.
<PAGE>
(5) Marshall M. Gates - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc. and
Countrywide Agency, Inc.
(b) Managing Director - Production of Countrywide
Credit Industries, Inc. and Countrywide Home
Loans, Inc.
(c) President and a Director of Second Charter
Reinsurance Corporation,* a mortgage,
property and casualty reinsurance agency and
Charter Reinsurance Corporation,* a mortgage
reinsurance agency.
(6) John J. Goetz - First Vice President and Chief
Investment Officer of the Adviser.
(a) Vice President of Countrywide Financial
Services, Inc. until February 1997.
(7) Maryellen Peretzky - First Vice President-
Administration, Human Resources and Operations of
the Adviser.
(a) First Vice President-Administration, Human
Resources and Operations of Countrywide
Financial Services, Inc. and Countrywide Fund
Services, Inc.
(b) Assistant Secretary of The Tuscarora
Investment Trust, The Gannett Welsh & Kotler
Funds and Interactive Investments.
(8) Sharon L. Karp - First Vice President-Marketing of
the Adviser.
(a) Vice President of Countrywide Financial
Services, Inc. until February 1997.
(9) John F. Splain - Secretary and General Counsel of the
Adviser.
(a) First Vice President, Secretary and General
Counsel of Countrywide Fund Services, Inc.
(b) Secretary and General Counsel of Countrywide
Financial Services, Inc.
<PAGE>
(c) Secretary of Countrywide Tax-Free Trust,
Countrywide Investment Trust, Countrywide
Strategic Trust, Brundage, Story and Rose
Investment Trust, Williamsburg Investment
Trust, Markman MultiFund Trust, The Tuscarora
Investment Trust, PRAGMA Investment Trust,
Maplewood Investment Trust, a series company,
and The Thermo Opportunity Fund, Inc.,
registered investment companies.
(d) Assistant Secretary of Schwartz Investment
Trust, The Gannett Welsh & Kotler Funds,
Interactive Investments, Dean Family of
Funds and The New York State Opportunity
Funds, registered investment companies.
(e) Assistant Secretary of Fremont Mutual Funds,
Inc. and Capitol Square Funds, registered
investment companies, until September 1997.
(f) Secretary of Leeb Personal Finance(TM)
Investment Trust, a registered investment
company, until November 1996.
(10) Robert G. Dorsey - Treasurer of the Adviser.
(a) President and Treasurer of Countrywide Fund
Services, Inc.
(b) First Vice President-Finance and Treasurer of
Countrywide Financial Services, Inc.
(c) Vice President of Countrywide Tax-Free Trust,
Countrywide Investment Trust, Countrywide
Strategic Trust, Brundage, Story and Rose
Investment Trust, Markman MultiFund Trust,
PRAGMA Investment Trust, Maplewood Investment
Trust, a series company, The Thermo
Opportunity Fund, Inc., Dean Family of Funds
and The New York State Opportunity Funds.
(d) Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust,
The Gannett Welsh & Kotler Funds, The
Tuscarora Investment Trust and Interactive
Investments.
(e) Vice President of Capitol Square Funds and
Assistant Vice President of Fremont Mutual
Funds, Inc. until September 1997.
(f) Vice President of Leeb Personal Finance(TM)
Investment Trust until November 1996.
<PAGE>
(11) Susan F. Flischel - First Vice President-
Investments of the Adviser
(12) Terrie A. Wiedenheft - Vice President and Controller
of the Adviser.
(a) First Vice President and Chief Financial
Officer of Countrywide Financial Services,
Inc.
(b) Vice President and Controller of Countrywide
Fund Services, Inc.
(13) Mark A. Weiss - Vice President of the Adviser.
(a) Attorney for Keating, Muething & Klekamp
until June 1997.
(14) Scott Weston - Assistant Vice President-
Investments of the Adviser.
B. Mastrapasqua & Associates, Inc. ("Mastrapasqua")
is a registered investment adviser providing
investment advisory services to institutions and
individuals as well as the Growth/Value Fund and
the Aggressive Growth Fund. The address of
Mastrapasqua and its officers and directors is 814
Church Street, Suite 600, Nashville, Tennessee.
The following are officers and directors of
Mastrapasqua:
(1) Frank Mastrapasqua - Chairman and Chief Executive
Officer
(a) Chairman of Management Plus Associates, Inc., a
sports agency.
(2) Thomas A. Trantum - President
C. Bankers Trust Company ("BTC") is a registered
investment adviser providing investment advisory
services to the International Equity Fund. BTC
conducts a variety of commercial banking and trust
activities and is a major wholesale supplier of
financial services to the international
institutional market. BTC also acts as investment
adviser to registered investment companies and
institutional accounts, with approximately $227
billion in assets under management globally. The
address of BTC and its executive officers and
directors is 130 Liberty Street, New York, New
York, unless otherwise indicated. The following
are executive officers and directors of BTC:
<PAGE>
(1) George B. Beitzel - Director
(a) Retired Senior Vice President and Director of
International Business Machines Corporation,
Old Orchard Road, Armonk, New York 10504
(b) Director of Computer Task Group, Phillips
Petroleum Company, Caliber Systems, Inc.
(formerly Roadway Services, Inc.), Rohm and
Haas Company and TIG Holdings
(c) Chairman Emeritus of Amherst College
(d) Chairman of the Colonial Williamsburg
Foundation
(2) Richard H. Daniel - Vice Chairman and Chief
Financial Officer
(a) Vice Chairman and Chief Financial Office of
Bankers Trust New York Corporation
(b) General Partner of Daniel Brothers, Daniel
Lingo & Associates, Daniel Pelt & Associates
(3) Philip A. Griffiths - Director
(a) Director of Institute for Advanced Study
(b) Chairman of Committees for the National
Academies of Sciences and Engineering,
the Institute of Medicine and the National
Science Board
(c) Trustee of the North Carolina School of
Science and Mathematics and The Woodward
Academy
(4) William R. Howell - Director
(a) Chairman Emeritus, J.C. Penney Company,
Inc., P.O. Box 10001, Plano, Texas 75301
(b) Director of Exxon Corporation, Halliburton
Company, Warner-Lambert Corporation, The
Williams Companies, Inc. and National Retail
Federation
(5) Vernon E. Jordan, Jr. - Director
(a) Senior Partner, Akin, Gump, Strauss, Hauer
& Feld, LLP, 1333 New Hampshire Ave., N.W.,
Washington, D.C. 20036
(b) Director of American Express Company, Dow-
Jones, Inc., J.C. Penney Company, Inc.,
Revlon Group Incorporated, Ryder System,
<PAGE>
Inc., Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation
(c) Trustee of Brookings Institution, The Ford
Foundation and Howard University
(6) David Marshall - Senior Managing Director
(a) Chief Information Officer and Executive
Vice President of Bankers Trust New York
Corporation
(7) Hamish Maxwell - Director
(a) Retired Chairman and Chief Executive
Officer of Philip Morris Companies, Inc.,
120 Park Avenue, New York, New York 10006
(b) Director of The News Corporation Limited
and Sola International Inc.
(c) Chairman of WWP Group pic.
(8) Frank N. Newman - Chairman of the Board, Chief
Executive Officer, President and Director
(a) Chairman of the Board, Chief Executive
Officer and President of Bankers Trust New
York Corporation
(b) Director of Dow-Jones, Inc. and Carnegie
Hall
(9) N.J. Nicholas Jr., 745 Fifth Avenue, New York,
New York 10020 - Director
(a) Director of Boston Scientific Corporation
and Xerox Corporation
(10) Russell E. Palmer- Director
(a) Chairman and Chief Executive Officer of The
Palmer Group, 3600 Market Street,
Philadelphia, Pennsylvania 19104
(b) Director of Allied-Signal Inc., Federal Home Loan Mortgage
Corporation, GTE Corporation, The May Department Stores
Company and Safeguard Scientifics, Inc.
(c) Trustee of University of Pennsylvania
(11) Donald L. Staheli - Director
(a) Chairman of the Board and Chief Executive
Officer of Continental Grain Company
<PAGE>
(b) Director of ContiFinancial Corporation, Prudential Life
Insurance Company of America, Fresenius Medical Care, A.G.,
America-China Society, National Committee on U.S.-China
Relations, New York City Partnership
(c) Chairman, U.S.-China Business Council,
Council on Foreign Relations and
National Advisor Council of Brigham Young
University's Marriott School of Management
(d) Vice Chairman of The Points of Light
Foundation
(e) Trustee, The American Graduate School of
International Management
(12) Patricia Carry Stewart - Director
(a) Director of CVS Corporation and Community
Foundation for Palm Beach and Martin
Counties
(b) Trustee Emerita, Cornell University
(13) George J. Vojta - Vice Chairman and Director
(a) Vice Chairman of Bankers Trust New York
Corporation
(b) Director of Alicorp S.A., Northwest
Airlines, Private Export Funding Corp., New
York State Banking Board and St. Lukes-
Roosevelt Hospital Center
(c) Partner of New York City Partnership
(d) Chairman of Wharton Financial Services
Center
(14) Paul A. Volcker - Director
(a) Director of the American Stock Exchange,
Nestle, S.A., Prudential Insurance Company,
UAL Corporation, American Council on
Germany, Aspen Institute, Council on Foreign
Relations and The Japan Society
(b) Chairman of Group of 30; North American
Chairman and Trilateral Commission
(c) Co-Chairman of U.S./Hong Kong Economic
Cooperation Committee and Bretton Woods
Committee
(d) Trustee of The American Assembly
<PAGE>
(15) Melvin A. Yellin - Senior Managing Director and
General Counsel
(a) Senior Managing Director and General Counsel
of Bankers Trust New York Corporation
(b) Director of 1136 Tenants Corporation and ABA Securities
Association
Item 29 Principal Underwriters
- ------- ----------------------
(a) Countrywide Investments, Inc. also acts as
underwriter for Countrywide Tax-Free Trust,
Countrywide Investment Trust, The Milestone Funds,
Brundage, Story and Rose Investment Trust and
Profit Funds Investment Trust. Unless otherwise
noted with an asterisk(*), the address of the
persons named below is 312 Walnut Street,
Cincinnati, Ohio 45202.
*The address is 4500 Park Granada Road, Calabasas,
California 91302.
POSITION POSITION
WITH WITH
(b) NAME UNDERWRITER REGISTRANT
* Angelo R. Mozilo Chairman and Chairman/
Director Trustee
Robert H. Leshner President President/
and Director Trustee
* Andrew S. Bielanski Director None
* Thomas H. Boone Director None
* Marshall M. Gates Director None
John J. Goetz First Vice None
President and
Chief
Investment
Officer
Maryellen Peretzky First Vice None
President-
Administration,
Human Resources
and Operations
Sharon L. Karp First Vice None
President-
Marketing
John F. Splain Secretary and Secretary
General Counsel
<PAGE>
Robert G. Dorsey Treasurer Vice
President- President
Investments
Susan F. Flischel First Vice None
President
Terrie A. Wiedenheft Vice President None
& Controller
Mark A. Weiss Vice President None
Scott Weston Assistant Vice None
President-
Investments
(c) None
Item 30. Location of Accounts and Records
- ------- --------------------------------
Accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder will
be maintained by the Registrant.
Item 31. Management Services Not Discussed in Part A or Part B
- ------- -----------------------------------------------------
None.
Item 32. Undertakings
- ------- ------------
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective
amendment, using financial statements for the
International Equity Fund which need not be
certified, within four to six months from the
effective date of this registration statement.
(c) Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of its latest
annual report to shareholders, upon request and
without charge.
(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of 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
<PAGE>
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.
(e) 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 of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cincinnati, State of Ohio, on the 17th day of October, 1997.
COUNTRYWIDE STRATEGIC TRUST
/s/ John F. Splain
By:---------------------------
John F. Splain,
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the 17th day of October, 1997.
*ANGELO R. MOZILO Chairman
and Trustee
/s/ Robert H. Leshner
- --------------------- President
ROBERT H. LESHNER and Trustee
/s/ Mark J. Seger
- --------------------- Treasurer
MARK J. SEGER
*DONALD L. BOGDON, M.D. Trustee
*JOHN R. DELFINO Trustee
*H. JEROME LERNER Trustee
*OSCAR P. ROBERTSON Trustee
*JOHN F. SEYMOUR, JR. Trustee
*SEBASTIANO STERPA Trustee
By: /s/ John F. Splain
------------------
JOHN F. SPLAIN
Attorney-in-Fact*
October 17, 1997
EXHIBIT INDEX
1. Amendment No. 3 to Restated Agreement and Declaration of
Trust
2. Management Agreement with Countrywide Investments, Inc. for
the Growth/Value Fund
3. Management Agreement with Countrywide Investments, Inc. for
the Aggressive Growth Fund
4. Form of Management Agreement with Countrywide Investments,
Inc. for the International Equity Fund
5. Subadvisory Agreement with Mastrapasqua & Associates, Inc.
for the Growth/Value Fund
6. Subadvisory Agreement with Mastrapasqua & Associates, Inc.
for the Aggressive Growth Fund
7. Form of Subadvisory Agreement with Bankers Trust Company for
the International Equity Fund
8. Form of Underwriter's Dealer Agreement
9. Accounting and Pricing Services Agreement with Countrywide Fund
Services, Inc.
10. Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement with Countrywide Fund Services, Inc.
11. Consent of Independent Auditors
12. Form of Administration Agreement with Respect to the
Administration of Shareholder Accounts
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
Amendment No. 3 to Restated Agreement and Declaration of Trust
The undersigned hereby certifies that he is the duly elected Secretary
of Countrywide Strategic Trust and that pursuant to Section 7.3 of the Restated
Agreement and Declaration of Trust dated May 19, 1993 the Trustees, by means of
an instrument in writing signed as of July 16, 1997 by a majority of such
Trustees, adopted the following resolutions:
RESOLVED, that the name of the U.S. Government Securities
Fund, a series of Countrywide Strategic Trust, be
changed to the "Government Mortgage Fund"; and
FURTHER RESOLVED, that the Trust's Restated Agreement and
Declaration of Trust and other Trust documents and records, as
necessary or appropriate, be amended to reflect the name
change of such series; and
FURTHER RESOLVED, that the officers of the Trust be, and they
hereby are, authorized to take such further actions as
necessary to effect the purpose of these resolutions.
The undersigned certifies that the actions to effect the foregoing
Amendment were duly taken in the manner provided by the Restated Agreement and
Declaration of Trust, that said Amendment is to be effective August 1, 1997 and
that he is causing this Certificate to be signed and filed as provided in
Section 7.4 of this Agreement.
Witness my hand this 11th day of August, 1997.
/s/ John F. Splain
-----------------------------
John F. Splain, Secretary
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made this 29th day of August, 1997,
between Countrywide Strategic Trust (the "Trust"), a business trust organized
under the laws of the Commonwealth of Massachusetts, and Countrywide
Investments, Inc. (the "Manager"), a corporation organized under the laws of the
State of Ohio.
WHEREAS, the Trust has been organized to operate as an investment
company registered under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series and each such share of a series represents an undivided interest
in the assets, subject to the liabilities, located to that series, and each
series has separate investment objectives and policies; and
WHEREAS, the Growth/Value Fund (the "Fund"), a series of the Trust,
has been created for the purpose of investing and reinvesting its assets in
securities pursuant to the investment objectives and policies as set forth in
its registration statement under the Act and the Securities Act of 1933
("Registration Statement"), as heretofore amended and supplemented; and the
Trust desires to avail itself of the services, information, advice, assistance
and facilities of a manager and to have a manager provide or perform for it
various management, statistical, portfolio adviser selection and other services
for the Fund; and
<PAGE>
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended;
NOW, THEREFORE, the Trust and Manager agree as follows:
1. Employment of the Manager. The Trust hereby employs
the Manager to manage the investment and reinvestment of the assets of the Fund
in the manner set forth in subparagraph 2B of this Agreement, subject to the
direction of the Board of Trustees and the officers of the Trust, for the
period, in the manner, and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth. The Manager shall for
all purposes herein be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. Obligation of and Services to be Provided by the Manager. The
Manager undertakes to provide the services hereinafter set forth and to assume
the following obligations:
A. Corporate Management and Administrative Services. The Manager
shall furnish to the Fund, or retain another party or parties
to furnish, the following described services to the Fund: (i)
office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time
to time, and (ii) office furnishings, facilities and
- 2 -
<PAGE>
equipment as may be reasonably required for managing and
administering the operations and conducting the business of
the Fund, including complying with the securities, tax and
other reporting requirements of the United States and the
various states in which the Fund does business, conducting
correspondence and other communications with the shareholders
of the Fund, and maintaining or supervising the maintenance of
all records in connection with the investment and business
activities of the Fund.
B. Investment Management Services.
(a) The Manager shall have overall supervisory
responsibility for the general management and
investment of the assets and portfolio securities of
the Fund subject to and in accordance with the
investment objectives and policies of the Fund, and
any directions which the Trust's Board of Trustees
may issue to the Manager from time to time.
(b) The Manager shall provide overall investment programs
and strategies for the Fund, shall revise such
programs as necessary and shall monitor and report
periodically to the Board of Trustees concerning the
implementation of the programs.
(c) The Manager, with the approval of the Board of
Trustees of the Trust as to particular
- 3 -
<PAGE>
appointments, intends to (i) appoint one or more
persons or companies (the "Adviser") and, subject to
the terms and conditions of this Agreement, the
Adviser shall have full investment discretion and
shall make all determinations with respect to the
investment of the Fund's assets and the purchase and
sale of portfolio securities with those assets, and
(ii) take such steps as may be necessary to implement
such appointments. The Manager shall be solely
responsible for paying the fees and expenses of the
Adviser for its services to the Fund. The Manager
shall not be responsible or liable for the investment
merits of any decision by the Adviser to purchase,
hold or sell a portfolio security for the Fund.
(d) The Manager shall evaluate advisers and shall
recommend to the Board of Trustees the Adviser
which the Manager believes is best suited to
invest the assets of the Fund; shall monitor and
evaluate the investment performance of the
Adviser; shall recommend changes in the Adviser
when appropriate; shall coordinate the investment
activities of the Adviser to ensure compliance
with applicable restrictions and limitations
applicable to the Fund; and shall compensate the
Adviser.
- 4 -
<PAGE>
(e) The Manager shall render regular reports to the
Trust, at regular meetings of the Board of Trustees,
of, among other things, the portfolio investments of
the Fund and measurement and analysis of the results
achieved by the Fund.
(f) The Manager shall employ or provide and compensate
the executive, administrative, secretarial and
clerical personnel necessary to provide the
services set forth in this subparagraph 2B, and
shall bear the expense thereof, except as may
otherwise be provided in Section 4 of this
Agreement. The Manager shall also compensate all
officers and employees of the Trust who are
officers or employees of the Manager.
(g) The Manager shall pay all advertising and promotion
expenses incurred in connection with the sale or
distribution of the Fund's shares to the extent such
expenses are not assumed by the Fund under its Plan
of Distribution.
C. Provision of Information Necessary for Preparation of
Securities Registration Statement, Amendments and Other
Materials.
The Manager will make available and provide financial,
accounting and statistical information required by the Trust
in the preparation of the Registration Statement, reports and
other documents required by federal and
- 5 -
<PAGE>
state securities laws, and such information as the Trust may
reasonably request for use in the preparation of the
Registration Statement, reports and other documents required
by federal and state securities laws.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of Trustees
and officers of the Trust for consultation and discussions
regarding the administration and management of the Fund and
its investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The
Adviser, subject to the supervision of the Manager and the limitations contained
in this paragraph 3, shall place, on behalf of the Fund, orders for the
execution of portfolio transactions. The Adviser is not authorized by the Fund
to take any action, including the purchase or sale of securities for the Fund's
account, (a) in contravention of (i) any investment restrictions set forth in
the Act and the rules thereunder, (ii) specific instructions adopted by the
Board of Trustees and communicated to the Adviser, (iii) the investment
objectives, policies and restrictions of the Fund as set forth in the
Registration Statement, or (iv) instructions from the Manager communicated to
the Adviser, or (b) which would have the effect of causing the Fund to fail to
qualify or to cease to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended, or any succeeding statute.
- 6 -
<PAGE>
Subject to the foregoing, the Adviser shall determine the securities to
be purchased or sold by the Fund and will place orders pursuant to the
determination of the Manager with or through such persons, brokers or dealers in
conformity with the policy with respect to brokerage as set forth in the
Registration Statement or as the Board of Trustees may direct from time to time.
It is recognized that, in providing the Fund with investment supervision of the
placing of orders for portfolio transactions, the Manager will give primary
consideration to securing the best qualitative execution, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. Consistent with this policy, the Manager may select brokers or
dealers who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the other
accounts over which it exercises investment discretion. It is understood that
neither the Trust nor the Manager have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Manager and/or the Adviser have access to
supplemental investment and market research and security and economic analyses
provided by certain brokers who may execute brokerage transactions at a higher
commission to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the lowest
- 7 -
<PAGE>
commission. Therefore, the Manager is authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers, subject
to review by the Trust's Board of Trustees from time to time with respect to the
extent and continuation of this practice, provided that the Manager determines
in good faith that the amount of the commission is reasonable in relation to the
value of the brokerage and research services provided by the executing broker or
dealer. The determination may be viewed in terms of either a particular
transaction or the Manager's overall responsibilities with respect to the Fund
and to other accounts over which it exercises investment discretion. It is
understood that although the information may be useful to the Trust, the Manager
and the Adviser, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution, the
Manager may give consideration to sales of shares of the Fund as a factor in the
selection of brokers and dealers to execute portfolio transactions of the Fund.
On occasions when the Manager deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Manager, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the
- 8 -
<PAGE>
securities so purchased or sold, as well as expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Trust with
respect to the Fund and to such other clients.
The Manager may delegate any of its responsibilities under this
paragraph 3 to the Adviser. Notwithstanding the delegation of any such
responsibilities, the Adviser will not execute any portfolio transactions for
the Fund's account with a broker or dealer which is an "affiliated person" (as
defined in the Act) of the Trust, the Manager or the Adviser without the prior
approval of the Manager. The Manager agrees that it will provide the Adviser
with a list of brokers and dealers which are "affiliated persons" of the Trust,
the Manager or the Adviser.
The Manager shall render regular reports to the Trust of the total
brokerage business placed by the Fund and the manner in which the allocation has
been accomplished.
4. Expenses of the Fund. It is understood that the Fund will pay, or
that the Fund will enter into arrangements that require third parties to pay,
all its expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:
A. Expenses of all audits by independent public
accountants;
B. Expenses of transfer agent, dividend disbursing agent,
accounting and pricing agent and shareholder recordkeeping
services;
- 9 -
<PAGE>
C. Expenses of custodial services including recordkeeping
services provided by the custodian;
D. Expenses of obtaining security valuation quotations for
calculating the value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers and employees, if any, who are not officers,
directors, stockholders or employees of the Manager or the
Adviser;
F. Taxes or governmental fees levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of the Fund's portfolio securities;
H. Costs, including the interest expenses, of borrowing
money;
I. Costs and/or fees incident to Board of Trustee and
shareholder meetings, the preparation and mailings of
prospectuses, reports and notices to the existing
shareholders of the Fund, the filing of reports with
regulatory bodies, the maintenance of the Trust's
existence as a business trust, membership in investment
company organizations, and the registration of shares
with federal and state securities authorities;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares
for sale and legal fees arising from litigation to which the
Trust may be a party and indemnification of the Trust's
officers and Trustees with respect thereto;
- 10 -
<PAGE>
K. Costs of printing share certificates (in the event such
certificates are issued) representing shares of the
Fund;
L. Trustees' fees and expenses of Trustees who are not directors,
officers, employees or stockholders of the Manager, the
Adviser or any of their affiliates; and
M. The Fund's pro rata portion of the fidelity bond required by
Section 17(g) of the Act and other insurance premiums.
5. Activities and Affiliates of the Manager.
A. The services of the Manager hereunder are not to be
deemed exclusive, and the Manager and any of its affiliates
shall be free to render similar services to others. The
Manager shall use the same skill and care in the management of
the Fund's assets as it uses in the administration of other
accounts to which it provides asset management, consulting and
portfolio manager selection services, but shall not be
obligated to give the Fund more favorable or preferential
treatment vis-a-vis its other clients.
B. Subject to and in accordance with the Declaration of Trust and
Bylaws of the Trust and to Section 10(a) of the Act, it is
understood that Trustees, officers and agents of the Trust and
shareholders of the Fund are or may be interested in the
Manager or its affiliates as directors, officers, agents or
stockholders of the
- 11 -
<PAGE>
Manager or its affiliates; that directors, officers, agents
and stockholders of the Manager or its affiliates are or may
be interested in the Trust as Trustees, officers, agents,
shareholders or otherwise; that the Manager or its affiliates
may be interested in the Trust as shareholders or otherwise;
and that the effect of any such interests shall be governed by
said Declaration of Trust, Bylaws and the Act.
6. Compensation of the Manager. For all services to be rendered and
payments made as provided in this Agreement, the Fund will pay the Manager a
daily fee equal to the annual rate of 1% of the value of the daily net assets of
the Fund up to and including $50,000,000, 90/100 of 1% of the next $50 million
of such assets, 80/100 of 1% of the next $100 million of such assets, and 75/100
of 1% of such assets in excess of $200,000,000. Manager's fee shall be payable
monthly and shall be due with respect to any month as of the first business day
following the end of such month.
The value of the daily net assets of the Fund shall be determined
pursuant to the applicable provisions of the Declaration of Trust and to
resolutions to the Board of Trustees of the Trust. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this paragraph 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of the close of business on that day,
- 12 -
<PAGE>
or as of such other time as the value of the Fund's net assets may lawfully be
determined on that day. If the determination of the net asset value of the
Fund's shares has been suspended for a period including such month, the
Manager's compensation payable for such month shall be computed on the basis of
the value of the net assets of the Fund as last determined (whether during or
prior to such month).
7. Liabilities of the Manager. The Manager (including its directors,
officers, shareholders, employees, control persons and affiliates of any
thereof) shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Manager in the performance of its duties
or from the reckless disregard by the Manager of its obligations and duties
under this Agreement ("disabling conduct"). However, the Manager will not be
indemnified for any liability unless (1) a final decision is made on the merits
by a court or other body before whom the proceeding was brought that the Manager
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 Manager 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 Trust as defined in the Act nor parties to the proceeding ("disinterested,
- 13 -
<PAGE>
non-party trustees"), or (b) an independent legal counsel in a written opinion.
The Fund will advance attorneys' fees or other expenses incurred by the Manager
in defending a proceeding, upon the undertaking by or on behalf of the Manager
to repay the advance unless it is ultimately determined that the Manager is
entitled to indemnification, so long as the Manager meets at least one of the
following as a condition to the advance: (1) the Manager shall provide a
security for its undertaking, (2) the Fund shall be insured against losses
arising by reason of any lawful advances, or (3) 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 Manager ultimately will be found entitled to indemnification.
Any person employed by the Manager who may also be or become an employee of the
Trust shall be deemed, when acting within the scope of his employment by the
Trust, to be acting in such employment solely for the Trust and not as the
Manager's employee or agent.
8. Renewal and Termination.
A. This Agreement shall become effective upon its execution,
shall remain in force until February 28, 1999 and from year to
year thereafter, but only so long as such continuance is
specifically approved at least annually by the vote of a
majority of the Trustees who are not interested persons of the
Trust, the Manager or
- 14 -
<PAGE>
the Adviser, cast in person at a meeting called for the
purpose of voting on such approval and by a vote of the Board
of Trustees or of a majority of the outstanding voting
securities. The aforesaid provision that this Agreement may be
continued "annually" shall be construed in a manner consistent
with the Act and the rules and regulations thereunder.
B. This Agreement:
(a) may at any time be terminated without the payment of
any penalty either by vote of the Board of Trustees
of the Trust or by vote of a majority of the
outstanding voting securities of the Fund, on sixty
(60) days' written notice to the Manager;
(b) shall immediately terminate in the event of its
assignment; and
(c) may be terminated by the Manager on sixty (60) days'
written notice to the Trust.
C. As used in this Section 8, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
D. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postpaid, to the other party
to this Agreement at its principal place of business.
- 15 -
<PAGE>
9. 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.
10. Limitation of Liability. It is expressly agreed that the
obligations of the Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Fund, as provided in the Declaration of
Trust of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and the shareholders of the Fund and
signed by the officers of the Trust, acting as such, and neither such
authorization by such Trustees and shareholders nor such execution and delivery
by such officers shall be deemed to have been made by any of them individually
or to impose any liability on any of them personally, but shall bind only the
trust property of the Fund as provided in the Trust's Declaration of Trust.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority
of the outstanding voting securities of the Fund and by the Board of Trustees,
including a majority of the Trustees who are not interested persons of the
Manager or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
- 16 -
<PAGE>
12. Governing Law. To the extent that state law has not been preempted
by the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
COUNTRYWIDE STRATEGIC TRUST
ATTEST: By: /s/ Robert H. Leshner
----------------------
/s/ John F. Splain Title: President
--------------
COUNTRYWIDE INVESTMENTS, INC.
ATTEST: By: /s/ Robert H. Leshner
---------------------
/s/ John F. Splain Title: President
---------------
- 17 -
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made this 29th day of August, 1997,
between Countrywide Strategic Trust (the "Trust"), a business trust organized
under the laws of the Commonwealth of Massachusetts, and Countrywide
Investments, Inc. (the "Manager"), a corporation organized under the laws of the
State of Ohio.
WHEREAS, the Trust has been organized to operate as an investment
company registered under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series and each such share of a series represents an undivided interest
in the assets, subject to the liabilities, located to that series, and each
series has separate investment objectives and policies; and
WHEREAS, the Aggressive Growth Fund (the "Fund"), a series of the
Trust, has been created for the purpose of investing and reinvesting its assets
in securities pursuant to the investment objectives and policies as set forth in
its registration statement under the Act and the Securities Act of 1933
("Registration Statement"), as heretofore amended and supplemented; and the
Trust desires to avail itself of the services, information, advice, assistance
and facilities of a manager and to have a manager provide or perform for it
various management, statistical, portfolio adviser selection and other services
for the Fund; and
<PAGE>
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended;
NOW, THEREFORE, the Trust and Manager agree as follows:
1. Employment of the Manager. The Trust hereby employs
the Manager to manage the investment and reinvestment of the assets of the Fund
in the manner set forth in subparagraph 2B of this Agreement, subject to the
direction of the Board of Trustees and the officers of the Trust, for the
period, in the manner, and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth. The Manager shall for
all purposes herein be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. Obligation of and Services to be Provided by the Manager. The
Manager undertakes to provide the services hereinafter set forth and to assume
the following obligations:
A. Corporate Management and Administrative Services. The Manager
shall furnish to the Fund, or retain another party or parties
to furnish, the following described services to the Fund: (i)
office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time
to time, and (ii) office furnishings, facilities and
- 2 -
<PAGE>
equipment as may be reasonably required for managing and
administering the operations and conducting the business of
the Fund, including complying with the securities, tax and
other reporting requirements of the United States and the
various states in which the Fund does business, conducting
correspondence and other communications with the shareholders
of the Fund, and maintaining or supervising the maintenance of
all records in connection with the investment and business
activities of the Fund.
B. Investment Management Services.
(a) The Manager shall have overall supervisory
responsibility for the general management and
investment of the assets and portfolio securities of
the Fund subject to and in accordance with the
investment objectives and policies of the Fund, and
any directions which the Trust's Board of Trustees
may issue to the Manager from time to time.
(b) The Manager shall provide overall investment programs
and strategies for the Fund, shall revise such
programs as necessary and shall monitor and report
periodically to the Board of Trustees concerning the
implementation of the programs.
(c) The Manager, with the approval of the Board of
Trustees of the Trust as to particular
- 3 -
<PAGE>
appointments, intends to (i) appoint one or more
persons or companies (the "Adviser") and, subject to
the terms and conditions of this Agreement, the
Adviser shall have full investment discretion and
shall make all determinations with respect to the
investment of the Fund's assets and the purchase and
sale of portfolio securities with those assets, and
(ii) take such steps as may be necessary to implement
such appointments. The Manager shall be solely
responsible for paying the fees and expenses of the
Adviser for its services to the Fund. The Manager
shall not be responsible or liable for the investment
merits of any decision by the Adviser to purchase,
hold or sell a portfolio security for the Fund.
(d) The Manager shall evaluate advisers and shall
recommend to the Board of Trustees the Adviser
which the Manager believes is best suited to
invest the assets of the Fund; shall monitor and
evaluate the investment performance of the
Adviser; shall recommend changes in the Adviser
when appropriate; shall coordinate the investment
activities of the Adviser to ensure compliance
with applicable restrictions and limitations
applicable to the Fund; and shall compensate the
Adviser.
- 4 -
<PAGE>
(e) The Manager shall render regular reports to the
Trust, at regular meetings of the Board of Trustees,
of, among other things, the portfolio investments of
the Fund and measurement and analysis of the results
achieved by the Fund.
(f) The Manager shall employ or provide and compensate
the executive, administrative, secretarial and
clerical personnel necessary to provide the
services set forth in this subparagraph 2B, and
shall bear the expense thereof, except as may
otherwise be provided in Section 4 of this
Agreement. The Manager shall also compensate all
officers and employees of the Trust who are
officers or employees of the Manager.
(g) The Manager shall pay all advertising and promotion
expenses incurred in connection with the sale or
distribution of the Fund's shares to the extent such
expenses are not assumed by the Fund under its Plan
of Distribution.
C. Provision of Information Necessary for Preparation of
Securities Registration Statement, Amendments and Other
Materials.
The Manager will make available and provide financial,
accounting and statistical information required by the Trust
in the preparation of the Registration Statement, reports and
other documents required by federal and
- 5 -
<PAGE>
state securities laws, and such information as the Trust may
reasonably request for use in the preparation of the
Registration Statement, reports and other documents required
by federal and state securities laws.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of Trustees
and officers of the Trust for consultation and discussions
regarding the administration and management of the Fund and
its investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The
Adviser, subject to the supervision of the Manager and the limitations contained
in this paragraph 3, shall place, on behalf of the Fund, orders for the
execution of portfolio transactions. The Adviser is not authorized by the Fund
to take any action, including the purchase or sale of securities for the Fund's
account, (a) in contravention of (i) any investment restrictions set forth in
the Act and the rules thereunder, (ii) specific instructions adopted by the
Board of Trustees and communicated to the Adviser, (iii) the investment
objectives, policies and restrictions of the Fund as set forth in the
Registration Statement, or (iv) instructions from the Manager communicated to
the Adviser, or (b) which would have the effect of causing the Fund to fail to
qualify or to cease to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended, or any succeeding statute.
- 6 -
<PAGE>
Subject to the foregoing, the Adviser shall determine the securities to
be purchased or sold by the Fund and will place orders pursuant to the
determination of the Manager with or through such persons, brokers or dealers in
conformity with the policy with respect to brokerage as set forth in the
Registration Statement or as the Board of Trustees may direct from time to time.
It is recognized that, in providing the Fund with investment supervision of the
placing of orders for portfolio transactions, the Manager will give primary
consideration to securing the best qualitative execution, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. Consistent with this policy, the Manager may select brokers or
dealers who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the other
accounts over which it exercises investment discretion. It is understood that
neither the Trust nor the Manager have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Manager and/or the Adviser have access to
supplemental investment and market research and security and economic analyses
provided by certain brokers who may execute brokerage transactions at a higher
commission to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the lowest
- 7 -
<PAGE>
commission. Therefore, the Manager is authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers, subject
to review by the Trust's Board of Trustees from time to time with respect to the
extent and continuation of this practice, provided that the Manager determines
in good faith that the amount of the commission is reasonable in relation to the
value of the brokerage and research services provided by the executing broker or
dealer. The determination may be viewed in terms of either a particular
transaction or the Manager's overall responsibilities with respect to the Fund
and to other accounts over which it exercises investment discretion. It is
understood that although the information may be useful to the Trust, the Manager
and the Adviser, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution, the
Manager may give consideration to sales of shares of the Fund as a factor in the
selection of brokers and dealers to execute portfolio transactions of the Fund.
On occasions when the Manager deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Manager, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the
- 8 -
<PAGE>
securities so purchased or sold, as well as expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Trust with
respect to the Fund and to such other clients.
The Manager may delegate any of its responsibilities under this
paragraph 3 to the Adviser. Notwithstanding the delegation of any such
responsibilities, the Adviser will not execute any portfolio transactions for
the Fund's account with a broker or dealer which is an "affiliated person" (as
defined in the Act) of the Trust, the Manager or the Adviser without the prior
approval of the Manager. The Manager agrees that it will provide the Adviser
with a list of brokers and dealers which are "affiliated persons" of the Trust,
the Manager or the Adviser.
The Manager shall render regular reports to the Trust of the total
brokerage business placed by the Fund and the manner in which the allocation has
been accomplished.
4. Expenses of the Fund. It is understood that the Fund will pay, or
that the Fund will enter into arrangements that require third parties to pay,
all its expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:
A. Expenses of all audits by independent public
accountants;
B. Expenses of transfer agent, dividend disbursing agent,
accounting and pricing agent and shareholder recordkeeping
services;
- 9 -
<PAGE>
C. Expenses of custodial services including recordkeeping
services provided by the custodian;
D. Expenses of obtaining security valuation quotations for
calculating the value of the Fund's net assets;
E. Salaries and other compensation of any of its executive
officers and employees, if any, who are not officers,
directors, stockholders or employees of the Manager or the
Adviser;
F. Taxes or governmental fees levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of the Fund's portfolio securities;
H. Costs, including the interest expenses, of borrowing
money;
I. Costs and/or fees incident to Board of Trustee and
shareholder meetings, the preparation and mailings of
prospectuses, reports and notices to the existing
shareholders of the Fund, the filing of reports with
regulatory bodies, the maintenance of the Trust's
existence as a business trust, membership in investment
company organizations, and the registration of shares
with federal and state securities authorities;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares
for sale and legal fees arising from litigation to which the
Trust may be a party and indemnification of the Trust's
officers and Trustees with respect thereto;
- 10 -
<PAGE>
K. Costs of printing share certificates (in the event such
certificates are issued) representing shares of the
Fund;
L. Trustees' fees and expenses of Trustees who are not directors,
officers, employees or stockholders of the Manager, the
Adviser or any of their affiliates; and
M. The Fund's pro rata portion of the fidelity bond required by
Section 17(g) of the Act and other insurance premiums.
5. Activities and Affiliates of the Manager.
A. The services of the Manager hereunder are not to be
deemed exclusive, and the Manager and any of its affiliates
shall be free to render similar services to others. The
Manager shall use the same skill and care in the management of
the Fund's assets as it uses in the administration of other
accounts to which it provides asset management, consulting and
portfolio manager selection services, but shall not be
obligated to give the Fund more favorable or preferential
treatment vis-a-vis its other clients.
B. Subject to and in accordance with the Declaration of Trust and
Bylaws of the Trust and to Section 10(a) of the Act, it is
understood that Trustees, officers and agents of the Trust and
shareholders of the Fund are or may be interested in the
Manager or its affiliates as directors, officers, agents or
stockholders of the
- 11 -
<PAGE>
Manager or its affiliates; that directors, officers, agents
and stockholders of the Manager or its affiliates are or may
be interested in the Trust as Trustees, officers, agents,
shareholders or otherwise; that the Manager or its affiliates
may be interested in the Trust as shareholders or otherwise;
and that the effect of any such interests shall be governed by
said Declaration of Trust, Bylaws and the Act.
6. Compensation of the Manager. For all services to be rendered and
payments made as provided in this Agreement, the Fund will pay the Manager a
daily fee equal to the annual rate of 1% of the value of the daily net assets of
the Fund up to and including $50,000,000, 90/100 of 1% of the next $50 million
of such assets, 80/100 of 1% of the next $100 million of such assets, and 75/100
of 1% of such assets in excess of $200,000,000. Manager's fee shall be payable
monthly and shall be due with respect to any month as of the first business day
following the end of such month.
The value of the daily net assets of the Fund shall be determined
pursuant to the applicable provisions of the Declaration of Trust and to
resolutions to the Board of Trustees of the Trust. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this paragraph 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of the close of business on that day,
- 12 -
<PAGE>
or as of such other time as the value of the Fund's net assets may lawfully be
determined on that day. If the determination of the net asset value of the
Fund's shares has been suspended for a period including such month, the
Manager's compensation payable for such month shall be computed on the basis of
the value of the net assets of the Fund as last determined (whether during or
prior to such month).
7. Liabilities of the Manager. The Manager (including its directors,
officers, shareholders, employees, control persons and affiliates of any
thereof) shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Manager in the performance of its duties
or from the reckless disregard by the Manager of its obligations and duties
under this Agreement ("disabling conduct"). However, the Manager will not be
indemnified for any liability unless (1) a final decision is made on the merits
by a court or other body before whom the proceeding was brought that the Manager
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 Manager 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 Trust as defined in the Act nor parties to the proceeding ("disinterested,
- 13 -
<PAGE>
non-party trustees"), or (b) an independent legal counsel in a written opinion.
The Fund will advance attorneys' fees or other expenses incurred by the Manager
in defending a proceeding, upon the undertaking by or on behalf of the Manager
to repay the advance unless it is ultimately determined that the Manager is
entitled to indemnification, so long as the Manager meets at least one of the
following as a condition to the advance: (1) the Manager shall provide a
security for its undertaking, (2) the Fund shall be insured against losses
arising by reason of any lawful advances, or (3) 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 Manager ultimately will be found entitled to indemnification.
Any person employed by the Manager who may also be or become an employee of the
Trust shall be deemed, when acting within the scope of his employment by the
Trust, to be acting in such employment solely for the Trust and not as the
Manager's employee or agent.
8. Renewal and Termination.
A. This Agreement shall become effective upon its execution,
shall remain in force until February 28, 1999 and from year to
year thereafter, but only so long as such continuance is
specifically approved at least annually by the vote of a
majority of the Trustees who are not interested persons of the
Trust, the Manager or
- 14 -
<PAGE>
the Adviser, cast in person at a meeting called for the
purpose of voting on such approval and by a vote of the Board
of Trustees or of a majority of the outstanding voting
securities. The aforesaid provision that this Agreement may be
continued "annually" shall be construed in a manner consistent
with the Act and the rules and regulations thereunder.
B. This Agreement:
(a) may at any time be terminated without the payment of
any penalty either by vote of the Board of Trustees
of the Trust or by vote of a majority of the
outstanding voting securities of the Fund, on sixty
(60) days' written notice to the Manager;
(b) shall immediately terminate in the event of its
assignment; and
(c) may be terminated by the Manager on sixty (60) days'
written notice to the Trust.
C. As used in this Section 8, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
D. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postpaid, to the other party
to this Agreement at its principal place of business.
- 15 -
<PAGE>
9. 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.
10. Limitation of Liability. It is expressly agreed that the
obligations of the Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Fund, as provided in the Declaration of
Trust of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and the shareholders of the Fund and
signed by the officers of the Trust, acting as such, and neither such
authorization by such Trustees and shareholders nor such execution and delivery
by such officers shall be deemed to have been made by any of them individually
or to impose any liability on any of them personally, but shall bind only the
trust property of the Fund as provided in the Trust's Declaration of Trust.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority
of the outstanding voting securities of the Fund and by the Board of Trustees,
including a majority of the Trustees who are not interested persons of the
Manager or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
- 16 -
<PAGE>
12. Governing Law. To the extent that state law has not been preempted
by the provisions of any law of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
COUNTRYWIDE STRATEGIC TRUST
ATTEST: By: /s/ Robert H. Leshner
----------------------
/s/ John F. Splain Title: President
--------------
COUNTRYWIDE INVESTMENTS, INC.
ATTEST: By: /s/ Robert H. Leshner
---------------------
/s/ John F. Splain Title: President
---------------
- 17 -
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made this __ day of _____ , 1997,
between Countrywide Strategic Trust (the "Trust"), a business trust organized
under the laws of the State of Massachusetts, and Countrywide Investments,
Inc. (the "Manager"), a corporation organized under the laws of the State of
Ohio.
WHEREAS, the Trust has been organized to operate as an investment
company registered under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series and each such share of a series represents an undivided interest
in the assets, subject to the liabilities, allocated to that series, and each
series has separate investment objectives and policies; and
WHEREAS, the International Equity Fund (the "Fund"), a series of the
Trust, has been created for the purpose of investing and reinvesting its assets
in securities pursuant to the investment objectives and policies as set forth in
its registration statements under the Act and the Securities Act of 1933
("Registration Statements"), as heretofore amended and supplemented; and the
Trust desires to avail itself of the services, information, advice, assistance
and facilities of a manager and to have a manager provide or perform for it
various management, statistical, portfolio adviser selection and other services
for the Fund; and
<PAGE>
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended;
NOW, THEREFORE, the Trust and Manager agree as follows:
1. Employment of the Manager. The Trust hereby employs
the Manager to manage the investment and reinvestment of the assets of the Fund
in the manner set forth in subparagraph 2B of this Agreement, subject to the
direction of the Board of Trustees and the officers of the Trust, for the
period, in the manner, and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth. The Manager shall for
all purposes herein be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. Obligation of and Services to be Provided by the Manager. The
Manager undertakes to provide the services hereinafter set forth and to assume
the following obligations:
A. Corporate Management and Administrative Services. The Manager
shall furnish to the Fund, or retain another party or parties
to furnish, the following described services to the Fund: (i)
office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time
to time, and (ii) office furnishings, facilities and
- 2 -
<PAGE>
equipment as may be reasonably required for managing and
administering the operations and conducting the business of
the Fund, including complying with the securities, tax and
other reporting requirements of the United States and the
various states in which the Fund does business, conducting
correspondence and other communications with the shareholders
of the Fund, and maintaining or supervising the maintenance of
all records in connection with the investment and business
activities of the Fund.
B. Investment Management Services.
(a) The Manager shall have overall supervisory
responsibility for the general management and
investment of the assets and portfolio securities of
the Fund subject to and in accordance with the
investment objectives and policies of the Fund, and
any directions which the Trust's Board of Trustees
may issue to the Manager from time to time.
(b) The Manager shall provide overall investment programs
and strategies for the Fund, shall revise such
programs as necessary and shall monitor and report
periodically to the Board of Trustees concerning the
implementation of the programs.
(c) The Manager, with the approval of the Board of
Trustees of the Trust as to particular
- 3 -
<PAGE>
appointments, intends to (i) appoint one or more
persons or companies (the "Adviser") and, subject to
the terms and conditions of this Agreement, the
Adviser shall have full investment discretion and
shall make all determinations with respect to the
investment of the Fund's assets and the purchase and
sale of portfolio securities with those assets, and
(ii) take such steps as may be necessary to implement
such appointments. The Manager shall be solely
responsible for paying the fees and expenses of the
Adviser for its services to the Fund. The Manager
shall not be responsible or liable for the investment
merits of any decision by the Adviser to purchase,
hold or sell a portfolio security for the Fund.
(d) The Manager shall evaluate advisers and shall
recommend to the Board of Trustees the Adviser
which the Manager believes is best suited to
invest the assets of the Fund; shall monitor and
evaluate the investment performance of the Fund's
Adviser; shall recommend changes in the Adviser
when appropriate; shall coordinate the investment
activities of the Adviser to ensure compliance
with applicable restrictions and limitations
applicable to the Fund; and shall compensate the
Adviser.
- 4 -
<PAGE>
(e) The Manager shall render regular reports to the
Trust, at regular meetings of the Board of Trustees,
of, among other things, the portfolio investments of
the Fund and measurement and analysis of the results
achieved by the Fund.
(f) The Manager shall employ or provide and compensate
the executive, administrative, secretarial and
clerical personnel necessary to provide the
services set forth in this subparagraph 2B, and
shall bear the expense thereof, except as may
otherwise be provided in Section 4 of this
Agreement. The Manager shall also compensate all
officers and employees of the Fund who are
officers or employees of the Manager.
(g) The Manager shall pay all advertising and promotion
expenses incurred in connection with the sale or
distribution of the Fund's shares to the extent such
expenses are not assumed by the Fund under its Plans
of Distribution.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and
Other Materials.
The Manager will make available and provide financial,
accounting and statistical information required by the Fund in
the preparation of registration statements, reports and other
documents required by federal and state securities laws, and
such information as the Fund
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may reasonably request for use in the preparation of
registration statements, reports and other documents required
by federal and state securities laws.
D. Other Obligations and Services. The Manager shall make
available its officers and employees to the Board of Trustees
and officers of the Trust for consultation and discussions
regarding the administration and management of the Fund and
its investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The
Adviser, subject to the limitations contained in this paragraph 3, shall place,
on behalf of the Fund, orders for the execution of portfolio transactions. The
Adviser is not authorized by the Fund to take any action, including the purchase
or sale of securities for the Fund's account, (a) in contravention of (i) any
investment restrictions set forth in the Act and the rules thereunder, (ii)
specific instructions adopted by the Board of Trustees and communicated to the
Adviser, (iii) the investment objectives, policies and restrictions of the Fund
as set forth in the Trust's Registration Statement, or (iv) instructions from
the Manager communicated to the Adviser, or (b) which would have the effect of
causing the Fund to fail to qualify or to cease to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended, or any
succeeding statute.
Subject to the foregoing, the Adviser shall determine the
securities to be purchased or sold by the Fund and will place
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<PAGE>
orders pursuant to its determination with or through such persons, brokers or
dealers in conformity with the policy with respect to brokerage as set forth in
the Trust's Registration Statement or as the Board of Trustees may direct from
time to time. It is recognized that, in providing the Fund with investment
supervision of the placing of orders for portfolio transactions, the Adviser
will give primary consideration to securing the best qualitative execution,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), the execution capability, financial responsibility
and responsiveness of the broker or dealer and the brokerage and research
services provided by the broker or dealer. Consistent with this policy, the
Adviser may select brokers or dealers who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) to other Funds and/or the other accounts over which it exercises
investment discretion. It is understood that neither the Fund, the Manager nor
the Adviser have adopted a formula for allocation of the Fund's investment
transaction business. It is also understood that it is desirable for the Fund
that the Adviser have access to supplemental investment and market research and
security and economic analyses provided by certain brokers who may execute
brokerage transactions at a higher commission to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the lowest
commission. Therefore, the Adviser is authorized to place orders for the
purchase and sale of securities for the Fund with such
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<PAGE>
certain brokers, subject to review by the Trust's Board of Trustees from time to
time with respect to the extent and continuation of this practice, provided that
the Adviser determines in good faith that the amount of the commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker or dealer. The determination may be viewed in
terms of either a particular transaction or the Adviser's overall
responsibilities with respect to the Fund and to other accounts over which it
exercises investment discretion. It is understood that although the information
may be useful to the Trust and the Adviser, it is not possible to place a dollar
value on such information. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Fund.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as expenses incurred in the transaction, will be made by the Adviser in the
manner it
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<PAGE>
considers to be the most equitable and consistent with its fiduciary obligations
to the Trust with respect to the Fund and to such other clients.
The Adviser will not execute any portfolio transactions for the Fund's
account with a broker or dealer which is an "affiliated person" (as defined in
the Act) of the Trust, the Manager or the Adviser without the prior written
approval of the Manager. The Manager agrees that it will provide the Adviser
with a list of brokers and dealers which are "affiliated persons" of the Trust,
the Manager or the Adviser.
The Adviser shall render regular reports to the Trust of the total
brokerage business placed by the Fund and the manner in which the allocation has
been accomplished.
4. Expenses of the Fund. It is understood that the Fund will pay, or
that the Fund will enter into arrangements that require third parties to pay,
all its expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:
A. Expenses of all audits by independent public
accountants;
B. Expenses of transfer agent, dividend disbursing agent,
accounting and pricing agent and shareholder recordkeeping
services;
C. Expenses of custodial services including recordkeeping
services provided by the custodian;
D. Expenses of obtaining security valuation quotations for
calculating the value of the Fund's net assets;
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<PAGE>
E. Salaries and other compensation of any of its executive
officers and employees, if any, who are not officers,
directors, stockholders or employees of the Manager or the
Adviser;
F. Taxes or governmental fees levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of the Fund's portfolio securities;
H. Costs, including the interest expense, of borrowing
money;
I. Costs and/or fees incident to Board of Trustee and
shareholder meetings, the preparation and mailings of
prospectuses, reports and notices to the existing
shareholders of the Fund, the filing of reports with
regulatory bodies, the maintenance of the Trust's
existence as a business trust, membership in investment
company organizations, and the registration of shares
with federal and state securities authorities;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares
for sale and legal fees arising from litigation to which the
Trust may be a party and indemnification of the Trust's
officers and trustees with respect thereto;
K. Costs of printing share certificates (in the event such
certificates are issued) representing shares of the
Fund;
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L. Trustees' fees and expenses of Trustees who are not directors,
officers, employees or stockholders of the Manager, the
Adviser or any of their affiliates; and
M. The Fund's pro rata portion of the fidelity bond required by
Section 17(g) of the Act and other insurance premiums.
5. Activities and Affiliates of the Manager.
A. The services of the Manager hereunder are not to be
deemed exclusive, and the Manager and any of its affiliates
shall be free to render similar services to others. The
Manager shall use the same skill and care in the management of
the Fund's assets as it uses in the administration of other
accounts to which it provides asset management, consulting and
portfolio manager selection services, but shall not be
obligated to give the Fund more favorable or preferential
treatment vis-a-vis its other clients.
B. Subject to and in accordance with the Declaration of
Trust and Bylaws of the Trust and to Section 10(a) of
the Act, it is understood that Trustees, officers and
agents of the Trust and shareholders of the Fund are or
may be interested in the Manager or its affiliates as
directors, officers, agents or stockholders of the
Manager or its affiliates; that directors, officers,
agents and stockholders of the Manager or its
affiliates are or may be interested in the Trust as
Trustees, officers, agents, shareholders or otherwise;
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<PAGE>
that the Manager or its affiliates may be interested in the
Trust as shareholders or otherwise; and that the effect of any
such interests shall be governed by said Declaration of Trust,
Bylaws and the Act.
6. Compensation of the Manager. For all services to be rendered and
payments made as provided in this Agreement, the Fund will pay the Manager a
daily fee equal to the annual rate of __ /100 of 1% of the value of the daily
net assets of the Fund up to and including $__,000,000 and __/100 of 1% of
such assets in excess of $__,000,000. Manager's fee shall be payable monthly
and shall be due with respect to any month as of the first business day
following the end of such month.
The value of the daily net assets of the Fund shall be determined
pursuant to the applicable provisions of the Declaration of Trust and to
resolutions of the Board of Trustees of the Trust. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this paragraph 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of the close of business on that day, or as of such other time as the
value of the Fund's net assets may lawfully be determined on that day. If the
determination of the net asset value of the Fund's shares has been suspended for
a period including such month, the Manager's compensation payable for such month
shall be computed on the basis of the value of the net assets of the Fund as
last determined (whether during or prior to such month).
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<PAGE>
7. Liabilities of the Manager.
A. Except as provided below in this paragraph 7, in the
absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or
duties hereunder on the part of the Manager ("disabling
conduct"), the Manager shall not be subject to
liability to the Fund or to any shareholder of 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.
B. The Manager shall not be indemnified for any liability
unless (i) a final decision is made on the merits by a
court or other body before whom the proceeding was
brought that the Manager was not liable by reason of
disabling conduct, or (ii) in the absence of such a
decision, a reasonable determination is made, based
upon a review of the facts, that the Manager was not
liable by reason of disabling conduct, by (a) the vote
of a majority of a quorum of the Trustees who are not
interested persons of the Trust or the Manager or (b)
an independent legal counsel in a written opinion. The
Fund will advance attorneys' fees or other expenses
incurred by the Manager in defending a proceeding, upon
the undertaking by or on behalf of the Manager to repay
the advance unless it is ultimately determined that the
Manager is entitled to indemnification, so long as the
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<PAGE>
Manager meets at least one of the following as a condition to
the advance: (i) the Manager shall provide a security for its
undertaking, (ii) the Fund shall be insured against losses
arising by reason of any lawful advances, or (iii) a majority
of a quorum of the Trustees who are not interested persons of
the Trust or the Manager, or an independent legal counsel in a
written opinion, shall determine, based on a review of the
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Manger
ultimately will be found entitled to indemnification. Any
person employed by the Manager who may also be or become an
employee of the Trust shall be deemed, when acting within the
scope of his employment by the Trust, to be acting in such
employment solely for the Trust and not as the Manager's
employee or agent.
C. No provision of this Agreement shall be construed to protect
any Trustee, director, officer or agent of the Trust or the
Manager from liability in violation of Sections 17(h) and (i)
of the Act.
8. Renewal and Termination.
A. This Agreement shall become effective upon its execution,
shall remain in force until February 28, 1999, and remain in
force from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by the
vote of a majority of
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<PAGE>
the Trustees who are not interested persons of the Trust, the
Manager or the Adviser, cast in person at a meeting called for
the purpose of voting on such approval and by a vote of the
Board of Trustees or of a majority of the outstanding voting
securities. The aforesaid provision that this Agreement may be
continued "annually" shall be construed in a manner consistent
with the Act and the rules and regulations thereunder.
B. This Agreement:
(a) may at any time be terminated without the payment of
any penalty either by vote of the Board of Trustees
of the Trust or by vote of a majority of the
outstanding voting securities of the Fund, on sixty
(60) days' written notice to the Manager;
(b) shall immediately terminate in the event of its
assignment; and
(c) may be terminated by the Manager on sixty (60) days'
written notice to the Trust.
C. As used in this Section 8, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
D. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postpaid, to
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<PAGE>
the other party to this Agreement at its principal
place of business.
9. 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.
10. Limitation of Liability. It is expressly agreed that the
obligations of the Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Fund, as provided in the Declaration of
Trust of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and the shareholders of the Fund and
signed by the officers of the Trust, acting as such, and neither such
authorization by such Trustees and shareholders nor such execution and delivery
by such officers shall be deemed to have been made by any of them individually
or to impose any liability on any of them personally, but shall bind only the
trust property of the Fund as provided in the Trust's Declaration of Trust.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority
of the outstanding voting securities of the Fund and by the Board of Trustees,
including a majority of the Trustees who are not interested persons of the
Manager or of the Trust, cast in person
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<PAGE>
at a meeting called for the purpose of voting on such approval.
12. Governing Law. To the extent that state law has not
been preempted by the provisions of any law of the United States heretofore or
hereafter enacted, as the same may be amended from time to time, this Agreement
shall be administered, construed and enforced according to the laws of the State
of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
COUNTRYWIDE STRATEGIC TRUST
ATTEST: By:
_____________________ Title: President
COUNTRYWIDE INVESTMENTS, INC.
ATTEST: By:
_____________________ Title: President
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<PAGE>
SUBADVISORY AGREEMENT
Mastrapasqua & Associates, Inc.
814 Church Street
Nashville, TN 37203
Gentlemen:
Countrywide Strategic Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "Act"), and subject to the rules and regulations
promulgated thereunder. The Trust's shares of beneficial interest are divided
into separate series or funds. Each such share of a fund represents an undivided
interest in the assets, subject to the liabilities, allocated to that fund. Each
fund has separate investment objectives and policies. The Growth/Value Fund
(the "Fund") has been established as a series of the Trust.
Countrywide Investments, Inc. (the "Manager") acts as the investment
manager for the Fund pursuant to the terms of a Management Agreement. The
Manager is responsible for the coordination of investment of the Fund's assets
in portfolio securities. However, specific portfolio purchases and sales for the
investment portfolio of the Fund are to be made by advisory organizations
recommended by the Manager and approved by the Board of Trustees of the Trust.
1. Appointment as an Adviser. The Trust being duly authorized hereby
appoints and employs Mastrapasqua & Associates, Inc. (the "Adviser") as the
discretionary portfolio manager of the Fund, on the terms and conditions set
forth herein.
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<PAGE>
2. Acceptance of Appointment; Standard of Performance. The Adviser
accepts the appointment as the discretionary portfolio manager and agrees to use
its best professional judgment to make timely investment decisions for the Fund
in accordance with the provisions of this Agreement.
3. Portfolio Management Services of Adviser. The Adviser is hereby
employed and authorized to select portfolio securities for investment by the
Fund, to purchase and sell securities of the Fund, and upon making any purchase
or sale decision, to place orders for the execution of such portfolio
transactions in accordance with paragraphs 5 and 6 hereof. In providing
portfolio management services to the Fund, the Adviser shall be subject to such
investment restrictions as are set forth in the Act and the rules thereunder,
the Internal Revenue Code, applicable state securities laws, the supervision and
control of the Board of Trustees of the Trust, such specific instructions as the
Board of Trustees may adopt and communicate to the Adviser, the investment
objectives, policies and restrictions of the Fund furnished pursuant to
paragraph 4, the provisions of Schedule A hereto and instructions from the
Manager. The Adviser is not authorized by the Fund to take any action, including
the purchase or sale of securities for the Fund, in contravention of any
restriction, limitation, objective, policy or instruction described in the
previous sentence. The Adviser shall maintain on behalf of the Fund the records
listed in Schedule A hereto (as amended from time to time). At the Trust's
reasonable request,
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<PAGE>
the Adviser will consult with the Manager with respect to any decision made by
it with respect to the investments of the Fund.
4. Investment Objectives, Policies and Restrictions. The
Trust will provide the Adviser with the statement of investment objectives,
policies and restrictions applicable to the Fund as contained in the Trust's
registration statement under the Act and the Securities Act of 1933, and any
instructions adopted by the Board of Trustees supplemental thereto. The Trust
will provide the Adviser with such further information concerning the investment
objectives, policies and restrictions applicable thereto as the Adviser may from
time to time reasonably request. The Trust retains the right, on written notice
to the Adviser from the Trust or the Manager, to modify any such objectives,
policies or restrictions in any manner at any time.
5. Transaction Procedures. All transactions will be consummated by
payment to or delivery by Star Bank, N.A. or any successor custodian (the
"Custodian"), or such depositories or agents as may be designated by the
Custodian in writing, as custodian for the Fund, of all cash and/or securities
due to or from the Fund, and the Adviser shall not have possession or custody
thereof. If the Manager has authorized the Adviser to place orders for portfolio
transactions of the Fund, the Adviser shall advise the Custodian and confirm in
writing to the Trust and to the Manager all investment orders for the Fund
placed by it with brokers and dealers. The Adviser shall issue to the Custodian
such instructions as may be appropriate in connection
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<PAGE>
with the settlement of any transaction initiated by the Adviser. It shall be the
responsibility of the Adviser to take appropriate action if the Custodian fails
to confirm in writing proper execution of the instructions.
6. Allocation of Brokerage. When so authorized by the Manager, the
Adviser shall have the authority and discretion to select brokers and dealers to
execute portfolio transactions initiated by the Adviser, and for the selection
of the markets on or in which the transactions will be executed.
A. In doing so, the Adviser will give primary consideration to
securing the best qualitative execution, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. Consistent with this policy, the Adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) to the other accounts over
which it exercises investment discretion. It is understood that neither the
Trust, the Manager nor the Adviser have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Manager and/or the Adviser have access to
supplemental investment and market research and security and economic analyses
provided by certain brokers who may execute
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<PAGE>
brokerage transactions at a higher commission to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the lowest
commission. Therefore, if so authorized by the Manager, the Adviser is
authorized to place orders for the purchase and sale of securities for the Fund
with such certain brokers, subject to review by the Trust's Board of Trustees
from time to time with respect to the extent and continuation of this practice,
provided that the Manager determines in good faith that the amount of the
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker or dealer. The determination may be
viewed in terms of either a particular transaction or the Manager's overall
responsibilities with respect to the Fund and to the other accounts over which
it exercises investment discretion. It is understood that although the
information may be useful to the Trust, the Manager and the Adviser, it is not
possible to place a dollar value on such information. Consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., and
subject to seeking best qualitative execution, the Manager may give
consideration to sales of shares of the Fund as a factor in the selection of
brokers and dealers to execute portfolio transactions of the Fund.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Adviser, if
so authorized by the Manager and
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<PAGE>
to the extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Fund with respect to the Fund and to such other
clients.
For each fiscal quarter of the Fund, the Adviser shall prepare and
render reports to the Manager and the Trust's Board of Trustees of the total
brokerage business placed by the Adviser and the manner in which the allocation
has been accomplished. Such reports shall set forth at a minimum the information
required to be maintained by Rule 31a-1(b)(9) under the Act.
B. Adviser agrees that it will not execute any portfolio
transactions for the Fund's account with a broker or dealer which is an
"affiliated person" (as defined in the Act) of the Trust, the Manager or the
Adviser without the prior approval of the Manager. The Manager agrees that it
will provide the Adviser with a list of brokers and dealers which are
"affiliated persons" of the Trust, the Manager or the Adviser.
7. Proxies. The Trust will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Fund may be invested
from time to time. At the Fund's request, the Adviser shall provide the Trust
with its recommendations as to the voting of such proxies.
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<PAGE>
8. Reports to the Adviser. The Trust will provide the Adviser with such
periodic reports concerning the status of the Fund as the Adviser may reasonably
request.
9. Fees for Services. For the services provided to the Fund, the
Manager shall pay the Adviser a fee equal to the annual rate of 60/100 of 1% of
the average value of the daily net assets of the Fund up to and including
$50,000,000, 50/100 of 1% of the next $50 million of such assets, 40/100 of 1%
of the next $100 million of such assets, and 35/100 of 1% of such assets in
excess of $200,000,000.
The Adviser's fees shall be payable monthly within ten days following
the end of each month. Pursuant to the provisions of the Management Agreement
between the Trust and the Manager, the Manager is solely responsible for the
payment of fees to the Adviser, and the Adviser agrees to seek payment of the
Adviser's fees solely from the Manager.
10. Other Investment Activities of the Adviser. The Trust acknowledges
that the Adviser or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Adviser, its
affiliates or any of its or their directors, officers, agents or employees may
buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the
Trust agrees that the Adviser or its affiliates may give advice or exercise
investment responsibility
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<PAGE>
and take such other action with respect to other Affiliated Accounts which may
differ from the advice given or the timing or nature of action taken with
respect to the Fund, provided that the Adviser acts in good faith, and provided
further, that it is the Adviser's policy to allocate, within its reasonable
discretion, investment opportunities to the Fund over a period of time on a fair
and equitable basis relative to the Affiliated Accounts, taking into account the
investment objectives and policies of the Fund and any specific investment
restrictions applicable thereto. The Trust acknowledges that one or more of the
Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose
of or otherwise deal with positions in investments in which the Fund may have an
interest from time to time, whether in transactions which involve the Fund or
otherwise. The Adviser shall have no obligation to acquire for the Fund a
position in any investment which any Affiliated Account may acquire, and the
Trust shall have no first refusal, co-investment or other rights in respect of
any such investment, either for the Fund or otherwise.
11. Certificate of Authority. The Trust, the Manager and the Adviser
shall furnish to each other from time to time certified copies of the
resolutions of their Board of Trustees or Board of Directors or executive
committees, as the case may be, evidencing the authority of officers and
employees who are authorized to act on behalf of the Trust, the Fund, the
Manager and/or the Adviser.
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<PAGE>
12. Limitation of Liability. The Adviser (including its directors,
officers, shareholders, employees, control persons and affiliates of any
thereof) shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance of its duties
or from the reckless disregard by the Adviser of its obligations and duties
under this Agreement ("disabling conduct"). However, the Adviser will not be
indemnified for any liability unless (1) a final decision is made on the merits
by a court or other body before whom the proceeding was brought that the Adviser
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 Adviser 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 Trust as defined in the Act nor parties to the proceeding ("disinterested,
non-party trustees"), or (b) an independent legal counsel in a written opinion.
The Fund 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, so long as the Adviser meets at least one of the
following as a condition to the advance: (1) the Adviser shall provide a
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<PAGE>
security for its undertaking, (2) the Fund shall be insured against losses
arising by reason of any lawful advances, or (3) 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 Adviser ultimately will be found entitled to indemnification. Any
person employed by the Adviser who may also be or become an employee of the
Trust shall be deemed, when acting within the scope of his employment by the
Trust, to be acting in such employment solely for the Trust and not as the
Adviser's employee or agent.
13. Confidentiality. Subject to the duty of the Adviser and the Trust
to comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Fund and the actions of the Adviser and the
Trust in respect thereof.
14. Assignment. No assignment of this Agreement shall be made by the
Adviser, and this Agreement shall terminate automatically in the event of such
assignment. The Adviser shall notify the Trust in writing sufficiently in
advance of any proposed change of control, as defined in Section 2(a)(9) of the
Act, as will enable the Trust to consider whether an assignment will occur, and
to take the steps necessary to enter into a new contract with the Adviser.
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<PAGE>
15. Representations, Warranties and Agreements of the Trust. The Trust
represents, warrants and agrees that:
A. The Adviser has been duly appointed by the Board of
Trustees of the Trust to provide investment services to the Fund as contemplated
hereby.
B. The Trust will deliver to the Adviser a true and complete
copy of its then current prospectus and statement of additional information as
effective from time to time and such other documents or instruments governing
the investments of the Fund and such other information as is necessary for the
Adviser to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all times
comply with the requirements imposed upon the Fund by applicable laws and
regulations.
16. Representations, Warranties and Agreements of the Adviser. The
Adviser represents, warrants and agrees that:
A. The Adviser is registered as an "investment adviser"
under the Investment Advisers Act of 1940.
B. The Adviser will maintain, keep current and preserve on
behalf of the Fund, in the manner and for the time periods required or permitted
by the Act, the records identified in Schedule A. The Adviser agrees that such
records (unless otherwise indicated on Schedule A) are the property of the
Trust, and will be surrendered to the Trust promptly upon request.
C. The Adviser will complete such reports concerning purchases
or sales of securities on behalf of the Fund as the
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<PAGE>
Manager or the Trust may from time to time require to ensure compliance with the
Act, the Internal Revenue Code and applicable state securities laws.
D. The Adviser will adopt a written code of ethics complying
with the requirements of Rule 17j-1 under the Act and will provide the Trust
with a copy of the code of ethics and evidence of its adoption. Within
forty-five (45) days of the end of the last calendar quarter of each year while
this Agreement is in effect, the president or a vice president of the Adviser
shall certify to the Trust that the Adviser has complied with the requirements
of Rule 17j-1 during the previous year and that there have been no violations of
the Adviser's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the written
request of the Trust, the Adviser shall submit to the Trust the reports required
to be made to the Adviser by Rule 17j-1(c)(1).
E. The Adviser will promptly after filing with the Securities
and Exchange Commission an amendment to its Form ADV furnish a copy of such
amendment to the Trust and to the Manager.
F. Upon request of the Trust, the Adviser will provide
assistance to the Custodian in the collection of income due or payable to the
Fund. With respect to income from foreign sources, the Adviser will undertake
any reasonable procedural steps required to reduce, eliminate or reclaim
non-U.S. withholding taxes under the terms of applicable United States income
tax treaties.
- 12 -
<PAGE>
G. The Adviser will immediately notify the Trust and the
Manager of the occurrence of any event which would disqualify the Adviser from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the Act or otherwise.
17. Amendment. This Agreement may be amended at any time, but only by
written agreement between the Adviser and the Trust, which amendment, other than
amendments to Schedule A, is subject to the approval of the Board of Trustees
and the shareholders of the Fund in the manner required by the Act and the rules
thereunder, subject to any applicable exemptive order of the Securities and
Exchange Commission modifying the provisions of the Act with respect to approval
of amendments to this Agreement.
18. Effective Date; Term. This Agreement shall become effective on the
date of its execution and shall remain in force until February 28, 1999 and from
year to year thereafter but only so long as such continuance is specifically
approved at least annually by the vote of a majority of the Trustees who are not
interested persons of the Trust, the Manager or the Adviser, cast in person at a
meeting called for the purpose of voting on such approval, and by a vote of the
Board of Trustees or of a majority of the outstanding voting securities of the
Fund. The aforesaid requirement that this Agreement may be continued "annually"
shall be construed in a manner consistent with the Act and the rules and
regulations thereunder.
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<PAGE>
19. Termination. This Agreement may be terminated by either party
hereto, without the payment of any penalty, immediately upon written notice to
the other in the event of a breach of any provision thereof by the party so
notified, or otherwise upon sixty (60) days' written notice to the other, but
any such termination shall not affect the status, obligations or liabilities of
any party hereto to the other.
20. Shareholder Liability. The Adviser is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Trust and agrees that obligations assumed by the
Trust pursuant to this Agreement shall be limited in all cases to the Fund and
its assets. The Adviser agrees that it shall not seek satisfaction of any such
obligations from the shareholders or any individual shareholder of the Fund, nor
from the Trustees or any individual Trustee of the Trust.
21. Definitions. As used in paragraphs 14 and 18 of this Agreement, the
terms "assignment," interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
22. Applicable Law. To the extent that state law is not preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
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<PAGE>
COUNTRYWIDE INVESTMENTS, INC. COUNTRYWIDE STRATEGIC TRUST
By: /s/ Robert H. Leshner By: /s/ Robert H. Leshner
------------------------- -----------------------
Title: President Title: President
Date: August 29, 1997 Date: August 29, 1997
ACCEPTANCE
The foregoing Agreement is hereby accepted.
MASTRAPASQUA & ASSOCIATES, INC.
By: /s/ Frank Mastrapasqua
-----------------------
Title: Chairman and CEO
Date: August 29, 1997
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<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE ADVISER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases and sales, given by the Adviser on behalf of
the Fund for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any
modification or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the
Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected,
and the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or
dealers.
(ii) The supplying of services or benefits by brokers
or dealers to:
(a) The Trust;
(b) the Manager;
(c) the Adviser;
(d) any other portfolio adviser of the Trust;
and
(e) any person affiliated with the foregoing
persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as such.
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<PAGE>
B. Shall show the nature of the services or benefits made
available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate
memorandum identifying the person or persons, committees or
groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or
group, a record shall be kept of the names of its members who
participate in the authorization. There shall be retained as
part of this record: any memorandum, recommendation or
instruction supporting or authorizing the purchase or sale of
portfolio securities and such other information as is
appropriate to support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are
required to be maintained by registered investment advisers by rules
adopted under Section 204 of the Investment Advisers Act of 1940, to
the extent such records are necessary or appropriate to record the
Adviser's transactions with respect to the Fund.
- ----------------
*Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal reports
or portfolio adviser reviews.
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<PAGE>
SUBADVISORY AGREEMENT
Mastrapasqua & Associates, Inc.
814 Church Street
Nashville, TN 37203
Gentlemen:
Countrywide Strategic Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "Act"), and subject to the rules and regulations
promulgated thereunder. The Trust's shares of beneficial interest are divided
into separate series or funds. Each such share of a fund represents an undivided
interest in the assets, subject to the liabilities, allocated to that fund. Each
fund has separate investment objectives and policies. The Aggressive Growth Fund
(the "Fund") has been established as a series of the Trust.
Countrywide Investments, Inc. (the "Manager") acts as the investment
manager for the Fund pursuant to the terms of a Management Agreement. The
Manager is responsible for the coordination of investment of the Fund's assets
in portfolio securities. However, specific portfolio purchases and sales for the
investment portfolio of the Fund are to be made by advisory organizations
recommended by the Manager and approved by the Board of Trustees of the Trust.
1. Appointment as an Adviser. The Trust being duly authorized hereby
appoints and employs Mastrapasqua & Associates, Inc. (the "Adviser") as the
discretionary portfolio manager of the Fund, on the terms and conditions set
forth herein.
- 1 -
<PAGE>
2. Acceptance of Appointment; Standard of Performance. The Adviser
accepts the appointment as the discretionary portfolio manager and agrees to use
its best professional judgment to make timely investment decisions for the Fund
in accordance with the provisions of this Agreement.
3. Portfolio Management Services of Adviser. The Adviser is hereby
employed and authorized to select portfolio securities for investment by the
Fund, to purchase and sell securities of the Fund, and upon making any purchase
or sale decision, to place orders for the execution of such portfolio
transactions in accordance with paragraphs 5 and 6 hereof. In providing
portfolio management services to the Fund, the Adviser shall be subject to such
investment restrictions as are set forth in the Act and the rules thereunder,
the Internal Revenue Code, applicable state securities laws, the supervision and
control of the Board of Trustees of the Trust, such specific instructions as the
Board of Trustees may adopt and communicate to the Adviser, the investment
objectives, policies and restrictions of the Fund furnished pursuant to
paragraph 4, the provisions of Schedule A hereto and instructions from the
Manager. The Adviser is not authorized by the Fund to take any action, including
the purchase or sale of securities for the Fund, in contravention of any
restriction, limitation, objective, policy or instruction described in the
previous sentence. The Adviser shall maintain on behalf of the Fund the records
listed in Schedule A hereto (as amended from time to time). At the Trust's
reasonable request,
- 2 -
<PAGE>
the Adviser will consult with the Manager with respect to any decision made by
it with respect to the investments of the Fund.
4. Investment Objectives, Policies and Restrictions. The
Trust will provide the Adviser with the statement of investment objectives,
policies and restrictions applicable to the Fund as contained in the Trust's
registration statement under the Act and the Securities Act of 1933, and any
instructions adopted by the Board of Trustees supplemental thereto. The Trust
will provide the Adviser with such further information concerning the investment
objectives, policies and restrictions applicable thereto as the Adviser may from
time to time reasonably request. The Trust retains the right, on written notice
to the Adviser from the Trust or the Manager, to modify any such objectives,
policies or restrictions in any manner at any time.
5. Transaction Procedures. All transactions will be consummated by
payment to or delivery by Star Bank, N.A. or any successor custodian (the
"Custodian"), or such depositories or agents as may be designated by the
Custodian in writing, as custodian for the Fund, of all cash and/or securities
due to or from the Fund, and the Adviser shall not have possession or custody
thereof. If the Manager has authorized the Adviser to place orders for portfolio
transactions of the Fund, the Adviser shall advise the Custodian and confirm in
writing to the Trust and to the Manager all investment orders for the Fund
placed by it with brokers and dealers. The Adviser shall issue to the Custodian
such instructions as may be appropriate in connection
- 3 -
<PAGE>
with the settlement of any transaction initiated by the Adviser. It shall be the
responsibility of the Adviser to take appropriate action if the Custodian fails
to confirm in writing proper execution of the instructions.
6. Allocation of Brokerage. When so authorized by the Manager, the
Adviser shall have the authority and discretion to select brokers and dealers to
execute portfolio transactions initiated by the Adviser, and for the selection
of the markets on or in which the transactions will be executed.
A. In doing so, the Adviser will give primary consideration to
securing the best qualitative execution, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. Consistent with this policy, the Adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) to the other accounts over
which it exercises investment discretion. It is understood that neither the
Trust, the Manager nor the Adviser have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Manager and/or the Adviser have access to
supplemental investment and market research and security and economic analyses
provided by certain brokers who may execute
- 4 -
<PAGE>
brokerage transactions at a higher commission to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the lowest
commission. Therefore, if so authorized by the Manager, the Adviser is
authorized to place orders for the purchase and sale of securities for the Fund
with such certain brokers, subject to review by the Trust's Board of Trustees
from time to time with respect to the extent and continuation of this practice,
provided that the Manager determines in good faith that the amount of the
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker or dealer. The determination may be
viewed in terms of either a particular transaction or the Manager's overall
responsibilities with respect to the Fund and to the other accounts over which
it exercises investment discretion. It is understood that although the
information may be useful to the Trust, the Manager and the Adviser, it is not
possible to place a dollar value on such information. Consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., and
subject to seeking best qualitative execution, the Manager may give
consideration to sales of shares of the Fund as a factor in the selection of
brokers and dealers to execute portfolio transactions of the Fund.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Adviser, if
so authorized by the Manager and
- 5 -
<PAGE>
to the extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Fund with respect to the Fund and to such other
clients.
For each fiscal quarter of the Fund, the Adviser shall prepare and
render reports to the Manager and the Trust's Board of Trustees of the total
brokerage business placed by the Adviser and the manner in which the allocation
has been accomplished. Such reports shall set forth at a minimum the information
required to be maintained by Rule 31a-1(b)(9) under the Act.
B. Adviser agrees that it will not execute any portfolio
transactions for the Fund's account with a broker or dealer which is an
"affiliated person" (as defined in the Act) of the Trust, the Manager or the
Adviser without the prior approval of the Manager. The Manager agrees that it
will provide the Adviser with a list of brokers and dealers which are
"affiliated persons" of the Trust, the Manager or the Adviser.
7. Proxies. The Trust will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Fund may be invested
from time to time. At the Fund's request, the Adviser shall provide the Trust
with its recommendations as to the voting of such proxies.
- 6 -
<PAGE>
8. Reports to the Adviser. The Trust will provide the Adviser with such
periodic reports concerning the status of the Fund as the Adviser may reasonably
request.
9. Fees for Services. For the services provided to the Fund, the
Manager shall pay the Adviser a fee equal to the annual rate of 60/100 of 1% of
the average value of the daily net assets of the Fund up to and including
$50,000,000, 50/100 of 1% of the next $50 million of such assets, 40/100 of 1%
of the next $100 million of such assets, and 35/100 of 1% of such assets in
excess of $200,000,000.
The Adviser's fees shall be payable monthly within ten days following
the end of each month. Pursuant to the provisions of the Management Agreement
between the Trust and the Manager, the Manager is solely responsible for the
payment of fees to the Adviser, and the Adviser agrees to seek payment of the
Adviser's fees solely from the Manager.
10. Other Investment Activities of the Adviser. The Trust acknowledges
that the Adviser or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Adviser, its
affiliates or any of its or their directors, officers, agents or employees may
buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the
Trust agrees that the Adviser or its affiliates may give advice or exercise
investment responsibility
- 7 -
<PAGE>
and take such other action with respect to other Affiliated Accounts which may
differ from the advice given or the timing or nature of action taken with
respect to the Fund, provided that the Adviser acts in good faith, and provided
further, that it is the Adviser's policy to allocate, within its reasonable
discretion, investment opportunities to the Fund over a period of time on a fair
and equitable basis relative to the Affiliated Accounts, taking into account the
investment objectives and policies of the Fund and any specific investment
restrictions applicable thereto. The Trust acknowledges that one or more of the
Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose
of or otherwise deal with positions in investments in which the Fund may have an
interest from time to time, whether in transactions which involve the Fund or
otherwise. The Adviser shall have no obligation to acquire for the Fund a
position in any investment which any Affiliated Account may acquire, and the
Trust shall have no first refusal, co-investment or other rights in respect of
any such investment, either for the Fund or otherwise.
11. Certificate of Authority. The Trust, the Manager and the Adviser
shall furnish to each other from time to time certified copies of the
resolutions of their Board of Trustees or Board of Directors or executive
committees, as the case may be, evidencing the authority of officers and
employees who are authorized to act on behalf of the Trust, the Fund, the
Manager and/or the Adviser.
- 8 -
<PAGE>
12. Limitation of Liability. The Adviser (including its directors,
officers, shareholders, employees, control persons and affiliates of any
thereof) shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance of its duties
or from the reckless disregard by the Adviser of its obligations and duties
under this Agreement ("disabling conduct"). However, the Adviser will not be
indemnified for any liability unless (1) a final decision is made on the merits
by a court or other body before whom the proceeding was brought that the Adviser
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 Adviser 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 Trust as defined in the Act nor parties to the proceeding ("disinterested,
non-party trustees"), or (b) an independent legal counsel in a written opinion.
The Fund 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, so long as the Adviser meets at least one of the
following as a condition to the advance: (1) the Adviser shall provide a
- 9 -
<PAGE>
security for its undertaking, (2) the Fund shall be insured against losses
arising by reason of any lawful advances, or (3) 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 Adviser ultimately will be found entitled to indemnification. Any
person employed by the Adviser who may also be or become an employee of the
Trust shall be deemed, when acting within the scope of his employment by the
Trust, to be acting in such employment solely for the Trust and not as the
Adviser's employee or agent.
13. Confidentiality. Subject to the duty of the Adviser and the Trust
to comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Fund and the actions of the Adviser and the
Trust in respect thereof.
14. Assignment. No assignment of this Agreement shall be made by the
Adviser, and this Agreement shall terminate automatically in the event of such
assignment. The Adviser shall notify the Trust in writing sufficiently in
advance of any proposed change of control, as defined in Section 2(a)(9) of the
Act, as will enable the Trust to consider whether an assignment will occur, and
to take the steps necessary to enter into a new contract with the Adviser.
- 10 -
<PAGE>
15. Representations, Warranties and Agreements of the Trust. The Trust
represents, warrants and agrees that:
A. The Adviser has been duly appointed by the Board of
Trustees of the Trust to provide investment services to the Fund as contemplated
hereby.
B. The Trust will deliver to the Adviser a true and complete
copy of its then current prospectus and statement of additional information as
effective from time to time and such other documents or instruments governing
the investments of the Fund and such other information as is necessary for the
Adviser to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all times
comply with the requirements imposed upon the Fund by applicable laws and
regulations.
16. Representations, Warranties and Agreements of the Adviser. The
Adviser represents, warrants and agrees that:
A. The Adviser is registered as an "investment adviser"
under the Investment Advisers Act of 1940.
B. The Adviser will maintain, keep current and preserve on
behalf of the Fund, in the manner and for the time periods required or permitted
by the Act, the records identified in Schedule A. The Adviser agrees that such
records (unless otherwise indicated on Schedule A) are the property of the
Trust, and will be surrendered to the Trust promptly upon request.
C. The Adviser will complete such reports concerning purchases
or sales of securities on behalf of the Fund as the
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<PAGE>
Manager or the Trust may from time to time require to ensure compliance with the
Act, the Internal Revenue Code and applicable state securities laws.
D. The Adviser will adopt a written code of ethics complying
with the requirements of Rule 17j-1 under the Act and will provide the Trust
with a copy of the code of ethics and evidence of its adoption. Within
forty-five (45) days of the end of the last calendar quarter of each year while
this Agreement is in effect, the president or a vice president of the Adviser
shall certify to the Trust that the Adviser has complied with the requirements
of Rule 17j-1 during the previous year and that there have been no violations of
the Adviser's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the written
request of the Trust, the Adviser shall submit to the Trust the reports required
to be made to the Adviser by Rule 17j-1(c)(1).
E. The Adviser will promptly after filing with the Securities
and Exchange Commission an amendment to its Form ADV furnish a copy of such
amendment to the Trust and to the Manager.
F. Upon request of the Trust, the Adviser will provide
assistance to the Custodian in the collection of income due or payable to the
Fund. With respect to income from foreign sources, the Adviser will undertake
any reasonable procedural steps required to reduce, eliminate or reclaim
non-U.S. withholding taxes under the terms of applicable United States income
tax treaties.
- 12 -
<PAGE>
G. The Adviser will immediately notify the Trust and the
Manager of the occurrence of any event which would disqualify the Adviser from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the Act or otherwise.
17. Amendment. This Agreement may be amended at any time, but only by
written agreement between the Adviser and the Trust, which amendment, other than
amendments to Schedule A, is subject to the approval of the Board of Trustees
and the shareholders of the Fund in the manner required by the Act and the rules
thereunder, subject to any applicable exemptive order of the Securities and
Exchange Commission modifying the provisions of the Act with respect to approval
of amendments to this Agreement.
18. Effective Date; Term. This Agreement shall become effective on the
date of its execution and shall remain in force until February 28, 1999 and from
year to year thereafter but only so long as such continuance is specifically
approved at least annually by the vote of a majority of the Trustees who are not
interested persons of the Trust, the Manager or the Adviser, cast in person at a
meeting called for the purpose of voting on such approval, and by a vote of the
Board of Trustees or of a majority of the outstanding voting securities of the
Fund. The aforesaid requirement that this Agreement may be continued "annually"
shall be construed in a manner consistent with the Act and the rules and
regulations thereunder.
- 13 -
<PAGE>
19. Termination. This Agreement may be terminated by either party
hereto, without the payment of any penalty, immediately upon written notice to
the other in the event of a breach of any provision thereof by the party so
notified, or otherwise upon sixty (60) days' written notice to the other, but
any such termination shall not affect the status, obligations or liabilities of
any party hereto to the other.
20. Shareholder Liability. The Adviser is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Trust and agrees that obligations assumed by the
Trust pursuant to this Agreement shall be limited in all cases to the Fund and
its assets. The Adviser agrees that it shall not seek satisfaction of any such
obligations from the shareholders or any individual shareholder of the Fund, nor
from the Trustees or any individual Trustee of the Trust.
21. Definitions. As used in paragraphs 14 and 18 of this Agreement, the
terms "assignment," interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
22. Applicable Law. To the extent that state law is not preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
- 14 -
<PAGE>
COUNTRYWIDE INVESTMENTS, INC. COUNTRYWIDE STRATEGIC TRUST
By: /s/ Robert H. Leshner By: /s/ Robert H. Leshner
------------------------- -----------------------
Title: President Title: President
Date: August 29, 1997 Date: August 29, 1997
ACCEPTANCE
The foregoing Agreement is hereby accepted.
MASTRAPASQUA & ASSOCIATES, INC.
By: /s/ Frank Mastrapasqua
-----------------------
Title: Chairman and CEO
Date: August 29, 1997
- 15 -
<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE ADVISER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases and sales, given by the Adviser on behalf of
the Fund for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any
modification or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the
Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected,
and the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or
dealers.
(ii) The supplying of services or benefits by brokers
or dealers to:
(a) The Trust;
(b) the Manager;
(c) the Adviser;
(d) any other portfolio adviser of the Trust;
and
(e) any person affiliated with the foregoing
persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as such.
- 16 -
<PAGE>
B. Shall show the nature of the services or benefits made
available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate
memorandum identifying the person or persons, committees or
groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or
group, a record shall be kept of the names of its members who
participate in the authorization. There shall be retained as
part of this record: any memorandum, recommendation or
instruction supporting or authorizing the purchase or sale of
portfolio securities and such other information as is
appropriate to support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are
required to be maintained by registered investment advisers by rules
adopted under Section 204 of the Investment Advisers Act of 1940, to
the extent such records are necessary or appropriate to record the
Adviser's transactions with respect to the Fund.
- ----------------
*Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal reports
or portfolio adviser reviews.
- 17 -
<PAGE>
SUBADVISORY AGREEMENT
Bankers Trust Company
280 Park Avenue, 3E
New York, New York 10017
Gentlemen:
Countrywide Strategic Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "Act"), and subject to the rules and regulations
promulgated thereunder. The Trust's shares of beneficial interest are divided
into separate series or funds. Each such share of a fund represents an undivided
interest in the assets, subject to the liabilities, allocated to that fund. Each
fund has separate investment objectives and policies. The Interntional Equity
Fund (the "Fund") has been established as a series of the Trust.
Countrywide Investments, Inc. (the "Manager") acts as the investment
manager for the Fund pursuant to the terms of a Management Agreement. The
Manager is responsible for the coordination of investment of the Fund's assets
in portfolio securities. However, specific portfolio purchases and sales for the
investment portfolio of the Fund are to be made by advisory organizations
recommended by the Manager and approved by the Board of Trustees of the Trust.
1. APPOINTMENT AS AN ADVISER. The Trust being duly authorized hereby
appoints and employs Bankers Trust Company ("the Adviser") as the discretionary
portfolio manager of the Fund, on the terms and conditions set forth herein.
countryw\subadvag.btc
<PAGE>
2. ACCEPTANCE OF APPOINTMENT; Standard of Performance. The Adviser
accepts the appointment as the discretionary portfolio manager and agrees to use
its best professional judgment to make timely investment decisions for the Fund
in accordance with the provisions of this Agreement.
3. PORTFOLIO MANAGEMENT SERVICES OF ADVISER. The Adviser is hereby
employed and authorized to select portfolio securities for investment by the
Fund, to purchase and sell securities of the Fund, and upon making any purchase
or sale decision, to place orders for the execution of such portfolio
transactions in accordance with paragraphs 5 and 6 hereof. In providing
portfolio management services to the Fund, the Adviser shall be subject to such
investment restrictions as are set forth in the Act and the rules thereunder,
the Internal Revenue Code, applicable state securities laws, the supervision and
control of the Board of Trustees of the Trust, such specific instructions as the
Board of Trustees may adopt and communicate to the Adviser, the investment
objectives, policies and restrictions of the Fund furnished pursuant to
paragraph 4, the provisions of Schedule A hereto and instructions from the
Manager. The Adviser is not authorized by the Fund to take any action, including
the purchase or sale of securities for the Fund, in contravention of any
restriction, limitation, objective, policy or instruction described in the
previous sentence. The Adviser shall maintain on behalf of the Fund the records
listed in Schedule A hereto (as amended from time to time). At the Trust's
reasonable request,
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<PAGE>
the Adviser will consult with the Manager with respect to any decision made by
it with respect to the investments of the Fund.
4. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Trust will
provide the Adviser with the statement of investment objectives, policies and
restrictions applicable to the Fund as contained in the Fund's registration
statements under the Act and the Securities Act of 1933, and any instructions
adopted by the Board of Trustees supplemental thereto. The Trust will provide
the Adviser with such further information concerning the investment objectives,
policies and restrictions applicable thereto as the Adviser may from time to
time reasonably request. The Trust retains the right, on written notice to
the Adviser from the Trust or the Manager, to modify any such objectives,
policies or restrictions in any manner at any time.
5. TRANSACTION PROCEDURES. All transactions will be consummated by
payment to or delivery by Bankers Trust Company or any successor custodian (the
"Custodian"), or such depositories or agents as may be designated by the
Custodian in writing, as custodian for the Fund, of all cash and/or securities
due to or from the Fund, and the Adviser shall not have possession or custody
thereof. The Adviser shall advise the Custodian and confirm in writing to the
Trust and to the Manager all investment orders for the Fund placed by it with
brokers and dealers. The Adviser shall issue to the Custodian such instructions
as may be appropriate in connection with the settlement of any transaction
initiated by the Adviser. It shall be the responsibility of the
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<PAGE>
Adviser to take appropriate action if the Custodian fails to confirm in writing
proper execution of the instructions.
6. ALLOCATION OF BROKERAGE. The Adviser shall have the authority and
discretion to select brokers and dealers to execute portfolio transactions
initiated by the Adviser, and for the selection of the markets on or in which
the transactions will be executed.
A. In doing so, the Adviser will give primary consideration to
securing the best qualitative execution, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. Consistent with this policy, the Adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) to the other accounts over
which it exercises investment discretion. It is understood that neither the
Fund, the Manager nor the Adviser have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the Fund that the Adviser have access to supplemental investment
and market research and security and economic analyses provided by certain
brokers who may execute brokerage transactions at a higher commission to the
Fund than may result when allocating brokerage to other brokers on the basis of
seeking the lowest
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<PAGE>
commission. Therefore, the Adviser is authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers, subject
to review by the Trust's Board of Trustees from time to time with respect to the
extent and continuation of this practice, provided that the Adviser determines
in good faith that the amount of the commission is reasonable in relation to the
value of the brokerage and research services provided by the executing broker or
dealer. The determination may be viewed in terms of either a particular
transaction or the Adviser's overall responsibilities with respect to the Fund
and to the other accounts over which it exercises investment discretion. It is
understood that although the information may be useful to the Trust and the
Adviser, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution, the
Adviser may give consideration to sales of shares of the Fund as a factor in the
selection of brokers and dealers to execute portfolio transactions of the Fund.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions
- 5 -
<PAGE>
and efficient execution. In such event, allocation of the securities so
purchased or sold, as well as expenses incurred in the transaction, will be made
by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund with respect to the Fund
and to such other clients.
For each fiscal quarter of the Fund, the Adviser shall prepare and
render reports to the Manager and the Trust's Board of Trustees of the total
brokerage business placed and the manner in which the allocation has been
accomplished. Such reports shall set forth at a minimum the information required
to be maintained by Rule 31a-1(b)(9) under the Act.
B. Adviser agrees that it will not execute any portfolio
transactions for the Fund's account with a broker or dealer which is an
"affiliated person" (as defined in the Act) of the Trust, the Manager, the
Adviser or any portfolio manager of the Trust without the prior written approval
of the Manager. The Manager agrees that it will provide the Adviser with a list
of brokers and dealers which are "affiliated persons" of the Trust, the Manager
or the Adviser.
7. PROXIES. The Trust will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Fund may be invested
from time to time. At the Fund's request, the Adviser shall provide the Trust
with its recommendations as to the voting of such proxies.
- 6 -
<PAGE>
8. REPORTS TO THE ADVISER. The Trust will provide the Adviser with
such periodic reports concerning the status of the Fund as the Adviser may
reasonably request.
9. FEES FOR SERVICES. For the services provided to the Fund, the
Manager shall pay the Adviser a fee equal to the annual rate of 50/100 of 1% of
the average value of the daily net assets of the Fund. The Adviser agrees to
waive all advisory fees for the first ninety days of the Fund's operations.
Thereafter, however, the Adviser shall not be required to waive any portion of
its fees if not required by an applicable statute or regulation.
The Adviser's fees shall be payable monthly within ten days following
the end of each month. Pursuant to the provisions of the Management Agreement
between the Trust and the Manager, the Manager is solely responsible for the
payment of fees to the Adviser, and the Adviser agrees to seek payment of the
Adviser's fees solely from the Manager.
10. OTHER INVESTMENT ACTIVITIES OF THE ADVISER. The Trust acknowledges
that the Adviser or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Adviser, its
affiliates or any of its or their directors, officers, agents or employees may
buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the
Trust agrees that the Adviser or its affiliates may give advice or exercise
investment responsibility and take such other action with respect to other
Affiliated
- 7 -
<PAGE>
Accounts which may differ from the advice given or the timing or nature of
action taken with respect to the Fund, provided that the Adviser acts in good
faith, and provided further, that it is the Adviser's policy to allocate, within
its reasonable discretion, investment opportunities to the Fund over a period of
time on a fair and equitable basis relative to the Affiliated Accounts, taking
into account the investment objectives and policies of the Fund and any specific
investment restrictions applicable thereto. The Trust acknowledges that one or
more of the Affiliated Accounts may at any time hold, acquire, increase,
decrease, dispose of or otherwise deal with positions in investments in which
the Fund may have an interest from time to time, whether in transactions which
involve the Fund or otherwise. The Adviser shall have no obligation to acquire
for the Fund a position in any investment which any Affiliated Account may
acquire, and the Trust shall have no first refusal, co-investment or other
rights in respect of any such investment, either for the Fund or otherwise.
11. CERTIFICATE OF AUTHORITY. The Trust, the Manager and the Adviser
shall furnish to each other from time to time certified copies of the
resolutions of their Board of Trustees or Board of Directors or executive
committees, as the case may be, evidencing the authority of officers and
employees who are authorized to act on behalf of the Trust, the Fund, the
Manager and/or the Adviser.
- 8 -
<PAGE>
12. LIMITATION OF LIABILITY. The Adviser shall not be liable for
any action taken, omitted or suffered to be taken by it in its
reasonable judgment, in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Agreement, or in
accordance with (or in the absence of) specific directions or instructions from
the Trust, provided, however, that such acts or omissions shall not have
resulted from the Adviser's willful misfeasance, bad faith or gross negligence,
a violation of the standard of care established by and applicable to the Adviser
in its actions under this Agreement or breach of its duty or of its obligations
hereunder. Nothing in this paragraph 12 shall be construed in a manner
inconsistent with Sections 17(h) and (i) of the Act.
13. CONFIDENTIALITY. Subject to the duty of the Adviser and the Trust
to comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Fund and the actions of the Adviser and the
Trust in respect thereof.
14. ASSIGNMENT. No assignment of this Agreement shall be made by the
Adviser, and this Agreement shall terminate automatically in the event of such
assignment. The Adviser shall notify the Trust in writing sufficiently in
advance of any proposed change of control, as defined in Section 2(a)(9) of the
Act, as will enable the Trust to consider whether an assignment will occur, and
to take the steps necessary to enter into a new contract with the Adviser.
- 9 -
<PAGE>
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE TRUST.
The Trust Represents, Warrants and agrees that:
A. The Adviser has been duly appointed by the Board
of Trustees of the Trust to provide investment services to the
Fund as contemplated hereby.
B. The Trust will deliver to the Adviser a true and complete
copy of its then current prospectus and statement of additional information as
effective from time to time and such other documents or instruments governing
the investments of the Fund and such other information as is necessary for the
Adviser to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all times
comply with the requirements imposed upon the Fund by applicable laws and
regulations.
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ADVISER. The
Adviser represents, warrants and agrees that:
A. The Adviser is registered as an "investment adviser" under
the Investment Advisers Act of 1940.
B. The Adviser will maintain, keep current and preserve on
behalf of the Fund, in the manner and for the time periods required or permitted
by the Act, the records identified in Schedule A. The Adviser agrees that such
records (unless otherwise indicated on Schedule A) are the property of the
Trust, and will be surrendered to the Trust promptly upon request.
C. The Adviser will complete such reports concerning purchases
or sales of securities on behalf of the Fund as the Manager or the Trust may
from time to time require to ensure
- 10 -
<PAGE>
compliance with the Act, the Internal Revenue Code and applicable state
securities laws.
D. The Adviser will adopt a written code of ethics complying
with the requirements of Rule 17j-1 under the Act and will provide the Trust
with a copy of the code of ethics and evidence of its adoption. Within
forty-five (45) days of the end of the last calendar quarter of each year while
this Agreement is in effect, the president or a vice president of the Adviser
shall certify to the Trust that the Adviser has complied with the requirements
of Rule 17j-1 during the previous year and that there has been no violation of
the Adviser's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the written
request of the Trust, the Adviser shall submit to the Trust the reports required
to be made to the Adviser by Rule 17j-1(c)(1).
E. The Adviser will promptly after filing with the Securities
and Exchange Commission an amendment to its Form ADV furnish a copy of such
amendment to the Trust and to the Manager.
F. Upon request of the Trust, the Adviser will provide
assistance to the Custodian in the collection of income due or payable to the
Fund. With respect to income from foreign sources, the Adviser will undertake
any reasonable procedural steps required to reduce, eliminate or reclaim
non-U.S. withholding taxes under the terms of applicable United States income
tax treaties.
G. The Adviser will immediately notify the Trust and
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<PAGE>
the Manager of the occurrence of any event which would disqualify the Adviser
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the Act or otherwise.
17. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement between the Adviser and the Trust, which amendment, other than
amendments to Schedule A, is subject to the approval of the Board of Trustees
and the shareholders of the Fund in the manner required by the Act and the rules
thereunder, subject to any applicable exemptive order of the Securities and
Exchange Commission modifying the provisions of the Act with respect to approval
of amendments to this Agreement.
18. EFFECTIVE DATE; TERM. This Agreement shall become effective on the
date of its execution and shall remain in force until February 28, 1999; and
from year to year thereafter but only so long as such continuance is
specifically approved at least annually by the vote of a majority of the
Trustees who are not interested persons of the Trust, the Manager or the
Adviser, cast in person at a meeting called for the purpose of voting on such
approval, and by a vote of the Board of Trustees or of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that this
Agreement may be continued "annually" shall be construed in a manner consistent
with the Act and the rules and regulations thereunder.
19. TERMINATION. This Agreement may be terminated by
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<PAGE>
either party hereto, without the payment of any penalty, immediately upon
written notice to the other in the event of a breach of any provision thereof by
the party so notified, or otherwise upon sixty (60) days' written notice to the
other, but any such termination shall not affect the status, obligations or
liabilities of any party hereto to the other.
20. SHAREHOLDER LIABILITY. The Adviser is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Trust and agrees that obligations assumed by the
Trust pursuant to this Agreement shall be limited in all cases to the Fund and
its assets. The Adviser agrees that it shall not seek satisfaction of any such
obligations from the shareholders or any individual shareholder of the Fund, nor
from the Trustees or any individual Trustee of the Trust.
21. DEFINITIONS. As used in paragraphs 14 and 18 of this Agreement, the
terms "assignment," interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
22. APPLICABLE LAW. To the extent that state law is not preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
<PAGE>
COUNTRYWIDE INVESTMENTS, INC. COUNTRYWIDE STRATEGIC TRUST
By:__________________________ By:___________________________
Title: President Title: President
Date: , 1997 Date: , 1997
ACCEPTANCE
The foregoing Agreement is hereby accepted.
BANKERS TRUST COMPANY
By:
Title:
Date: , 1997
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<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE ADVISER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases or sales, given by the Adviser on behalf of
the Fund for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any
modification or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the
Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected,
and the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or
dealers.
(ii) The supplying of services or benefits by brokers or
dealers to:
(a) The Trust;
(b) the Manager;
(c) the Adviser;
(d) any other portfolio adviser of the Trust;
and
(e) any person affiliated with the foregoing
persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as such.
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<PAGE>
B. Shall show the nature of the services or benefits made
available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate
memorandum identifying the person or persons, committees or
groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee
or group, a record shall be kept of the names of its members
who participate in the authorization. There shall be
retained as part of this record: any memorandum,
recommendation or instruction supporting or authorizing the
purchase or sale of portfolio securities and such other
information as is appropriate to support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are
required to be maintained by registered investment advisers by rules
adopted under Section 204 of the Investment Advisers Act of 1940, to
the extent such records are necessary or appropriate to record the
Adviser's transactions with respect to the Fund.
- -----------------
*Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal reports
or portfolio adviser reviews.
- 16 -
<PAGE>
Dealer #________
COUNTRYWIDE INVESTMENTS, INC.
312 WALNUT STREET
CINCINNATI, OHIO 45202
800-543-8721
513-629-2000
DEALER'S AGREEMENT
Countrywide Investments, Inc. ("Underwriter") invites you, as a
selected dealer, to participate as principal in the distribution of shares (the
"Shares") of the mutual funds set forth on Schedule A to this Agreement (the
"Funds"), of which it is the exclusive underwriter. Underwriter agrees to sell
to you, subject to any limitations imposed by the Funds, Shares issued by the
Funds and to promptly confirm each sale to you. All sales will be made according
to the following terms:
1. All offerings of any of the Shares by you must be made at the public
offering prices, and shall be subject to the conditions of offering, set forth
in the then current Prospectus of the Funds and to the terms and conditions
herein set forth, and you agree to comply with all requirements applicable to
you of all applicable laws, including federal and state securities laws, the
rules and regulations of the Securities and Exchange Commission, and the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"), including Section 24 of the Rules of Fair Practice of the NASD. You
will not offer the Shares for sale in any state or other jurisdiction where they
are not qualified for sale under the Blue Sky Laws and regulations of such state
or jurisdiction, or where you are not qualified to act as a dealer. Upon
application to Underwriter, Underwriter will inform you as to the states or
other jurisdictions in which Underwriter believes the Shares may legally be
sold.
2. (a) You will receive a discount from the public offering
price ("concession") on all Shares purchased by you from Underwriter as
indicated on Schedule A, as it may be amended by Underwriter from time to time.
(b) In all transactions in open accounts in which you are
designated as Dealer of Record, you will receive the concessions as set forth on
Schedule A. You hereby authorize Underwriter to act as your agent in connection
with all transactions in open accounts in which you are designated as Dealer of
Record. All designations as Dealer of Record, and all authorizations of
Underwriter to act as your Agent pursuant thereto, shall cease upon the
termination of this Agreement or upon the investor's instructions to transfer
his open account to another Dealer of Record. No dealer concessions will be
allowed on purchases generating less than $1.00 in dealer concessions.
(c) As the exclusive underwriter of the Shares, Underwriter
reserves the privilege of revising the discounts specified on Schedule A at any
time by written notice.
3. Concessions will be paid to you at the address of your
principal office, as indicated below in your acceptance of this Agreement.
4. Underwriter reserves the right to cancel this Agreement at any time
without notice if any Shares shall be offered for sale by you at less than the
then current public offering prices determined by, or for, the Funds.
5. All orders are subject to acceptance or rejection by Underwriter in
its sole discretion. The Underwriter reserves the right, in its discretion,
without notice, to suspend sales or withdraw the offering of Shares entirely.
6. Payment shall be made to the Funds and shall be received by its
Transfer Agent within three (3) business days after the acceptance of your order
or such shorter time as may be required by law. With respect to all Shares
ordered by you for which payment has not been received, you hereby assign and
pledge to Underwriter all of your right, title and interest in such Shares to
secure payment therefor. You appoint Underwriter as your agent to execute and
deliver all documents necessary to effectuate any of the transactions described
in this paragraph. If such payment is not received within the required time
period, Underwriter reserves the right, without notice, and at its option,
forthwith (a) to cancel the sale, (b) to sell the Shares ordered by you back to
the Funds, or (c) to assign your payment obligation, accompanied by all pledged
Shares, to any person. You agree that Underwriter may hold you responsible for
any loss, including loss of profit, suffered by the Funds, its Transfer Agent or
Underwriter, resulting from your failure to make payment within the required
time period.
<PAGE>
7. No person is authorized to make any representations concerning
Shares of the Funds except those contained in the current applicable Prospectus
and Statement of Additional Information and in sales literature issued and
furnished by Underwriter supplemental to such Prospectus. Underwriter will
furnish additional copies of the current Prospectus and Statement of Additional
Information and such sales literature and other releases and information issued
by Underwriter in reasonable quantities upon request.
8. Under this Agreement, you act as principal and are not employed by
Underwriter as broker, agent or employee. You are not authorized to act for
Underwriter nor to make any representation on its behalf; and in purchasing or
selling Shares hereunder, you rely only upon the current Prospectus and
Statement of Additional Information furnished to you by Underwriter from time to
time and upon such written representations as may hereafter be made by
Underwriter to you over its signature.
9. You appoint the transfer agent for the Funds as your agent to
execute the purchase transactions of Shares in accordance with the terms and
provisions of any account, program, plan or service established or used by your
customers and to confirm each purchase to your customers on your behalf, and you
guarantee the legal capacity of your customers purchasing such Shares and any
co-owners of such Shares.
10. You will (a) maintain all records required by law relating to
transactions in the Shares, and upon the request of Underwriter, or the request
of the Funds, promptly make such records available to Underwriter or to the
Funds as are requested, and (b) promptly notify Underwriter if you experience
any difficulty in maintaining the records required in the foregoing clause in an
accurate and complete manner. In addition, you will establish appropriate
procedures and reporting forms and schedules, approved by Underwriter and by the
Funds, to enable the parties hereto and the Funds to identify all accounts
opened and maintained by your customers.
11. Underwriter has adopted compliance standards, attached hereto as
Schedule B, as to when Class A and Class C Shares of the Dual Pricing Funds may
appropriately be sold to particular investors. You agree that all persons
associated with you will conform to such standards when selling Shares.
12. Each party hereto represents that it is presently, and, at all
times during the term of this Agreement, will be, a member in good standing of
the NASD and agrees to abide by all its Rules of Fair Practice including, but
not limited to, the following provisions:
(a) You shall not withhold placing customers' orders for any Shares so
as to profit yourself as a result of such withholding. You shall not purchase
any Shares from Underwriter other than for investment, except for the purpose of
covering purchase orders already received.
(b) All conditional orders received by Underwriter must be at a
specified definite price.
(c) If any Shares purchased by you are repurchased by the Funds (or by
Underwriter for the account of the Funds) or are tendered for redemption within
seven business days after confirmation of the original sale of such Shares (1)
you agree to forthwith refund to Underwriter the full concession allowed to you
on the original sale, such refund to be paid by Underwriter to the Funds, and
(2) Underwriter shall forthwith pay to the Funds that part of the discount
retained by Underwriter on the original sale. Notice will be given to you of any
such repurchase or redemption within ten days of the date on which the
repurchase or redemption request is made.
<PAGE>
(d) Neither Underwriter, as exclusive underwriter for the Funds, nor
you as principal, shall purchase any Shares from a record holder at a price
lower than the net asset value then quoted by, or for, the Funds. Nothing in
this sub-paragraph shall prevent you from selling Shares for the account of a
record holder to Underwriter or the Funds at the net asset value currently
quoted by, or for, the Funds and charging the investor a fair commission for
handling the transaction.
(e) You warrant on behalf of yourself and your registered
representatives and employees that any purchase of Shares at net asset value by
the same pursuant to the terms of the Prospectus of the applicable Fund is for
investment purposes only and not for purposes of resale. Shares so purchased may
be resold only to the Fund which issued them.
13. You agree that you will indemnify Underwriter, the Funds, the
Funds' transfer agent and the Funds' custodians and hold such persons harmless
from any claims or assertions relating to the lawfulness of your company's
participation in this Agreement and the transactions contemplated hereby or
relating to any activities of any persons or entities affiliated with your
company which are performed in connection with the discharge of your
responsibilities under this Agreement. If any such claims are asserted, the
indemnified parties shall have the right to engage in their own defense,
including the selection and engagement of legal counsel of their choosing, and
all costs of such defense shall be borne by you.
<PAGE>
14. This Agreement will automatically terminate in the event of its
assignment. Either party hereto may cancel this Agreement without penalty upon
ten days' written notice. This Agreement may also be terminated as to any Fund
at any time without penalty by the vote of a majority of the members of the
Board of Trustees of the terminating Fund who are not "interested persons" (as
such term is defined in the Investment Company Act of 1940) and who have no
direct or indirect financial interest in the applicable Fund's Distribution
Expense Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 or
any agreement relating to such Plan, including this Agreement, or by a vote of a
majority of the outstanding voting securities of the terminating Fund on ten
days' written notice.
15. All communications to Underwriter should be sent to Countrywide
Investments, Inc., 312 Walnut Street, Cincinnati, Ohio 45202, or at such other
address as Underwriter may designate in writing. Any notice to you shall be duly
given if mailed or telegraphed to you at the address of your principal office,
as indicated below in your acceptance of this Agreement.
16. This Agreement supersedes any other agreement with you relating
to the offer and sale of the Shares, and relating to any other matter discussed
herein.
17. This Agreement shall be binding (i) upon placing your first order
with Underwriter for the purchase of Shares, or (ii) upon receipt by Underwriter
in Cincinnati, Ohio of a counterpart of this Agreement duly accepted and signed
by you, whichever shall occur first. This Agreement shall be construed in
accordance with the laws of the State of Ohio.
18. The undersigned, executing this Agreement on behalf of Dealer,
hereby warrants and represents that he is duly authorized to so execute this
Agreement on behalf of Dealer.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return all copies of this Agreement to the
Underwriter.
ACCEPTED BY DEALER
By:________________________________________
Authorized Signature
___________________________________________
Type or Print Name, Position
___________________________________________
Dealer Name
___________________________________________
Address
____________________________________________
Address
____________________________________________
Phone
_____________________________________________
Date
COUNTRYWIDE INVESTMENTS, INC.
By: __________________________________________________
_______________________________________________________
Date
<PAGE>
Schedule A
COUNTRYWIDE INVESTMENTS
COMMISSION SCHEDULE
Government Mortgage Fund
Intermediate Bond Fund
Tax-Free Intermediate Term Fund - Class A
Intermediate Term Government Income Fund
Adjustable Rate U.S. Government Securities Fund
Total
Dollar Amount of Purchase Sales Dealer
(At Offering Price) Charge* Concession
Less than $100,000 2.00% 1.80%
from $100,000 but under $250,000 1.50% 1.35%
from $250,000 but under $500,000 1.00% .90%
from $500,000 but under $1,000,000 .75% .65%
$1,000,000 and over** None None
25 basis points annual trailing commission effective immediately, paid
quarterly.
Equity Fund - Class A
Utility Fund - Class A
Growth/Value Fund
Aggressive Growth Fund
Global Bond Fund - Class A
Ohio Insured Tax-Free Fund - Class A
Kentucky Tax-Free Fund
Total
Dollar Amount of Purchase Sales Dealer
(At Offering Price) Charge* Concession
Less than $100,000 4.00% 3.60%
from $100,000 but under $250,000 3.50% 3.30%
from $250,000 but under $500,000 2.50% 2.30%
from $500,000 but under $1,000,000 2.00% 1.80%
$1,000,000 and over** None None
25 basis points annual trailing commission effective immediately, paid
quarterly.
* As a percentage of offering price.
** Broker/Dealers are entitled to a commission of 75 basis points at the time
the investor purchases Class A shares at NAV in amounts totaling $1 million or
more. However, the investor is subject to a contingent deferred sales load of
75 basis points if a redemption occurs within one year of purchase.
See specific Fund prospectus for details.
Equity Fund - Class C
Utility Fund - Class C
Global Bond Fund - Class C
Ohio Insured Tax-Free Fund - Class C
Tax-Free Intermediate Term Fund - Class C
The Funds will be offered to clients at net asset value. A commission of 1% of
the purchase amount of Class C shares will be paid to participating brokers at
the time of purchase. Purchases of Class C shares are subject to a contingent
deferred sales load, according to the following schedule:
Year Since Purchase Contingent Deferred
Payment Was Made Sales Load
First Year 1%
Thereafter None
100 basis points annual trailing commission will be paid quarterly beginning in
the thirteenth month.
Brokers may invest for their own account at NAV
No trailing commissions will be paid to a dealer for any calendar quarter in
which the average daily balance of all accounts in Countrywide Investments
funds (including no-load money market funds) is less than $1,000,000.
FOR BROKER/DEALER USE ONLY
<PAGE>
Schedule B
POLICIES AND PROCEDURES
WITH RESPECT TO SALES
OF DUAL PRICING FUND
As certain Funds within Countrywide Investments (the "Dual Pricing
Funds") offer two classes of Shares subject to different levels of front-end
sales charges, it is important for an investor not only to choose the Fund that
best suits his investment objectives, but also to choose the sales financing
method which best suits his particular situation. To assist investors in these
decisions, we are instituting the following policy:
1. Any purchase order for $1 million or more must be for Class A
Shares.
2. Any purchase order for $100,000 but less than $1 million is
subject to approval by a registered principal of the
Underwriter, who must approve the purchase order for either
Class A Shares or Class C Shares in light of the relevant
facts and circumstances, including:
(a) the specific purchase order dollar amount;
(b) the length of time the investor expects to hold the
Shares; and
(c) any other relevant circumstances, such as the
availability of purchases under a Letter of Intent.
3. Any order to exchange Class A Shares of a Dual Pricing Fund
(or Shares of another Fund having a maximum sales load equal
to or greater than Class A Shares of the Dual Pricing Funds)
for Shares of another Dual Pricing Fund will be for Class A
Shares only. Class C Shares of a Dual Pricing Fund may be
exchanged for either Class A or Class C Shares of another Dual
Pricing Fund, provided that an exchange of Class C Shares for
Class A Shares is subject to approval by a registered
principal of Underwriter, who must approve the exchange in
light of the relevant facts and circumstances.
There are instances when one financing method may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales charge on Class A Shares may determine that
payment of such a reduced front-end sales charge is superior to payment of the
higher ongoing distribution fee applicable to Class C Shares. On the other hand,
an investor whose order would not qualify for such a discount may wish to pay a
lower sales charge and have more of his funds invested in Class C Shares. If
such an investor anticipates that he will redeem his Shares within a short
period of time, the investor may, depending on the amount of his purchase,
choose to bear higher distribution expenses than if he had purchased Class A
Shares.
In addition, investors who intend to hold their Shares for a
significantly long time may wish to purchase Class A Shares in order to avoid
the higher ongoing distribution expenses of Class C Shares.
The appropriate supervisor must ensure that all employees receiving
investor inquiries about the purchase of Shares of Dual Pricing Funds advise the
investor of the available financing methods offered by mutual funds, and the
impact of choosing one method over another. It may be appropriate for the
supervisor to discuss the purchase with the investor.
This policy is effective immediately with respect to any order for the
purchase of Shares of all Dual Pricing Funds. Questions relating to this policy
should be directed to Sharon Karp, Vice President of the Underwriter, at
513/629-2000.
ACCOUNTING AND PRICING SERVICES AGREEMENT
THIS AGREEMENT effective as of February 28, 1997 by and between
COUNTRYWIDE STRATEGIC TRUST, a Massachusetts business trust (the "Trust") and
COUNTRYWIDE FUND SERVICES, INC., an Ohio corporation ("Countrywide").
WITNESSETH THAT:
WHEREAS, the Trust desires to hire Countrywide to provide the Trust
with certain accounting and pricing services, and Countrywide is willing to
provide such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT.
Countrywide is hereby appointed to provide the Trust with
certain accounting and pricing services, and Countrywide accepts such
appointment and agrees to provide such services under the terms and conditions
set forth herein.
2. CALCULATION OF NET ASSET VALUE.
Countrywide will calculate the net asset value of each series
of the Trust and the per share net asset value of each series of the Trust, in
accordance with the Trust's effective Registration Statement on Form N-1A under
the Securities Act of 1933, as amended, including its current prospectus and
statement of additional information (the "Registration Statement"), once daily
as of the time selected by the Trust's Board of Trustees. Countrywide will
prepare and maintain a daily valuation of all securities and other assets of the
Trust in accordance with instructions from a designated officer of the Trust or
its investment adviser and in the manner set forth in the Registration
Statement. In valuing securities of the Trust, Countrywide may contract with,
and rely upon market quotations provided by, outside services, the cost of which
shall be borne by the Trust.
3. BOOKS AND RECORDS.
Countrywide will maintain such books and records as are
necessary to enable it to perform its duties under this Agreement, and, in
addition, will prepare and maintain complete, accurate and current all records
with respect to the Trust required to be maintained by the Trust under the
Internal Revenue Code, as amended (the "Code") and under the general rules and
<PAGE>
regulations of the Investment Company Act of 1940, as amended (the "Act"), and
will preserve said records in the manner and for the periods prescribed in the
Code and such rules and regulations. The retention of such records shall be at
the expense of the Trust.
All of the records prepared and maintained by Countrywide
pursuant to this Paragraph 3 which are required to be maintained by the Trust
under the Code and the Act ("Required Records") will be the property of the
Trust. In the event this Agreement is terminated, all Required Records shall be
delivered to the Trust or to any person designated by the Trust at the Trust's
expense, and Countrywide shall be relieved of responsibility for the preparation
and maintenance of any Required Records delivered to the Trust or any such
person.
4. COOPERATION WITH ACCOUNTANTS.
Countrywide shall cooperate with the Trust's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
5. FEES AND CHARGES.
For performing its services under this Agreement, the Trust
shall pay Countrywide a fee in accordance with the schedule attached hereto as
Schedule A.
6. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
Except as otherwise provided in this Agreement and except for
the accuracy of information furnished to it by Countrywide, the Trust assumes
full responsibility for the preparation, contents and distribution of each
prospectus and statement of additional information of the Trust, for complying
with all applicable requirements of the Act, the Securities Act of 1933, as
amended, and any laws, rules and regulations of governmental authorities having
jurisdiction.
7. CONFIDENTIALITY.
Countrywide agrees to treat all records and other information
relative to the Trust and its prior, present or potential shareholders
confidentially and Countrywide on behalf of itself and its employees agrees to
keep confidential all such information, except (after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where Countrywide may be exposed to civil or
criminal contempt proceedings for failure to comply) when requested to divulge
such information by duly constituted authorities or when so requested by the
Trust.
- 2 -
<PAGE>
8. REFERENCES TO COUNTRYWIDE.
The Trust shall not circulate any printed matter which
contains any reference to Countrywide without the prior written approval of
Countrywide, excepting solely such printed matter as merely identifies
Countrywide as Transfer Agent, Plan Agent, Dividend Disbursing Agent,
Shareholder Service Agent and Accounting and Pricing Services Agent. The Trust
will submit printed matter requiring approval to Countrywide in draft form,
allowing sufficient time for review by Countrywide and its counsel prior to any
deadline for printing.
9. EQUIPMENT FAILURES.
In the event of equipment failures beyond Countrywide's
control, Countrywide shall take all steps necessary to minimize service
interruptions but shall have no liability with respect thereto. Countrywide
shall endeavor to enter into one or more agreements making provision for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
10. INDEMNIFICATION OF COUNTRYWIDE.
(a) Countrywide may rely on information reasonably believed by
it to be accurate and reliable. Except as may otherwise be required by the Act
or the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under or
payments made pursuant to this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of the duties of
Countrywide under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Countrywide under this Agreement.
(b) Any person, even though also a director, officer,
employee, shareholder or agent of Countrywide, who may be or become an officer,
trustee, employee or agent of the Trust, shall be deemed, when rendering
services to the Trust or acting on any business of the Trust (other than
services or business in connection with Countrywide's duties hereunder), to be
rendering such services to or acting solely for the Trust and not as a director,
officer, employee, shareholder or agent of, or one under the control or
direction of Countrywide, even though paid by it.
- 3 -
<PAGE>
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless Countrywide, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which Countrywide may sustain or incur or which may be asserted
against Countrywide by any person by reason of, or as a result of: (i) any
action taken or omitted to be taken by Countrywide in good faith in reliance
upon any certificate, instrument, order or stock certificate believed by it to
be genuine and to be signed, countersigned or executed by any duly authorized
person, upon the oral instructions or written instructions of an authorized
person of the Trust or upon the opinion of legal counsel for the Trust or its
own counsel; or (ii) any action taken or omitted to be taken by Countrywide in
connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
11. MAINTENANCE OF INSURANCE COVERAGE.
At all times during the term of this Agreement, Countrywide
shall be a named insured party on the Trust's Errors & Omissions policy and the
Trust's Fidelity Bond, both of which shall include coverage of Countrywide's
officers and employees. Countrywide shall pay its allocable share of the cost of
such policies in accordance with the provisions of the Act. The scope of
coverage and amount of insurance limits applicable to the Trust on such policies
shall also be made applicable to Countrywide.
12. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
13. TERMINATION.
(a) The provisions of this Agreement shall be effective upon
its execution, shall continue in effect for two years from that date and shall
continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by Countrywide, (2) by vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's trustees who are
not parties to this Agreement or interested persons (as defined
- 4 -
<PAGE>
in the Act) of any such party, and (3) by vote of a majority of the Trust's
Board of Trustees or a majority of the Trust's outstanding voting securities.
(b) Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor.
(c) This Agreement shall automatically terminate in the
event of its assignment.
(d) In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust by written notice to
Countrywide, Countrywide shall, promptly upon such termination and at the
expense of the Trust, transfer all Required Records and shall cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from Countrywide's cognizant personnel in the establishment of books, records
and other data by such successor.
14. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the Act) of Countrywide from providing services
for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
15. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
16. LIMITATION OF LIABILITY.
The term "Countrywide Strategic Trust" means and refers to the
trustees from time to time serving under the Trust's Declaration of Trust as the
same may subsequently thereto have been, or subsequently hereto may be, amended.
It is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the trust property of the
Trust. This Agreement has been authorized by the trustees of the Trust and
signed by an officer of the Trust, acting as such, and neither such
authorization by such trustees nor such execution by such officer shall be
deemed
- 5 -
<PAGE>
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the trust property of the Trust.
17. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
18. QUESTIONS OF INTERPRETATION.
(a) This Agreement shall be governed by the laws of the
State of Ohio.
(b) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision of
the Act and to interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued pursuant
to said Act. In addition, where the effect of a requirement of the Act,
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
19. NOTICES.
Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Trust
and of Countrywide for this purpose shall be 312 Walnut Street, Cincinnati, Ohio
45202.
20. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
21. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
- 6 -
<PAGE>
22. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
COUNTRYWIDE STRATEGIC TRUST
By: /s/ Robert H. Leshner
------------------------------
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
-------------------------------
- 7 -
<PAGE>
Schedule A
COMPENSATION
FOR FUND ACCOUNTING AND PORTFOLIO PRICING:
Government Mortgage Fund
Asset Size Monthly Fee
-------------------- -----------
$ 0 - $ 50,000,000 $3,250
$ 50,000,000 - $100,000,000 $3,750
$100,000,000 - $250,000,000 $4,250
Over $250,000,000 $4,750
Utility Fund
Equity Fund
Asset Size Monthly Fee
------------------------ --------------
$ 0 - $ 50,000,000 $3,500
$ 50,000,000 - $100,000,000 $4,000
$100,000,000 - $150,000,000 $4,500
$150,000,000 - $200,000,000 $5,000
$200,000,000 - $250,000,000 $5,500
Over $250,000,000 $6,500
Growth/Value Fund
Aggressive Growth Fund
Asset Size Monthly Fee
--------------------- ------------
$ 0 - $ 50,000,000 $2,500
$ 50,000,000 - $100,000,000 $3,000
$100,000,000 - $150,000,000 $3,500
$150,000,000 - $200,000,000 $4,000
$200,000,000 - $250,000,000 $4,500
Over $250,000,000 $5,500
- 8 -
TRANSFER, DIVIDEND DISBURSING, SHAREHOLDER SERVICE
AND PLAN AGENCY AGREEMENT
THIS AGREEMENT effective as of February 28, 1997 by and between
COUNTRYWIDE STRATEGIC TRUST, a Massachusetts business trust (the "Trust"), and
COUNTRYWIDE FUND SERVICES, INC., an Ohio corporation (the "T/A").
WITNESSETH THAT:
WHEREAS, the Trust desires to appoint the T/A as its transfer agent,
dividend disbursing agent, shareholder service agent, plan agent and shareholder
purchase and redemption agent, and the T/A is willing to act in such capacities
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT OF TRANSFER AGENT.
The T/A is hereby appointed transfer agent for the shares of
the Trust and dividend disbursing agent for the Trust and shall also act as plan
agent, shareholder service agent and purchase and redemption agent for
shareholders of the Trust, and the T/A accepts such appointment and agrees to
act in such capacities under the terms and conditions set forth herein.
2. DOCUMENTATION.
The Trust will furnish from time to time the following documents:
A. Each resolution of the Board of Trustees of the
Trust authorizing the original issue of its
shares;
B. Each Registration Statement filed with the
Securities and Exchange Commission and amendments
thereof;
C. A certified copy of each amendment to the
Declaration of Trust and the By-Laws of the Trust;
D. Certified copies of each resolution of the Board
of Trustees authorizing officers to give
instructions to the T/A;
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions
approving such forms;
<PAGE>
F. Such other certificates, documents or opinions
which the T/A may, in its discretion, deem
necessary or appropriate in the proper performance
of its duties;
G. Copies of all Underwriting and Dealer Agreements
in effect;
H. Copies of all Administration Agreements and
Investment Advisory Agreements in effect;
I. Copies of all documents relating to special
investment or withdrawal plans which are offered
or may be offered in the future by the Trust and
for which the T/A is to act as plan agent.
3. T/A TO RECORD SHARES.
The T/A shall record issues of shares of the Trust and shall
notify the Trust in case any proposed issue of shares by the Trust shall result
in an over-issue as defined by Section 8- 104(2) of the Uniform Commercial Code,
as provided in Article 8 of the Uniform Commercial Code, Ohio Revised Code,
paragraph 1308.01 et. seq., and in case any issue of shares would result in such
an over-issue, shall refuse to credit said shares and shall not countersign and
issue certificates for such shares. Except as provided in Article 8 of said
Uniform Commercial Code and in Section 4 of this Agreement and as specifically
agreed in writing from time to time between the T/A and the Trust, the T/A shall
have no obligation, when countersigning and issuing and/or crediting shares, to
take cognizance of any other laws relating to issue and sale of such shares.
4. T/A TO VALIDATE TRANSFERS.
Upon receipt of a proper request for transfer and upon
surrender to the T/A of certificates, if any, in proper form for transfer, the
T/A shall approve such transfer and shall take all necessary steps to effectuate
the transfer as indicated in the transfer request. Upon approval of the
transfer, the T/A shall notify the Trust in writing of each such transaction and
shall make appropriate entries on the shareholder records maintained by the T/A.
5. SHARE CERTIFICATES.
If the Trust authorizes the issuance of share certificate, the
Trust shall supply the T/A with a sufficient supply of blank share certificates
and from time to time shall renew such supply upon request of the T/A. Such
blank share
- 2 -
<PAGE>
certificates shall be properly signed, manually or, if authorized by the Trust,
by facsimile; and notwithstanding the death, resignation or removal of any
officers of the Trust authorized to sign share certificates, the T/A may
continue to countersign certificates which bear the manual or facsimile
signature of such officer until otherwise directed by the Trust.
6. LOST OR DESTROYED CERTIFICATES.
In case of the alleged loss or destruction of any share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished an appropriate bond satisfactory to T/A and the Trust,
and issued by a surety company satisfactory to the T/A and the Trust.
7. RECEIPT OF FUNDS.
Upon receipt of any check or other instrument drawn or
endorsed to it as agent for, or identified as being for the account of, the
Trust or Countrywide Investments, Inc. as underwriter of the Trust (the
"Underwriter"), the T/A shall stamp the check or instrument with the date of
receipt, determine the amount thereof due the Trust and the Underwriter,
respectively, and shall forthwith process the same for collection. Upon receipt
of notification of receipt of funds eligible for share purchases and payment of
sales charges in accordance with the Trust's then current prospectus and
statement of additional information, the T/A shall notify the Trust, at the
close of each business day, in writing of the amounts of said funds credited to
the Trust and deposited in its account with the Custodian, and shall similarly
notify the Underwriter of the amounts of said funds credited to the Underwriter
and deposited in its account with its designated bank.
8. PURCHASE ORDERS.
Upon receipt of a check or other order for the purchase of
shares of the Trust, accompanied by sufficient information to enable the T/A to
establish a shareholder account, the T/A shall, as of the next determination of
net asset value after receipt of such order in accordance with the Trust's then
current prospectus and statement of additional information, compute the number
of shares due to the shareholder, credit the share account of the investor,
subject to collection of the funds, with the number of shares so purchased,
shall notify the Trust in writing or by computer report at the close of each
business day of such transactions and shall mail to the investor and/or dealer
of record a notice of such credit when requested to do so by the Trust.
- 3 -
<PAGE>
9. ISSUE OF SHARE CERTIFICATES.
If the Trust authorizes the issuance of share certificates and
an investor requests a share certificate, the T/A will countersign and mail, by
insured first class mail, a share certificate to the investor at his address as
set forth on the transfer books of the Trust, subject to any other instructions
for delivery of certificates representing newly purchased shares and subject to
the limitation that no certificates representing newly purchased share shall be
mailed to the investor until the cash purchase price of such shares has been
collected and credited to the account of the Trust maintained by the Custodian.
10. RETURNED CHECKS.
In the event that the T/A is notified by the Trust's Custodian
that any check or other order for the payment of money is returned unpaid for
any reason, the T/A will:
A. Give prompt notification to the Trust and the
Underwriter of the non-payment of said check;
B. In the absence of other instructions from the
Trust or the Underwriter, take such steps as may
be necessary to redeem any shares purchased on the
basis of such returned check and cause the
proceeds of such redemption plus any dividends
declared with respect to such shares to be
credited to the account of the Trust and to
request the Trust's Custodian to forward such
returned check to the person who originally
submitted the check;
C. Notify the Trust of such actions and correct the
Trust's records maintained by the T/A pursuant to
this Agreement.
11. SALES CHARGE.
In computing the number of shares to credit to the account of
a shareholder pursuant to Paragraph 8 hereof, the T/A will calculate the total
of the applicable Underwriter and dealer of record sales charges with respect to
each purchase as set forth in the Trust's current prospectus and statement of
additional information and in accordance with any notification filed with
respect to combined and accumulated purchases; the T/A will also determine the
portio of each sales charge payable by the Underwriter to the dealer of record
participating in the sale in accordance with such schedules as are from time to
time
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delivered by the Underwriter to the T/A; provided, however, the T/A shall have
no liability hereunder arising from the incorrect selection by the T/A of the
gross rate of sales charges except that this exculpation shall not apply in the
event the rate is specified by the Underwriter or the Trust and the T/A fails to
select the rate specified.
12. DIVIDENDS AND DISTRIBUTIONS.
The Trust shall furnish the T/A with appropriate evidence of
trustee action authorizing the declaration of dividends and other distributions.
The T/A shall establish procedures in accordance with the Trust's then current
prospectus and statement of additional information and with other authorized
actions of the Trust's Board of Trustees under which it will have available from
the Custodian of the Trust or the Trust any required information for each
dividend and other distribution. After deducting any amount required to be
withheld by any applicable laws, the T/A shall, as agent for each shareholder
who so requests, invest the dividends and other distributions in full and
fractional shares in accordance with the Trust's then current prospectus and
statement of additional information. If an investor has elected to receive
dividends or other distributions in cash, then the T/A shall prepare checks for
approval and verification by the Trust and signature by an authorized officer or
employee of the T/A in the appropriate amount and shall mail them to the
shareholders of record at their address of record or to such other address as
the shareholder may have designated. The T/A shall, on or before the mailing
date of such checks, notify the Trust and the Custodian of the estimated amount
of cash required to pay such dividend or distribution, and the Trust shall
instruct the Custodian to make available sufficient funds therefore in the
appropriate account of the Trust. The T/A shall mail to the shareholders
periodic statements, as requested by the Trust, showing the number of full and
fractional shares and the net asset value per share of shares so credited.
When requested by the Trust, the T/A shall assist the Trust
(i) with any withholding procedures, shareholder reports and payments, and (ii)
in the preparation and filing with the Internal Revenue Service, and when
required, with the addressing and mailing to shareholders, of such returns and
information relating to dividends and distributions paid by the Trust as are
required to be so prepared, filed and mailed by applicable laws.
13. UNCLAIMED DIVIDENDS AND UNCLAIMED REDEMPTION PROCEEDS.
The T/A shall, at least annually, furnish in writing to the
Trust the names and addresses, as shown in the shareholder accounts maintained
pursuant to Paragraph 8, of all investors for
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which there are, as of the end of the calendar year, dividends, distributions or
redemptions proceeds for which checks or share certificates mailed in payment of
distributions have been returned. The T/A shall use its best efforts to contact
the shareholders affected and to follow any other written instructions received
from the Trust concerning the disposition of any such unclaimed dividends,
distributions or redemption proceeds.
14. REDEMPTIONS AND EXCHANGES.
A. The T/A shall process, in accordance with the Trust's then
current prospectus and statement of additional information, each order for the
redemption of shares accepted by the T/A. Upon its approval of such redemption
transactions, the T/A, if requested by the Trust, shall mail to the investor
and/or dealer of record a confirmation showing trade date, number of full and
fractional shares redeemed, the price per share and the total redemption
proceeds. For such redemption, the T/A shall either: (a) prepare checks in the
appropriate amounts for approval and verification by the Trust and signature by
an authorized officer or employee of the T/A and mail the checks to the
appropriate person, or (b) in the event redemption proceeds are to be wired
through the Federal Reserve Wire system or by bank wire, cause such proceeds to
be wired in federal funds to the commercial bank account designated by the
investor, or (c) effectuate such other redemption procedures which are
authorized by the Trust's Board of Trustees or its then current prospectus and
statement of additional information. The requirements as to instruments of
transfer and other documentation, the applicable redemption price and the time
of payment shall be as provided in the then current prospectus and statement of
additional information, subject to such supplemental instructions as may be
furnished by the Trust and accepted by the T/A. If the T/A or the Trust
determines that a request for redemption does not comply with the requirements
for redemptions, the T/A shall promptly notify the investor and/or dealer of
record indicating the reason therefor.
B. If shares of the Trust are eligible for exchange with
shares of any other investment company, the T/A, in accordance with the then
current prospectus and statement of additional information and exchange rules of
the Trust and such other investment company, or such other investment company's
transfer agent, shall review and approve all exchange requests and shall, on
behalf of the Trust's shareholders, process such approved exchange requests.
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C. The T/A shall notify the Custodian, the Underwriter and the
Trust on each business day of the amount of cash required to meet payments made
pursuant to the provisions of this Paragraph 14, and, on the basis of such
notice, the Trust shall instruct the Custodian to make available from time to
time sufficient funds therefor in the appropriate account of the Trust.
D. Procedures for effecting redemption orders accepted from
investors or dealers of record by telephone or other methods shall be
established by mutual agreement between the T/A and the Trust consistent with
the then current prospectus and statement of additional information.
E. The authority of the T/A to perform its responsibilities
under Paragraph 8, Paragraph 12 and this Paragraph 14 shall be suspended upon
receipt of notification by it of the suspension of the determination of the
Trust's net asset value.
15. AUTOMATIC WITHDRAWAL PLANS.
The T/A will process automatic withdrawal orders pursuant to
the provisions of the withdrawal plans duly executed by shareholders and the
current prospectus and statement of additional information of the trust.
Payments upon such withdrawal order shall be made by the T/A from the
appropriate account maintained by the Trust with the Custodian approximately the
last business day of each month in which a payment has been requested, and the
T/A will withdraw from a shareholder's account and present for repurchase or
redemption as many shares as shall be sufficient to make such withdrawal payment
pursuant to the provisions of the shareholder's withdrawal plan and the current
prospectus and statement of additional information of the Trust. From time to
time on new automatic withdrawal plans a check for payment date already past may
be issued upon request by the shareholder.
16. LETTERS OF INTENT.
The T/A will process such letters of intent for investing in
shares of the Trust as are provided for in the Trust's current prospectus and
statement of additional information. The T/A will make appropriate deposits to
the account of the Underwriter for the adjustment of sales charges as therein
provided and will currently report the same to the Underwriter.
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17. WIRE-ORDER PURCHASES.
The T/A will send written confirmations to the dealers of
record containing all details of the wire-order purchases placed by each such
dealer by close of business on the business day following receipt of such orders
by the T/A or the Underwriter, with copies to the Underwriter. Upon receipt of
any check drawn or endorsed to the Trust (or the T/A, as agent) or otherwise
identified as being payment of an outstanding wire- order, the T/A will stamp
said check with the date of its receipt and deposit the amount represented by
such check to the T/A's deposit accounts maintained with the Custodian. The T/A
will compute the respective portions of such deposit which represent the sales
charge and the net asset value of the shares so purchased, will cause the
Custodian to transfer federal funds in an amount equal to the net asset value of
the shares so purchased to the Trust's account at the Custodian, and will notify
the Trust and the Underwriter before noon of each business day of the total
amount deposited in the Trust's deposit accounts, and in the event that payment
for a purchase order is not received by the T/A or the Custodian on the tenth
business day following receipt of the order, prepare an NASD "notice of failure
of dealer to make payment" and forward such notification to the Underwriter.
18. OTHER PLANS.
The T/A will process such accumulation plans, group programs
and other plans or programs for investing in shares of the Trust as are now
provided for in the Trust's current prospectus and statement of additional
information and will act as plan agent for shareholders pursuant to the terms of
such plans and programs duly executed by such shareholder.
19. BOOKS AND RECORDS.
The T/A shall maintain records for each investor's account
showing the following:
A. Names, addresses and tax identifying numbers;
B. Name of the dealer of record;
C. Number of shares held of each series, if
applicable;
D. Historical information regarding the account of
each shareholder, including dividends and
distributions distributed in cash or invested in
shares;
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E. Information with respect to the source of all
dividends and distributions allocated among
income, realized short-term gains and realized
long-term gains;
G. Information with respect to withholdings on
foreign accounts;
H. Any instructions from a shareholder including all
forms furnished by the Trust and executed by a
shareholder with respect to (i) dividend or
distribution elections and (ii) elections with
respect to payment options in connection with the
redemption of shares;
I. Any dividend address and correspondence relating
to the current maintenance of a shareholder's
account;
J. Certificate numbers and denominations for any
shareholder holding certificates;
K. Any information required in order for the T/A to
perform the calculations contemplated under this
Agreement;
L. The date and number of shares of the Trust purchased,
the date and number of shares of the Trust held, the
date and number of shares reinvested as dividends and
the date and number of shares redeemed.
All of the records prepared and maintained by the T/A pursuant
to this Paragraph 19 will be the property of the Trust. In the event this
Agreement is terminated, all records shall be delivered to the Trust or to any
person designated by the Trust at the Trust's expense, and the T/A shall be
relieved of responsibility for the preparation and maintenance of any such
records delivered to the Trust or any such person.
20. TAX RETURNS AND REPORTS.
The T/A will prepare, file with the Internal Revenue Service
and, if required, mail to shareholders such returns for reporting dividends and
distributions paid by the Trust as are required to be so prepared, filed and
mailed by applicable laws, rules and regulations; and the T/A will withhold such
sums as are required to be withheld under applicable federal and state tax law,
rules and regulations.
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21. OTHER INFORMATION TO THE TRUST.
Subject to such instructions, verification and approval of the
Custodian and the Trust as shall be required by any agreement or applicable law,
the T/A will also maintain such records as shall be necessary to furnish to the
Trust the following: annual shareholder meeting lists, proxy lists and mailing
materials, shareholder reports and confirmations, checks for disbursing
redemption proceeds, dividends and other distributions or expense disbursements,
portfolio printouts and general ledger printouts.
22. FORM N-SAR.
The T/A shall maintain such records within its control and as
shall be requested by the Trust to assist the Trust in fulfilling the
requirements of Form N-SAR.
23. COOPERATION WITH ACCOUNTANTS.
The T/A shall cooperate with the Trust's independent public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
24. SHAREHOLDER SERVICE AND CORRESPONDENCE.
The T/A will provide and maintain adequate personnel, records
and equipment to receive and answer all shareholder and dealer inquiries
relating to account status, share purchases, redemptions and exchanges and other
investment plans available to Trust shareholders.
The T/A will answer written correspondence from shareholders
relating to their share accounts and such other written or oral inquiries as may
from time to time be mutually agreed upon, and the T/A will notify the Trust of
any correspondence or inquiries which may require an answer from the Trust.
25. PROXIES.
The T/A shall assist the Trust in the mailing of proxy cards
and other material in connection with shareholder meetings of the Trust, shall
receive, examine and tabulate returned proxies and shall, if requested by the
Trust, provide at lest one inspector of election to attend and participate as
required by law in shareholder meetings of the Trust.
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26. FEES AND CHARGES.
For performing its services under this Agreement, the Trust
shall pay the T/A a fee in accordance with the schedule attached hereto as
Schedule A and shall promptly reimburse the T/A for any out of pocket expenses
and advances which are to be paid by the Trust in accordance with Paragraph
27(b).
27. EXPENSES.
The expenses connected with the performance of this Agreement
shall be allocated between the Trust and the T/A as follows:
(a) The T/A shall furnish, at its expense and without cost to
the Trust (i) the services of its personnel to the extent that such services are
required to carry out its obligations under this Agreement and (ii) use of data
processing equipment.
(b) All costs and expenses not expressly assumed by the T/A
under Paragraph 27(a) of this Agreement shall be paid by the Trust, including,
but not limited to costs and expenses for postage, envelopes, checks, drafts,
continuous forms, reports, communications, statements and other materials,
telephone, telegraph and remote transmission lines, use of outside mailing
firms, necessary outside record storage, media for storage or records (e.g.,
microfilm, microfiche, computer tapes), printing, confirmations and any other
shareholder correspondence and any and all assessments, taxes or levies assessed
on the T/A for services provided under this Agreement. Postage for mailings of
dividends, proxies, reports and other mailings to all shareholders shall be
advanced to the T/A three business days prior to the mailing date of such
materials.
28. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
Except as otherwise provided in this Agreement and except for
the accuracy of information furnished to it by the T/A, the Trust assumes full
responsibility for the preparation, contents and distribution of each prospectus
and statement of additional information of the Trust, for complying with all
applicable requirements of the Investment Company Act of 1940 (the "Act"), the
Securities Act of 1933, as amended, and any laws, rules and regulations of
governmental authorities having jurisdiction.
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<PAGE>
29. CONFIDENTIALITY.
The T/A agrees to treat all records and other information
relative to the Trust and its prior, present or potential shareholders
confidentially and the T/A on behalf of itself and its employees agrees to keep
confidential all such information, except (after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the T/A may be exposed to civil or
criminal contempt proceedings for failure to comply) when requested to divulge
such information by duly constituted authorities or when so requested by the
Trust.
30. REFERENCES TO THE T/A.
The Trust shall not circulate any printed matter which
contains any reference to the T/A without the prior written approval of the T/A,
excepting solely such printed matter as merely identifies the T/A as Transfer
Agent, Plan Agent, Dividend Disbursing Agent, Shareholder Service Agent and
Accounting and Pricing Services Agent. The Trust will submit printed matter
requiring approval to the T/A in draft form, allowing sufficient time for review
by the T/A and its counsel prior to any deadline for printing.
31. EQUIPMENT FAILURES.
In the event of equipment failures beyond the T/A's control,
the T/A shall take all steps necessary to minimize service interruptions but
shall have no liability with respect thereto. The T/A shall endeavor to enter
into one or more agreements making provision for emergency use of electronic
data processing equipment to the extent appropriate equipment is available.
32. INDEMNIFICATION OF THE T/A.
(a) The T/A may rely on information reasonably believed by it
to be accurate and reliable. Except as may otherwise be required by the Act or
the rules thereunder, neither the T/A nor its shareholders, officers, directors,
employees, agents, control persons or affiliates of any thereof shall be subject
to any liability for, or any damages, expenses or losses incurred by the Trust
in connection with, any error of judgment, mistake of law, any act or omission
connected with or arising out of any services rendered under or payments made
pursuant to this Agreement or any other matter to which this Agreement relates,
except by reason of willful misfeasance, bad faith or gross negligence on the
part of any such persons in the performance of the duties of the T/A under this
Agreement or by reason of reckless disregard by any of such persons of the
obligations and duties of the T/A under this Agreement.
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<PAGE>
(b) Any person, even though also a director, officer,
employee, shareholder or agent of the T/A, who may be or become an officer,
trustee, employee or agent of the Trust, shall be deemed, when rendering
services to the Trust or acting on any business of the trust (other than
services or business in connection with the T/A's duties hereunder), to be
rendering such services to or acting solely for the Trust and not as a director,
officer, employee, shareholder or agent of, or one under the control or
direction of the T/A, even though paid by it.
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless the T/A, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which the T/A may sustain or incur or which may be asserted
against the T/A by any person by reason of, or as a result of: (i) any action
taken or omitted to be taken by the T/A in good faith in reliance upon any
certificate, instrument, order or share certificate believed by it to be genuine
and to be signed, countersigned or executed by any duly authorized person, upon
the oral instructions or written instructions of an authorized person of the
Trust or its own counsel; or (ii) any action taken or omitted to be taken by the
T/A in connection with its appointment in good faith in reliance upon any law,
act, regulation or interpretation of the same even though the same may
thereafter have been altered, changed, amended or repealed. However,
indemnification under this subparagraph shall not apply to actions or omissions
of the T/A or its directors, officers, employees, shareholders or agents in
cases of its or their own gross negligence, willful misconduct, bad faith, or
reckless disregard of its or their own duties hereunder.
33. MAINTENANCE OF INSURANCE COVERAGE.
At all times during the term of this Agreement, the T/A shall
be a named insured party on the Trust's Errors & Omissions policy and the
Trust's Fidelity Bond, both of which shall include coverage of the T/A's
officers and employees. The T/A shall pay its allocable share of the cost of
such policies in accordance with the provisions of the Act. The scope of
coverage and amount of insurance limits applicable to the Trust on such policies
shall also be made applicable to the T/A.
34. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
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<PAGE>
35. TERMINATION.
(a) The provisions of this Agreement shall be effective upon
its execution, shall continue in effect for two years from that date and shall
continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by the T/A, (2) by vote, cast in person at a meeting
called for the purpose, of a majority of the Trust's trustees who are not
parties to this Agreement or interested persons (as defined in the Act) of any
such party, and (3) by vote of a majority of the Trust's Board of Trustees or a
majority of the Trust's outstanding voting securities.
(b) Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days prior written notice of such
termination specifying the date fixed therefor.
(c) Upon termination of this Agreement, the Trust shall pay to
the T/A such compensation as may be due as of the date of such termination, and
shall likewise reimburse the T/A for any out-of-pocket expenses and
disbursements reasonably incurred by the T/A to such date, and for the T/A's
costs, expenses and disbursements reasonably incurred by the T/A to such date,
and for the T/A's costs, expenses and disbursements as contemplated by this
Agreement.
(d) In the event that in connection with termination of this
Agreement a successor to any of the T/A's duties or responsibilities under this
Agreement is designated by the Trust by written notice to the T/A, the T/A
shall, promptly upon such termination and at the expense of the Trust, transfer
to such successor a certified list of the shareholders of the Trust (with name,
address and tax identification or Social Security number), a record of the
accounts of such shareholders and the status thereof, and all other relevant
books, records and other data established or maintained by the T/A under this
Agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from the T/A's cognizant
personnel in the establishment of books, records and other data by such
successor.
36. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent the T/A or any
affiliated person (as defined in the Act) of the T/A from providing services for
any other person, firm or corporation (including other investment companies);
provided, however, that the T/A expressly represents that it will undertake no
activities
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which, in its judgment, will adversely affect the performance of its obligations
to the Trust under this Agreement.
37. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
38. LIMITATION ON LIABILITY.
The term "Countrywide Strategic Trust" means and refers to the
trustees from time to time serving under the Trust's Declaration of Trust as the
same may subsequently thereto have been, or subsequently hereto may be, amended.
It is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the trust property of the
Trust. The execution and delivery of this Agreement have been authorized by the
trustees of the Trust and signed by an officer of the Trust, acting as such, and
neither such authorization by such trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust.
39. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
40. QUESTIONS OF INTERPRETATION.
(a) This Agreement shall be governed by the laws of
the State of Ohio.
(b) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision of
the Act and to interpretations thereof, if any, by the States Courts or in the
absence of any controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Act, reflected in any
provision of this Agreement is revised by rule, regulation or order of the
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Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
41. NOTICES.
Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Trust
and of the T/A for this purpose shall be 312 Walnut Street, Cincinnati, Ohio
45202.
42. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
43. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
44. FORCE MAJEURE.
If the T/A shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
COUNTRYWIDE STRATEGIC TRUST
By /s/ Robert H. Leshner
----------------------------
COUNTRYWIDE FUND SERVICES, INC.
By /s/ Robert G. Dorsey
---------------------------
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Schedule A
Compensation
Services Fee
As Transfer Agent and Shareholder
Servicing Agent:
Government Mortgage Fund payable monthly at
rate of $21.00 per
account per year
Utility Fund payable monthly at
rate of $17.00 per
account per year
Equity Fund payable monthly at
rate of $17.00 per
account per year
Growth/Value Fund payable monthly at
rate of $17.00 per
account per year
Aggressive Growth Fund payable monthly at
rate of $17.00 per
account per year
Each Fund offering a single class of shares will be subject to a minimum charge
of $1,000 per month. Each class of shares of a Fund offering multiple classes
will be subject to a minimum charge per class of $1,000 per month.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------
As independent public accountants, we hereby consent to all references to
our Firm included in or made a part of this Post-Effective Amendment 34.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
October 16, 1997
COUNTRYWIDE INVESTMENTS, INC.
312 WALNUT STREET
CINCINNATI, OHIO 45202
800-543-8721
513-629-2000
Administration Agreement
This Agreement is made between _______________________________________
("Administrator") and Countrywide Investment Trust, Countrywide Tax-Free Trust
and Countrywide Strategic Trust (collectively the "Trusts" and individually the
"Trust"), the issuer of shares of beneficial interest ("Shares") of the mutual
funds set forth on Schedule A to this Agreement (collectively the "Funds" and
individually the "Fund"). In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Trusts hereby appoint Administrator to render or cause to be
rendered administrative support services to each Fund and its shareholders,
which services may include, without limitation: aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with the Fund's transfer agent; answering client inquiries about the Fund and
referring to the Trusts those inquiries which the Administrator is unable to
answer; assisting clients in changing dividend options, account designations and
addresses; performing sub-accounting; establishing, maintaining and closing
shareholder accounts and records; investing client account cash balances
automatically in Shares of the Fund; providing periodic statements showing a
client's account balance, integrating such statements with those of other
transactions and balances in the client's other accounts serviced by the
Administrator and performing such other recordkeeping as is necessary for the
Fund's transfer agent to comply with all the recordkeeping requirements of the
Investment Company Act of 1940 and the regulations promulgated thereunder;
arranging for bank wires; and providing such other information and services as
the Trusts reasonably may request, to the extent the Administrator is permitted
by applicable statute, rule or regulation to provide these services.
2. Administrator shall provide such office space and equipment,
telephone facilities and personnel (which may be all or any part of the space,
equipment and facilities currently used in Administrator's business, or all or
any personnel employed by Administrator) as is necessary or beneficial for
providing information and services to shareholders of each Fund, and to assist
each Trust in servicing accounts of clients. Administrator shall transmit
promptly to clients all communications sent to it for transmittal to clients by
or on behalf of a Trust, a Fund, or a Trust's investment adviser, custodian or
transfer agent or dividend disbursing agent.
3. For each account in certain Funds for which the Administrator is to
render administrative support services, Administrator will receive a fee, as set
forth on Schedule B, equal to the normal dealer's discount from the public
offering price on the Shares purchased by such accounts. During the term of this
Agreement, each Trust or the Trust's underwriter will also pay to the
Administrator quarterly one-fourth of the annual administration fees set forth
in Schedule B hereto. Administrator shall notify the Trust if Administrator
directly charges a fee to Fund shareholders for its administrative support
services as described in this Agreement.
4. Administrator agrees to comply with the requirements of all laws
applicable to it, including but not limited to, ERISA, federal and state
securities laws and the rules and regulations promulgated thereunder.
Administrator agrees to provide services to each Trust in compliance with the
then current Prospectus and Statement of Additional Information of the Trust and
the operating procedures and policies established by the Trust, including, but
not limited to, required minimum investment and minimum account size.
5. No person is authorized to make any representations concerning a
Fund or its Shares except those contained in the current Prospectus or Statement
of Additional Information of the applicable Fund and any such information as may
be officially designated as information supplemental to the Prospectus.
Additional copies of any Prospectus and any printed information officially
designated as supplemental to such Prospectus will be supplied by the Trusts to
Administrator in reasonable quantities on request.
6. Administrator agrees that it will provide administrative support
services only to those persons who reside in any jurisdiction in which a Fund's
Shares are registered for sale and in which the Administrator may lawfully
provide such services. Upon request, the Trusts shall provide the Administrator
with a list of the states in which each Fund's Shares are registered for sale
and shall keep such list updated.
<PAGE>
7. In no transaction shall Administrator have any authority whatsoever
to act as agent for any Trust, any Fund or any person affiliated with any Trust
or Fund.
8. The Administrator agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of a Trust in opposition to proxies solicited by management of the
Trust, unless a court of competent jurisdiction shall have determined that the
conduct of a majority of the Board of Trustees of the Trust constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
This paragraph 8 will survive the term of this Agreement.
9. The Administrator shall prepare such quarterly reports for each
Trust as shall reasonably be requested by the Trust. In addition, the
Administrator will furnish the Trust or its designees with such information as
the Trust or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to clients of the services
described herein), and will otherwise cooperate with the Trust and its designees
(including and without limitation, any auditors designated by the Trust), in
connection with the preparation of reports to the Trust's Board of Trustees
concerning this Agreement and the monies paid or payable by the Trust or the
Trust's underwriter pursuant hereto, as well as any other reports or filings
that may be required by law.
10. The Administrator acknowledges that any Trust may enter into
similar agreements with others without the consent of the Administrator.
11. Each Trust reserves the right, at its discretion and without
notice, to suspend the sale of Shares or withdraw the sale of Shares of any
Fund.
12. The Trust's underwriter has adopted compliance standards, attached
hereto as Schedule C, as to when Class A and Class C Shares of the Dual Pricing
Funds may appropriately be sold to particular investors. The Administrator
agrees that all persons associated with it will conform to such standards.
13. With respect to each Fund, this Agreement shall continue in effect
for one year from the date of its execution, and thereafter for successive
periods of one year if the form of this Agreement is approved as to the Fund at
least annually by the Trustees of the applicable Trust, including a majority of
the members of the Board of Trustees of the Trust who are not interested persons
("Disinterested Trustees") of the Trust and have no direct or indirect financial
interest in the operations of the Trust's Rule 12b-1 Plan ("Plan") or in any
documents related to the Plan cast in person at a meeting for that purpose. In
the event this Agreement, or any part thereof, is found invalid or is ordered
terminated by any regulatory or judicial authority, or the Administrator shall
fail to perform the shareholder servicing and administrative functions
contemplated hereby, this Agreement is terminable effective upon receipt of
notice thereof by the Administrator.
14. Notwithstanding paragraph 13, this Agreement may be
terminated with respect to any Fund as follows:
(a) at any time, without the payment of any penalty, by the
vote of a majority of the Disinterested Trustees of the applicable
Trust or by a vote of a majority of the outstanding voting securities
of the Fund on not more than thirty (30) days written notice to the
parties to this Agreement;
(b) automatically in the event of the Agreement's assignment
as defined in the Investment Company Act of 1940; or
(c) by any party to the Agreement without cause by giving the
other parties at least thirty (30) days written notice of its intention
to terminate.
15. Any termination of this Agreement shall not affect the provisions
of paragraph 18, which shall survive the termination of this Agreement and
continue to be enforceable thereafter.
16. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors.
17. This Agreement is not intended to, and shall not, create any rights
against any party hereto by any third person solely on account of this
Agreement.
<PAGE>
18. The Administrator shall provide such security as is necessary to
prevent unauthorized use of any computer hardware or software provided to it by
or on behalf of the Trusts, if any. The Administrator agrees to release,
indemnify and hold harmless each Fund, each Trust, each Trust's transfer agent,
custodian and underwriter, and their respective principals, directors, trustees,
officers, employees and agents from any and all direct or indirect liabilities
or losses resulting from requests, directions, actions or inactions of or by the
Administrator, its officers, employees or agents regarding the purchase,
redemption, transfer or registration of Shares for accounts of the
Administrator, its clients and other shareholders. Such indemnity shall also
cover any losses and liabilities incurred by and resulting from the
Administrator's performance of or failure to perform its obligations or its
breach of any representations or warranties under this Agreement. Principals of
the Administrator will be available to consult from time to time with each Trust
concerning the administration and performance of the services contemplated by
this Agreement.
19. This Agreement may be amended only by an agreement in writing
signed by the Administrator and the Trusts.
20. The obligations of each Trust under this Agreement shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of such Trust, personally, but shall bind only the property of such
Trust, as provided in such Trust's Agreement and Declaration of Trust. The
execution and delivery of this Agreement has been authorized by the Trustees and
signed by a duly authorized officer of the Trusts, acting as such, and neither
the authorization by the Trustees nor the execution and delivery by such officer
of the Trusts shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the
property of the Trusts as provided in their Agreement and Declaration of Trust.
21. This Agreement does not authorize the Administrator to participate
in any activities relating to the sale or distribution of the Shares, and the
Administrator agrees that it shall not participate in such activities.
22. If any provision of this Agreement, or any covenant, obligation or
agreement contained herein, is determined by a court to be invalid or
unenforceable, the parties agree that (a) such determination shall not affect
any other provision, covenant, obligation or agreement contained herein, each of
which shall be construed and enforced to the full extent permitted by law, and
(b) such invalid or unenforceable portion shall be deemed to be modified to the
extent necessary to permit its enforcement to the maximum extent permitted by
applicable law.
23. This Agreement shall be construed in accordance with the laws
of the State of Ohio.
THIS AGREEMENT WILL BECOME EFFECTIVE UPON THE CLOSING DATE OF THE
ACQUISITION OF LESHNER FINANCIAL, INC. BY COUNTRYWIDE CREDIT INDUSTRIES, INC.
PURUSANT TO THE AGREEMENT DATED 12/10/96 FOR THE EXCHANGE OF STOCK BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, this Agreement has been executed for the Trusts and
the Administrator by their duly authorized officers, on this _____ day of
_________________, 1997.
ACCEPTED BY ADMINISTRATOR COUNTRYWIDE INVESTMENT TRUST
By: _________________________________ By: ____________________________
Authorized Signature
_____________________________________ COUNTRYWIDE TAX-FREE TRUST
Type or Print Name, Position
_____________________________________ By: ____________________________
Administrator Name
_____________________________________ COUNTRYWIDE STRATEGIC TRUST
Address
_____________________________________ By: ____________________________
Address
_____________________________________ Date: __________________________
Phone
<PAGE>
Schedule A
SCHEDULE OF MUTUAL FUNDS
Countrywide Investment Trust
* Short Term Government Income Fund
Adjustable Rate U.S. Government Securities Fund
** Global Bond Fund
Intermediate Term Government Income Fund
* Money Market Fund
Intermediate Bond Fund
Countrywide Tax-Free Trust
* Ohio Tax-Free Money Fund
* Tax-Free Money Fund
* California Tax-Free Money Fund
* Florida Tax-Free Money Fund
** Tax-Free Intermediate Term Fund
** Ohio Insured Tax-Free Fund
Kentucky Tax-Free Fund
Countrywide Strategic Trust
Government Mortgage Fund
** Equity Fund
** Utility Fund
Growth/Value Fund
Aggressive Growth Fund
* No-load Fund
** Dual Pricing Fund
<PAGE>
Schedule B
COUNTRYWIDE INVESTMENTS
COMMISSION SCHEDULE
Government Mortgage Fund
Intermediate Bond Fund
Tax-Free Intermediate Term Fund - Class A
Intermediate Term Government Income Fund
Adjustable Rate U.S. Government Securities Fund
Total
Dollar Amount of Purchase Sales Dealer
(At Offering Price) Charge* Concession
Less than $100,000 2.00% 1.80%
from $100,000 but under $250,000 1.50% 1.35%
from $250,000 but under $500,000 1.00% .90%
from $500,000 but under $1,000,000 .75% .65%
$1,000,000 and over** None None
25 basis points annual trailing commission effective immediately, paid
quarterly.
Equity Fund - Class A
Utility Fund - Class A
Growth/Value Fund
Aggressive Growth Fund
Global Bond Fund - Class A
Ohio Insured Tax-Free Fund - Class A
Kentucky Tax-Free Fund
Total
Dollar Amount of Purchase Sales Dealer
(At Offering Price) Charge* Concession
Less than $100,000 4.00% 3.60%
from $100,000 but under $250,000 3.50% 3.30%
from $250,000 but under $500,000 2.50% 2.30%
from $500,000 but under $1,000,000 2.00% 1.80%
$1,000,000 and over** None None
25 basis points annual trailing commission effective immediately, paid
quarterly.
* As a percentage of offering price.
** Broker/Dealers are entitled to a commission of 75 basis points at the time
the investor purchases Class A shares at NAV in amounts totaling $1 million or
more. However, the investor is subject to a contingent deferred sales load of
75 basis points if a redemption occurs within one year of purchase.
See specific Fund prospectus for details.
Equity Fund - Class C
Utility Fund - Class C
Global Bond Fund - Class C
Ohio Insured Tax-Free Fund - Class C
Tax-Free Intermediate Term Fund - Class C
The Funds will be offered to clients at net asset value. A commission of 1% of
the purchase amount of Class C shares will be paid to participating brokers at
the time of purchase. Purchases of Class C shares are subject to a contingent
deferred sales load, according to the following schedule:
Year Since Purchase Contingent Deferred
Payment Was Made Sales Load
First Year 1%
Thereafter None
100 basis points annual trailing commission will be paid quarterly beginning in
the thirteenth month.
Brokers may invest for their own account at NAV
No trailing commissions will be paid to a dealer for any calendar quarter in
which the average daily balance of all accounts in Countrywide Investments
funds (including no-load money market funds) is less than $1,000,000.
FOR BROKER/DEALER USE ONLY
<PAGE>
Schedule C
POLICIES AND PROCEDURES
WITH RESPECT TO SALES
OF DUAL PRICING FUND
As certain Funds within Countrywide Investments (the "Dual Pricing
Funds") offer two classes of Shares subject to different levels of front-end
sales charges, it is important for an investor not only to choose the Fund that
best suits his investment objectives, but also to choose the sales financing
method which best suits his particular situation. To assist investors in these
decisions, we are instituting the following policy:
1. Any purchase order for $1 million or more must be for Class A
Shares.
2. Any purchase order for $100,000 but less than $1 million is
subject to approval by a registered principal of the
Underwriter, who must approve the purchase order for either
Class A Shares or Class C Shares in light of the relevant
facts and circumstances, including:
(a) the specific purchase order dollar amount;
(b) the length of time the investor expects to hold the
Shares; and
(c) any other relevant circumstances, such as the
availability of purchases under a Letter of Intent.
3. Any order to exchange Class A Shares of a Dual Pricing Fund
(or Shares of another Fund having a maximum sales load equal
to or greater than Class A Shares of the Dual Pricing Funds)
for Shares of another Dual Pricing Fund will be for Class A
Shares only. Class C Shares of a Dual Pricing Fund may be
exchanged for either Class A or Class C Shares of another Dual
Pricing Fund, provided that an exchange of Class C Shares for
Class A Shares is subject to approval by a registered
principal of Underwriter, who must approve the exchange in
light of the relevant facts and circumstances.
There are instances when one financing method may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales charge on Class A Shares may determine that
payment of such a reduced front-end sales charge is superior to payment of the
higher ongoing distribution fee applicable to Class C Shares. On the other hand,
an investor whose order would not qualify for such a discount may wish to pay a
lower sales charge and have more of his funds invested in Class C Shares. If
such an investor anticipates that he will redeem his Shares within a short
period of time, the investor may, depending on the amount of his purchase,
choose to bear higher distribution expenses than if he had purchased Class A
Shares.
In addition, investors who intend to hold their Shares for a
significantly long time may wish to purchase Class A Shares in order to avoid
the higher ongoing distribution expenses of Class C Shares.
The appropriate supervisor must ensure that all employees receiving
investor inquiries about the purchase of Shares of Dual Pricing Funds advise the
investor of the available financing methods offered by mutual funds, and the
impact of choosing one method over another. It may be appropriate for the
supervisor to discuss the purchase with the investor.
This policy is effective immediately with respect to any order for the
purchase of Shares of all Dual Pricing Funds. Questions relating to this policy
should be directed to Sharon Karp, Vice President of the Underwriter, at
513/629-2000.
