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. 35
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 35
----
(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, 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)
/X/ on January 1, 1998 pursuant to paragraph (b)
/ / 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........................... Financial Highlights, Performance Information
4........................... Operation of the Funds, Investment
Objectives and Policies
5........................... Operation of the Funds
6........................... Cover Page, Dividends and Distributions,
Taxes, Operation of the Funds
7........................... How to Purchase Shares, Shareholder
Services, Exchange Privilege, Operation
of the Funds, 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.......................... Quality Ratings of Fixed-Income Obligations,
Definitions, Policies and Risk
Considerations, Investment Limitations,
Portfolio Turnover
14.......................... Trustees and Officers
15.......................... Principal Security Holders
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.......................... Annual Report
<PAGE>
PROSPECTUS
January 1, 1998
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
The Growth/Value Fund and the Aggressive Growth Fund (individually a
"Fund" and collectively the "Funds") are two separate series of Countrywide
Strategic Trust.
The GROWTH/VALUE FUND seeks long-term capital appreciation primarily
through equity investments in companies whose valuation may not yet reflect the
prospects for accelerated earnings/cash flow growth.
The AGGRESSIVE GROWTH FUND seeks long-term capital appreciation
primarily through equity investments. The Fund will seek growth opportunities
among companies of various sizes.
EACH FUND IS A NON-DIVERSIFIED SERIES AND MAY INVEST A SIGNIFICANT
PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER. THEREFORE, AN INVESTMENT IN THE
FUNDS MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MUTUAL FUNDS. SHARES
OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANKING OR DEPOSITORY INSTITUTION. SHARES ARE NOT FEDERALLY 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.
Mastrapasqua & Associates, Inc. (the "Adviser") manages the Funds'
investments under the supervision of Countrywide Investments, Inc. (the
"Manager"). See "Operation of the Funds."
Pursuant to an Agreement and Plan of Reorganization dated May 31, 1997, each
Fund, on August 29, 1997, succeeded to the assets and liabilities of another
mutual fund of the same name (the "Predecessor Fund"), which was an investment
series of Trans Adviser Funds, Inc. The investment objective, policies and
restrictions of each Fund and its Predecessor Fund are substantially identical
and the financial data and information in this Prospectus relates to the
Predecessor Funds.
This Prospectus sets forth concisely the information about the Funds
that you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated January 1, 1998 has
been filed with the Securities and Exchange Commission (the "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.
<PAGE>
EXPENSE INFORMATION
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Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . 4%
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price) . . . None*
Sales Load Imposed on Reinvested Dividends . . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . None
Redemption Fee . . . . . . . . . . . . . . . . . . None**
* Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of .75% if a redemption
occurred within 12 months of purchase and a commission was paid by the
Manager to a participating unaffiliated dealer.
** A wire transfer fee is charged 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)
Growth/Value Aggressive
Fund Growth Fund
Management Fees After Waivers 1.00% .32%(A)
12b-1 Fees .25%(B) .25%(B)
Other Expenses .70% 1.37%
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Total Fund Operating Expenses 1.95% 1.94%(C)
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(A) Absent waivers of management fees, such fees would have been 1.00%
for the fiscal year ended August 31, 1997.
(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 have been 2.62% for the fiscal year ended August 31, 1997.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred by the Predecessor Funds during the most recent fiscal year.
The Manager will, until at least August 31, 1999, waive fees and reimburse
expenses to the extent necessary to limit total operating expenses to
1.95% of each Fund's average net assets. 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.
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<PAGE>
Example Growth/Value Aggressive
Fund Growth Fund
You would pay the following
expenses on a $1,000 1 Year $ 59 $ 59
investment, assuming (1) 3 Years 99 98
5% annual return and (2) 5 Years 141 141
redemption at the end of 10 Years 258 257
each time period:
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<PAGE>
FINANCIAL HIGHLIGHTS
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The following audited financial information for the Predecessor Funds
for the fiscal year ended August 31, 1997 has been audited by Arthur Andersen
LLP, independent auditors, and should be read in conjunction with the financial
statements. The audited financial information for the fiscal period ended
August 31, 1996 was audited by other independent accountants. The financial
statements as of August 31, 1997 and related auditors' report appear in the
Statement of Additional Information of the Funds, which can be obtained by
shareholders at no charge by calling Countrywide Fund Services, Inc. (Nationwide
call toll-free 800-543-0407, in Cincinnati call 629-2050) or by writing to the
Trust at the address on the front of this Prospectus.
<TABLE>
<S> <C> <C>
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
GROWTH/VALUE AGGRESSIVE GROWTH
FUND FUND
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Year Period Year Period
Ended Ended Ended Ended
August 31, August 31, August 31, August 31,
1997 1996 (A) 1997 1996 (A)
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<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 11.18 $ 10.00 $ 10.95 $ 10.00
-------------- --------------- -------------- ---------------
Income from investment operations:
Net investment loss.................................. ( 0.13 ) ( 0.06)(B) ( 0.17 ) (0.11)(B)
Net realized and unrealized gains on investments..... 5.39 1.24 5.54 1.06
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Total from investment operations........................ 5.26 1.18 5.37 0.95
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Less distributions:
Distributions from net realized gains................ ( 0.54 ) -- ( 0.03 ) --
-------------- --------------- -------------- ---------------
Total distributions..................................... ( 0.54 ) -- ( 0.03 ) --
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Net asset value at end of period........................ $ 15.90 $ 11.18 $ 16.29 $ 10.95
============== =============== ============== ===============
Total return (C) ....................................... 47.11% 11.80% 49.09% 9.50%
============== =============== ============== ===============
Net assets at end of period (000's)..................... $ 26,778 $ 15,108 $ 13,984 $ 6,550
============== =============== ============== ===============
Ratio of expenses to average net assets (D) ............ 1.95% 1.95% (E) 1.94% 1.95% (E)
Ratio of net investment loss to average net assets...... ( 1.03% ) ( 0.62%)(E) ( 1.57% ) (1.26%)(E)
Portfolio turnover rate................................. 52% 21% 51% 16%
Average commission rate per share....................... $ 0.0554 $ 0.0700 $ 0.0534 $ 0.0800
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<FN>
(A) Represents the period from the commencement of operations (September 29, 1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to average net assets for the Growth/Value
Fund would have been 2.83%(E) for the period ended August 31, 1996. Absent fee waivers and/or expense reimbursements,
the ratios of expenses to average net assets for the Aggressive Growth Fund would have been 2.62% and 5.05%(E) for the
periods ended August 31, 1997 and 1996, respectively.
(E) Annualized.
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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The investment objectives and policies of each Fund are described below.
Specific investment techniques that may be employed by the Funds are also
described in this Prospectus and in the Statement of Additional Information.
While each Fund's objective is fundamental and can only be changed by vote of
the majority of the outstanding shares of a particular Fund, the Board of
Trustees of the Trust reserves the right to change any of the investment
policies, strategies or practices of either Fund without shareholder approval,
except in those instances where shareholder approval is expressly required.
The GROWTH/VALUE FUND seeks long-term capital appreciation primarily
through equity investments in companies whose valuation may not yet reflect the
prospect for accelerating earnings/cash flow growth. The Fund seeks to achieve
its objective by investing primarily in common stocks but also in preferred
stocks, convertible bonds and warrants of companies which, in the opinion of the
Adviser, are expected to achieve growth of investment principal over time. The
investment style is to focus on companies that have a demonstrated record of
achievement with excellent prospects for earnings and/or cash flow growth over a
3-to-5 year period. It is anticipated that the average stock holding period will
be within an 18 to 36 month time frame. Of course, changes in fundamental
outlook and market conditions can alter these time horizons materially.
It is anticipated that common stocks will be the principal form of
investment by the Growth/Value Fund. The Fund's portfolio is comprised of
securities of two basic categories of companies: (1) "core" companies, which
Fund management considers to have experienced above-average and consistent
long-term growth in earnings/cash flow and to have excellent prospects for
outstanding future growth, and (2) "earnings/cash flow acceleration"
companies, which Fund management believes are either currently enjoying or
are projected to enjoy a dramatic increase in earnings and/or cash flow.
Investments will largely be made in companies of greater than $750 million
capitalization. The Fund will invest no more than 10% of its assets in
companies with market capitalization of less than $750 million at the time of
purchase.
The AGGRESSIVE GROWTH FUND seeks long-term capital appreciation
primarily through equity investments. The Fund will seek growth opportunities
among companies of various sizes. The Fund seeks to achieve its objective by
investing primarily in common stocks but also in preferred stocks, convertible
bonds, options and warrants of companies which, in the opinion of the Adviser,
are expected to achieve growth of investment principal
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<PAGE>
over time. Many of these companies are in the small to medium-sized category
(companies with market capitalizations of less than $750 million at the time of
purchase). In addition, up to 15% of the Fund's assets may be invested in
illiquid investments or in private companies whose common shares are not
actively traded on any national or regional exchange.
The investment style of the Aggressive Growth Fund is to focus on
companies that have an excellent prospect for earnings cash flow growth over
a 3 to 5 year period. Of course, changes in fundamental outlook and market
conditions can alter potential returns substantially. It is intended that the
Aggressive Growth Fund will assume a more expanded risk profile than will be the
case with the Growth/Value Fund. While this could result in above-average
appreciation, there is no assurance that this will in fact be the case and
the potential exists for above-average depreciation.
It is anticipated that common stocks will be the principal form of
investment by the Aggressive Growth Fund. The Fund's portfolio is comprised of
securities of two basic categories of companies: (1) "core" companies,
which Fund management considers to have experienced above-average and
consistent long-term growth in earnings/cash flow and to have excellent
prospects for future growth, and (2) "earnings/cash flow acceleration"
companies, which Fund management believes are either currently enjoying or
are projected to enjoy a dramatic increase in earnings and/or cash flow.
Investments will largely be made in companies of varying sizes, even those
with less than $750 million capitalization.
Additionally, the Aggressive Growth Fund may invest a maximum of 20% of
its assets, and the Growth/Value Fund may invest a maximum of 30% of its assets,
in fixed-income securities rated Baa or better by Moody's Investors Service,
Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group ("S&P") or,
if unrated, deemed to be of comparable quality by the Adviser. The fixed-income
securities in which the Funds may invest include U.S. Government obligations,
mortgage-backed securities, asset-backed securities, bank obligations, corporate
debt obligations and unrated obligations, including those of foreign issuers.
The Adviser will be particularly interested in growth companies that
are likely to benefit from new or innovative products, services or processes
that should enhance such companies' prospects for future growth in earnings/cash
flow. As a result of this policy, the market prices of many of the securities
purchased and held by the Funds may fluctuate widely. Any income received from
securities held by the Funds will be incidental, and an investor should not
consider a purchase of
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<PAGE>
shares of the Funds as equivalent to a complete investment program.
OTHER INVESTMENT PRACTICES
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SECURITIES LENDING. In order to generate additional income, the Funds may, from
time to time, lend their portfolio securities to broker-dealers, banks or
institutional borrowers of securities. While the lending of securities may
subject a Fund to certain risks, such as delays or the inability to regain the
securities in the event the borrower were to default on its lending agreement or
enter into bankruptcy, the Funds will receive at least 100% collateral in the
form of cash or U.S. Government securities. This collateral will be valued daily
by the Adviser and should the market value of the loaned securities increase,
the borrower will furnish additional collateral to the Funds. During the time
portfolio securities are on loan, the borrower pays the Funds any dividends or
interest paid on such securities. Loans are subject to termination by the Funds
or the borrower at any time. While the Funds do not have the right to vote
securities on loan, the Funds intend to terminate the loan and regain the right
to vote if this is considered important with respect to the investment. The
Funds will only enter into loan arrangements with broker-dealers, banks or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Board of Trustees.
BORROWING. The Funds may borrow money from banks (including their custodian
bank) or from other lenders to the extent permitted under applicable law, for
temporary or emergency purposes and to meet redemptions and may pledge their
assets to secure such borrowings. Additionally, the Aggressive Growth Fund may
borrow for purposes of leveraging. Borrowing for investment increases both
investment opportunity and investment risk. Such borrowings in no way affect the
federal tax status of the Funds or their dividends. If the investment income on
securities purchased with borrowed money exceeds the interest paid on the
borrowing, the net asset value of the Aggressive Growth Fund's shares will rise
faster than would otherwise be the case. On the other hand, if the investment
income fails to cover the Aggressive Growth Fund's costs, including the interest
on borrowings or if there are losses, the net asset value of such Fund's shares
will decrease faster than would otherwise be the case. This is the speculative
factor known as leverage.
The Investment Company Act of 1940 (the "1940 Act") requires the Funds
to maintain asset coverage of at least 300% for all such borrowings, and should
such asset coverage at any time fall below 300%, the Funds would be required to
reduce their borrowings within three days to the extent necessary to meet the
requirements of the 1940 Act. To reduce their borrowings, the
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<PAGE>
Funds might be required to sell securities at a time when it would be
disadvantageous to do so.
In addition, because interest on money borrowed is a Fund expense that
it would not otherwise incur, the Funds may have less net investment income
during periods when its borrowings are substantial. The interest paid by the
Funds on borrowings may be more or less than the yield on the securities
purchased with borrowed funds, depending on prevailing market conditions.
SHORT-TERM TRADING. The Aggressive Growth Fund may engage in the technique of
short-term trading. Such trading involves the selling of securities held for a
short time, ranging from several months to less than a day. The object of such
short-term trading is to increase the potential for capital appreciation and/or
income of the Aggressive Growth Fund in order to take advantage of what the
Adviser believes are changes in market, industry or individual company
conditions or outlook. Any such trading would increase the turnover rate of the
Aggressive Growth Fund and its transaction costs.
WHEN-ISSUED SECURITIES. Each of the Funds may also purchase securities on a
"when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than that available in the market when delivery takes place. The Funds will
generally not pay for such securities or start earning interest on them until
they are received. When a Fund agrees to purchase securities on a "when-issued"
basis, the Funds' custodian will set aside, in a segregated account, cash or
liquid portfolio securities equal to the amount of the commitment. Securities
purchased on a "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. Each
Fund expects that commitments to purchase "when issued" securities will not
exceed 25% of the value of its total assets under normal market conditions and
that a commitment to purchase "when-issued" securities will not exceed 60 days.
In the event its commitment to purchase "when-issued" securities ever exceeded
25% of the value of its assets, a Fund's liquidity and the Adviser's ability to
manage it might be adversely affected. The Funds do not intend to purchase
"when-issued" securities for speculative purposes, but only for the purpose of
acquiring portfolio securities.
VARIABLE AND FLOATING RATE SECURITIES. Each of the Funds may acquire variable
and floating rate securities, subject to each Fund's investment objective,
policies and restrictions. A variable rate security is one whose terms provide
for the readjustment of its interest rate on set dates and which, upon
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<PAGE>
such readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate security is one whose terms provide
for the readjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements. Under a repurchase agreement, a Fund acquires a debt instrument
for a relatively short period (usually not more than one week), subject to the
obligation of the seller to repurchase and the Fund to resell such debt
instrument at a fixed price. The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective for the period
of time during which a Fund's money is invested. Each Fund's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to 100% of the purchase price including accrued interest earned on the
underlying securities. The instruments held as collateral are valued daily by
the Adviser and as the value of instruments declines, the Funds will require
additional collateral. If the seller defaults and the value of the collateral
securing the repurchase agreement declines, the Funds may incur a loss. If such
a defaulting seller were to become insolvent and subject to liquidation or
reorganization under applicable bankruptcy or other laws, disposition of the
underlying securities could involve certain costs or delays pending court
action. Finally, it is not certain whether the Funds would be entitled, as
against a claim of the seller or its receiver, trustee in bankruptcy or
creditors, to retain the underlying securities. Repurchase agreements are
considered by the staff of the Commission to be loans by the Funds.
REVERSE REPURCHASE AGREEMENTS. The Aggressive Growth Fund may borrow funds for
temporary purposes by entering into reverse repurchase agreements. Pursuant to
such agreements, the Fund sells portfolio securities to financial institutions
such as banks and broker-dealers, and agrees to repurchase them at a mutually
agreed upon date and price. At the time the Fund enters into a reverse
repurchase agreement, it must place in a segregated custodial account cash or
liquid portfolio securities having a value equal to the repurchase price
(including accrued interest); the collateral will be marked-to- market on a
daily basis, and will be continuously monitored to ensure that such equivalent
value is maintained. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the price at
which the Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act.
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<PAGE>
CONVERTIBLE SECURITIES. The Funds may invest in all types of common stocks and
equivalents (such as convertible debt securities and warrants) and preferred
stocks. The Funds may invest in convertible securities which may offer higher
income than the common stocks into which they are convertible. The convertible
securities in which the Funds may invest consist of bonds, notes, debentures and
preferred stocks which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. The Funds may be required
to permit the issuer of a convertible security to redeem the security, convert
it into the underlying common stock or sell it to a third party. Thus, the Funds
may not be able to control whether the issuer of a convertible security chooses
to convert that security. If the issuer chooses to do so, this action could have
an adverse effect on a Fund's ability to achieve its investment objective.
Convertible securities are bonds, debentures, notes, preferred stock or
other securities which may be converted or exchanged by the holder into shares
of the underlying common stock at a stated exchange ratio. A convertible
security may also be subject to redemption by the issuer, but only after a date
and under certain circumstances (including a specified price) established on
issue. Adjustable rate preferred stocks are preferred stocks which adjust their
dividend rates quarterly based on specified relationships to certain indices of
U.S. Treasury securities. A Fund may continue to hold securities obtained as a
result of the conversion of convertible securities held by the Fund when the
Adviser believes retaining such securities is consistent with the Fund's
investment objective.
LOWER-RATED SECURITIES. The Aggressive Growth Fund may invest up to 20% of its
assets, and the Growth/Value Fund may invest up to 10% of its assets in higher
yielding (and, therefore, higher risk), lower rated fixed-income securities,
including debt securities, convertible securities and preferred stocks and
unrated fixed-income securities. Lower rated fixed-income securities, commonly
referred to as "junk bonds," are considered speculative and involve greater risk
of default or price changes due to changes in the issuer's creditworthiness than
higher rated fixed-income securities. See "Risk Factors of Lower Rated Fixed-
Income Securities" below for a discussion of certain risks.
Differing yields on fixed-income securities of the same maturity are a
function of several factors, including the relative financial strength of the
issuers. Higher yields are generally available from securities in the lower
categories of recognized rating agencies, i.e., Ba or lower by Moody's or BB or
lower by S&P. The Funds may invest in any security which is rated by Moody's or
by S&P, or in any unrated security which the
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<PAGE>
Adviser determines is of suitable quality. Securities in the rating categories
below Baa as determined by Moody's and BBB as determined by S&P are considered
to be of poor standing and predominantly speculative. The rating services
descriptions of these rating categories, including the speculative
characteristics of the lower categories, are set forth in the Statement of
Additional Information.
Securities ratings are based largely on the issuer's historical
financial information and the rating agencies' investment analysis at the time
of rating. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the rating would indicate. Although the Adviser will
consider security ratings when making investment decisions in the high yield
market, it will perform its own investment analysis and will not rely
principally on the ratings assigned by the rating services. The Adviser's
analysis generally may include, among other things, consideration of the
issuer's experience and managerial strength, changing financial conditions,
borrowing requirements or debt maturity schedules, and its responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects.
ADRS. The Funds may invest in foreign securities through the purchase of
American Depository Receipts but will not do so if immediately after a purchase
and as a result of the purchase the total value of such foreign securities owned
by a Fund would exceed 10% of the value of the total assets of the Fund.
Investment in foreign securities is subject to special risks, such as future
adverse political and economic developments, possible seizure, nationalization,
or expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source and
the adoption of other foreign governmental restrictions. Additional risks
include less publicly available information, the risk that companies may not be
subject to the accounting, auditing and financial reporting standards and
requirements of U.S. companies, the risk that foreign securities markets may
have less volume and therefore less liquidity and greater price volatility than
U.S. securities, and the risk that custodian and brokerage costs may be higher.
WARRANTS. The Funds may invest in warrants which entitle the holder to buy
equity securities at a specified price for a specific period of time. Warrants
may be considered more speculative than certain other types of investments
because they do not entitle a holder to dividends or voting rights with respect
to the securities which may be purchased, nor do they represent any rights in
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<PAGE>
the assets of the issuing company. The value of a warrant may be more volatile
than the value of the securities underlying the warrants. Also, the value of the
warrant does not necessarily change with the value of the underlying securities
and a warrant ceases to have value if it is not exercised prior to the
expiration date.
SHORT-TERM OBLIGATIONS. With respect to each Fund there may be times when, in
the opinion of the Adviser, adverse market conditions exist, including any
period during which it believes that the return on certain money market type
instruments would be more favorable than that obtainable through a Fund's normal
investment programs. Accordingly, for temporary defensive purposes, each Fund
may hold up to 100% of its total assets in cash and/or short-term obligations.
To the extent that a Fund's assets are so invested, they will not be invested so
as to meet its investment objective. The instruments may include high-grade
liquid debt securities such as variable amount master demand notes,
commercial paper, certificates of deposit, bankers' acceptances, repurchase
agreements which mature in less than seven days and obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Bankers' acceptances are instruments of United States banks which are
drafts or bills of exchange "accepted" by a bank or trust company as an
obligation to pay on maturity.
OPTIONS. The Aggressive Growth Fund may engage in writing put and call options
from time to time as the Adviser deems to be appropriate. Such options must be
listed on a national securities exchange and issued by the Options Clearing
Corporation. In order to close out a written call option position, the Fund will
enter into a "closing purchase transaction"- the purchase of a call option on
the same security with the same exercise price and expiration date as any
call option which it may previously have written on any particular securities.
When the portfolio security is sold, the Fund effects a closing purchase
transaction so as to close out any existing call option on that security. If the
Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the option expires or the Fund
delivers the underlying security upon exercise. When writing a covered call
option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security above the exercise
price, but retains the risk of loss should the price of the security
decline. The Fund seeks to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option the Fund
has written, however, the Fund must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes and must
continue to set aside assets to cover its position.
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<PAGE>
The Aggressive Growth Fund may purchase put options from time to time
as the Adviser deems to be appropriate. A put is a right to sell a specified
security (or securities) within a specified period of time at a specified
exercise price. The Fund has no intention of investing more than 5% of its
assets in put options.
FUTURES CONTRACTS. The Aggressive Growth Fund may also enter into contracts for
the future delivery of securities and futures contracts based on a specific
security, class of securities or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The Fund may enter into futures contracts in an effort to hedge against
market risks and in anticipation of future purchases or sales of securities. For
example, when interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek to offset a decline in the
value of its portfolio securities by entering into futures contract
transactions. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices than might later be available in the market
when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will give
the Fund the right (but not the obligation), for a specified price, to sell or
to repurchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of the Fund's total assets (other
than in connection with bona fide hedging purposes), and the value of securities
that are the subject of such futures and options (both for receipt and delivery)
may not exceed one-third of the market value of the Fund's total assets.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase
securities. The Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall
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<PAGE>
performance than if the Fund had not entered into any futures transactions. In
addition, the value of the Fund's futures positions may not prove to be
perfectly or even highly correlated with the value of its portfolio securities,
limiting the Fund's ability to hedge effectively against interest rate, exchange
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
ZERO COUPON BONDS. The Growth/Value Fund is permitted to purchase zero coupon
securities ("zero coupon bonds"). Zero coupon bonds are purchased at a discount
from the face amount because the buyer receives only the right to receive a
fixed payment on a certain date in the future and does not receive any periodic
interest payments. The effect of owning instruments which do not make current
interest payments is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount accretion during the life of the
obligations. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest distributions at a rate as high as the
implicit yields on the zero coupon bond, but at the same time eliminates the
holder's ability to reinvest at higher rates in the future. For this reason,
zero coupon bonds are subject to substantially greater price fluctuations during
periods of changing market interest rates than are comparable securities which
pay interest currently, which fluctuation increases the longer the period to
maturity. Although zero coupon bonds do not pay interest to holders prior to
maturity, federal income tax law requires the Fund to recognize as interest
income a portion of the bond's discount each year and this income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in the Fund elect to receive their dividends in
cash rather than reinvest such dividends in additional shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
RECEIPTS. The Growth/Value Fund may also purchase separately traded interest and
principal component parts of such obligations that are transferable through the
federal book entry system, known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES"). These instruments are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds into a special account
at a custodian bank; the custodian holds the interest and principal payments for
the benefit of the registered owner of the certificates or receipts. The
custodian
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<PAGE>
arranges for the issuance of the certificates or receipts evidencing ownership
and maintains the register. Receipts include Treasury Receipts ("TRs"),
Treasury Investment Growth Receipts ("TIGRs") and Certificates of Accrual on
Treasury Securities ("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal. This
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, these securities may be subject to greater
interest rate volatility than interest-paying U.S. Treasury obligations. The
Fund will limit its investment in such instruments to 20% of its total assets.
INVESTMENT COMPANY SECURITIES. Each Fund may invest in the securities of other
investment companies to the extent permissible under the applicable regulations
and interpretations of the 1940 Act or an exemptive order.
ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES. Each Fund may invest up to 15%
of its net assets in illiquid investments (that cannot be readily sold within
seven days), including restricted securities which do not meet the criteria for
liquidity established by the Board of Trustees. The Adviser, under the
supervision of the Board of Trustees and the Manager, determines the liquidity
of a Fund's investments. The absence of a trading market can make it difficult
to ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses.
Restricted securities are securities which cannot be sold to the public without
registration under the Securities Act of 1933. Unless registered for sale, these
securities can only be sold in privately negotiated transactions or pursuant to
an exemption from registration.
PRIVATE PLACEMENT INVESTMENTS. The Aggressive Growth Fund may invest in
commercial paper issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities laws and is generally sold
to institutional investors who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors through or with the assistance
of the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Adviser believes that Section 4(2)
commercial paper and possibly certain
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<PAGE>
other restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The Fund intends therefore, to treat the
restricted securities which meet the criteria for liquidity established by the
Trustees, including Section 4(2) commercial paper, as determined by the Adviser,
as liquid and not subject to the investment limitation applicable to illiquid
securities. In addition, because Section 4(2) commercial paper is liquid, the
Fund does not intend to subject such paper to the limitation applicable to
restricted securities.
The ability of the Board of Trustees to determine the liquidity of
certain restricted securities is permitted under a position of the staff of the
Commission set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a nonexclusive safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under the Rule. The
staff of the Commission has left the question of determining the liquidity of
all restricted securities to the Trustees. The Trustees consider the following
criteria in determining the liquidity of certain restricted securities
(including Section 4(2) commercial paper): the frequency of trades and quotes
for the security; the number of dealers willing to purchase or sell the security
and the number of other potential buyers; dealer undertakings to make a market
in the security; and the nature of the security and the nature of the
marketplace trades. The Trustees have delegated to the Adviser the daily
function of determining and monitoring the liquidity of restricted securities
pursuant to the above criteria and guidelines adopted by the Board of Trustees.
The Trustees will continue to monitor and periodically review the Adviser's
selection of Rule 144A and Section 4(2) commercial paper as well as any
determinations as to their liquidity.
RISK FACTORS OF LOWER RATED FIXED-INCOME SECURITIES
- ---------------------------------------------------
Lower quality fixed-income securities generally produce a higher current
yield than do fixed-income securities of higher ratings. However, these
fixed-income securities are considered speculative because they involve greater
price volatility and risk than do higher rated fixed-income securities and
yields on these fixed-income securities will tend to fluctuate over time.
Although the market value of all fixed-income securities varies as a result of
changes in prevailing interest rates (e.g., when interest rates rise, the market
value of fixed-income securities can be expected to decline), values of lower
rated fixed-income securities tend to react differently than the values of
higher rated fixed-income securities. The prices of lower rated fixed-
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<PAGE>
income securities are less sensitive to changes in interest rates than higher
rated fixed-income securities. Conversely, lower rated fixed-income securities
also involve a greater risk of default by the issuer in the payment of principal
and income and are more sensitive to economic downturns and recessions than
higher rated fixed-income securities. The financial stress resulting from an
economic downturn could have a greater negative effect on the ability of issuers
of lower rated fixed-income securities to service their principal and interest
payments, to meet projected business goals and to obtain additional financing
than on more creditworthy issuers. In the event of an issuer's default in
payment of principal or interest on such securities, or any other fixed-income
securities in a Fund's portfolio, the net asset value of the Fund will be
negatively affected. Moreover, as the market for lower rated fixed-income
securities is a relatively new one, a severe economic downturn might increase
the number of defaults, thereby adversely affecting the value of all outstanding
lower rated fixed-income securities and disrupting the market for such
securities. Fixed-income securities purchased by a Fund as part of an initial
underwriting present an additional risk due to their lack of market history.
These risks are exacerbated with respect to fixed-income securities rated Caa or
lower by Moody's or CCC or lower by S&P. Unrated fixed-income securities
generally carry the same risks as do lower rated fixed-income securities.
Lower rated fixed-income securities are typically traded among a
smaller number of broker-dealers rather than in a broad secondary market.
Purchasers of lower rated fixed-income securities tend to be institutions,
rather than individuals, a factor that further limits the secondary market. To
the extent that no established retail secondary market exists, many lower rated
fixed-income securities may not be as liquid as Treasury and investment grade
bonds. The ability of a Fund to sell lower rated fixed-income securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. Moreover, the ability of a Fund to value lower rated fixed-income
securities becomes more difficult, and judgment plays a greater role in
valuation, as there is less reliable, objective data available with respect to
such securities that are thinly traded or illiquid.
Because investors may perceive that there are greater risks associated
with the lower rated fixed-income securities of the type in which a Fund may
invest, the yields and prices of such securities may tend to fluctuate more than
those for fixed-income securities with a higher rating. Changes in perception of
issuer's creditworthiness tend to occur more frequently and in a more pronounced
manner in the lower quality segments of the fixed-income securities market,
resulting in greater yield and price volatility. The speculative characteristics
of lower rated fixed-income securities are set forth in the Statement of
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<PAGE>
Additional Information.
The Adviser believes that the risks of investing in such high yielding,
fixed-income securities may be minimized through careful analysis of prospective
issuers. Although the opinion of ratings services such as Moody's and S&P is
considered in selecting portfolio securities, they evaluate the safety of
principal and the interest payments of the security, not their market value
risk. Additionally, credit rating agencies may experience slight delays in
updating ratings to reflect current events. The Adviser relies, primarily, on
its own credit analysis. This may suggest, however, that the achievement of a
Fund's investment objective is more dependent on the Adviser's proprietary
credit analysis, than is otherwise the case for a fund that invests exclusively
in higher quality fixed-income securities.
Once the rating of a portfolio security or the quality determination
ascribed by the Adviser to an unrated fixed-income security has been downgraded,
the Adviser will consider all circumstances deemed relevant in determining
whether to continue to hold the security, but in no event will a Fund retain
such security if it would cause the Fund to have 35% or more of the value of its
net assets invested in fixed-income securities rated lower than Baa by Moody's
or BBB by S&P, or if unrated, are judged by the Adviser to be of comparable
quality.
The Funds may also invest in unrated fixed-income securities. Unrated
fixed-income securities are not necessarily of lower quality than rated
fixed-income securities, but they may not be attractive to as many buyers.
There is no minimum rating standard for a Fund's investments in the
high yield market; therefore, a Fund may at times invest in fixed-income
securities not currently paying interest or in default. The Funds will invest in
such fixed-income securities where the Adviser perceives a substantial
opportunity to realize a Fund's objective based on its analysis of the
underlying financial condition of the issuer. It is not, however, the current
intention of either Fund to make such investments.
These limitations and the policies discussed in this Prospectus are
considered and applied by the Adviser at the time of purchase of an investment;
the sale of securities by a Fund is not required in the event of a subsequent
change in circumstances.
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<PAGE>
OTHER RISK FACTORS
- ------------------
The portfolio turnover of each Fund may vary greatly from year to year
as well as within a particular year. High turnover rates will generally result
in higher transaction costs and higher levels of taxable realized gains to the
Fund's shareholders.
Particular portfolio securities and yields will differ due to
differences in the types of investments permitted, cash flow, and the
availability of particular portfolio investments. Market conditions and interest
rates may affect the types and yields of securities held in each Fund. The
investment objective of each Fund is fundamental and may be changed only by a
vote of a majority of the outstanding shares of that Fund. There can be, of
course, no assurance that a Fund will achieve its investment objective. Changes
in prevailing interest rates may affect the yield, and possibly the net asset
value, of a Fund.
Each Fund is classified as a "non-diversified" investment company under
the 1940 Act. Each Fund also intends to qualify as a "regulated investment
company" under the Internal Revenue Code (the "Code"). One of the tests for such
qualification under the Code is, in general, that at the end of each fiscal
quarter of each Fund, at least 50% of its assets must consist of (i) cash and
U.S. Government securities and (ii) securities which, as to any one issuer, do
not exceed 5% of the value of the Fund's assets. If a Fund had elected to
register under the 1940 Act as a "diversified" investment company, it would have
to meet the same test as to 75% of its assets. Each Fund may therefore not have
as much diversification among securities, and thus diversification of risk, as
if it had made this election under the 1940 Act. In general, the more a Fund
invests in the securities of specific issuers, the more that Fund is exposed to
risks associated with investments in those issuers.
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in either Fund ordinarily must be at least
$1,000 ($250 for tax-deferred retirement plans). However, the minimum initial
investment for employees, shareholders and customers of Countrywide Credit
Industries, Inc. or any affiliated company, including members of the immediate
family of such individuals, is $50. You may purchase additional shares through
the Open Account Program described below. You may open an account and make an
initial investment through securities
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<PAGE>
dealers having a sales agreement with the Trust's principal underwriter,
Countrywide Investments, Inc. (the "Manager"). You may also make a direct
initial investment by sending a check and a completed account application form
to Countrywide Fund Services, Inc. (the "Transfer Agent"), P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to the "Growth/ Value
Fund" or the "Aggressive Growth Fund," whichever is applicable. An account
application is included in this Prospectus.
Shares of each 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 Funds 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
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<PAGE>
of shares of the Funds 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 Funds 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 purchases are effected. In determining a dealer's eligibility
for such commission, purchases of shares of the Funds 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.
In addition to the compensation otherwise paid to securities dealers, the
Manager may from time to time pay from its own resources additional cash bonuses
or other incentives to selected dealers in connection with the sale of shares of
the Funds. On some occasions, such bonuses or incentives may be conditioned upon
the sale of a specified minimum dollar amount of the shares of the Funds and/or
other funds of Countrywide Investments during a specified period of time. Such
bonuses or incentives may include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising, sales campaigns and other dealer-sponsored programs or
events.
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 Funds over a period of years and permits the
automatic reinvestment of dividends and distributions of the Funds in additional
shares without a sales load.
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<PAGE>
Under the Open Account Program, you may purchase and add shares to your
account at any time either through your securities dealer or by sending a check
to the Transfer Agent, P.O. Box 5354, Cincinnati, Ohio 45201-5354. The check
should be made payable to the applicable Fund.
Under the Open Account Program, you may also purchase shares of the
Funds by bank wire. Please telephone the Transfer Agent (Nationwide call
toll-free 800-543-0407; in Cincinnati call 629- 2050) for instructions. Your
bank may impose a charge for sending your wire. There is presently no fee for
receipt of wired funds, but the Transfer Agent reserves the right to charge
shareholders for this service upon thirty days' prior notice to shareholders.
Each additional purchase request must contain the name of your account
and your account number to permit proper crediting to your account. While there
is no minimum amount required for subsequent investments, the Trust reserves the
right to impose such requirement. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for selling
shares of the Funds to a current shareholder, such broker-dealer will receive
the concessions described above with respect to additional investments by the
shareholder.
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. You may purchase shares of either Fund at
net asset value when the payment for your investment represents the proceeds
from the redemption of shares of any other mutual fund which has a front-end
sales load and is not distributed by the Manager. Your investment will qualify
for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within one year of the
purchase of such shares and no more than sixty days prior to your purchase of
shares of the Funds. To make a
- 22 -
<PAGE>
purchase at net asset value pursuant to this provision, you must submit
photocopies of the confirmations (or similar evidence) showing the purchase and
redemption of shares of the other fund. Your payment may be made with the
redemption check representing the proceeds of the shares redeemed, endorsed to
the order of the applicable Fund. The redemption of shares of the other fund is,
for federal income tax purposes, a sale on which you may realize a gain or loss.
These provisions may be modified or terminated at any time. Contact your
securities dealer or the Trust for further information.
Banks, bank trust departments and savings and loan associations, in
their fiduciary capacity or for their own accounts, may also purchase shares of
the Funds 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 Funds 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 Funds 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 Funds 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 Funds (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
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<PAGE>
first redeemed followed by other shares held for the longest period of time. The
contingent deferred sales load will not be imposed upon shares representing
reinvested dividends or capital gains distributions, or upon amounts
representing share appreciation. If a purchase of shares is subject to the
contingent deferred sales load, the investor will be so notified on the
confirmation for such purchase.
Redemptions of such shares of the Funds 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 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; or a trustee or other fiduciary purchasing shares
for a single fiduciary account although more than one beneficiary is involved;
or employees of a common employer, provided that economies of scale are realized
through remittances from a single source and quarterly confirmation of such
purchases; or an organized group, provided that the purchases are made through a
central administration, or a single dealer, or by other means which result in
economy of sales effort or expense. Contact the Transfer Agent for additional
information concerning purchases at net asset value or at reduced sales loads.
The Trust mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are
- 24 -
<PAGE>
not issued. The Trust and the Manager reserve the rights to limit the amount of
investments and to refuse to sell to any person.
Investors should be aware that the Funds' account application contains
provisions in favor of the Trust, the Transfer Agent and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.
Should an order to purchase shares be canceled because your check does
not clear, you will be responsible for any resulting losses or fees incurred by
the Trust or the Transfer Agent in the transaction.
SHAREHOLDER SERVICES
- ---------------------
Contact the Transfer Agent (Nationwide call toll-free 800- 543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
AUTOMATIC WITHDRAWAL PLAN
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional shares of the Funds 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 either 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, including
Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
- 25 -
<PAGE>
-- 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 either 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 Funds.
AUTOMATIC INVESTMENT PLAN
You may make automatic monthly investments in either Fund from your
bank, savings and loan or other depository institution account. The minimum
initial and subsequent investments must be $50 under the plan. The Transfer
Agent pays the costs associated with these transfers, but reserves the right,
upon thirty days' written notice, to make reasonable charges for this service.
Your depository institution may impose its own charge for debiting your account
which would reduce your return from an investment in the Funds.
REINVESTMENT PRIVILEGE
If you have redeemed shares of either Fund, you may reinvest all or
part of the proceeds without any additional sales load. This reinvestment must
occur within ninety days of the redemption and the privilege may only be
exercised once per year.
HOW TO REDEEM SHARES
- ---------------------
You may redeem shares of either Fund on each day that the Trust is open
for business by sending a written request to the Transfer Agent. The request
must state the number of shares or the dollar amount to be redeemed and your
account number. The request must be signed exactly as your name appears on the
Trust's account records. If the shares to be redeemed have a value of $25,000 or
more, your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and dealers, municipal securities brokers and dealers,
government securities brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations.
You may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per share
next
- 26 -
<PAGE>
determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
If your instructions request a redemption by wire, you will be charged
an $8 processing fee. The Trust reserves the right, upon thirty days' written
notice, to change the processing fee. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
A contingent deferred sales load may apply to a redemption of certain
shares purchased at net asset value. See "How to Purchase Shares."
Shares are redeemed at their net asset value per share next determined
after receipt by the Transfer Agent of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment is
normally made within three business days after tender in such form, provided
that payment in redemption of shares purchased by check will be effected only
after the check has been collected, which may take up to fifteen days from the
purchase date. To eliminate this delay, you may purchase shares of the Funds 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.
- 27 -
<PAGE>
At the discretion of the Trust or the Transfer Agent, corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization. The Trust
reserves the right to require you to close your account if at any time the value
of your shares is less than the minimum amount required by the Trust for your
account (based on actual amounts invested including any sales load paid,
unaffected by market fluctuations), or such other minimum amount as the Trust
may determine from time to time. After notification to you of the Trust's
intention to close your account, you will be given thirty days to increase the
value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Commission.
EXCHANGE PRIVILEGE
- -------------------
Shares of either Fund and of any other fund of Countrywide Investments
may be exchanged for each other.
Shares of the Funds 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 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 Funds 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.
- 28 -
<PAGE>
Countrywide Tax-Free Trust Countrywide Strategic Trust
Tax-Free Money Fund *Government Mortgage Fund
Ohio Tax-Free Money Fund *Equity Fund
California Tax-Free Money Fund *Utility Fund
Florida Tax-Free Money Fund *Growth/Value Fund
*Tax-Free Intermediate Term Fund *Aggressive Growth Fund
*Ohio Insured Tax-Free Fund *International Equity Fund
*Kentucky Tax-Free Fund
Countrywide Investment Trust
Short Term Government Income Fund
Institutional Government Income Fund
Money Market Fund
*Intermediate Bond Fund
*Intermediate Term Government Income
Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to the
Transfer Agent. The request must be signed exactly as your name appears on the
Trust's account records. Exchanges may also be requested by telephone. If you
are unable to execute your transaction by telephone (for example during times of
unusual market activity) consider requesting your exchange by mail or by
visiting the Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio
45202. An exchange will be effected at the next determined net asset value (or
offering price, if sales load is applicable) after receipt of a request by the
Transfer Agent.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact the Transfer Agent to obtain a
current prospectus for any of the other funds of Countrywide Investments and
more information about exchanges among Countrywide Investments.
DIVIDENDS AND DISTRIBUTIONS
- ----------------------------
Each Fund expects to distribute substantially all of its net investment
income and 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.
- 29 -
<PAGE>
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then-current net
asset value and your account will be converted to the Share Option. No interest
will accrue on amounts represented by uncashed dividend checks.
An investor who has received in cash any dividend or capital gains
distribution from either Fund may return the distribution within thirty days of
the distribution date to the Transfer Agent for reinvestment at the net asset
value next determined after its return. The investor or his dealer must notify
the Transfer Agent that a distribution is being reinvested pursuant to this
provision.
TAXES
- ------
Each Fund has qualified in all prior years and intends to continue to
qualify for the special tax treatment afforded a "regulated investment company"
under Subchapter M of the Internal Revenue Code so that it does not pay federal
taxes on income and capital gains distributed to shareholders. Each 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 Funds from net
investment income may be eligible, in whole or in part, for the dividends
received deduction available to corporations.
- 30 -
<PAGE>
Distributions of net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) by a Fund to its shareholders
are taxable to the recipient shareholders as capital gains, without regard to
the length of time a shareholder has held Fund shares. The maximum capital gains
rate for individuals is 28% with respect to assets held for more than 12 months,
but not more than 18 months, and 20% with respect to assets held more than 18
months. The maximum capital gains rate for corporate shareholders is the same as
the maximum tax rate for ordinary income. Redemptions of shares of the Funds are
taxable events on which a shareholder may realize a gain or loss.
The Funds will mail to each of their 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 Funds may be
subject to state and local taxes on distributions. Shareholders should consult
their tax advisors about the tax effect of distributions and withdrawals from
the Funds 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 FUNDS
- ----------------------
The Funds are non-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 Funds.
The Trust retains Countrywide Investments, Inc., 312 Walnut Street,
Cincinnati, Ohio (the "Manager"), to provide general investment supervisory
services to the Funds and to manage the Funds' business affairs. The Manager was
organized in 1974 and is also the investment adviser to four 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. Each Fund
pays the Manager a fee equal to the annual rate of 1.00% of the average value of
its daily net assets up to $50 million; .90% of such assets from $50 million to
$100 million; .80% of such assets from $100 million to $200 million; and .75% of
such assets in excess of $200 million.
Mastrapasqua & Associates, Inc. (the "Adviser"), 814 Church Street,
Nashville, Tennessee, has been retained by the Manager to manage the Funds'
investments. The Adviser was organized in 1993
- 31 -
<PAGE>
and provides investment advisory services to institutions and individual
investors. The Manager (not the Funds) pays the Adviser a fee equal to the
annual rate of .60% of the average value of each Fund's daily net assets up to
$50 million; .50% of such assets from $50 million to $100 million; .40% of such
assets from $100 to $200 million; and .35% of such assets in excess of $200
million.
Frank Mastrapasqua, Ph.D, Chairman and Chief Executive Officer of the
Adviser, and Thomas A. Trantum, President of the Adviser, are primarily
responsible for managing the portfolios of each Fund. They were also
responsible for managing the portfolios of the Predecessor Funds. Mr.
Mastrapasqua founded the Adviser in 1993. Prior to 1993, he was Director of
Research and Chief Investment Strategist and a partner at J.C. Bradford &
Co. Mr. Trantum was previously Senior Security Analyst and a partner at J.C.
Bradford & Co.
The Manager serves as principal underwriter for the Funds and, as
such, is the exclusive agent for the distribution of shares of the Funds.
Angelo R. Mozilo, Robert H. Leshner, Robert G. Dorsey and John F. Splain are
officers of both the Manager and the Trust.
The Funds are 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 Funds' 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 Funds, 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 Funds may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio (the "Transfer Agent"), an indirect wholly-owned subsidiary of
Countrywide Credit Industries, Inc., to serve as the Funds' transfer agent,
dividend paying agent and shareholder service agent.
The Transfer Agent also provides accounting and pricing services to the
Funds. The Transfer Agent receives a monthly fee
- 32 -
<PAGE>
from each 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 Funds. 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
Commission and state securities authorities. The Manager (not the Funds) 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 Manager may give consideration to sales
of shares of the Funds as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Funds. Subject to the requirements of the
1940 Act and procedures adopted by the Board of Trustees, the Funds 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 each Fund have equal voting rights and liquidation rights.
Each Fund shall vote separately on matters submitted to a vote of the
shareholders except in matters where a vote of all series of the Trust in the
aggregate is required by the 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 Investment Company Act
of 1940 in order to facilitate communications among shareholders.
Trans Financial Bank, N.A., P.O. Box 90001, Bowling Green, Kentucky,
may be deemed to control each Fund by virtue of the fact that it owns of record
more than 25% of each Fund's shares as of the date of the Prospectus.
DISTRIBUTION PLAN
- ------------------
Pursuant to Rule 12b-1 under the 1940 Act, the Funds have adopted a
plan of distribution (the "Plan") under which the Funds
- 33 -
<PAGE>
may directly incur or reimburse the Manager for certain distribution-related
expenses, including payments to securities dealers and others who are engaged in
the sale of shares of the Funds 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 Funds; 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 Funds' shares.
The annual limitation for payment of expenses pursuant to the Plan is
.25% of each 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 a 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 Funds 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
Funds or their 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 Funds may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Funds, no preference will be shown for
such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales
- 34 -
<PAGE>
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 each Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange, currently 4:00 p.m., Eastern time. The Trust is open for
business on each day the New York Stock Exchange is open for business and on any
other day when there is sufficient trading in a Fund's investments that its net
asset value might be materially affected. The net asset value per share of each
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.
Each Fund's portfolio securities are valued as follows: (i) securities
which are traded on stock exchanges are valued at the last 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 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. The net asset value per share of
each Fund will fluctuate with the value of the securities it holds.
PERFORMANCE INFORMATION
- ------------------------
From time to time, each Fund may advertise its "average annual total
return." Each 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.
- 35 -
<PAGE>
The "average annual total return" of a 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. A 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 a Fund's "average annual total return" as described above.
The "yield" of a 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 Funds may advertise their 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 Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Standard & Poor's 500 Stock Index or the NASDAQ Composite
Index. In connection with a ranking, the Funds 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 Funds may also present their 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.
- 36 -
<PAGE>
Further information about the Predecessor Funds' performance is
contained in the annual report which can be obtained by shareholders at no
charge by calling the Transfer Agent (Nationwide call toll-free 800-543-0407; in
Cincinnati call 629-2050) or by writing to the Trust at the address on the front
of this Prospectus.
- 37 -
<PAGE>
<TABLE>
ACCOUNT NO. ____________________
Account Application (Check appropriate Fund) (For Fund Use Only)
<S> <C> <C> <C>
[] Growth/Value Fund (91) $_________________ FOR BROKER/DEALER USE ONLY
Firm Name: ____________________________
[] Aggressive Growth Fund (92) $_________________ Home Office Address: ___________________
Branch Address: ________________________
Rep Name & No.: ________________________
Please mail account application to: Rep Signature: _________________________
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
===============================================================================================================================
[ ] Check or draft enclosed payable to the applicable Fund designated above.
[ ] Bank Wire From: _________________________________________________________________________________________
[ ] Exchange From: __________________________________________________________________________________________
(Fund Name) (Fund Account Number)
Account Name S.S. #/Tax I.D.#
_________________________________________________________________________________________ _____________________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial account
please list minor's S.S.#)
_______________________________________________________________________________________________ Citizenship: [] U.S.
Name of Joint Tenant, Partner, Custodian [] Other
Address Phone
_____________________________________________________________________________________________ ( )______________________
Street or P.O. Box Business Phone
____________________________________________________________________________________________ ( )_______________________
City State Zip Home Phone
Check Appropriate Box: [] Individual [] Joint Tenant (Right of survivorship presumed)
[] Partnership [] Corporation [] Trust [] Custodial [] Non-Profit [] Other
Occupation and Employer Name/Address______________________________________________________________________________________________
Are you an associated person of an NASD member? [] Yes [] No
========================================================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the Taxpayer Identification Number listed
above is my correct number. The Internal Revenue Service does not require my consent to any provision of this document other than
the certifications required to avoid backup withholding. Check box if appropriate:
[ ] I am exempt from backup withholding under the provisions of section 3406(a)(1)(c) of the Internal Revenue Code; or I am not
subject to backup withholding because I have not been notified that I am subject to backup withholding as a result of a failure
to report all interest or dividends; or the Internal Revenue Service has notified me that I am no longer subject to backup
withholding.
[ ] I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me and I have mailed or
delivered an application to receive a Taxpayer Identification Number to the Internal Revenue Service Center or Social Security
Administration Office. I understand that if I do not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
======================================================================================================================
<PAGE>
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[ ] Share Option -- Income distributions and capital gains distributions automatically reinvested in additional
shares.
[ ] Income Option -- Income distributions and short term capital gains distributions paid in cash, long term capital
gains distributions reinvested in additional shares.
[ ] Cash Option -- Income distributions and capital gains distributions paid in cash.
[ ] By Check [ ] By ACH to my bank checking or savings account. Please attach a voided check.
========================================================================================================================
REDUCED SALES CHARGES
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's confirmation of the following holdings of
eligible load funds of Countrywide Investments.
Account Number/Name Account Number/Name
_______________________________________________________ _______________________________________________________
_______________________________________________________ _______________________________________________________
Letter of Intent: (Complete the Right of Accumulation section if related accounts are being applied to your Letter of Intent.)
[ ] I agree to the Letter of Intent in the current Prospectus of Countrywide Stategic Trust. Although I am not obligated to
purchase, and the Trust is not obligated to sell, I intend to invest over a 13 month period beginning _________________
19_______ (Purchase Date of not more than 90 days prior to this Letter) an aggregate amount in the load funds of Countrywide
Investments at least equal to (check appropriate box):
[] $100,000 [] $250,000 [] $500,000 [] $1,000,000
========================================================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the Funds' current Prospectus, that he is of legal
age, and that he has full authority and legal capacity for himself or the organization named below, to make this investment and
to use the options selected above. The investor appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions for automatic reinvestment in additional shares of
the Funds for credit to the investor's account and to surrender for redemption shares held in the investor's account in accordance
with any of the procedures elected above or for payment of service charges incurred by the investor. The investor further
agrees that Countrywide Fund Services, Inc. can cease to act as such agent upon ten days' notice in writing to the investor at the
address contained in this Application. The investor hereby ratifies any instructions given pursuant to this Application and for
himself and his successors and assigns does hereby release Countrywide Fund Services, Inc., Countrywide Strategic Trust, Countrywide
Investments, Inc., and their respective officers, employees, agents and affiliates from any and all liability in the
performance of the acts instructed herein provided that such entities have exercised due care to determine that the instructions are
genuine.
__________________________________________________ ___________________________________________________
Signature of Individual Owner, Corporate Officer,
Trustee, etc. Signature of Joint Owner, if Any
___________________________________________________ ____________________________________________________
Title of Corporate Officer, Trustee, etc. Date
NOTE: Corporations, trusts and other organizations must complete the resolution form on the reverse side.
Unless otherwise specified, each joint owner shall have full authority to act on behalf of the account.
=========================================================================================================================
AUTOMATIC INVESTMENT PLAN (Complete for Investments Into the Fund(s))
The Automatic Investment Plan is available for all established accounts of Countrywide Strategic Trust. There is no charge for this
service, and it offers the convenience of automatic investing on a regular basis. The minimum investment is $50.00 per month.
For an account that is opened by using this Plan, the minimum initial and subsequent investments must be $50.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be discontinued by the shareholder at any time.
Please invest $ ______________ per month in the (check the appropriate Fund.) ABA Routing Number__________________________
[] Growth/Value Fund [] Aggressive Growth Fund FI Account Number___________________________
[] Checking Account [] Savings Account
_________________________________________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
[] the last business day of each month
_________________________________________________________________ [] the 15th day of each month
City State [] both the 15th and last business day
X______________________________________________________ X__________________________________________________
(Signature of Depositor EXACTLY as it appears on FI Records) (Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign exactly as signature appears on your FI's
records.)
Please attach a voided check from your checking account or a voided deposit/withdrawal slip from your savings account
for the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund Services, Inc. ("CFS") has put into effect, by which
amounts, determined by your depositor, payable to the applicable Fund designated above, for purchase of shares of said Fund, are
collected by CFS, CFS hereby agrees:
CFS will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the payment
by you of any amount drawn by the Funds to their own order on the account of your depositor or from any liability to any person
whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any such
checks. CFS will defend, at its own cost and expense, any action which might be brought against you by any person or persons
whatsoever because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. CFS will refund to you any amount erroneously paid by you to the Funds on any such check if
the claim for the amount of such erroneous payment is made by you within six (6) months from the date of such erroneous
payment; your participation in this arrangement and that of the Funds may be terminated by thirty (30) days written notice from
either party to the other.
========================================================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $_________ from my mutual fund account beginning the last business day of the
month of __________________.
Please Indicate Withdrawal Schedule (Check One): Please indicate which Fund: [ ] Growth/Value Fund [ ] Aggressive Growth Fund
[] Monthly -- Withdrawals will be made on the last business day of each month.
[] Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
[] Annually -- Please make withdrawals on the last business day of the month of:_____________________.
Please Select Payment Method (Check One):
[] Exchange: Please exchange the withdrawal proceeds into another Countrywide account number:_ _-- _ _ _ _--_
[] Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
[] ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as indicated below.
I understand that the transfer will be completed in two to three business days and that there is no charge.
[] Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the wire will
be completed in one business day and that there is an $8.00 fee.
Please attach a voided check for ACH or bank wire
___________________________________________________________________________________________________________________________
Bank Name Bank Address
___________________________________________________________________________________________________________________________
Bank ABA# Account # Account Name
[] Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing address below:
Name of payee__________________________________________________________________________________________________________________
Please send to:________________________________________________________________________________________________________________
Street address City State Zip
========================================================================================================================
<PAGE>
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of Countrywide Strategic Trust (the Trust) and that
________________________________________________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of the corporation or organization and to take any
action for it as may be necessary or appropriate with respect to its shareholder account with the Trust, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign any documents necessary or appropriate to
appoint Countrywide Fund Services, Inc. as redemption agent of the corporation or organization for shares of the applicable series
of the Trust, to establish or acknowledge terms and conditions governing the redemption of said shares and to otherwise implement
the privileges elected on the Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the Charter and By-Laws or other empowering documents of
the
________________________________________________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of_________________________________________________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the organization or corporation duly called and held on
at which a quorum was present and acting throughout, and that the same are now in full force and effect. I further certify that
the following is (are) duly elected officer(s) of the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
Name Title
__________________________________________________ _________________________________________________________
___________________________________________________ _________________________________________________________
___________________________________________________ _________________________________________________________
Witness my hand and seal of the corporation or organization this_______________________day
of_______________________________________, 19_______
___________________________________________________ _________________________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above resolutions, this certificate must also be
signed by another officer.
</TABLE>
<PAGE>
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4004
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
Manager/Underwriter
Countrywide Investments, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4004
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
- 41 -
<PAGE>
TABLE OF CONTENTS
PAGE
EXPENSE INFORMATION..........................................
FINANCIAL HIGHLIGHTS.........................................
INVESTMENT OBJECTIVE AND POLICIES............................
HOW TO PURCHASE SHARES.......................................
SHAREHOLDER SERVICES.........................................
HOW TO REDEEM SHARES.........................................
EXCHANGE PRIVILEGE .........................................
DIVIDENDS AND DISTRIBUTIONS..................................
TAXES.........................................................
OPERATION OF THE FUNDS ......................................
DISTRIBUTION PLAN ...........................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE.........
PERFORMANCE INFORMATION......................................
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 42 -
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1998
Growth/Value Fund
Aggressive Growth Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the Growth/Value Fund and the
Aggressive Growth Fund of Countrywide Strategic Trust dated January 1, 1998. A
copy of the Funds' 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
QUALITY RATINGS OF FIXED-INCOME OBLIGATIONS..............................4
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS............................7
INVESTMENT LIMITATIONS..................................................14
TRUSTEES AND OFFICERS...................................................16
THE INVESTMENT MANAGER AND UNDERWRITER..................................19
THE INVESTMENT ADVISER..................................................21
DISTRIBUTION PLAN.......................................................21
SECURITIES TRANSACTIONS.................................................23
PORTFOLIO TURNOVER......................................................24
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE....................25
OTHER PURCHASE INFORMATION..............................................25
TAXES...................................................................26
REDEMPTION IN KIND......................................................28
HISTORICAL PERFORMANCE INFORMATION......................................29
PRINCIPAL SECURITY HOLDERS..............................................32
CUSTODIAN...............................................................32
AUDITORS................................................................32
TRANSFER AGENT..........................................................32
ANNUAL REPORT...........................................................33
- 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
(formerly the Leshner Financial Utility Fund), the Equity Fund (formerly the
Leshner Financial Equity Fund), the International Equity Fund, the Growth/Value
Fund and the Aggressive Growth Fund. This Statement of Additional Information
provides information relating to the Growth/Value Fund and the Aggressive Growth
Fund (referred to individually as a "Fund" and collectively as the "Funds").
Information relating to the Government Mortgage Fund, the Utility Fund, the
Equity Fund and the International Equity Fund is contained in a separate
Statement of Additional Information. Each Fund has its own investment
strategies and policies.
Pursuant to an Agreement and Plan of Reorganization dated May 31, 1997, each
Fund, on August 29, 1997, succeeded to the assets and liabilities of another
mutual fund of the same name (the "Predecessor Fund"), which was an investment
series of Trans Adviser Funds, Inc. The investment objective, policies and
restrictions of each Fund and its Predecessor Fund are substantially identical
and the financial data and information in this Statement of Additional
Information relates to the Predecessor Funds.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
- 3 -
<PAGE>
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
QUALITY RATINGS OF FIXED-INCOME OBLIGATIONS
- -------------------------------------------
MOODY'S INVESTORS SERVICE, INC. PROVIDES THE FOLLOWING DESCRIPTIONS OF ITS
CORPORATE BOND RATINGS:
Aaa - "Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as 'gilt edge.' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues."
Aa - "Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities."
A - "Bonds which are rated A possess many favorable investment
attributes and are considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future."
- 4 -
<PAGE>
Baa - "Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well."
Ba - "Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class."
B - "Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small."
Caa - "Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest."
Ca - "Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings."
C - "Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing."
STANDARD & POOR'S RATINGS GROUP PROVIDES THE FOLLOWING DESCRIPTIONS OF ITS
CORPORATE BOND RATINGS:
AAA - "Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong."
AA - "Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree."
A - "Debt rated A has strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories."
BBB - "Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally
- 5 -
<PAGE>
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories."
BB - "Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating."
B - "Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating."
CCC - "Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial or economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest or repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating."
CC - "The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating."
C - "The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy has been filed but debt service
payments are continued."
CI - "The rating CI is reserved for income bonds on which no interest is
being paid."
D - "Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition and debt service payments are jeopardized.
- 6 -
<PAGE>
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ----------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objective and Policies")
appears below:
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or of banks or institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable certificates
evidencing the indebtedness of a commercial bank to repay funds deposited with
it for a definite period of time (usually from fourteen days to one year) at a
stated or variable interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Investments in time deposits maturing
in more than seven days will be subject to each Fund's restrictions on illiquid
investments (see "Investment Limitations"). The Funds may also invest in
certificates of deposit, bankers' acceptances and time deposits issued by
foreign branches of national banks. Eurodollar certificates of deposit are
negotiable U.S. dollar denominated certificates of deposit issued by foreign
branches of major U.S. commercial banks. Eurodollar bankers' acceptances are
U.S. dollar denominated bankers' acceptances "accepted" by foreign branches of
major U.S. commercial banks. Investments in the obligations of foreign branches
of U.S. commercial banks may be subject to special risks, including future
political and economic developments, imposition of withholding taxes on income,
establishment of exchange controls or other restrictions, less governmental
supervision and the lack of uniform accounting, auditing and financial reporting
standards that might affect an investment adversely.
COMMERCIAL PAPER. Commercial paper consists of short-term, (usually
from one to two hundred seventy days) unsecured promissory notes issued by U.S.
corporations in order to finance their current operations. Certain notes may
have floating or variable rates. Variable and floating rate notes with a demand
notice period exceeding seven days will be subject to each Fund's restrictions
on illiquid investments (see "Investment Limitations") unless, in the judgment
of the Adviser, subject to the direction of the Board of Trustees, such note is
liquid.
WHEN-ISSUED SECURITIES. The Funds will only make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities. In addition,
- 7 -
<PAGE>
the Funds 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, each Fund will direct its
Custodian to place cash, U.S. Government obligations or other liquid high-grade
debt obligations in a segregated account in an amount sufficient to make payment
for the securities to be purchased. When a segregated account is maintained
because a Fund purchases securities on a when-issued basis, the assets deposited
in the segregated account will be valued daily at market for the purpose of
determining the adequacy of the securities in the account. If the market value
of such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of a Fund's commitments to purchase securities on a when-issued basis. To
the extent funds are in a segregated account, they will not be available for new
investment or to meet redemptions. Securities purchased on a when-issued basis
and the securities held in a Fund's portfolio are subject to changes in market
value based upon changes in the level of interest rates (which will generally
result in all of those securities changing in value in the same way, i.e., all
those securities experiencing appreciation when interest rates decline and
depreciation when interest rates rise). Therefore, if in order to achieve higher
returns, a Fund remains substantially fully invested at the same time that it
has purchased securities on a when-issued basis, there will be a possibility
that the market value of the Fund's assets will 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 a Fund to make payment for securities purchased
on a when-issued basis, the Fund will do so by using then available cash flow,
by sale of the securities held in the segregated account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued basis themselves (which may
have a market value greater or less than the Fund's payment obligation).
Although a Fund will only make commitments to purchase securities on a
when-issued basis with the intention of actually acquiring the securities, the
Funds may sell these securities before the settlement date if it is deemed
advisable by the Adviser as a matter of investment strategy.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
a Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its
- 8 -
<PAGE>
Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Funds'
Custodian at the Federal Reserve Bank. Each 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 a Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to a 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 a Fund to the seller subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would consider
the securities purchased by a Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by a Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, a Fund may encounter 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
a 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, a Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Fund, the
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
- 9 -
<PAGE>
repurchase the security, in which case a 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
involved will direct the seller of the security to deliver additional securities
so that the market value of all securities subject to the repurchase agreement
will equal or exceed the repurchase price. It is possible that a Fund
will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. Each Fund may 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 a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive amounts equal to the 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 Funds may also pay fees to placing brokers as well as custodian
and administrative fees in connection with loans. Fees may only be paid to a
placing broker provided that the Trustees determine that the fee paid to the
placing broker is reasonable and based solely upon services rendered, that the
Trustees separately consider the propriety of any fee shared by the placing
broker with the borrower, and that the fees are not used to compensate the
Adviser or any affiliated person of the Trust or an affiliated person of the
Adviser or other affiliated person. The terms of the Funds' loans must meet
applicable tests under the Internal Revenue Code and permit the Funds to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.
FOREIGN SECURITIES. Each Fund may invest in the securities (payable in
U.S. dollars) of foreign issuers. Because the Funds may invest in foreign
securities, an investment in the Funds involves risks that are different in some
respects from an investment in a fund which invests only in securities of U.S.
domestic issuers. Foreign investments may be affected favorably or unfavorably
by changes in currency rates and exchange control regulations. There may be
less publicly available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those applicable
to U.S. companies. There may be less
- 10 -
<PAGE>
governmental supervision of securities markets, brokers and issuers of
securities. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United States. Settlement
practices may include delays and may differ from those customary in United
States markets. Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
TRANSACTIONS IN OPTIONS AND FUTURES. The Adviser may engage
in the use of the options and futures strategies for the Aggressive Growth Fund
described below.
1. FUTURES CONTRACTS: The Aggressive Growth Fund may enter into
contracts for the future delivery of securities commonly referred to as "futures
contracts." A futures contract is a contract by the Fund to buy or sell
securities at a specified date and price. No payment is made for securities when
the Fund buys a futures contract and no securities are delivered when the Fund
sells a futures contract. Instead, the Fund makes a deposit called an "initial
margin" equal to a percentage of the contract's value. Payment or delivery is
made when the contract expires. Futures contracts will be used only as a hedge
against anticipated interest rate changes and for other transactions permitted
to entities exempt from the definition of the term commodity pool operator. The
Fund will not enter into a futures contract if immediately thereafter the sum of
the then aggregate futures market prices of financial or other instruments
required to be delivered under open futures contract sales and the aggregate
futures market prices of financial instruments required to be delivered under
open futures contract purchases would exceed one-third of the value of its total
assets. The Fund will not enter into a futures contract if immediately
thereafter more than 5% of the fair market value of its assets would be
committed to initial margins.
2. WRITING COVERED CALL OPTIONS ON EQUITY SECURITIES: The Aggressive
Growth Fund may write covered call options on equity securities to earn premium
income, to assure a definite price for a security it has considered selling, or
to close out options previously purchased. A call option gives the holder
(buyer) the right to purchase a security at a specified price (the exercise
price) at any time until a certain date (the expiration date). A call option
is "covered" if the Fund owns the underlying security subject to the call option
at all times during the option period. A covered call writer is required to
deposit in escrow the
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<PAGE>
underlying security in accordance with the rules of the exchanges on which the
option is traded and the appropriate clearing agency.
The writing of covered call options is a conservative investment
technique which the Adviser believes involves relatively little risk. However,
there is no assurance that a closing transaction can be effected at a favorable
price. During the option period, the covered call writer has, in return for the
premium received, given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase, but
has retained the risk of loss should the price of the underlying security
decline.
The Fund may write covered call options if, immediately thereafter, not
more than 25% of its net assets would be committed to such transactions.
3. WRITING COVERED PUT OPTIONS ON EQUITY SECURITIES: The Aggressive
Growth Fund may write covered put options on securities and on futures
contracts to assure a definite price for a security if it is considering
acquiring the security at a lower price than the current market price or to
close out options previously purchased. A put option gives the holder of the
option the right to sell, and the writer has the obligation to buy, the
underlying security at the exercise price at any time during the option period.
The operation of put options in other respects is substantially identical to
that of call options. When the Fund writes a covered put option, it maintains
in a segregated account with its Custodian cash or liquid debt obligations in an
amount not less than the exercise price at all times while the put option is
outstanding.
The risks involved in writing put options include the risk that a
closing transaction cannot be effected at a favorable price and the possibility
that the price of the underlying security may fall below the exercise price, in
which case the Fund may be required to purchase the underlying security at a
higher price than the market price of the security at the time the option is
exercised. The Fund may not write a put option if, immediately thereafter, more
than 25% of its net assets would be committed to such transactions.
4. PURCHASING OPTIONS ON FUTURES CONTRACTS: The Aggressive Growth Fund may
purchase put and call options on futures contracts. The purchase of put options
on futures contracts hedges the Fund's portfolio against the risk of rising
interest rates. The purchase of call options on futures contracts is a means of
obtaining temporary exposure to market appreciation at limited risk and is a
hedge against a market advance when the Fund is not fully invested. Assuming
that any decline in the securities being hedged is accompanied by a rise in
interest rates, the purchase of options on the futures
- 12 -
<PAGE>
contracts may generate gains which can partially offset any decline in the value
of the Fund's portfolio securities which have been hedged. However, if after the
Fund purchases an option on a futures contract, the value of the securities
being hedged moves in the opposite direction from that contemplated, the Fund
will tend to experience losses in the form of premiums on such options which
would partially offset gains the Fund would have.
A futures contract is a contract to buy or sell specified debt
securities at a future time for a fixed price. The Fund may purchase put and
call options on futures contracts which are traded on a national exchange or
board of trade and sell such options to terminate an existing position. Options
on futures contracts give the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put), rather than to purchase
or sell a security, at a specified exercise price at any time during the period
of the option.
The holder of an option on a futures contract may terminate his
position by selling an option of the same series. There is no guarantee that
such closing transactions can be effected. In addition to the risks which apply
to all options, there are several special risks relating to options on futures
contracts. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Compared to the use of
futures contracts, the purchase of options on futures contracts involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options, plus transaction costs.
5. OPTIONS TRANSACTIONS GENERALLY: Option transactions in which the
Aggressive Growth Fund may engage involve the specific risks described above as
well as the following risks: the writer of an option may be assigned an exercise
at any time during the option period; disruptions in the markets for underlying
instruments could result in losses for options investors; imperfect or no
correlation between the option and the securities being hedged; the insolvency
of a broker could present risks for the broker's customers; and market imposed
restrictions may prohibit the exercise of certain options. In addition, the
option activities of the Fund may affect its portfolio turnover rate and the
amount of brokerage commissions paid by the Fund. The success of the Fund in
using the option strategies described above depends, among other things, on the
Adviser's ability to predict the direction and volatility of price movements in
the options, futures contracts and securities markets and the Adviser's ability
to select the proper time, type and duration of the options.
MAJORITY. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Trust (or of any Fund) means the lesser of (1) 67%
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<PAGE>
or more of the outstanding shares of the Trust (or the applicable Fund) present
at a meeting, if the holders of more than 50% of the outstanding shares of the
Trust (or the applicable Fund) are present or represented at such meeting or (2)
more than 50% of the outstanding shares of the Trust (or the applicable Fund).
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Funds. These limitations may
not be changed with respect to any Fund without the affirmative vote of a
majority of the outstanding shares of that Fund.
THE LIMITATIONS APPLICABLE TO EACH FUND ARE:
1. BORROWING MONEY. Each 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 Growth/Value Fund's total assets. Each 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. Each Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. Each Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. OPTIONS. Each 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. MINERAL LEASES. Each Fund will not purchase oil, gas or other
mineral leases, rights or royalty contracts.
5. UNDERWRITING. Each 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, a Fund may be
deemed an underwriter under certain federal securities laws.
6. CONCENTRATION. Each 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
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<PAGE>
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.
7. COMMODITIES. Each Fund will not purchase, hold or deal in
commodities and will not invest in oil, gas or other mineral explorative or
development programs.
8. REAL ESTATE. Each Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, except it may purchase (a) U.S. Government
obligations, (b) securities of companies which deal in real estate, or (c)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
9. LOANS. Each 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.
10. INVESTING FOR CONTROL. Each Fund will not invest in companies for
the purpose of exercising control.
11. SENIOR SECURITIES. Each Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by a
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 FUNDS ARE NONFUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL:
1. ILLIQUID INVESTMENTS. Each Fund will not purchase securities for
which there are legal or contractual restrictions on resale or for which no
readily available market exists (or engage in a repurchase agreement maturing
in more than seven days) if, as a result thereof, more than 15% of the value
of a Fund's net assets would be invested in such securities.
2. MARGIN PURCHASES. Each Fund will not purchase securities or
evidences of interest thereon on "margin." This limitation is not applicable to
short-term credit obtained by a Fund for the clearance of purchases and sales or
redemption of securities or to the extent necessary to engage in transactions
described in the Prospectus and Statement of Additional Information which
involve margin purchases.
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<PAGE>
3. SHORT SALES. Each Fund will not make short sales of securities.
4. OTHER INVESTMENT COMPANIES. Each Fund will not invest more than 5% of
its total assets in the securities of any investment company and will not invest
more than 10% of 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 Funds' 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 and their compensation from the Trust and their aggregate compensation
from the Countrywide Investments complex of mutual funds (consisting of the
Trust, Countrywide Tax-Free Trust and Countrywide Investment Trust) for the
fiscal year ended March 31, 1997. Each of the Trustees 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 COMPLEX
- ---- --- ---- ------------ -----------
Donald L. Bodgon, MD 67 Trustee $ 0 $ 0
John R. Delfino 64 Trustee 0 0
+H. Jerome Lerner 59 Trustee 2,983 9,030
*Robert H. Leshner 58 President/Trustee 0 0
*Angelo R. Mozilo 59 Chairman/Trustee 0 0
+Oscar P. Robertson 59 Trustee 2,583 7,750
John F. Seymour, Jr. 60 Trustee 0 0
+Sebastiano Sterpa 68 Trustee 0 0
Robert G. Dorsey 40 Vice President 0 0
John F. Splain 41 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.
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<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., 1505 Wilson Terrace, 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).
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<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 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., 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 Chief
Operating Officer 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
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<PAGE>
Funds and the Dean Family of Funds and 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 Funds. 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 are 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 agreements between the Trust and the
Manager, each Fund pays the Manager a fee computed and accrued daily and paid
monthly at an annual rate of 1.00% of its average daily net assets up to
$50,000,000, .90% of such assets from $50,000,000 to $100,000,000, .80% of such
assets from $100,000,000 to $200,000,000 and .75% of such assets in excess of
$200,000,000. The total fees paid by a 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.
Prior to August 29, 1997, the investment manager of the Predecessor
Funds was Trans Financial Bank, N.A. (the "Predecessor Manager"). For the fiscal
periods ended August 31, 1997 and 1996, the Predecessor Growth/Value Fund
accrued advisory fees of $206,612 and $81,961, respectively; however, for the
fiscal period ended August 31, 1996, the Predecessor Manager voluntarily waived
$34,323 of such fees and reimbursed $37,378 of operating expenses in order to
reduce operating expenses of the Predecessor Growth/Value Fund. For the fiscal
periods ended August 31, 1997 and 1996, the Predecessor Aggressive Growth Fund
accrued advisory fees of $94,159 and $31,177, respectively; however, the
Predecessor Manager voluntarily waived $64,077 of such fees during the fiscal
year ended August 31, 1997 and voluntarily waived all of its fees and reimbursed
$65,099 of operating expenses for the fiscal period ended August 31, 1996 in
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<PAGE>
order to reduce the operating expenses of the Predecessor Aggressive Growth
Fund.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds may have an
obligation to indemnify the Trust's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The Manager bears promotional expenses in
connection with the distribution of the Funds' shares to the extent that such
expenses are not assumed by the Funds under their plan of distribution (see
below). The compensation and expenses of any officer, Trustee or employee of the
Trust who is an officer, director, employee or stockholder of the Manager are
paid by the Manager.
By their terms, the Funds' management agreements 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 a Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Funds' management agreements may be terminated at any time,
on sixty days' written notice, without the payment of any penalty, by the Board
of Trustees, by a vote of the majority of a Fund's outstanding voting
securities, or by the Manager. The management agreements automatically terminate
in the event of their assignment, as defined by the Investment Company Act of
1940 and the rules thereunder.
The Manager is also the principal underwriter of the Funds and, as
such, the exclusive agent for distribution of shares of the Funds. The Manager
is obligated to sell the shares on a best efforts basis only against purchase
orders for the shares. Shares of each Fund are offered to the public on a
continuous basis.
The Manager currently allows concessions to dealers who sell shares of
the Funds. The Manager receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Funds. The Manager retains the
entire sales load on all direct initial investments in the Funds and on all
investments in accounts with no designated dealer of record.
The Funds may compensate dealers, including the Manager and its
affiliates, based on the average balance of all accounts in the Funds for which
the dealer is designated as the party responsible for the account. See
"Distribution Plan" below.
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<PAGE>
INVESTMENT ADVISER
- ------------------
Mastrapasqua & Associates, Inc. (the "Adviser") has been retained by the
Manager to serve as the discretionary portfolio adviser of the Funds. The
Adviser also served as investment adviser to the Predecessor Funds. The Adviser
selects the portfolio securities for investment by the Funds, purchases and sell
securities of the Funds 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 .6% of each
Fund's average daily net assets up to $50,000,000, .5% of such assets from
$50,000,000 to $100,000,000, .4% of such assets from $100,000,000 to
$200,000,000 and .35% of such assets in excess of $200,000,000. 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.
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 a Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting such approval. The
employment of the 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 a 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 Funds have adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940 which permits each Fund to pay for expenses incurred in the
distribution and promotion of the Funds' shares, including but not limited to,
the printing of prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing and sales expenses, and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Manager. The Plan expressly limits payment of the
distribution expenses listed above in any fiscal year to a maximum of .25% of
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<PAGE>
each 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 Funds' 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 a Fund. In the event the Plan
is terminated in accordance with its terms, the affected Fund will not be
required to make any payments for expenses incurred by the Manager after the
termination date. Each Implementation Agreement terminates automatically in the
event of its assignment and may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of the holders of a majority
of the outstanding shares of a Fund 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 Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plan should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The 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 Funds' assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Funds 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.
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<PAGE>
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 Funds and the placing of
the Funds' 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 Funds, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received.
Generally, the Funds attempt to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Funds may be purchased
directly from the issuer.
The Adviser is specifically authorized to select brokers who also
provide brokerage and research services to the Funds 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 Funds and to accounts over which it
exercises investment discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Funds and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Funds and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Funds effect securities transactions may
be used by the Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Funds.
The Funds have no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the
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<PAGE>
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. No Fund will effect any brokerage transactions in its portfolio
securities with the Manager if such transactions would be unfair or unreasonable
to its shareholders. Over-the-counter transactions will be placed either
directly with principal market makers or with broker-dealers. Although the Funds
do not anticipate any ongoing arrangements with other brokerage firms, brokerage
business may be transacted from time to time with other firms. Neither the
Manager 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 Funds with other brokers.
CODE OF ETHICS. The Trust, the Manager and the Adviser have each adopted a Code
of Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Manager and, the Adviser and as described below, imposes additional, more
onerous, restrictions on investment personnel of the Manager and the Adviser.
The Code requires that employees of the Manager and the Adviser preclear any
personal securities investment (with limited exceptions, such as U.S. Government
obligations). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. In addition, no employee may purchase or sell any
security which at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or
sale, by any Fund. The substantive restrictions applicable to investment
personnel of the Manager and the Adviser include a ban on acquiring any
securities in an initial public offering and a prohibition from profiting
on short-term trading in securities. Furthermore, the Code provides for
trading "blackout periods" which prohibit trading by investment personnel of the
Manager and the Adviser within periods of trading by the Funds in the same
(or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
Because the Funds are actively managed by the Adviser in light of the
Adviser's investment outlook for common stocks, there may be a very substantial
turnover of each Fund's portfolio. A Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Funds. A 100% turnover rate would
occur if all of a Fund's portfolio securities were replaced once within a one
year period.
- 24 -
<PAGE>
The Growth/Value Fund expects that the average holding period of its
equity securities will be between eighteen and thirty-six months. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate.
If warranted by market conditions, the Aggressive Growth 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 each Fund are
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), on each day the Trust is
open for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Martin Luther King Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. The Trust may also be open for business on other
days in which there is sufficient trading in a Fund's portfolio securities that
its net asset value might be materially affected. For a description of the
methods used to determine the share price and the public offering price, see
"Calculation of Share Price and Public Offering Price" in the Prospectus.
OTHER PURCHASE INFORMATION
- ---------------------------
The Prospectus describes generally how to purchase shares of the Funds.
Additional information with respect to certain types of purchases of shares of
the Funds is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
shares of a Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing shares of the load funds distributed by
the 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 a Fund who submits a
- 25 -
<PAGE>
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 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 a 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 Funds. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
- 26 -
<PAGE>
Each 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 a Fund must, among other things, (i)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currency, or certain other
income (including but not limited to gains from options, futures and forward
contracts) derived with respect to its business of investing in stock,
securities or currencies; (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).
A Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. As of August 31, 1997, the Aggressive Growth
Fund had capital loss carryforwards for federal income tax purposes of
$154,085 and, in addition, elected to defer until its March 31, 1998 fiscal year
$202,393 of capital losses incurred after October 31, 1996. These capital losses
and "post-October" 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 Aggressive Growth 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.
Certain hedging transactions undertaken by the Aggressive Growth Fund
may result in "straddles" for federal income tax
- 27 -
<PAGE>
purposes. The straddle rules may affect the character of gains (or losses)
realized by the Fund. In addition, losses realized by the Fund on positions that
are part of a straddle may be deferred, rather than being taken into account in
calculating taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of hedging transactions to the Fund are
not entirely clear. The hedging transactions may increase the amount of
short-term capital gain realized by the Fund which is taxed as ordinary income
when distributed to shareholders. The Fund may make one or more of the elections
available under the Internal Revenue Code of 1986, 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.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company
- 28 -
<PAGE>
Act of 1940. This election will require the Funds to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of each Fund
during any 90 day period for any one shareholder. Should payment be made in
securities, the redeeming shareholder will generally incur brokerage costs in
converting such securities to cash. Portfolio securities which are issued in an
in-kind redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- -----------------------------------
From time to time, each 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 a 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 average annual total
returns of the Funds for the periods ended August 31, 1997 are as follows:
Growth/Value Fund
1 year 41.23%
Since inception (September 29, 1995) 26.95%
Aggressive Growth Fund
1 year 43.12%
Since inception (September 29, 1995) 26.46%
Each 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
- 29 -
<PAGE>
return. The total returns as calculated in this manner for the fiscal
periods ended August 31, 1997 and 1996 were 47.11% and 11.80%, respectively,
for the Growth/Value Fund and 49.09% and 9.50%, respectively, for the
Aggressive Growth Fund.
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. The
average annual compounded rates of return for the Funds (excluding sales loads)
for the periods ended August 31, 1997 are as follows:
Growth/Value Fund
1 Year 47.11%
Since inception (September 29, 1995) 29.69%
Aggressive Growth Fund
1 Year 49.09%
Since inception (September 29, 1995) 29.19%
A nonstandardized quotation of total return will always be accompanied
by the Fund's average annual total return as described above.
From time to time, each 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 a 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
- 30 -
<PAGE>
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 a Fund might
satisfy their investment objective, advertisements regarding each Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (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 Funds 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. The Growth/Value Fund may provide
comparative performance information appearing in the Growth Funds category and
the Aggressive Growth Fund may provide comparative performance information
appearing in the Capital Appreciation Funds category. In addition, the Funds may
also use comparative 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.
NASDAQ Composite Index is an unmanaged index of common stocks of
companies traded over-the-counter and offered through the National Association
of Securities Dealers Automated Quotations ("NASDAQ") system.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Funds' portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
- 31 -
<PAGE>
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of December 5, 1997, Trans Financial Bank, N.A., 500 Main Street,
Bowling Green, Kentucky owned of record 63.66% of the outstanding shares of the
Growth/Value Fund and 65.24% of the outstanding shares of the Aggressive Growth
Fund. Trans Financial Bank may be deemed to control each Fund by virtue of the
fact that it owned of record more than 25% of the shares of such Funds as of
such date. As of December 5, 1997 Charles Schwab & Co., Inc. Mutual Funds
Special Custody Account for the Exclusive Benefit of Its Customers, 101
Montgomery Street, San Francisco, California owned of record 18.34% of the
outstanding shares of the Growth/Value Fund and 12.76% of the outstanding shares
of the Aggressive Growth Fund.
As of December 5, 1997, the Trustees and officers of the Trust as a
group owned of record or beneficially 1.47% of the outstanding shares of the
Trust and less than 1% of the outstanding shares of each Fund.
CUSTODIAN
- ----------
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained
to act as Custodian for each Fund's investments. Star Bank acts as each Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
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
Funds' shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. CFS is an affiliate of the Manager by
reason of common ownership. CFS receives for its
- 32 -
<PAGE>
services as transfer agent a fee payable monthly at an annual rate of $17 per
account from each of the Funds, provided, however, that the minimum fee is
$1,000 per month for each Fund. In addition, the Funds pay out-of-pocket
expenses, including but not limited to, postage, envelopes, checks, drafts,
forms, reports, record storage and communication lines.
CFS also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable CFS to perform its duties, each Fund pays CFS
a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $2,000
50,000,000 - 100,000,000 2,500
100,000,000 - 200,000,000 3,000
200,000,000 - 300,000,000 3,500
Over 300,000,000 4,500*
* Subject to an additional fee of .001% of average daily net assets.
In addition, each Fund pays all costs of external pricing services.
CFS is retained by the Manager to assist the Manager in providing
administrative services to the Funds. 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 Funds, reports to
and filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For the
performance of these administrative services, 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.
ANNUAL REPORT
- -------------
The Predecessor Funds' audited financial statements as of August 31,
1997 appear in the annual report which is attached to this Statement of
Additional Information.
- 33 -
<PAGE>
Capital Appreciation
Income
Tax-Exempt
ANNUAL REPORT
AUGUST 31, 1997
GROWTH/VALUE
FUND
AGGRESSIVE GROWTH
FUND
INTERMEDIATE BOND
FUND
MONEY MARKET
FUND
KENTUCKY TAX-FREE
FUND
<PAGE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not yet reflect the
prospects for accelerated earnings/cash flow growth. For the fiscal year ended
August 31, 1997, the Fund's total return (excluding the impact of applicable
sales loads) was 47.11%, as compared to 40.65% for the Standard & Poor's 500
(S&P 500) Index.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes. For the fiscal year ended August 31, 1997, the
Fund's total return (excluding the impact of applicable sales loads) was 49.09%,
as compared to 39.54% for the NASDAQ Index.
The equity market was strong through the summer months with each Fund's primary
sector concentrations, namely, healthcare, technology, energy and financial
services, participating in the advance. In contrast to earlier in the year, the
broader market has performed better than the popular averages due to the shift
in focus away from larger capitalization stocks to the mid-to-small
capitalization stocks. Our performance stayed with or outperformed the market
averages because of our focus on investing in growth opportunities among
companies of various sizes which are selling at value prices.
Our concentrated sectors each have distinct characteristics driving growth.
Healthcare growth is bolstered by the aging population and productivity gains
stemming from enlightened government reforms. Technology continues to alter
fundamental production and service delivery systems that increase productivity
significantly. Energy demand continues to grow faster than new found reserves
and technology is making vast headway in finding and servicing new oil and gas
reserves at costs never imagined even four or five years ago. Financial services
continues to restructure itself with new technology-enabled systems and the
gradual unfolding of regulatory freedoms that allow more competition and greater
responsiveness to fulfilling consumer needs.
The above growth characteristics are compelling when viewed in the context of
closely allied defensive characteristics. Healthcare demand is largely
unaffected by economic cycles. Technology is a volatile sector, but a portion of
this systematic risk is alleviated by our investment style, which imposes a
discipline of buying three-to-five year anticipated growth at a risk-adjusted,
discounted price-to-earnings multiple. Energy has historically been a defensive
sector, especially during inflationary periods. Entrepreneurial financial
services companies are expanding beyond traditional, artificially-imposed
boundaries, and erecting growth and hedging elements that should dilute earnings
damage from an extended upturn in interest rates.
We attempt to position the Growth/Value Fund to participate in the bull market
and simultaneously limit the risk profile in such a way as to minimize relative
market losses during downturns. The Aggressive Growth Fund also emphasizes
buying growth at value, but the average capitalization size is much smaller than
that of the Growth/Value Fund. The smaller, and usually younger, aggressive
growth companies add somewhat to the risk/return profile of the Aggressive
Growth Fund.
Consistent with past October market behavior, the opening weeks of the fourth
quarter have been volatile, caused by near-term concerns over quarterly earnings
reports in the technology sector and currency problems in Asia. In addition,
energy has been clouded somewhat by the inventory buildup of home heating fuels
together with some forecasts of a relatively mild winter. In spite of these very
near-term observations, we continue to believe that our long-term holdings have
ample fundamental support to warrant continued optimism in their respective
sectors.
<PAGE>
<TABLE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
CHART:
<CAPTION>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
GROWTH/VALUE FUND AND THE STANDARD & POOR'S 500 INDEX
STANDARD & POOR'S 500 INDEX: GROWTH/VALUE FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
09/29/95 10,000 09/29/95 9,600
10/31/95 -0.61% 9,939 10/31/95 -1.70% 9,437
11/30/95 4.39% 10,376 11/30/95 6.21% 10,022
12/31/95 1.93% 10,576 12/31/95 0.77% 10,099
01/31/96 3.40% 10,936 01/31/96 3.61% 10,464
02/29/96 0.93% 11,037 02/29/96 4.04% 10,886
03/31/96 0.96% 11,143 03/31/96 0.97% 10,992
04/30/96 1.47% 11,307 04/30/96 3.58% 11,386
05/31/96 2.58% 11,599 05/31/96 0.76% 11,472
06/30/96 0.38% 11,643 06/30/96 -3.26% 11,098
07/31/96 -4.42% 11,129 07/31/96 -7.44% 10,272
08/31/96 2.11% 11,364 08/31/96 4.49% 10,733
09/30/96 5.63% 12,003 09/30/96 5.19% 11,290
10/31/96 2.76% 12,334 10/31/96 2.47% 11,568
11/30/96 7.56% 13,267 11/30/96 6.80% 12,355
12/31/96 -1.98% 13,004 12/31/96 -1.38% 12,185
01/31/97 6.25% 13,816 01/31/97 8.06% 13,167
02/28/97 0.78% 13,925 02/28/97 -2.78% 12,801
03/31/97 -4.11% 13,352 03/31/97 -3.98% 12,291
04/30/97 5.97% 14,150 04/30/97 2.90% 12,647
05/31/97 6.09% 15,011 05/31/97 7.23% 13,561
06/30/97 4.48% 15,684 06/30/97 6.46% 14,437
07/31/97 7.96% 16,932 07/31/97 9.67% 15,833
08/31/97 -5.60% 15,983 08/31/97 -0.28% 15,789
</TABLE>
GROWTH/VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
41.23% 26.95%
*Fund inception was September 29, 1995.
Past performance is not predictive of future performance.
<TABLE>
<PAGE>
CHART:
<CAPTION>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
AGGRESSIVE GROWTH FUND AND THE NASDAQ INDEX
NASDAQ INDEX AGGRESSIVE GROWTH FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
09/29/95 10,000 09/29/95 9,600
10/31/95 -1.03% 9,897 10/31/95 -5.30% 9,091
11/30/95 2.29% 10,124 11/30/95 5.91% 9,629
12/31/95 -0.59% 10,064 12/31/95 -0.80% 9,552
01/31/96 0.76% 10,141 01/31/96 -0.30% 9,523
02/29/96 3.86% 10,532 02/29/96 6.25% 10,118
03/31/96 0.12% 10,545 03/31/96 2.85% 10,406
04/30/96 8.12% 11,401 04/30/96 10.06% 11,453
05/31/96 4.46% 11,910 05/31/96 -0.25% 11,424
06/30/96 -4.68% 11,353 06/30/96 -5.80% 10,762
07/31/96 -8.80% 10,354 07/31/96 -8.39% 9,859
08/31/96 5.66% 10,940 08/31/96 6.62% 10,512
09/30/96 7.51% 11,761 09/30/96 4.47% 10,982
10/31/96 -0.43% 11,711 10/31/96 0.00% 10,982
11/30/96 5.84% 12,395 11/30/96 5.68% 11,606
12/31/96 -0.10% 12,382 12/31/96 2.12% 11,853
01/31/97 6.89% 13,236 01/31/97 6.74% 12,651
02/28/97 -5.12% 12,558 02/28/97 -5.17% 11,997
03/31/97 -6.65% 11,723 03/31/97 -5.05% 11,391
04/30/97 3.25% 12,104 04/30/97 1.18% 11,525
05/31/97 11.13% 13,452 05/31/97 8.93% 12,555
06/30/97 3.04% 13,860 06/30/97 7.05% 13,440
07/31/97 10.56% 15,323 07/31/97 9.23% 14,681
08/31/97 -0.38% 15,265 08/31/97 6.75% 15,672
</TABLE>
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
43.12% 26.46%
*Fund inception was September 29, 1995.
Past performance is not predictive of future performance.
<PAGE>
INTERMEDIATE BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Intermediate Bond Fund seeks to provide as high a level of current income as
is consistent with the preservation of capital. The Fund invests in marketable
corporate debt securities, U.S. Government securities, mortgage-related
securities, other asset-backed securities and cash or money market instruments.
For the fiscal year ended August 31, 1997, the Fund's total return (excluding
the impact of applicable sales loads) was 9.48%, as compared to 8.44% for the
Lehman Brothers Intermediate Government/Corporate Index.
The fixed-income market during the fiscal year was characterized by uncertainty.
The yield on the benchmark 30-year Treasury bond vacillated in a broad, but
well-defined, range between 6.35% and 7.20%. The Fund's strategy of purchasing
higher coupon, callable corporate bonds was well-suited for the volatile, but
essentially range-bound, interest rate environment. Performance was further
enhanced by a slightly longer-than-average duration.
The Fund remains well-diversified with approximately 40% of assets invested in
securities issued by government agencies, and 60% of assets invested among 34
different corporate issuers across a wide variety of industries. The Fund
continues to focus primarily on higher yielding investment-grade corporate bonds
with an overriding emphasis on the income component of total return.
<TABLE>
CHART:
<CAPTION>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
INTERMEDIATE BOND FUND AND THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX INTERMEDIATE BOND FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
10/03/95 10,000 10/03/95 9,800
10/31/95 1.11% 10,111 10/31/95 0.51% 9,850
11/30/95 1.31% 10,243 11/30/95 1.07% 9,955
12/31/95 1.05% 10,351 12/31/95 0.83% 10,038
01/31/96 0.86% 10,440 01/31/96 0.93% 10,131
02/29/96 -1.17% 10,318 02/29/96 -0.95% 10,035
03/31/96 -0.51% 10,265 03/31/96 -0.24% 10,011
04/30/96 -0.35% 10,229 04/30/96 -0.48% 9,963
05/31/96 -0.08% 10,221 05/31/96 0.17% 9,979
06/30/96 1.06% 10,329 06/30/96 1.20% 10,099
07/31/96 0.30% 10,360 07/31/96 0.23% 10,122
08/31/96 0.08% 10,369 08/31/96 -0.05% 10,117
09/30/96 1.39% 10,513 09/30/96 0.89% 10,208
10/31/96 1.77% 10,699 10/31/96 1.96% 10,408
11/30/96 1.32% 10,840 11/30/96 1.53% 10,567
12/31/96 -0.64% 10,771 12/31/96 -0.57% 10,507
01/31/97 0.39% 10,813 01/31/97 0.25% 10,533
02/28/97 0.19% 10,833 02/28/97 0.18% 10,551
03/31/97 -0.69% 10,759 03/31/97 -0.92% 10,454
04/30/97 1.18% 10,886 04/30/97 1.66% 10,628
05/31/97 0.83% 10,976 05/31/97 0.84% 10,717
06/30/97 0.91% 11,076 06/30/97 1.41% 10,869
07/31/97 2.03% 11,301 07/31/97 2.95% 11,189
08/31/97 -0.50% 11,244 08/31/97 -1.01% 11,076
</TABLE>
INTERMEDIATE BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
7.29% 5.49%
*Fund inception was October 3, 1995.
Past performance is not predictive of future performance.
<PAGE>
KENTUCKY TAX-FREE FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Kentucky Tax-Free Fund seeks the highest level of interest income exempt
from federal and Kentucky income taxes, consistent with protection of capital.
The Fund invests primarily in high and medium-quality Kentucky municipal
obligations. For the fiscal year ended August 31, 1997 the Fund's total return
(excluding the impact of applicable sales loads) was 7.36%, as compared to 9.25%
for the Lehman Brothers Municipal Index.
Municipal bonds generally tracked Treasury securities, underperforming early in
the fiscal year, then outperforming during the latter part of the fiscal year.
The Fund pursued an income-oriented strategy, purchasing premium bonds at
attractive yields. While the strategy was an effective one for a mostly
range-bound market, performance was hampered by a somewhat shorter-than-average
duration. Due to uncertain cash flows in the Fund, a higher degree of liquidity
was maintained which resulted in a lower duration.
Income will continue to be the primary focus of the Fund. The Fund's duration
will be extended on market weakness in an effort to maximize income and to take
advantage of the relative cheapness of municipals versus Treasuries.
<TABLE>
CHART:
<CAPTION>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
KENTUCKY TAX-FREE FUND AND THE LEHMAN BROTHERS MUNICIPAL INDEX
LEHMAN BROTHERS MUNICIPAL INDEX KENTUCKY TAX-FREE FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
09/27/95 10,000 09/27/95 9,600
10/31/95 1.45% 10,145 10/31/95 2.42% 9,832
11/30/95 1.66% 10,313 11/30/95 1.90% 10,019
12/31/95 0.96% 10,412 12/31/95 1.23% 10,142
01/31/96 0.76% 10,492 01/31/96 0.65% 10,208
02/29/96 -0.68% 10,420 02/29/96 -0.73% 10,133
03/31/96 -1.28% 10,287 03/31/96 -1.20% 10,011
04/30/96 -0.28% 10,258 04/30/96 -0.17% 9,994
05/31/96 -0.04% 10,254 05/31/96 -0.01% 9,992
06/30/96 1.09% 10,366 06/30/96 -0.18% 9,974
07/31/96 0.91% 10,460 07/31/96 1.66% 10,140
08/31/96 -0.02% 10,458 08/31/96 0.17% 10,157
09/30/96 1.40% 10,604 09/30/96 1.00% 10,259
10/31/96 1.13% 10,724 10/31/96 0.94% 10,355
11/30/96 1.83% 10,920 11/30/96 1.53% 10,514
12/31/96 -0.42% 10,875 12/31/96 -0.34% 10,478
01/31/97 0.19% 10,895 01/31/97 0.26% 10,505
02/28/97 0.92% 10,995 02/28/97 0.89% 10,598
03/31/97 -1.33% 10,849 03/31/97 -0.75% 10,518
04/30/97 0.84% 10,940 04/30/97 0.53% 10,574
05/31/97 1.50% 11,104 05/31/97 1.03% 10,684
06/30/97 1.07% 11,223 06/30/97 0.72% 10,761
07/31/97 2.77% 11,534 07/31/97 1.90% 10,965
08/31/97 -0.94% 11,426 08/31/97 -0.55% 10,904
</TABLE>
KENTUCKY TAX-FREE FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
3.06% 4.58%
*Fund inception was September 27, 1995.
Past performance is not predictive of future performance.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
August 31, 1997
===================================================================================================================================
GROWTH/ AGGRESSIVE INTERMEDIATE MONEY KENTUCKY
VALUE GROWTH BOND MARKET TAX-FREE
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities:
At acquisition cost.......................... $19,842,469 $9,516,442 $14,884,587 $87,944,917 $8,083,127
============ ========== =========== =========== ===========
At amortized cost............................ $19,842,469 $9,516,442 $14,884,587 $87,944,917 $7,981,883
=========== ========== =========== =========== ===========
At value (Note 2)............................ $27,516,945 $14,230,179 $14,972,202 $87,944,917 $8,073,983
Investments in repurchase agreements (Note 2)... -- -- 54,931 23,258,658 --
Cash ........................................... -- 1,634 5,076 -- 233,962
Interest and dividends receivable............... 16,876 3,510 208,558 1,550,396 96,611
Receivable from affiliate (Note 4).............. -- 1,680 13,019 5,215 2,857
Receivable for capital shares sold.............. -- 16,425 22,991 -- 41,000
Organization costs, net (Note 2)................ 19,584 19,584 19,584 19,584 19,584
----------- ---------- ----------- ----------- -----------
TOTAL ASSETS................................. 27,553,405 14,273,012 15,296,361 112,778,770 8,467,997
----------- ---------- ----------- ----------- -----------
LIABILITIES
Bank overdraft.................................. 2,192 -- -- 1,029,808 --
Dividends payable............................... -- -- 80,975 392,946 20,095
Payable for capital shares redeemed............. 14,751 -- -- -- --
Payable for securities purchased................ 744,040 278,750 89,439 16,762,000 --
Other accrued expenses and liabilities.......... 14,353 10,527 12,070 24,947 10,270
----------- ---------- ----------- ----------- -----------
TOTAL LIABILITIES ........................... 775,336 289,277 182,484 18,209,701 30,365
----------- ---------- ----------- ----------- -----------
NET ASSETS ..................................... $26,778,069 $13,983,735 $15,113,877 $94,569,069 $8,437,632
=========== ========== =========== =========== ===========
Net assets consist of:
Paid-in capital................................. $19,103,593 $9,626,476 $15,076,896 $94,571,137 $8,341,407
Undistributed net investment income............. -- -- -- 494 --
Accumulated net realized gains (losses)
from security transactions................. -- (356,478) (50,634) (2,562) 4,125
Net unrealized appreciation on investments...... 7,674,476 4,713,737 87,615 -- 92,100
----------- ---------- ----------- ----------- -----------
Net assets...................................... $26,778,069 $13,983,735 $15,113,877 $94,569,069 $8,437,632
=========== ========== =========== =========== ===========
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5)....................... 1,684,685 858,688 1,511,122 94,571,137 822,742
=========== ========== =========== =========== ===========
Net asset value and redemption
price per share (Note 2).................... $ 15.90 $ 16.29 $ 10.00 $ 1.00 $ 10.26
=========== ========== =========== =========== ===========
Maximum offering price per share (Note 2)....... $ 16.56 $ 16.97 $ 10.20 $ 1.00 $ 10.69
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended August 31, 1997
===================================================================================================================================
GROWTH/ AGGRESSIVE INTERMEDIATE MONEY KENTUCKY
VALUE GROWTH BOND MARKET TAX-FREE
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income.............................. $ 36,676 $ 19,827 $1,088,715 $5,391,779 $ 626,947
Dividend income............................. 153,095 14,849 -- -- --
---------- --------- ---------- --------- -----------
TOTAL INVESTMENT INCOME.................... 189,771 34,676 1,088,715 5,391,779 626,947
---------- --------- ---------- --------- -----------
EXPENSES
Investment advisory fees (Note 4)............ 206,612 94,159 60,906 188,896 47,946
Shareholder service fees (Note 4)............ 51,654 23,540 38,066 236,120 29,966
Administration fees (Note 4)................. 30,995 24,866 24,866 141,672 24,866
Accounting services fees (Note 4)............ 36,000 36,000 36,000 47,500 36,000
Professional fees............................ 25,081 24,383 23,729 40,144 25,286
Transfer agent fees (Note 4)................. 28,000 27,079 25,526 21,186 29,221
Custodian fees............................... 5,121 3,192 8,129 26,184 2,150
Amortization of organization costs (Note 2).. 6,351 6,351 6,351 6,351 6,351
Reports to shareholders...................... 2,885 1,282 2,323 13,943 2,199
Pricing expense.............................. 2,916 2,115 2,683 439 6,443
Insurance expense............................ 1,619 686 1,332 7,834 1,367
Trustees' fees and expenses.................. 1,646 734 1,271 7,663 1,193
Registration fees............................ 2,666 2,522 1,957 2,984 238
Other expenses............................... 2,849 723 1,500 6,771 1,623
---------- --------- ---------- --------- -----------
TOTAL EXPENSES............................. 404,395 247,632 234,639 747,687 214,849
Fees waived and/or expenses
reimbursed (Note 4)........................ -- ( 64,077) (104,530) ( 130,362) (112,585)
---------- --------- ---------- --------- -----------
NET EXPENSES............................... 404,395 183,555 130,109 617,325 102,264
---------- --------- ---------- --------- -----------
NET INVESTMENT INCOME (LOSS) ................... (214,624) ( 148,879) 958,606 4,774,454 524,683
---------- --------- ---------- --------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security
transactions............................... 894,909 (356,478) 14,511 ( 2,536) 6,913
Net change in unrealized
appreciation/depreciation on investments.. 7,431,395 4,653,168 420,446 -- 351,842
---------- --------- ---------- --------- -----------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS .............................. 8,326,304 4,296,690 434,957 ( 2,536) 358,755
---------- --------- ---------- --------- -----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ..... $8,111,680 $4,147,811 $1,393,563 $4,771,918 $883,438
========== ========= ========== ========= ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended August 31, 1997 and 1996
===================================================================================================================================
GROWTH/ AGGRESSIVE INTERMEDIATE MONEY KENTUCKY
VALUE GROWTH BOND MARKET TAX-FREE
FUND FUND FUND FUND END
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS: SEPTEMBER 1, 1995 (A) ............ $ -- $ -- $ -- $ -- $ --
---------- --------- ---------- ----------- -----------
FROM OPERATIONS:
Net investment income (loss)................. ( 50,747) ( 39,525) 601,786 2,473,468 714,832
Net realized gains (losses) from
security transactions...................... 89,352 43,284 ( 15,393) 2,494 ( 2,788)
Net change in unrealized
appreciation/depreciation on investments... 243,081 60,569 ( 332,831) -- ( 259,742)
---------- --------- ---------- ----------- -----------
Net increase in net assets from operations...... 281,686 64,328 253,562 2,475,962 452,302
---------- --------- ---------- ----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income......... -- -- ( 601,786) (2,473,468) ( 828,883)
---------- --------- ---------- ----------- ------------
Decrease in net assets from distributions
to shareholders.............................. -- -- ( 601,786) (2,473,468) ( 828,883)
---------- --------- ---------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold.................... 15,471,301 7,269,024 14,919,014 446,620,681 28,751,437
Net asset value of shares issued in
reinvestment of distributions to
shareholders............................... -- -- 13,886 84,304 559,139
Payments for shares redeemed................. (645,322) ( 783,438) (1,227,784) (370,344,632) (13,093,506)
---------- --------- ---------- ----------- -----------
Net increase in net assets from capital
share transactions.............................. 14,825,979 6,485,586 13,705,116 76,360,353 16,217,070
---------- --------- ---------- ----------- -----------
NET ASSETS: AUGUST 31, 1996 ................... 15,107,665 6,549,914 13,356,892 76,362,847 15,840,489
---------- --------- ---------- ----------- -----------
FROM OPERATIONS:
Net investment income (loss)................. (214,624) ( 148,879) 958,606 4,774,454 524,683
Net realized gains (losses) from
security transactions...................... 894,909 ( 356,478) 14,511 ( 2,536) 6,913
Net change in unrealized
appreciation/depreciation on investments... 7,431,395 4,653,168 420,446 -- 351,842
---------- --------- ---------- ----------- -----------
Net increase in net assets from operations...... 8,111,680 4,147,811 1,393,563 4,771,918 883,438
---------- --------- ---------- ----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income......... -- -- ( 958,606) ( 4,773,960) ( 524,683)
Distributions in excess of net investment
income (Note 2)............................ -- -- -- -- ( 100,598)
Distributions from net realized gains........ (888,542) (16,180) ( 49,752) ( 2,520) --
---------- --------- ---------- ----------- -----------
Decrease in net assets from distributions
to shareholders.............................. ( 888,542) (16,180) (1,008,358) (4,776,480) ( 625,281)
---------- --------- ---------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold.................... 9,367,824 5,211,479 5,244,400 570,122,610 1,302,552
Net asset value of shares issued in
reinvestment of distributions
to shareholders............................ 260,810 4,532 19,314 424,478 303,297
Payments for shares redeemed................. (5,181,368) (1,913,821) (3,891,934) (552,336,304) (9,266,863)
---------- --------- ---------- ----------- -----------
Net increase (decrease) in net assets from
capital share transaction................... 4,447,266 3,302,190 1,371,780 18,210,784 ( 7,661,014)
---------- --------- ---------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........ 11,670,404 7,433,821 1,756,985 18,206,222 ( 7,402,857)
---------- --------- ---------- ----------- -----------
NET ASSETS: AUGUST 31, 1997 ................... $26,778,069 $13,983,735 $15,113,877 $94,569,069 $8,437,632
========== ========= ========== =========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME ............ $ -- $ -- $ -- $ 494 $ --
========== ========= ========== =========== ===========
(A) Date of commencement of operations......... Sept. 29, Sept. 29, Oct. 3, Sept. 29, Sept. 27,
1995 1995 1995 1995 1995
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 11.18 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment loss................................................... ( 0.13 ) ( 0.06)(B)
Net realized and unrealized gains on investments...................... 5.39 1.24
-------------- ---------------
Total from investment operations......................................... 5.26 1.18
-------------- ---------------
Less distributions:
Distributions from net realized gains................................. ( 0.54 ) --
-------------- ---------------
Total distributions...................................................... ( 0.54 ) --
-------------- ---------------
Net asset value at end of period......................................... $ 15.90 $ 11.18
============== ===============
Total return (C) ........................................................ 47.11% 11.80%
============== ===============
Net assets at end of period (000's)...................................... $ 26,778 $ 15,108
============== ===============
Ratio of expenses to average net assets (D) ............................. 1.95% 1.95% (E)
Ratio of net investment loss to average net assets....................... ( 1.03% ) ( 0.62%)(E)
Portfolio turnover rate.................................................. 52% 21%
Average commission rate per share........................................ $ 0.0554 $ 0.0700
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratio of expenses to
average net assts would have been 2.83%(E) for the period ended August 31, 1996.
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 10.95 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment loss................................................... ( 0.17 ) ( 0.11)(B)
Net realized and unrealized gains on investments...................... 5.54 1.06
-------------- ---------------
Total from investment operations......................................... 5.37 0.95
-------------- ---------------
Less distributions:
Distributions from net realized gains................................. ( 0.03 ) --
-------------- ---------------
Total distributions...................................................... ( 0.03 ) --
-------------- ---------------
Net asset value at end of period......................................... $ 16.29 $ 10.95
============== ===============
Total return (C) ........................................................ 49.09% 9.50%
============== ===============
Net assets at end of period (000's)...................................... $ 13,984 $ 6,550
============== ===============
Ratio of expenses to average net assets (D) ............................. 1.94% 1.95% (E)
Ratio of net investment loss to average net assets....................... ( 1.57% ) ( 1.26%)(E)
Portfolio turnover rate.................................................. 51% 16%
Average commission rate per share........................................ $ 0.0534 $ 0.0800
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 2.62% and 5.05%(E) for the periods ended
August 31, 1997 and 1996, respectively (Note 4).
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 9.75 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.62 0.57(B)
Net realized and unrealized gains (losses) on investments............. 0.28 ( 0.25)
-------------- ---------------
Total from investment operations......................................... 0.90 0.32
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. ( 0.62 ) ( 0.57)
Distributions from net realized gains................................. ( 0.03 ) --
-------------- ---------------
Total distributions...................................................... ( 0.65 ) ( 0.57)
-------------- ---------------
Net asset value at end of period......................................... $ 10.00 $ 9.75
============== ===============
Total return (C) ........................................................ 9.48% 3.23%
============== ===============
Net assets at end of period (000's)...................................... $ 15,114 $ 13,357
============== ===============
Ratio of expenses to average net assets (D) ............................. 0.85% 0.68%(E)
Ratio of net investment income to average net assets..................... 6.26% 6.31%(E)
Portfolio turnover rate.................................................. 41% 12%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (October 3, 1995)
through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 1.53% and 2.04%(E) for the periods ended
August 31, 1997 and 1996, respectively (Note 4).
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 1.00 $ 1.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.050 0.046 (B)
-------------- ---------------
Total from investment operations......................................... 0.050 0.046
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. ( 0.050 ) ( 0.046)
-------------- ---------------
Total distributions...................................................... ( 0.050 ) ( 0.046)
-------------- ---------------
Net asset value at end of period......................................... $ 1.00 $ 1.00
============== ===============
Total return............................................................. 5.14% 4.70%
============== ===============
Net assets at end of period (000's)...................................... $ 94,569 $ 76,363
============== ===============
Ratio of expenses to average net assets(C) .............................. 0.65% 0.65%(D)
Ratio of net investment income to average net assets..................... 5.03% 4.94%(D)
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Absent fee waivers and/or expense reimbursements, the ratios of
expenses to average net assets would have been 0.79% and 0.99%(D) for the
periods ended August 31, 1997 and 1996, respectively (Note 4).
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KENTUCKY TAX-FREE FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data For a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 10.06 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.44 0.51(B)
Net realized and unrealized gains on investments...................... 0.28 0.06
-------------- ---------------
Total from investment operations......................................... 0.72 0.57
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. ( 0.44 ) ( 0.51)
Distributions in excess of net investment income...................... ( 0.08 ) --
-------------- ---------------
Total distributions...................................................... ( 0.52 ) ( 0.51)
-------------- ---------------
Net asset value at end of period......................................... $ 10.26 $ 10.06
============== ===============
Total return (C) ........................................................ 7.36% 5.80%
============== ===============
Net assets at end of period (000's)...................................... $ 8,438 $ 15,840
============== ===============
Ratio of expenses to average net assets (D) ............................. 0.85% 0.82%
Ratio of net investment income to average net assets..................... 4.35% 5.30%(E)
Portfolio turnover rate.................................................. 0% 145%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 27,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 1.78% and 1.65%(E) for the periods ended
August 31, 1997 and 1996, respectively (Note 4).
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
===============================================================================
1. Organization
The Growth/Value Fund and Aggressive Growth Fund are each a non-diversified
series of Countrywide Strategic Trust. The Intermediate Bond Fund and Money
Market Fund are, respectively, a non-diversified and diversified series of
Countrywide Investment Trust. The Kentucky Tax-Free Fund is a non-diversified
series of Countrywide Tax-Free Trust. Each Trust was established as a
Massachusetts business trust registered under the Investment Company Act of
1940. Countrywide Strategic Trust was organized on November 18, 1982 and
currently offers five series of shares. Countrywide Investment Trust was
organized on December 7, 1980 and currently offers seven series of shares.
Countrywide Tax-Free Trust was organized on April 13, 1981 and currently offers
seven series of shares. The Growth/Value Fund, the Aggressive Growth Fund, the
Intermediate Bond Fund, the Money Market Fund and the Kentucky Tax-Free Fund
(individually, a Fund and, collectively, the Funds) were originally organized as
series of Trans Adviser Funds, Inc. (Note 7).
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not reflect the prospect
for accelerating earnings/cash flow growth. The Fund seeks to achieve its
objective by investing primarily in common stocks but also in preferred stocks,
convertible bonds and warrants of companies which, in the opinion of the Fund's
investment adviser, are expected to achieve growth of investment principal over
time. Investments will largely be made in companies of greater than $750 million
capitalization. The Fund commenced investment operations on September 29, 1995.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes. The Fund seeks to achieve its objective by investing
primarily in common stocks but also in preferred stocks, convertible bonds,
options and warrants of companies which, in the opinion of the Fund's investment
adviser, are expected to achieve growth of investment principal over time. Many
of these companies are in the small to medium-sized category (companies with
market capitalizations of less than $750 million at the time of purchase). The
Fund commenced investment operations on September 29, 1995.
The Intermediate Bond Fund seeks to provide as high a level of current income as
is consistent with the preservation of capital. The Fund invests in marketable
corporate debt securities, U.S. Government securities, mortgage-related
securities, other asset-backed securities and cash or money market instruments.
The Fund commenced investment operations on October 3, 1995.
The Money Market Fund seeks high current income, consistent with liquidity and
stability of principal. The Fund invests primarily in high-quality U.S.
dollar-denominated money market instruments. The Fund commenced investment
operations on September 29, 1995.
The Kentucky Tax-Free Fund seeks the highest level of interest income exempt
from federal and Kentucky income taxes, consistent with protection of capital.
The Fund invests primarily in high and medium-quality Kentucky municipal
obligations. The Fund commenced investment operations on September 27, 1995.
<PAGE>
2. Significant Accounting Policies
The following is a summary of the Funds' significant accounting policies:
Security valuation -- Money Market Fund securities are valued on an amortized
cost basis which approximates market value, in accordance with Rule 2a-7 under
the Investment Company Act of 1940. This method of valuation is expected to
enable the Fund to maintain a constant net asset value per share. Securities
held by the Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund
and Kentucky Tax-Free Fund for which market quotations are readily available are
valued using the last reported sales price provided by independent pricing
services. If no sales are reported, the mean of the last bid and asked price is
used. In the absence of readily available market quotations, securities are
valued at fair value as determined by the Board of Directors.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. At the time a Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement. In addition, each Fund actively monitors and
seeks additional collateral, as needed.
Share valuation -- The net asset value per share of each Fund is calculated
daily by dividing the total value of each Fund's assets, less liabilities, by
the number of shares outstanding. The current maximum offering price per share
of the Growth/Value Fund, Aggressive Growth Fund and Kentucky Tax-Free Fund is
equal to net asset value per share plus a sales load equal to 4.17% of net asset
value (or 4% of the offering price) while the current maximum offering price per
share of the Intermediate Bond Fund is equal to net asset value per share plus a
sales load equal to 2.04% of net asset value (or 2% of the offering price). The
offering price of the Money Market Fund is equal to the net asset value per
share. The redemption price per share of each Fund is equal to the net asset
value per share.
Prior to August 30, 1997, the maximum offering price per share of the
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund and Kentucky
Tax-Free Fund was equal to net asset value per share plus a sales load equal to
4.71% of net asset value (or 4.5% of the offering price).
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. The Kentucky Tax-Free Fund amortizes premium
on fixed income investments to the maturity (or first call) date using the
yield-to-maturity method. In all other Funds, if a fixed income investment is
purchased at a premium, the premium is not amortized. If a fixed income
investment is purchased at a discount (other than original issue discount), the
discount is not accreted. Original issue discount on fixed income investments is
accreted daily using the yield-to-maturity method.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid annually to shareholders of the Growth/Value Fund
and Aggressive Growth Fund. Dividends arising from net investment income are
declared daily and paid monthly to shareholders of the Intermediate Bond Fund,
Money Market Fund and Kentucky Tax-Free Fund. With respect to each Fund, net
realized short-term capital gains, if any, may be distributed throughout the
year and net realized long-term capital gains, if any, are distributed at least
once each year. Income distributions and capital gain distributions are
determined in accordance with income tax regulations.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are valued on a specific identification basis.
Organization costs -- Costs incurred by the Funds in connection with their
organization and registration of shares, net of certain expenses paid by the
Adviser, have been capitalized and are being amortized on a straight-line basis
over a five year period beginning with each Fund's commencement of operations.
<PAGE>
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments (excluding repurchase agreements) as of August 31, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive Intermediate Kentucky
Value Growth Bond Tax-Free
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation.................. $ 7,854,770 $ 4,821,978 $ 144,820 $ 95,250
Gross unrealized depreciation.................. ( 180,294) ( 108,241) ( 104,962 ) ( 3,150)
------------ -------------- ------------- --------------
Net unrealized appreciation.................... $ 7,674,476 $ 4,713,737 $ 39,858 $ 92,100
============ ============== ============= ==============
Federal income tax cost........................ $ 19,842,469 $ 9,516,442 $14,932,344 $ 7,981,883
============ ============== ============= ==============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the Intermediate Bond Fund, the difference between the federal income tax
cost of portfolio investments and the financial statement cost is due to certain
timing differences in the recognition of capital losses under generally accepted
accounting principles and income tax regulations.
As of August 31, 1997, the Aggressive Growth Fund and the Money Market Fund had
capital loss carryforwards for federal income tax purposes of $154,085 and
$1,955, respectively. In addition, the Aggressive Growth Fund, Intermediate Bond
Fund, Money Market Fund and Kentucky Tax-Free Fund elected to defer until each
Fund's subsequent tax year $202,393, $2,877, $607 and $39,798, respectively, of
capital losses incurred after October 31, 1996. These capital loss carryforwards
and "post-October" losses may be utilized in future years to offset net realized
capital gains prior to distribution to shareholders.
Reclassification of capital accounts -- For the year ended August 31, 1997, the
Growth/Value Fund and Aggressive Growth Fund had net investment losses of
$214,624 and $148,879, respectively. With respect to the Growth/Value Fund,
$50,796 of the net investment loss was used to offset net short-term capital
gains and has been reclassified to accumulated net realized gains (losses) from
security transactions on the Statements of Assets and Liabilities, and $163,828
has been reclassified to paid-in capital. With respect to the Aggressive Growth
Fund, the $148,879 net investment loss has been reclassified to paid-in capital
on the Statements of Assets and Liabilities. For the year ended August 31, 1997,
the Kentucky Tax-Free Fund had distributions in excess of net investment income
of $100,598 which have been reclassified to paid-in capital on the Statements of
Assets and Liabilities. Such reclassifications, the result of permanent
differences between financial statement and income tax reporting requirements,
have no effect on each Fund's net assets or net asset value per share.
<PAGE>
3. Investment Transactions
Investment transactions (excluding short-term investments) were as follows for
the year ended August 31, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive Intermediate Kentucky
Value Growth Bond Tax-Free
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of investment securities............. $ 14,977,055 $ 8,126,232 $ 8,677,924 $ --
============= ============== ============= ==============
Proceeds from sales and maturities of
investment securities....................... $ 10,393,908 $ 4,667,425 $ 5,738,950 $ 7,587,516
============= ============== ============= ==============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. Transactions with Affiliates
The Chairman and the President of Countrywide Strategic Trust, Countrywide
Investment Trust and Countrywide Tax-Free Trust are also officers of Countrywide
Financial Services, Inc., whose subsidiaries include Countrywide Investments,
Inc. (the Adviser), the Funds' investment adviser and principal underwriter, and
Countrywide Fund Services, Inc. (CFS), the Funds' transfer agent, shareholder
service agent and accounting services agent. Countrywide Financial Services,
Inc. is a wholly-owned subsidiary of Countrywide Credit Industries, Inc., a New
York Stock Exchange listed company principally engaged in the business of
residential mortgage lending.
INVESTMENT ADVISER
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. The Growth/Value Fund and Aggressive Growth Fund each pay
the Adviser a fee, which is computed and accrued daily and paid monthly, at an
annual rate of 1.00% of its respective average daily net assets up to $50
million; 0.90% of such net assets from $50 million to $100 million; 0.80% of
such net assets from $100 million to $200 million; and 0.75% of such net assets
in excess of $200 million. The Intermediate Bond Fund and Money Market Fund each
pay the Adviser a fee, which is computed and accrued daily and paid monthly, at
an annual rate of 0.50% of its respective average daily net assets up to $50
million; 0.45% of such net assets from $50 million to $150 million; 0.40% of
such net assets from $150 million to $250 million; and 0.375% of such net assets
in excess of $250 million. The Kentucky Tax-Free Fund pays the Adviser a fee,
which is computed and accrued daily and paid monthly, at an annual rate of 0.50%
of its respective average daily net assets up to $100 million; 0.45% of such net
assets from $100 million to $200 million; 0.40% of such net assets from $200
million to $300 million; and 0.375% of such net assets in excess of $300
million.
Mastrapasqua and Associates, Inc. (Mastrapasqua) has been retained by the
Adviser to manage the investments of the Growth/Value Fund and the Aggressive
Growth Fund. The Adviser (not the Funds) pays Mastrapasqua a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.60% of each
Fund's respective average daily net assets up to $50 million; 0.50% of such net
assets from $50 million to $100 million; 0.40% of such net assets from $100
million to $200 million; and 0.35% of such net assets in excess of $200 million.
<PAGE>
Prior to August 30, 1997, the investment adviser of the Funds was Trans
Financial Bank, N.A. (the Predecessor Adviser). The Predecessor Adviser received
a monthly advisory fee at an annual rate of 1.00% of average daily net assets
for each of the Growth/Value Fund and Aggressive Growth Fund, 0.40% of average
daily net assets for each of the Intermediate Bond Fund and the Kentucky
Tax-Free Fund and 0.20% of average daily net assets for the Money Market Fund.
Pursuant to a Sub-Advisory Agreement between the Predecessor Adviser and
Mastrapasqua, the Predecessor Adviser delegated certain of its advisory
responsibilities to Mastrapasqua. The Predecessor Adviser (not the Funds) paid
Mastrapasqua a fee, calculated daily and paid monthly, at the annual rate of
0.50% on the first $100 million of the combined average daily net assets of the
Growth/Value Fund and Aggressive Growth Fund plus 0.25% of such combined net
assets in excess of $100 million; and 0.03% of the average daily net assets of
each of the Intermediate Bond Fund, Money Market Fund and Kentucky Tax-Free
Fund. The Predecessor Adviser was a significant shareholder of record of each
Fund as of August 31, 1997.
In order to voluntarily reduce operating expenses during the year ended August
31, 1997, the Predecessor Adviser waived $64,077 of its investment advisory fees
for the Aggressive Growth Fund; waived its entire advisory fee of $60,906 and
reimbursed other operating expenses of $43,624 for the Intermediate Bond Fund;
waived $130,362 of its investment advisory fees for the Money Market Fund; and
waived its entire advisory fee of $47,946 and reimbursed other operating
expenses of $64,639 for the Kentucky Tax-Free Fund.
The Adviser has agreed, until at least August 31, 1999, to waive fees and
reimburse expenses to the extent necessary to limit total operating expenses of
the Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Money
Market Fund and Kentucky Tax-Free Fund to 1.95%, 1.95%, 0.95%, 0.80% and 0.82%,
respectively, of each Fund's average daily net assets.
TRANSFER AGENT AND SHAREHOLDER SERVICES
CFS serves as the transfer agent, dividend paying agent and shareholder service
agent for each Fund. CFS maintains the records of each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of each Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, CFS receives a monthly fee at an annual rate of $17 per shareholder
account from each of the Growth/Value Fund and Aggressive Growth Fund, $21 per
shareholder account from each of the Intermediate Bond Fund and Kentucky
Tax-Free Fund and $25 per shareholder account from the Money Market Fund,
subject to a $1,000 minimum monthly fee for each Fund. In addition, each Fund
pays out-of-pocket expenses including, but not limited to, postage and supplies.
Prior to August 30, 1997, Forum Financial Corp. (FFC) served as the Funds'
transfer agent and dividend disbursing agent and, for these services, received
an annual fee from each Fund of $12,000 plus $25 per shareholder account. In
addition, FFC was reimbursed by the Funds for out-of-pocket expenses incurred in
providing transfer agent services. Forum Financial Services, Inc. (Forum) acted
as distributor of each Fund's shares prior to August 30, 1997. Pursuant to a
shareholder servicing plan adopted by each Fund, Forum received a shareholder
servicing fee at an annual rate of 0.25% of the average daily net assets of each
Fund.
ADMINISTRATION
CFS provides non-investment related administrative and compliance services for
each Fund. CFS supervises the preparation of tax returns, reports to
shareholders, reports to and filings with the Securities and Exchange Commission
and state securities commissions, and materials for meetings of the Board of
Trustees. The Adviser (not the Funds) pays CFS for these services.
Prior to August 30, 1997, Forum Administrative Services, LLC supervised the
administration of all aspects of each Fund's operations and received a fee from
each Fund at an annual rate of 0.15% of the average daily net assets of such
Fund, subject to a $25,000 minimum annual fee.
ACCOUNTING SERVICES
CFS calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, CFS receives a monthly fee,
based on current asset levels, of $2,500 from each of the Growth/Value Fund and
Aggressive Growth Fund, $2,750 from the Intermediate Bond Fund, $3,000 from the
Money Market Fund and $3,250 from the Kentucky Tax-Free Fund. In addition, each
Fund pays certain out-of-pocket expenses incurred by CFS in obtaining valuations
of portfolio securities.
Prior to August 30, 1997, FFC performed portfolio accounting services for the
Funds and received an annual fee from each Fund of $36,000 plus certain
surcharges based on specified assets levels and the number and types of
portfolio transactions within each Fund.
5. Capital Share Transactions
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods ended August 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive Intermediate Money Kentucky
Value Growth Bond Market Tax-Free
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares outstanding: September 1, 1995 (1) ...... -- -- -- -- --
---------- --------- ---------- --------- -----------
Shares sold..................................... 1,408,416 668,440 1,491,710 446,620,681 2,814,888
Shares issued in reinvestment of distributions
to shareholders............................ -- -- 1,404 84,304 57,538
Shares redeemed................................. ( 57,598) ( 70,133) ( 122,796) (370,344,632) (1,297,814)
---------- --------- ---------- --------- -----------
Shares outstanding: August 31, 1996............. 1,350,818 598,307 1,370,318 76,360,353 1,574,612
---------- --------- ---------- --------- -----------
Shares sold..................................... 751,684 418,585 542,916 570,122,610 127,642
Shares issued in reinvestment of distributions
to shareholders............................ 16,584 376 1,951 424,478 29,744
Shares redeemed................................. ( 434,401) ( 158,580) ( 404,063) ( 552,336,304) ( 909,256)
---------- --------- ---------- --------- -----------
Net increase (decrease) in shares outstanding... 333,867 260,381 140,804 18,210,784 ( 751,870)
---------- --------- ---------- --------- -----------
Shares outstanding: August 31, 1997............. 1,684,685 858,688 1,511,122 94,571,137 822,742
========== ========= ========== ========= ===========
(1) Date of commencement of operations.......... Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 Sept. 29, 1995 Sept. 27, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. Concentrations of Credit Risk
As of August 31, 1997, the Kentucky Tax-Free Fund's investment securities were
invested exclusively in debt obligations of issuers for which the interest is
exempt from Kentucky income tax. The issuers' abilities to meet their
obligations may be affected by Kentucky economic or political developments.
Classified by revenue source, concentrations of investment securities
(representing 10% or more) for the Kentucky Tax-Free Fund as of August 31, 1997,
were 29.7% leases, 24.3% education, 19.8% industrial development/pollution
control and 18.4% transportation.
7. Agreement and Plan of Reorganization
Each Fund was originally organized as a series of Trans Adviser Funds, Inc., an
open-end management investment company incorporated under the laws of the State
of Maryland. Trans Adviser Funds, Inc. consisted of five investment portfolios,
the Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Money
Market Fund and Kentucky Tax-Free Fund (the Predecessor Funds). The Predecessor
Funds had investment objectives, policies and restrictions substantially
identical to the Funds.
As of the close of business on August 29, 1997, pursuant to an Agreement and
Plan of Reorganization dated May 31, 1997, all assets and liabilities of each
Predecessor Fund were transferred in exchange for capital shares of a
corresponding series of Countrywide Strategic Trust, with respect to the
Growth/Value Fund and Aggressive Growth Fund, Countrywide Investment Trust, with
respect to the Intermediate Bond Fund and Money Market Fund, and Countrywide
Tax-Free Trust, with respect to the Kentucky Tax-Free Fund. Each Predecessor
Fund then distributed to its shareholders as a liquidating dividend all capital
shares of the like Fund in exchange for and in cancellation of its capital
shares. When the reorganization was completed, shareholders of each Fund owned
the same proportional interest as they owned in the Predecessor Fund immediately
before the reorganization, and each Fund owned the same portfolio of assets as
the Predecessor Fund immediately before the reorganization.
The Agreement and Plan of Reorganization was approved at a special meeting of
the Predecessor Funds' shareholders on August 14, 1997. The total number of
shares of each Predecessor Fund voting in person or by proxy at the meeting
represented 70.6% of the Growth/Value Fund's outstanding shares, 72.9% of the
Aggressive Growth Fund's outstanding shares, 90.1% of the Intermediate Bond
Fund's outstanding shares, 54.0% of the Money Market Fund's outstanding shares
and 54.3% of the Kentucky Tax-Free Fund's outstanding shares. The results of the
voting for or against the reorganization by each Fund was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Shares
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth/Value Fund 1,166,197 209 1,215
Aggressive Growth Fund 615,269 194 66
Intermediate Bond Fund 1,454,117 -- --
Money Market Fund 57,549,931 236,463 423,542
Kentucky Tax-Free Fund 490,939 5,785 --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For federal income tax purposes, the reorganization qualifies as a tax-free
reorganization with no tax consequences to the Predecessor Funds, the Funds or
their shareholders.
In connection with the reorganization, the fiscal year-end of each Fund,
subsequent to August 31, 1997, has been changed to March 31 for the Growth/Value
Fund and Aggressive Growth Fund, September 30 for the Intermediate Bond Fund and
Money Market Fund, and June 30 for the Kentucky Tax-Free Fund.
<TABLE>
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
<CAPTION>
====================================================================================================================================
Market
COMMON STOCK -- 101.6% Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 30.1%
Avnet, Inc............................................................... 7,500 $ 518,906
Intel Corp............................................................... 4,000 368,500
International Business Machines Corp..................................... 14,000 1,412,250
Lam Research Corp.*...................................................... 13,000 734,500
Novell, Inc.*............................................................ 35,000 328,125
Novellus Systems, Inc.*.................................................. 6,000 687,750
Oracle Corp.*............................................................ 22,500 857,813
QLogic Corp.*............................................................ 12,500 490,625
SCB Computer Technology, Inc.*........................................... 10,000 265,000
Sun Microsystems, Inc.*.................................................. 20,000 960,000
Western Digital Corp.*................................................... 30,000 1,443,750
---------------
............................................. $ 8,067,219
---------------
HEALTH CARE -- 24.2%
American Home Products Corp.............................................. 8,000 $ 576,000
AmeriSource Health Corp. - Class A*...................................... 10,000 500,625
Bard (C.R.), Inc......................................................... 10,000 345,000
Baxter International, Inc................................................ 10,000 531,875
Beverly Enterprises, Inc.*............................................... 20,000 326,250
Bristol-Myers Squibb Co.................................................. 8,000 608,000
HEALTHSOUTH Corp.*....................................................... 9,690 241,644
Health Management Associates, Inc. - Class A*............................ 7,500 221,719
Manor Care, Inc.......................................................... 15,000 463,125
Quorum Health Group, Inc.*............................................... 7,500 255,469
Schering-Plough Corp..................................................... 20,000 960,000
Sybron International Corp.*.............................................. 15,000 599,062
Teva Pharmaceutical Industries, Ltd. - ADR............................... 10,000 523,750
Warner-Lambert Co........................................................ 2,500 317,656
---------------
.................................................................... $ 6,470,175
---------------
FINANCIAL SERVICES -- 18.0%
Ace, Ltd................................................................. 7,500 $ 623,438
American International Group, Inc........................................ 6,000 566,250
Capital One Financial Corp............................................... 20,000 770,000
Centura Banks, Inc....................................................... 10,000 568,750
Chase Manhattan Corp..................................................... 7,500 833,906
Chubb Corp............................................................... 5,000 334,375
MBNA Corp................................................................ 22,500 864,844
Penncorp Financial Group, Inc............................................ 8,000 256,500
---------------
.................................................................... $ 4,818,063
---------------
ENERGY -- 15.7%
Baker Hughes, Inc........................................................ 15,000 $ 635,625
McDermott International, Inc............................................. 10,000 322,500
Nuevo Energy Co.*........................................................ 12,000 609,750
Pride International, Inc.*............................................... 15,000 480,000
Schlumberger, Ltd........................................................ 12,000 914,250
Seagull Energy Corp.*.................................................... 10,000 244,375
Stone Energy Corp.*...................................................... 10,000 305,000
The Williams Companies, Inc.............................................. 15,000 698,438
---------------
.................................................................... $ 4,209,938
---------------
<PAGE>
<CAPTION>
GROWTH/VALUE FUND (continued)
===================================================================================================================================
Market
COMMON STOCK -- 101.6% Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL -- 6.8%
Carnival Corp. - Class A................................................. 12,500 $ 547,656
Friedman's, Inc. - Class A*.............................................. 6,000 99,750
OfficeMax, Inc.*......................................................... 10,000 148,125
Safeway, Inc.*........................................................... 7,500 382,031
Walgreen Co.............................................................. 4,600 123,913
Wal-Mart Stores, Inc..................................................... 15,000 532,500
---------------
.................................................................... $ 1,833,975
---------------
LEISURE TIME -- 2.5%
Host Marriott Corp.*..................................................... 15,000 $ 292,500
Promus Hotel Corp.*...................................................... 10,000 388,125
---------------
.................................................................... $ 680,625
---------------
BEVERAGES -- 2.3%
PepsiCo, Inc............................................................. 17,000 $ 612,000
---------------
AEROSPACE -- 1.5%
United Technologies Corp................................................. 5,000 $ 390,312
---------------
TRANSPORTATION -- 0.5%
Heartland Express, Inc.*................................................. 5,000 $ 123,750
---------------
TOTAL COMMON STOCK (Cost $19,531,581).................................... $ 27,206,057
---------------
<CAPTION>
===================================================================================================================================
Face Market
CASH EQUIVALENTS -- 1.2% Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Forum Daily Assets Treasury Fund ........................................ $ 310,888 $ 310,888
-------------- ---------------
TOTAL CASH EQUIVALENTS (Cost $310,888) ................................. $ 310,888 $ 310,888
============== ---------------
TOTAL INVESTMENTS AT VALUE-- 102.8% ..................................... $ 27,516,945
LIABILITIES IN EXCESS OF OTHER ASSETS-- (2.8)% .......................... ( 738,876)
---------------
NET ASSETS-- 100.0% ..................................................... $ 26,778,069
===============
<FN>
* Non-income producing security.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
<CAPTION>
===================================================================================================================================
Market
COMMON STOCK -- 98.2% Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 41.4%
Lam Research Corp.*...................................................... 10,000 $ 565,000
Novell, Inc.*............................................................ 55,000 515,625
Novellus Systems, Inc.*.................................................. 4,000 458,500
Oracle Corp.*............................................................ 11,250 428,906
QLogic Corp.*............................................................ 12,500 490,625
SCB Computer Technology, Inc.*........................................... 11,000 291,500
Semtech Corp.*........................................................... 12,000 709,500
SMART Modular Technologies, Inc.*........................................ 15,000 885,000
Sun Microsystems, Inc.*.................................................. 10,000 480,000
Western Digital Corp.*................................................... 20,000 962,500
---------------
.................................................................... $ 5,787,156
---------------
HEALTH CARE -- 20.5%
Alternative Living Services, Inc.*....................................... 10,000 $ 226,250
AmeriSource Health Corp. - Class A*...................................... 7,500 375,469
Atria Communities, Inc.*................................................. 20,000 357,500
Bard (C.R.), Inc......................................................... 5,000 172,500
HealthCare COMPARE Corp.*................................................ 10,000 557,500
Health Management Associates, Inc. - Class A*............................ 10,000 295,625
Manor Care, Inc.......................................................... 10,000 308,750
Quorum Health Group, Inc.*............................................... 5,000 170,312
Sybron International Corp.*.............................................. 10,000 399,375
---------------
.................................................................... $ 2,863,281
---------------
ENERGY -- 15.3%
Hagler Bailly, Inc.*..................................................... 5,000 $ 108,125
McDermott International, Inc............................................. 7,000 225,750
Nuevo Energy Co.*........................................................ 9,000 457,313
Pride International, Inc.*............................................... 15,000 480,000
St. Mary Land & Exploration Co........................................... 5,000 178,750
Seagull Energy Corp.*.................................................... 7,500 183,281
Stone Energy Corp.*...................................................... 7,500 228,750
Tuboscope, Inc.*......................................................... 10,000 278,750
---------------
.................................................................... $ 2,140,719
---------------
FINANCIAL SERVICES -- 7.7%
Ace, Ltd................................................................. 6,000 $ 498,750
Capital One Financial Corp............................................... 10,000 385,000
Penncorp Financial Group, Inc............................................ 6,000 192,375
---------------
.................................................................... $ 1,076,125
---------------
RETAIL -- 6.2%
Carnival Corp. - Class A................................................. 5,000 $ 219,063
Central Newspapers, Inc. - Class A....................................... 4,000 272,250
Friedman's, Inc. - Class A*.............................................. 6,000 99,750
OfficeMax, Inc.*......................................................... 5,000 74,062
Walgreen Co.............................................................. 7,400 199,338
---------------
.................................................................... $ 864,463
---------------
<PAGE>
<CAPTION>
AGGRESSIVE GROWTH FUND (continued)
===================================================================================================================================
Market
COMMON STOCK -- 98.2% Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LEISURE TIME -- 4.9%
Host Marriott Corp.*..................................................... 15,000 $ 292,500
Promus Hotel Corp.*...................................................... 10,000 388,125
---------------
.................................................................... $ 680,625
---------------
TRANSPORTATION -- 2.2%
Simon Transportation Services, Inc.*..................................... 14,000 $ 313,250
---------------
TOTAL COMMON STOCK (Cost $9,011,882) .................................... $ 13,725,619
---------------
<CAPTION>
===================================================================================================================================
Face Market
CASH EQUIVALENTS -- 3.6% Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Forum Daily Assets Treasury Fund ........................................ $ 504,560 $ 504,560
-------------- ---------------
TOTAL CASH EQUIVALENTS (Cost $504,560) .................................. $ 504,560 $ 504,560
============== ---------------
TOTAL INVESTMENTS AT VALUE-- 101.8% ..................................... $ 14,230,179
LIABILITIES IN EXCESS OF OTHER ASSETS-- (1.8)% .......................... ( 246,444)
---------------
NET ASSETS-- 100.0% ..................................................... $ 13,983,735
===============
<FN>
* Non-income producing security.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
<CAPTION>
===================================================================================================================================
Par Market
Value INVESTMENTS -- 99.1% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 26.7%
$ 4,000,000 U.S. Treasury Notes, 6.50%, 8/15/05 (Cost $3,996,328)...................... $ 4,031,252
- - --------------- ---------------
U.S. GOVERNMENT AGENCY NOTES -- 6.5%
$ 500,000 Federal Home Loan Bank, 6.62%, 12/6/00..................................... $ 499,416
265,000 Tennessee Valley Authority, 6.875%, 1/15/02................................ 267,463
50,000 Tennessee Valley Authority, 6.875%, 8/1/02................................. 50,479
150,000 Federal National Mortgage Assoc., 6.17%, 12/2/03........................... 146,066
30,000 Tennessee Valley Authority, 8.05%, 7/15/24................................. 30,048
- - --------------- ---------------
$ 995,000 TOTAL U.S. GOVERNMENT AGENCY NOTES (Cost $998,363)........................ $ 993,472
- - --------------- ---------------
MORTGAGE-BACKED SECURITIES -- 7.0%
$ 231,442 Federal Home Loan Mortgage Corp. #1072-G, 7.00%, 5/15/06................... $ 233,916
800,000 Federal Home Loan Mortgage Corp. #1720-E, 7.50%, 12/15/09.................. 817,265
- - --------------- ---------------
$ 1,031,442 TOTAL MORTGAGE-BACKED SECURITIES (Cost $1,059,117) ........................ $ 1,051,181
- - --------------- ---------------
ASSET-BACKED SECURITIES -- 0.6%
$ 84,357 Small Business Administration #87-A, 8.45%, 1/1/07 (Cost $87,309).......... $ 87,303
- - --------------- ---------------
CORPORATE BONDS -- 58.3%
$ 150,000 Consumers Energy Co., 6.875%, 5/1/98....................................... $ 149,994
278,000 Anheuser-Busch Cos., 8.75%, 12/1/99........................................ 291,659
250,000 British Petroleum America, Inc., 6.50%, 12/15/99........................... 250,241
169,000 Associates Corp. of North America, 6.00%, 3/15/00.......................... 167,546
175,000 Pacific Gas & Electric Co., 6.625%, 6/1/00................................. 174,442
172,000 Ford Motor Credit Co., 6.85%, 8/15/00...................................... 173,799
250,000 International Business Machines Credit Corp., 6.20%, 3/19/01............... 246,815
350,000 Florida Residential Property & Casualty Co., 7.25%, 7/1/02................. 353,481
160,000 Ford Motor Credit Co., 7.50%, 1/15/03...................................... 165,432
250,000 Greyhound Financial Corp., 7.82%, 1/27/03.................................. 259,529
68,000 U.S. Leasing International, 6.625%, 5/15/03................................ 67,389
200,000 Southern California Edison, 7.375%, 12/15/03............................... 202,616
200,000 V.F. Corp., 7.60%, 4/1/04.................................................. 206,247
215,000 Chase Manhattan Corp., 8.00%, 5/15/04...................................... 220,658
200,000 Michigan Bell Telephone Co., 6.375%, 2/1/05................................ 195,877
66,000 Kaiser Permanente, 9.55%, 7/15/05.......................................... 77,196
400,000 Anheuser-Busch Cos., 7.00%, 9/1/05......................................... 403,913
500,000 Union Oil of California Corp., 6.70%, 10/15/07............................. 489,286
50,000 Berkley (W.R.) Corp., 9.875%, 5/15/08...................................... 60,073
268,000 Super Value Store, 8.875%, 4/1/16.......................................... 271,964
35,000 Union Camp Corp., 8.625%, 4/15/16.......................................... 35,919
214,000 Anheuser-Busch Cos., 8.625%, 12/1/16....................................... 220,420
56,000 Kraft, Inc., 8.50%, 2/15/17................................................ 58,361
260,000 Dayton Hudson Co., 9.875%, 6/1/17.......................................... 274,227
110,000 GTE Corp., 10.75%, 9/15/17................................................. 116,048
<PAGE>
<CAPTION>
INTERMEDIATE BOND FUND (continued)
===================================================================================================================================
Par Market
Value INVESTMENTS -- 99.1% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS -- 58.3%
$ 130,000 General Electric Capital Corp., 6.66%, 5/1/18.............................. $ 130,800
150,000 Deere & Co., 8.95%, 6/15/19................................................ 171,365
439,000 Pennsylvania Power & Light Co., 9.25%, 10/1/19............................. 487,506
115,000 Rohm & Haas Co., 9.80%, 4/15/20............................................ 142,484
165,000 Questar Pipeline, 9.375%, 6/1/21........................................... 183,691
120,000 Jersey Central Power & Light Co., 9.20%, 7/1/21............................ 133,318
675,000 Shopko Stores, 9.25%, 3/15/22.............................................. 772,308
300,000 Inco, Ltd., 9.60%, 6/15/22................................................. 333,132
765,000 Alabama Power Co., 8.30%, 7/1/22........................................... 795,396
160,000 Florida Power & Light Co., 8.00%, 8/25/22.................................. 164,634
85,000 Southwestern Public Service Co., 8.20%, 12/1/22............................ 90,584
130,000 Union Electric Co., 8.00%, 12/15/22........................................ 134,854
65,000 Wisconsin Electric Power, 7.75%, 1/15/23................................... 66,459
69,000 Georgia Power Co., 7.95%, 2/1/23........................................... 69,331
- - --------------- ---------------
$ 8,414,000 TOTAL CORPORATE BONDS (Cost $8,743,470)................................... $ 8,808,994
- - --------------- ---------------
$ 14,524,799 TOTAL INVESTMENTS AT VALUE (Cost $14,884,587).............................. $ 14,972,202
=============== ---------------
<CAPTION>
===================================================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(1)-- 0.3% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 54,931 The First Boston Corp., 5.63%, dated 8/29/97, due 9/2/97,
repurchase proceeds $54,965............................................... $ 54,931
- --------------- ---------------
$ 54,931 TOTAL REPURCHASE AGREEMENTS ............................................... $ 54,931
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE
AGREEMENTS AT VALUE-- 99.4% ............................................ $ 15,027,133
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.6% .............................. 86,744
---------------
NET ASSETS-- 100.0% ....................................................... $ 15,113,877
===============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Government obligations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
===================================================================================================================================
Par Market
Value INVESTMENTS -- 93.0% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY ISSUES -- 16.4%
$ 15,000,000 U.S. Treasury Bills, 9/4/97................................................ $ 14,996,250
500,000 Federal National Mortgage Assoc. Notes, 6.84%, 10/3/97..................... 500,492
- - --------------- ---------------
$ 15,500,000 TOTAL U.S. GOVERNMENT & AGENCY ISSUES (Cost $15,496,742)................... $ 15,496,742
- - --------------- ---------------
CORPORATE NOTES -- 76.6%
$ 1,400,000 General Motors Acceptance Corp., 6.25%, 9/12/97............................ $ 1,400,289
455,000 Dow Capital, 5.75%, 9/15/97................................................ 454,932
2,009,000 Wal-Mart Stores, Inc., 5.50%, 9/15/97...................................... 2,008,788
121,000 Carolina Power & Light Co., 6.375%, 10/1/97................................ 121,001
1,140,000 New York Telephone Co., 4.625%, 10/1/97.................................... 1,138,769
140,000 Ontario Province, 5.70%, 10/1/97........................................... 139,970
745,000 J.C. Penney & Co., 10.00%, 10/15/97........................................ 748,528
50,000 Interamerican Development Bank, 9.50%, 10/15/97............................ 50,205
1,000,000 Manitoba Province, 6.00%, 10/15/97......................................... 1,000,109
4,740,000 First USA Bank, 6.125%, 10/30/97........................................... 4,740,098
2,000,000 African Development Bank, 10.00%, 11/1/97.................................. 2,012,910
790,000 Associates Corp. of North America, 7.75%, 11/1/97.......................... 792,255
80,000 Campbell Soup Co., 9.00%, 11/1/97.......................................... 80,393
500,000 Conagra, Inc., 9.75%, 11/1/97.............................................. 503,156
1,993,000 International Business Machines Corp., 6.375%, 11/1/97..................... 1,994,071
4,505,000 Public Service Electric & Gas, 7.125%, 11/1/97............................. 4,513,516
190,000 U.S. Leasing International, 7.00%, 11/1/97................................. 190,347
1,825,000 American General Finance Corp., 7.70%, 11/15/97............................ 1,831,341
570,000 Associates Corp. of North America, 6.625%, 11/15/97........................ 570,666
484,000 Coca-Cola Enterprises, Inc., 6.50%, 11/15/97............................... 484,419
100,000 GTE South, Inc., 6.25%, 11/15/97........................................... 100,022
300,000 Norwest Corp., 7.70%, 11/15/97............................................. 301,069
1,330,000 Norwest Financial, Inc., 6.50%, 11/15/97................................... 1,331,509
340,000 Texaco Capital, 9.00%, 11/15/97............................................ 342,029
1,000,000 General Motors Acceptance Corp., 7.85%, 11/17/97........................... 1,004,436
800,000 BankAmerica Corp., 6.875%, 11/20/97........................................ 801,556
600,000 Beneficial Corp., 6.79%, 11/20/97.......................................... 601,392
30,000 Philip Morris Companies, Inc. Medium Term Notes, 9.35%, 11/21/97........... 30,224
110,000 Bell Atlantic Financial, 6.625%, 11/30/97.................................. 110,137
895,000 British Petroleum America, Inc., 8.875%, 12/1/97........................... 901,193
791,000 Dupont Corp., 8.65%, 12/1/97............................................... 796,189
474,000 Ford Motor Credit Co., 7.125%, 12/1/97..................................... 475,208
999,000 Ford Motor Credit Co., 8.00%, 12/1/97...................................... 1,003,676
2,721,000 Philip Morris Companies, Inc., 9.25%, 12/1/97.............................. 2,742,307
250,000 New England Telephone Co., 6.25%, 12/15/97................................. 250,236
5,050,000 Southern California Gas Co., 6.50%, 12/15/97............................... 5,059,008
240,000 General Electric Capital Corp., 6.44%, 12/16/97............................ 240,371
161,000 British Petroleum America, Inc., 9.50%, 1/1/98............................. 162,699
504,000 Ford Capital, 9.375%, 1/1/98............................................... 509,138
1,270,000 Caterpillar, Inc., 7.47%, 1/15/98.......................................... 1,277,301
470,000 Chase Manhattan Corp., 6.625%, 1/15/98..................................... 470,974
248,000 GTE California, 6.25%, 1/15/98............................................. 248,246
60,000 General Electric Capital Corp., 8.00%, 1/15/98............................. 60,424
750,000 NationsBank Corp., 6.625%, 1/15/98......................................... 751,502
<PAGE>
<CAPTION>
MONEY MARKET FUND (continued)
===================================================================================================================================
Par Market
Value INVESTMENTS -- 93.0% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE NOTES -- 76.6%
$ 1,893,000 Philip Morris Companies, Inc., 6.375%, 1/15/98............................. $ 1,894,523
1,000,000 Texaco Capital, 8.65%, 1/30/98............................................. 1,010,328
1,250,000 Associates Corp. of North America, 6.125%, 2/1/98.......................... 1,250,260
50,000 Chubb Capital Corp., 6.00%, 2/1/98......................................... 49,947
535,000 Southern California Edison Co., 5.875%, 2/1/98............................. 534,477
110,000 WMX Technologies, Inc., 8.125%, 2/1/98..................................... 110,895
2,000,000 Ford Motor Credit Co., 9.30%, 2/10/98...................................... 2,029,210
310,000 Beneficial Corp., 9.125%, 2/15/98.......................................... 314,186
455,000 Commercial Credit Co., 8.50%, 2/15/98...................................... 460,096
3,065,000 Lehman Brothers Holdings, Inc., 5.75%, 2/15/98............................. 3,059,862
776,000 Ford Motor Credit Co., 6.25%, 2/26/98...................................... 777,147
210,000 Dean Witter, Discover & Co., 6.00%, 3/1/98................................. 209,973
50,000 GTE Corp., 8.85%, 3/1/98................................................... 50,684
125,000 Gannett Co., 5.25%, 3/1/98................................................. 124,500
455,000 Wal-Mart Stores, Inc., 5.50%, 3/1/98....................................... 453,982
4,116,000 Revlon Worldwide Corp. Discount Note, 3/15/98.............................. 3,989,520
400,000 Colonial Gas Co., 6.20%, 3/18/98........................................... 400,211
1,000,000 General Electric Capital Corp., 7.61%, 3/27/98............................. 1,008,994
500,000 General Electric Capital Corp., 7.08%, 3/30/98............................. 503,249
500,000 Ontario Hydro, 5.80%, 3/31/98.............................................. 499,214
735,000 Sears Roebuck & Co., 9.25%, 4/15/98........................................ 749,099
500,000 Chrysler Financial Corp., 7.05%, 4/29/98................................... 503,204
540,000 General Electric Capital Corp., 8.37%, 5/8/98.............................. 548,764
500,000 Transamerica Financial Corp., 7.17%, 6/29/98............................... 504,420
300,000 American General Finance Corp., 8.50%, 8/15/98............................. 306,690
1,000,000 General Motors Acceptance Corp. Medium Term Notes, 6.375%, 9/1/98.......... 1,003,571
4,500,000 Manitoba Province, 9.50%, 9/15/98.......................................... 4,658,897
1,105,000 NationsBank Corp., 5.125%, 9/15/98......................................... 1,095,663
- - --------------- ---------------
$ 72,210,000 TOTAL CORPORATE NOTES (Cost $72,448,175)................................... $ 72,448,175
- - --------------- ---------------
$ 87,710,000 TOTAL INVESTMENTS AT VALUE (Cost $87,944,917).............................. $ 87,944,917
=============== ---------------
<CAPTION>
===================================================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(1)-- 24.6% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 6,240,577 The First Boston Corp., 5.63%, dated 8/29/97, due 9/2/97,
repurchase proceeds $6,244,481......................................... $ 6,240,577
17,018,081 Lehman Brothers, Inc., 5.55%, dated 8/27/97, due 9/2/97,
repurchase proceeds $17,036,447......................................... 17,018,081
- - --------------- ---------------
$ 23,258,658 TOTAL REPURCHASE AGREEMENTS ............................................... $ 23,258,658
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE
AGREEMENTS AT VALUE-- 117.6% ........................................... $ 111,203,575
LIABILITIES IN EXCESS OF OTHER ASSETS-- (17.6)% ........................... (16,634,506 )
---------------
NET ASSETS-- 100.0% ....................................................... $ 94,569,069
===============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Government obligations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
KENTUCKY TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
===================================================================================================================================
PAR COUPON MATURITY MARKET
VALUE FIXED RATE REVENUE BONDS-- 95.7% RATE DATE(1) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 425,000 Kentucky St. Turnpike Auth. EDR, ETM........................ 7.000% 05/15/1999 $ 445,187
90,000 Jefferson Co., KY, Capital Projects Corp. Rev., Ser. A...... 0.000 08/15/1999 82,462
70,000 Kentucky St. Property & Buildings Commission Rev.,
Project # 32............................................. 6.500 12/01/1999 73,238
200,000 Owensboro, KY, Electric Light & Power Rev., Ser. A,
prerefunded at 102....................................... 10.250 01/01/2000 225,000
50,000 Louisville & Jefferson Co., KY, Metropolitan Sewer District,
Sewer & Drain System Rev., Ser. A........................... 6.500 05/15/2000 52,750
100,000 Kentucky St. Turnpike Auth. EDR, prerefunded at 101.5....... 7.250 05/15/2000 109,000
225,000 Kentucky Higher Education Student Loan Rev., Ser. B......... 6.400 06/01/2000 235,125
385,000 Trimble Co., KY, PCR, Ser. A, prerefunded at 102............ 7.625 11/01/2000 426,868
455,000 Kentucky St. Property & Buildings Commission Rev.,
Project # 51, ETM....................................... 6.300 08/01/2001 486,281
100,000 Kentucky St. Property & Buildings Commission Rev., Project # 52,
prerefunded at 102...................................... 6.500 08/01/2001 109,375
70,000 Lexington-Fayette Urban County Government, KY,
School Building Rev. ................................... 6.800 10/01/2001 76,037
120,000 Puerto Rico Public Buildings Auth. Guaranteed Rev.,
Ser. K, prerefunded at 101.5............................ 6.875 07/01/2002 134,850
100,000 Kentucky St. Pollution Abatement & Water Reserve Finance
Auth. Rev., Ser. A, ETM................................. 7.400 08/01/2002 112,875
490,000 Jefferson Co., KY, Capital Projects Corp. Rev. Ser. A....... 5.650 08/15/2003 519,400
200,000 Hopkins Co., KY, School District Finance Corp.,
School Building Rev. ................................... 5.700 06/01/2006 211,000
750,000 Jefferson Co., KY, School District Finance Corp.,
School Building Rev., Ser. A............................ 5.000 02/01/2007 757,500
615,000 Kentucky St. Turnpike Auth. Resource Recovery Road
Rev., ETM............................................... 6.125 07/01/2007 656,513
50,000 Lexington-Fayette Urban County Airport Corp., KY,
First Mtg. Rev. ........................................ 7.750 04/01/2008 52,850
450,000 Ashland, KY, PCR (Ashland Oil, Inc.)........................ 7.375 07/01/2009 483,750
275,000 Kentucky St. Turnpike Auth. Resource Recovery Road
Rev., Ser. A............................................ 6.000 07/01/2009 276,771
495,000 Jefferson Co., KY, School District Finance Corp. School
Building Rev., Ser. A................................... 4.875 01/01/2011 473,963
200,000 University of Louisville, KY, Rev., Ser. H.................. 5.875 05/01/2012 209,500
725,000 Boone Co., KY, Public Properties Corp. Sewer System Rev..... 5.150 12/01/2012 709,594
305,000 Fern Creek, KY, Fire Protection District Rev.,
Fire Station # 2....................................... 5.750 01/15/2014 303,856
235,000 Jefferson Co., KY, PCR (Louisville Gas & Electric Co.,
Project A)............................................. 7.450 06/15/2015 255,563
295,000 Ashland, KY, Solid Waste Rev. (Ashland Oil, Inc. Project)... 7.200 10/01/2020 318,600
270,000 Greater Kentucky Housing Assistance Corp. Mtg. Rev., Ser. A. 6.250 07/01/2022 276,075
- - -------------- ------------
$ 7,745,000 TOTAL FIXED RATE REVENUE BONDS (Amortized Cost $7,981,883).. $ 8,073,983
============== ------------
OTHER ASSETS IN EXCESS OF LIABILITIES-- 4.3% ............... 363,649
------------
NET ASSETS-- 100.0% ........................................ $ 8,437,632
============
<FN>
ETM -- Escrowed to Maturity
EDR -- Economic Development Revenue
PCR -- Pollution Control Revenue
(1) Bonds denoted as prerefunded are anticipated to be redeemed prior to their
scheduled maturity. The maturity dates shown reflect the stipulated
prerefunded dates.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
===============================================================================
LOGO: ARTHUR ANDERSEN LLP
To the Shareholders and Boards of Trustees of the Growth/Value Fund and the
Aggressive Growth Fund of Countrywide Strategic Trust, the Intermediate Bond
Fund and the Money Market Fund of Countrywide Investment Trust and the Kentucky
Tax-Free Fund of Countrywide Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities of the
Growth/Value Fund and Aggressive Growth Fund of Countrywide Strategic Trust (a
Massachusetts business trust), Intermediate Bond Fund and Money Market Fund of
Countrywide Investment Trust (a Massachusetts business trust) and Kentucky
Tax-Free Fund of Countrywide Tax-Free Trust (a Massachusetts business trust),
including the portfolios of investments, as of August 31, 1997, and the related
statements of operations, the statements of changes in net assets, and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial statements as of August
31, 1996 and financial highlights for the period ended August 31, 1996 were
audited by other auditors whose report dated October 18, 1996, expressed an
unqualified opinion on those financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth/Value Fund and the Aggressive Growth Fund of Countrywide Strategic Trust,
the Intermediate Bond Fund and the Money Market Fund of Countrywide Investment
Trust and the Kentucky Tax-Free Fund of Countrywide Tax-Free Trust as of August
31, 1997, the results of their operations, the changes in their net assets, and
their financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
/s/Arthur Andersen LLP
Cincinnati, Ohio,
October 17, 1997
<PAGE>
PART C. OTHER INFORMATION
- ------ -----------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) (i) Financial Statements included in Part A:
Financial Highlights
(ii) Financial Statements included in Part B:
Statements of Assets and Liabilities, August
31, 1997
Statements of Operations For the Year Ended
August 31, 1997
Statements of Changes in Net Assets For the
Periods Ended August 31, 1997 and 1996
Financial Highlights
Notes to Financial Statements, August 31, 1997
Portfolio of Investments, August 31, 1997
(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, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 34, is hereby incorporated by
reference.
<PAGE>
(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.
(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, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 34, is hereby incorporated by
reference.
<PAGE>
(v) Registrant's Management Agreement with
Countrywide Investments, Inc. for the
Aggressive Growth Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 34, is hereby incorporated by
reference.
(vi) Form of Registrant's Management Agreement
with Countrywide Investments, Inc. for the
International Equity Fund, which was filed as
an Exhibit to Registrant's Post-Effective
Amendment No. 34, is hereby incorporated by
reference.
(vii) Subadvisory Agreement between Countrywide
Investments, Inc. and Mastrapasqua &
Associates, Inc. for the Growth/Value Fund,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 34, is hereby
incorporated by reference.
(viii) Subadvisory Agreement between Countrywide
Investments, Inc. and Mastrapasqua &
Associates, Inc. for the Aggressive Growth
Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 34,
is hereby incorporated by reference.
(ix) Form of Subadvisory Agreement between
Countrywide Investments, Inc. and Bankers
Trust Company for the International Equity
Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 34,
is hereby incorporated by reference.
(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, which
was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 34, is hereby
incorporated by reference.
<PAGE>
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or
Officers - None.
(8)(i) Custody Agreement with The Fifth Third Bank,
the Custodian for the Government Mortgage
Fund, the Utility Fund and the Equity Fund,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
31, is hereby incorporated by reference.
(ii) Custody Agreement with Star Bank, the
Custodian for the Growth/Value Fund and the
Aggressive Growth Fund is filed herewith.
(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., which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 34,
is hereby incorporated by reference.
(iii) Administration Agreement between Countrywide
Investments, Inc. and Countrywide Fund
Services, Inc. is filed herewith.
(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.
<PAGE>
(ii) Copy of Midwest Group 403(b) Plan,
including Schedule of Fees, which was filed
as an Exhibit to Registrant's Post-Effective
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,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 34, is hereby
incorporated by reference.
(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 are filed
herewith.
(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 October 31,
1997)
- ------- -----------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
Government Mortgage Fund 862
Utility Fund
Class A Shares 1,668
Class C Shares 158
Equity Fund
Class A Shares 837
Class C Shares 130
Growth/Value Fund 388
Aggressive Growth Fund 414
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, Interactive Investments and the Dean
Family of Funds.
(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) 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
Susan F. Flischel First Vice None
President-
Investments
Terrie A. Wiedenheft Vice President None
& Controller
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 certifies that this Registration Statement
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and 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
31st day of December, 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 31st day of December, 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*
December 31, 1997
<PAGE>
EXHIBIT INDEX
1. Custody Agreement with Star Bank, N.A. for the Growth/Value Fund and
the Aggressive Growth Fund
2. Accounting and Pricing Services Agreement with Countrywide Fund
Services, Inc.
3. Administration Agreement between Countrywide Investments, Inc. and
Countrywide Fund Services, Inc.
4. Consent of Independent Auditors
5. Financial Data Schedule for the Growth/Value Fund
6. Financial Data Schedule for the Aggressive Growth Fund
CUSTODY AGREEMENT
This AGREEMENT, dated as of August 29, 1997, by and between COUNTRYWIDE
STRATEGIC TRUST (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts, acting with respect to the Aggressive Growth Fund
and the Growth/Value Fund (individually, a "Fund" and, collectively, the
"Funds"), each of them a series of the Trust and each of them operated and
administered by the Trust, and STAR BANK, N.A., a national banking association
(the "Custodian").
W I T N E S S E T H:
WHEREAS, the Trust desires that the Funds' Securities and cash be held
and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral Instructions and
Written Instructions on behalf of the Fund and named in Exhibit A hereto or in
such resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust, as from time to
time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a settlement day by
The New York Stock Exchange, Inc. and any other day for which the Trust computes
the net asset value of Shares of the Fund.
1.5 "Fund Custody Account" shall mean any of the accounts in the name
of the Trust, which is provided for in Section 3.2 below.
- 2 -
<PAGE>
1.6 "NASD" shall mean The National Association of
Securities Dealers, Inc.
1.7 "Officer" shall mean the Chairman, President, any Vice
President, any Assistant Vice President, the Secretary, any
Assistant Secretary, the Treasurer, or any Assistant Treasurer of
the Trust.
1.8 "Oral Instructions" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have been given by an Authorized Person, (ii)
recorded and kept among the records of the Custodian made in the ordinary course
of business and (iii) orally confirmed by the Custodian. The Trust shall cause
all Oral Instructions to be confirmed by Written Instructions prior to the end
of the next Business Day. If such Written Instructions confirming Oral
Instructions are not received by the Custodian prior to a transaction, it shall
in no way affect the validity of the transaction or the authorization thereof by
the Trust. If Oral Instructions vary from the Written Instructions which purport
to confirm them, the Custodian shall notify the Trust of such variance but such
Oral Instructions will govern unless the Custodian has not yet acted.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
- 3 -
<PAGE>
1.10 "Securities Depository" shall mean The Depository Trust Company
and (provided that Custodian shall have received a copy of a resolution of the
Board of Trustees, certified by an Officer, specifically approving the use of
such clearing agency as a depository for the Funds) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures, notes, bank
certificates of deposit, bankers' acceptances, mortgage-backed securities or
other obligations, and any certificates, receipts, warrants or other instruments
or documents representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests therein, or any
similar property or assets that the Custodian has the facilities to clear and to
service.
1.12 "Shares" shall mean, with respect to a Fund, the units of
beneficial interest issued by the Trust on account of such Fund.
- 4 -
<PAGE>
1.13 "Sub-Custodian" shall mean and include (i) any branch of a "U.S.
Bank," as that term is defined in Rule 17f-5 under the 1940 Act, (ii) any
"Eligible Foreign Custodian," as that term is defined in Rule 17f-5 under the
1940 Act, having a contract with the Custodian which the Custodian has
determined will provide reasonable care of assets of the Funds based on the
standards specified in Section 3.3 below. Such contract shall include provisions
that provide: (i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Funds will be adequately protected
against the risk of loss of assets held in accordance with such contract; (ii)
that the Funds' assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the Sub-Custodian or its
creditors except a claim of payment for their safe custody or administration, in
the case of cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under bankruptcy, insolvency, or similar laws; (iii) that
beneficial ownership for the Funds' assets will be freely transferable without
the payment of money or value other than for safe custody or administration;
(iv) that adequate records will be maintained identifying the assets as
belonging to the Funds or as being held by a third party for the benefit of the
Funds; (v) that the Funds' independent public accountants will be given access
to those records or confirmation of the contents of those records; and (vi) that
the Funds will receive periodic reports with respect to the safekeeping of the
Fund's assets, including, but
- 5 -
<PAGE>
not limited to, notification of any transfer to or from a Fund's account or a
third party account containing assets held for the benefit of the Fund. Such
contract may contain, in lieu of any or all of the provisions specified above,
such other provisions that the Custodian determines will provide, in their
entirety, the same or a greater level of care and protection for Fund assets as
the specified provisions, in their entirety.
1.14 "Written Instructions" shall mean (i) written communications
actually received by the Custodian and signed by an Authorized Person, or (ii)
communications by telex or any other such system from one or more persons
reasonably believed by the Custodian to be Authorized Persons, or (iii)
communications between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof shall have been
approved by resolutions of the Board of Trustees, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Funds at any time during the period of this Agreement.
2.2 Acceptance. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
- 6 -
<PAGE>
2.3 Documents to be Furnished. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement to the Custodian by the Trust:
a. A copy of the Declaration of Trust of the Trust
certified by the Secretary;
b. A copy of the Bylaws of the Trust certified by the
Secretary;
c. A copy of the resolution of the Board of Trustees of
the Trust appointing the Custodian, certified by the
Secretary;
d. A copy of the then current Prospectus of each
Fund; and
e. A certification of the President and Secretary of the
Trust setting forth the names and signatures of the
current Officers of the Trust and other Authorized
Persons.
2.4 Notice of Appointment of Dividend and Transfer Agent. The Trust
agrees to notify the Custodian in writing of the appointment, termination or
change in appointment of any Dividend and Transfer Agent of the Funds.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of a Fund (other than Securities maintained in a
Securities Depository or Book-Entry System) shall
- 7 -
<PAGE>
be physically segregated from other Securities and non-cash property in the
possession of the Custodian (including the Securities and non-cash property of
the other Funds) and shall be identified as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open
and maintain in its trust department a custody account in the name of the Trust
coupled with the name of the Fund, subject only to draft or order of the
Custodian, in which the Custodian shall enter and carry all Securities, cash and
other assets of such Fund which are delivered to it.
3.3 Appointment of Agents. (a) In its discretion, the Custodian may
appoint one or more Sub-Custodians to act as Securities Depositories or as
sub-custodians to hold Securities and cash of the Funds and to carry out such
other provisions of this Agreement as it may determine, provided, however, that
the appointment of any such agents and maintenance of any Securities and cash of
the Fund shall be at the Custodian's expense and shall not relieve the Custodian
of any of its obligations or liabilities under this Agreement.
(b) If, after the initial approval of Sub-Custodians by the Board of
Trustees in connection with this Agreement, the Custodian wishes to appoint
other Sub-Custodians to hold property of the Funds, it will so notify the Trust
and provide it with information reasonably necessary to determine any such new
Sub-Custodian's eligibility under Rule 17f-5 under the 1940 Act,
- 8 -
<PAGE>
including a copy of the proposed agreement with such Sub-Custodian. The Trust
shall at the meeting of the Board of Trustees next following receipt of such
notice and information give a written approval or disapproval of the proposed
action.
(c) The Agreement between the Custodian and each Sub-Custodian acting
hereunder shall contain the required provisions set forth in Rule
17f-5(a)(1)(iii).
(d) At the end of each calendar quarter, the Custodian shall provide
written reports notifying the Board of Trustees of the placement of the
Securities and cash of the Funds with a particular Sub-Custodian and of any
material changes in the Funds' arrangements. The Custodian shall promptly take
such steps as may be required to withdraw assets of the Funds from any
Sub-Custodian that has ceased to meet the requirements of Rule 17f-5 under the
1940 Act.
(e) With respect to its responsibilities under this Section 3.3, the
Custodian hereby warrants to the Trust that it agrees to exercise reasonable
care, prudence and diligence such as a person having responsibility for the
safekeeping of property of the Funds. The Custodian further warrants that a
Fund's assets will be subject to reasonable care, based on the standards
applicable to custodians in the relevant market, if maintained with each
Sub-Custodian, after considering all factors relevant to the safekeeping of such
assets, including, without limitation: (i) the Sub-Custodian's practices,
procedures, and internal controls,
- 9 -
<PAGE>
including, but not limited to, the physical protections available for
certificated securities (if applicable), the method of keeping custodial
records, and the security and data protection practices; (ii) whether the
Sub-Custodian has the requisite financial strength to provide reasonable care
for Fund assets; (iii) the Sub-Custodian's general reputation and standing and,
in the case of a Securities Depository, the Securities Depository's operating
history and number of participants; and (iv) whether the Fund will have
jurisdiction over and be able to enforce judgments against the Sub-Custodian,
such as by virtue of the existence of any offices of the Sub-Custodian in the
United States or the Sub-Custodian's consent to service of process in the United
States.
(f) The Custodian shall establish a system to monitor the
appropriateness of maintaining the Fund's assets with a particular Sub-Custodian
and the contract governing the Funds' arrangements with such Sub-Custodian.
3.4 Delivery of Assets to Custodian. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Funds with respect to such Securities, cash or
other assets owned by the Funds at any time during the period of this Agreement,
and (b) all cash received by the Funds for the issuance, at any time during such
period, of
- 10 -
<PAGE>
Shares. The Custodian shall not be responsible for such Securities, cash or
other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The Custodian may
deposit and/or maintain Securities of the Funds in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Trust
shall deliver to the Custodian a resolution of the
Board of Trustees, certified by an Officer, authorizing
and instructing the Custodian on an on-going basis to
deposit in such Securities Depository or Book-Entry
System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry
System to the extent possible and practical in
connection with its performance hereunder, including,
without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities,
and deliveries and returns of collateral consisting of
Securities.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book-Entry System or
Securities Depository which includes only assets held by the
Custodian as a
- 11 -
<PAGE>
fiduciary, custodian or otherwise for customers.
(c) The records of the Custodian with respect to Securities
of a Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry, identify such Securities as
belonging to such Fund.
(d) If Securities purchased by a Fund are to be held in a
Book-Entry System or Securities Depository, the
Custodian shall pay for such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities Depository that such Securities have been
transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of
such Fund. If Securities sold by a Fund are held in a
Book-Entry System or Securities Depository, the
Custodian shall transfer such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities Depository that payment for such Securities
has been transferred to the Depository Account, and
(ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the
account of such Fund.
(e) The Custodian shall provide the Trust with copies of any
report (obtained by the Custodian from a Book-Entry System or
Securities Depository in which Securities of
- 12 -
<PAGE>
the Funds are kept) on the internal accounting controls and
procedures for safeguarding Securities deposited in such
Book-Entry System or Securities Depository.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to a Fund resulting (i)
from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful
misconduct on the part of Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above
or any of its or their employees, or (ii) from failure
of Custodian or any such Sub-Custodian to enforce
effectively such rights as it may have against a
Book-Entry System or Securities Depository. At its
election, the Trust shall be subrogated to the rights
of the Custodian with respect to any claim against a
Book-Entry System or Securities Depository or any other
person from any loss or damage to the Funds arising
from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Funds have
not been made whole for any such loss or damage.
3.6 Disbursement of Moneys from Fund Custody Account. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from a Fund Custody
Account but only in the following cases:
- 13 -
<PAGE>
(a) For the purchase of Securities for the Fund but only in
accordance with Section 4.1 of this Agreement and only
(i) in the case of Securities (other than options on
Securities, futures contracts and options on futures
contracts), against the delivery to the Custodian (or
any Sub-Custodian appointed pursuant to Section 3.3
above) of such Securities registered as provided in
Section 3.9 below or in proper form for transfer, or if
the purchase of such Securities is effected through a
Book-Entry System or Securities Depository, in
accordance with the conditions set forth in Section 3.5
above; (ii) in the case of options on Securities,
against delivery to the Custodian (or such Sub-
Custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii)
in the case of futures contracts and options on futures
contracts, against delivery to the Custodian (or such
Sub-Custodian) of evidence of title thereto in favor of
the Fund or any nominee referred to in Section 3.9
below; and (iv) in the case of repurchase or reverse
repurchase agreements entered into between the Trust
and a bank which is a member of the Federal Reserve
System or between the Trust and a primary dealer in
U.S. Government securities, against delivery of the
purchased Securities either in certificate form or
- 14 -
<PAGE>
through an entry crediting the Custodian's account at a
Book-Entry System or Securities Depository with such
Securities;
(b) In connection with the conversion, exchange or surrender, as
set forth in Section 3.7(f) below, of Securities owned by the
Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: interest; taxes;
administration, investment advisory, accounting,
auditing, transfer agent, custodian, trustee and legal
fees; and other operating expenses of the Fund; in all
cases, whether or not such expenses are to be in whole
or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD,
relating to compliance with rules of The Options Clearing
Corporation and of any registered national securities exchange
(or of any similar organization or organizations) regarding
escrow
- 15 -
<PAGE>
or other arrangements in connection with transactions
by the Fund;
(g) For transfer in accordance with the provision of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution
(including the Custodian), which deposit or account has a term
of one year or less; and
(i) For any other proper purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
amount and purpose of such payment, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Account. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from a
Fund Custody Account but only in the following cases:
- 16 -
<PAGE>
(a) Upon the sale of Securities for the account of the Fund but
only against receipt of payment therefor in cash, by certified
or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of
Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer
into the name of the Fund, the Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above,
or of any nominee or nominees of any of the foregoing,
or (ii) for exchange for a different number of
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new Securities are to be
delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan or merger,
consolidation, recapitalization, reorganization or
readjustment of the issuer of such Securities, or
- 17 -
<PAGE>
pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including
surrender or receipt of underlying Securities in connection
with the issuance or cancellation of depository receipts;
provided that, in any such case, the new Securities and cash,
if any, are to be delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by the Fund;
(h) In the case of warrants, rights or similar Securities, upon
the exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Trust, but only
against receipt by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of
the Trust;
- 18 -
<PAGE>
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a
broker-dealer registered under the 1934 Act and a
member of the NASD, relating to compliance with the
rules of The Options Clearing Corporation and of any
registered national securities exchange (or of any
similar organization or organizations) regarding escrow
or other arrangements in connection with transactions
by the Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon
receipt, in addition to Proper Instructions, of a copy
of a resolution of the Board of Trustees, certified by
an Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
- 19 -
<PAGE>
3.8 Actions Not Requiring Proper Instructions. Unless
otherwise instructed by the Trust, the Custodian shall with respect to all
Securities held for a Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Fund is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect
on a timely basis the amount payable upon all Securities which
may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax
laws or the laws or regulations of any other taxing
authority now or hereafter in effect, and prepare and
submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and
containing such information as is prescribed by the
IRS;
(f) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
- 20 -
<PAGE>
Securities Depository, all rights and similar securities
issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with Securities and assets of the
Fund.
3.9 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for a Fund may
be registered in the name of such Fund, the Custodian, or any Sub-Custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book- Entry System, Securities Depository or any
nominee of either thereof. The Trust shall furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of any of the nominees hereinabove referred
to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of a Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or
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other property held for the Funds, including (i) journals or other records of
original entry containing an itemized daily record in detail of all receipts and
deliveries of Securities and all receipts and disbursements of cash; (ii)
ledgers (or other records) reflecting (A) Securities in transfer, (B) Securities
in physical possession, (C) monies and Securities borrowed and monies and
Securities loaned (together with a record of the collateral therefor and
substitutions of such collateral), (D) dividends and interest received, and (E)
dividends receivable and interest receivable; and (iii) canceled checks and bank
records related thereto. The Custodian shall keep such other books and records
of the Funds as the Trust shall reasonably request, or as may be required by the
1940 Act, including, but not limited to, Section 31 of the 1940 Act and Rule
31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
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<PAGE>
3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust
with a daily activity statement by Fund and a summary of all transfers to or
from each Fund Custody Account on the day following such transfers. At least
monthly and from time to time, the Custodian shall furnish the Trust with a
detailed statement of the Securities and moneys held by the Custodian and the
Sub-Custodians for the Funds under this Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any Sub-Custodian appointed pursuant to Section
3.3 above.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of a Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.14 Information on Corporate Actions. The Custodian shall promptly
deliver to the Trust all information received by the Custodian and pertaining to
Securities being held by the Funds with respect to optional tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Exhibit B. If the
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<PAGE>
Trust desires to take action with respect to any tender offer, exchange offer or
other similar transaction, the Trust shall notify the Custodian at least five
Business Days prior to the date on which the Custodian is to take such action.
The Trust will provide or cause to be provided to the Custodian all relevant
information for any Security which has unique put/option provisions at least
five Business Days prior to the beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
4.1 Purchase of Securities. Promptly upon each purchase of Securities
for a Fund, Written Instructions shall be delivered to the Custodian, specifying
(a) the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units purchased, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount is payable.
The Custodian shall upon receipt of such Securities purchased by a Fund pay out
of the moneys held for the account of such Fund the total amount specified in
such Written Instructions to the person named therein. The Custodian shall not
be under any obligation to pay out moneys to cover the cost of a purchase of
Securities for a Fund, if in the Fund Custody Account there is insufficient cash
available to the Fund
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<PAGE>
for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of Securities
for a Fund is made by the Custodian in advance of receipt of the Securities
purchased but in the absence of specified Written Instructions to so pay in
advance, the Custodian shall be liable to the Fund for such Securities to the
same extent as if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of Shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section
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<PAGE>
4.3 above or any other provision of this Agreement, the Custodian, when
instructed to deliver Securities against payment, shall be entitled, if in
accordance with generally accepted market practice, to deliver such Securities
prior to actual receipt of final payment therefor. In any such case, the Fund
shall bear the risk that final payment for such Securities may not be made or
that such Securities may be returned or otherwise held or disposed of by or
through the person to whom they were delivered, and the Custodian shall have no
liability for any for the foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from
time to time, the Custodian may credit the Fund Custody Account, prior to actual
receipt of final payment thereof, with (i) proceeds from the sale of Securities
which it has been instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Fund, and (iii) income from
cash, Securities or other assets of the Fund. Any such credit shall be
conditional upon actual receipt by Custodian of final payment and may be
reversed if final payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit a Fund to use funds so
credited to its Fund Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
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<PAGE>
anticipation of which funds were credited to the Fund Custody
Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust to facilitate
the settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 Transfer of Funds. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of a Fund,
the Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Trust may designate with respect to such amount in such
Proper Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under
any obligation to effect payment or distribution by any bank designated in
Proper Instructions given pursuant to Section 5.1 above of any amount paid by
the Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be
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<PAGE>
transferred cash and/or Securities, including Securities
maintained in a Depository Account,
(a) in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD
(or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or
organizations, regarding escrow or other arrangements
in connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in connection
with securities options purchased or written by the Fund or in
connection with financial futures contracts (or options
thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities
made by the Fund,
(d) for purposes of compliance by the Fund with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and
firm commitment
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<PAGE>
transactions, and
(e) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees, certified by an Officer,
setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Trust or any Fund for any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim unless
such loss, damage, cost, expense, liability or claim arises from negligence, bad
faith or willful misconduct on its part or on the part of any Sub-Custodian
appointed pursuant to Section 3.3 above. The Custodian shall be entitled to rely
on and may act upon advice of counsel on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to
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<PAGE>
such advice. The Custodian shall promptly notify the Trust of any action taken
or omitted by the Custodian pursuant to advice of counsel. The Custodian shall
not be under any obligation at any time to ascertain whether the Trust or a Fund
is in compliance with the 1940 Act, the regulations thereunder, the provisions
of the Trust's charter documents or bylaws, or its investment objectives and
policies as then in effect.
7.2 Actual Collection Required. The Custodian shall not be liable for,
or considered to be the custodian of, any cash belonging to a Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 No Responsibility for Title, etc. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for a Fund if such Securities are in
default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall
be entitled to rely upon any certificate, notice
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<PAGE>
or other instrument in writing received by it and reasonably believed by it to
be genuine. The Custodian shall be entitled to rely upon any Oral Instructions
and any Written Instructions actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 Co-operation. The Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by the Trust to keep
the books of account of the Funds and/or compute the value of the assets of the
Funds. The Custodian shall take all such reasonable actions as the Trust may
from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's reports on Form N-1A and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Trust. The Trust shall indemnify and hold
harmless the Custodian and any Sub-Custodian appointed
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<PAGE>
pursuant to Section 3.3 above, and any nominee of the Custodian or of such
Sub-Custodian, from and against any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability (including, without limitation,
liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act,
and any state or foreign securities and/or banking laws) or claim arising
directly or indirectly (a) from the fact that Securities are registered in the
name of any such nominee, or (b) from any action or inaction by the Custodian or
such Sub-Custodian (i) at the request or direction of or in reliance on the
advice of the Trust, or (ii) upon Proper Instructions, or (c) generally, from
the performance of its obligations under this Agreement or any sub-custody
agreement with a Sub-Custodian appointed pursuant to Section 3.3 above, provided
that neither the Custodian nor any such Sub-Custodian shall be indemnified and
held harmless from and against any such loss, damage, cost, expense, liability
or claim arising from the Custodian's or such Sub-Custodian's negligence, bad
faith or willful misconduct.
8.2 Indemnification by Custodian. The Custodian shall indemnify and
hold harmless the Trust from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability (including without
limitation, liability arising under the Securities Act of 1933, the 1934 Act,
the 1940 Act, and any state or foreign securities and/or banking laws) or claim
arising from the negligence, bad faith or willful
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<PAGE>
misconduct of the Custodian or any Sub-Custodian appointed pursuant to Section
3.3 above, or any nominee of the Custodian or of such Sub-Custodian.
8.3 Indemnity to be Provided. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
8.4 Security. If the Custodian advances cash or Securities to a Fund
for any purpose, either at the Trust's request or as otherwise contemplated in
this Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim
(except such as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should such Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of such Fund and to dispose of other assets of such Fund
to the extent necessary to obtain reimbursement or indemnification.
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<PAGE>
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate against the Funds in favor of any other
customer of the Custodian in making computer time and personnel available to
input or process the transactions contemplated by this Agreement and (ii) shall
use its best efforts to ameliorate the effects of any such failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
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<PAGE>
10.2 Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the
Funds and held by the Custodian as custodian, and (b) transfer any Securities
held in a Book-Entry System or Securities Depository to an account of or for the
benefit of the Funds at the successor custodian, provided that the Trust shall
have paid to the Custodian all fees, expenses and other amounts to the payment
or reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the Custodian by
regulatory authorities or upon the happening of a like event at the direction of
an appropriate regulatory agency or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian
is not designated by the Trust on or before
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<PAGE>
the date of termination specified pursuant to Section 10.1 above, then the
Custodian shall have the right to deliver to a bank or corporation company of
its own selection, which (a) is a "bank" as defined in the 1940 Act and (b) has
aggregate capital, surplus and undivided profits as shown on its then most
recent published report of not less than $25 million, all Securities, cash and
other property held by Custodian under this Agreement and to transfer to an
account of or for the Funds at such bank or trust company all Securities of the
Funds held in a Book-Entry System or Securities Depository. Upon such delivery
and transfer, such bank or trust company shall be the successor custodian under
this Agreement and the Custodian shall be relieved of all obligations under this
Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from
time to time by the Trust and the Custodian. The fees and other charges in
effect on the date hereof and applicable to the Funds are set forth in Exhibit C
attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
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 shall bind only the trust
property of the
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<PAGE>
Trust as provided in the Trust's Agreement and Articles of Incorporation, as
from time to time amended. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the 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 as provided in the above-mentioned Agreement and Articles
of Incorporation.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Trust:
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, OH 45202
Telephone: (513) 629-2000
Facsimile: (513) 629-2041
To Custodian:
Star Bank, N.A.
425 Walnut Street, M.L. 6118
Sixth Floor
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (800) 485-8510
Facsimile: (513) 632-3299
or at such other address as either party shall have provided to
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<PAGE>
the other by notice given in accordance with this Article XIII. Writing shall
include transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
14.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for a Fund and such other printed matter as
merely identifies Custodian as custodian for the Fund. The Trust shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
14.3 No Waiver. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally
and no amendment to this Agreement shall be effective unless
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<PAGE>
evidenced by an instrument in writing executed by the parties
hereto.
14.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
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<PAGE>
ATTEST: COUNTRYWIDE STRATEGIC TRUST
/s/ John F. Splain By:/s/ Robert H. Leshner
- -------------------------- ----------------------------
Secretary Its: President
ATTEST: STAR BANK, N.A.
/s/ Lynette C. Gibson By:/s/ Marsha A. Croxton
- ------------------------- -------------------------------
Senior Trust Officer Its: Vice President
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<PAGE>
EXHIBIT A
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Fund Custody Accounts.
Name Signature
Angelo R. Mozilo ---------------------------------
Robert H. Leshner /s/ Robert H. Leshner
---------------------------------
John F. Splain /s/ John F. Splain
---------------------------------
Robert G. Dorsey /s/ Robert G. Dorsey
---------------------------------
Mark J. Seger /s/ Mark J. Seger
---------------------------------
M. Kathleen Leugers /s/ M. Kathleen Leugers
---------------------------------
Terrie A. Wiedenheft /s/ Terrie A. Wiedenheft
---------------------------------
Gary H. Goldschmidt /s/ Gary H. Goldschmidt
---------------------------------
Thomas A. Trantum /s/ Thomas A. Trantum
---------------------------------
Frank Mastrapasqua /s/ Frank Mastrapasqua
---------------------------------
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<PAGE>
EXHIBIT B
STAR BANK, N.A.
Standards of Service Guide
Star Bank, N.A., is committed to providing superior quality service to
all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to complete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's Reorg Source,
Financial Information, Inc., XCITEK, DTC Important Notices, and the Wall Street
Journal,
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond
Source, Kenny Information Systems, Standard & Poor's Corporation, and DTC
Important Notices. Star Bank will not notify clients of optional put
opportunities.
Any securities delivered free to Star Bank or its agents must be
received three (3) business days prior to any payment or settlement in order for
the Star Bank standards of service to apply.
Should you have any questions regarding the information contained in
this guide, please feel free to contact your account representative.
The information contained in this Standards Service Guide is
subject to change. Should any changes be made Star Bank will
provide you with an updated copy of its Standards of Service
Guide.
<PAGE>
STAR BANK SECURITY SETTLEMENT STANDARDS
<TABLE>
<S> <C> <C>
TRANSACTION TYPE INSTRUCTIONS DEADLINES* DELIVERY INSTRUCTIONS
DTC 1:30 P.M. on Settlement Date DTC Participant #2219
Agent Bank ID #27895
Institutional #
For Account #
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of
Cinti/Trust for Star Bank, N.A.
ABA # 0420000013
For Account #
Federal Reserve Book Entry 1:00 P.M. on Settlement Date Federal Reserve Bank of
(Repurchase Agreement Cinti/Spec for Star Bank, N.A.
Collateral Only) ABA #042000013
For Account #
PTC Securities 12:00 P.M. on Settlement Date PTC For Account BTRST/CUST
(GNMA Book Entry) Sub Account: Star Bank, N.A. #090334
Physical Securities 9:30 A.M. EST on Settlement Date Bankers Trust Company
(for Deliveries, by 4:00 P.M. on 16 Wall Street 4th Floor, Window 43
Settlement Date minus 1) for Star Bank Account #090334
CEDEL/EURO-CLEAR 11:00 A.M. on Settlement Date Eurclear Via Cedel Bridge
minus 2 In favor of Bankers Trust Comp
Cedel 53355
For Star Bank Account #501526354
Cash Wire Transfer 3:00 P.M. Star Bank, N.A. Cinti/Trust ABA# 042000013
Credit Account #9901877
Further Credit to
Account #
</TABLE>
*All times listed are Cincinnati time.
<PAGE>
STAR BANK PAYMENT STANDARDS
SECURITY TYPE INCOME PRINCIPAL
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank
Book Entry* Payable Date Payable Date
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs*
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Payable Date Payable Date
Certificates*
Certificates of Deposit* Payable Date Payable Date
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank
Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
NOTE: If a payable date falls on a weekend or bank holiday, payment will be
made on the immediately following business day.
<PAGE>
STAR BANK CORPORATE REORGANIZATION STANDARDS
<TABLE>
<S> <C> <C> <C>
TYPE OF ACTION NOTIFICATION TO CLIENT DEADLINE FOR CLIENT INSTRUCTIONS TRANSACTION
TO STAR BANK POSTING
Rights, Warrants, Later of 10 business days prior 5 business days prior to expiration Upon receipt
and Optional Mergers to expiration or receipt of notice
Mandatory Puts with Later of 10 business days prior 5 business days prior to expiration Upon receipt
Option to Retain to expiration or receipt of notice
Class Actions 10 business days prior to 5 business days prior to expiration Upon receipt
expiration date
Voluntary Tenders, Later of 10 business days prior 5 business days prior to expiration Upon receipt
Exchanges, to expiration or receipt of notice
and Conversions
Mandatory Puts, Defaults, At posting of funds or securities None Upon receipt
Liquidations, Bankruptcies, received
Stock Splits, Mandatory
Exchanges
Full and Partial Calls Later of 10 business days prior None Upon receipt
to expiration or receipt of notice
</TABLE>
NOTE: Fractional shares/par amounts resulting from any of the above will be sold
<PAGE>
EXHIBIT C
STAR BANK, N.A.
Proposed Domestic Custody Fee Schedule for Countrywide Strategic Trust
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
<TABLE>
<S> <C>
I. Portfolio Transaction Fees:
(a)For each repurchase agreement transaction $ 7.00*
(b)For each portfolio transaction processed through DTC or Federal Reserve $ 8.50
(c)For each portfolio transaction processed through our New York custodian $25.00
(d)For each GNMA/Amortized Security Purchase $16.00
(e)For each GNMA Prin/Int Paydown, GNMA Sales $ 8.00
(f)For each option/future contract written, exercised or expired $40.00
(g)For each Cedel/Euroclear transaction $80.00
(h)For each Disbursement (Fund expenses only) $ 5.00
</TABLE>
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange:
II. Market Value Fee
Based upon an annual rate of: Million
.00015 (1.5 Basis Points) on First $25
.00010 (1 Basis Point) on Next $25
.000050 (.50 Basis Points) on Balance
III. Monthly Minimum Fee - Per Fund $200.00
IV. Out-of-Pocket Expenses
The only out-of-pocket expenses charged to your account will be shipping fees
or transfer fees.
V. Earnings Credits
On a monthly basis any earnings credits generated from uninvested custody
balances will be applied against any cash management service fees generated.
Earnings credits are based on a Cost of Funds Tiered Earnings Credit Rate.
* Star Bank agrees that there will not be a charge for repurchase agreement
(repos) transactions if Star Repos are utilized.
Revised September 18, 1997
<PAGE>
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>
Effective December 1, 1997 Schedule A
COMPENSATION
FOR FUND ACCOUNTING AND PORTFOLIO PRICING:
Government Mortgage Fund
Asset Size Monthly Fee
---------------------------- --------------
$ 0 - $ 50,000,000 $2,500
$ 50,000,000 - $100,000,000 $3,000
$100,000,000 - $200,000,000 $3,500
$200,000,000 - $300,000,000 $4,000
Over $300,000,000 $5,000*
Utility Fund
Equity Fund
Asset Size Monthly Fee
----------------------------- --------------
$ 0 - $ 50,000,000 $3,000
$ 50,000,000 - $100,000,000 $3,500
$100,000,000 - $200,000,000 $4,000
$200,000,000 - $300,000,000 $4,500
Over $300,000,000 $5,500*
Growth/Value Fund
Aggressive Growth Fund
Asset Size Monthly Fee
----------------------------- --------------
$ 0 - $ 50,000,000 $2,000
$ 50,000,000 - $100,000,000 $2,500
$100,000,000 - $200,000,000 $3,000
$200,000,000 - $300,000,000 $3,500
Over $300,000,000 $4,500*
* Subject to an additional fee of .001% of average daily net
assets.
- 8 -
ADMINISTRATION AGREEMENT
AGREEMENT entered into as of September 1, 1997, between Countrywide
Investments, Inc. ("Adviser") and Countrywide Fund Services, Inc. ("CFS"),
both of which are Ohio corporations having their principal place of business
at 312 Walnut Street, Cincinnati, Ohio 45202.
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and provides investment management services
under the terms of investment advisory agreements (the "Management Agreements")
with Countrywide Investment Trust, Countrywide Strategic Trust and Countrywide
Tax-Free Trust (referred to individually as a "Trust" and collectively as the
"Trusts"), with respect to the series of the Trusts; and
WHEREAS, the Trusts have been organized as Massachusetts business
trusts to operate as investment companies registered under the Investment
Company Act of 1940 (the "Act"); and
WHEREAS, the Adviser manages the business affairs of the series of the
Trusts pursuant to the Management Agreements; and
WHEREAS, the Adviser wishes to avail itself of the information, advice,
assistance and facilities of CFS to perform on behalf of the Trusts the services
as hereinafter described; and
WHEREAS, CFS wishes to provide such services to the Adviser under the
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Adviser and CFS agree as follows:
1. EMPLOYMENT. The Adviser, being duly authorized, hereby employs CFS
to perform those services described in this Agreement. CFS shall perform the
obligations thereof upon the terms and conditions hereinafter set forth.
2. TRUST ADMINISTRATION. Subject to the direction and control of the
Adviser, CFS shall assist the Adviser in supervising the Trusts' business
affairs not otherwise supervised by other agents of the Trusts. To the extent
not otherwise the primary responsibility of, or provided by, other agents of the
Trusts, CFS shall supply (i) non-investment related statistical and research
data, (ii) internal regulatory compliance services, and (iii) executive and
administrative services. CFS shall supervise the preparation of (i) tax returns,
(ii) reports to shareholders of the Trusts, (iii) reports to and filings with
the Securities and Exchange Commission, state securities commissions and Blue
Sky authorities including preliminary and definitive
- 1 -
<PAGE>
proxy materials and post-effective amendments to the Trusts' registration
statements, and (iv) necessary materials for meetings of the Trusts' Board of
Trustees unless prepared by other parties under agreement.
3. RECORDKEEPING AND OTHER INFORMATION. CFS shall create and maintain
all necessary records in accordance with all applicable laws, rules and
regulations, including but not limited to records required by Section 31(a) of
the Act and the rules thereunder, as the same may be amended from time to time,
pertaining to the various functions performed by it and not otherwise created
and maintained by another party pursuant to contract with a Trust. Where
applicable, such records shall be maintained by CFS for the periods and in the
places required by Rule 31a-2 under the Act.
4. AUDIT, INSPECTION AND VISITATION. CFS shall make available to the
Adviser during regular business hours all records and other data created and
maintained pursuant to the foregoing provisions of this Agreement for reasonable
audit and inspection by the Trusts or any regulatory agency having authority
over the Trusts.
5. COMPENSATION. For the performance of its obligations under this
Agreement, the Adviser shall pay CFS, with respect to the Trusts, a fee equal to
$37,500 per month. The Adviser is solely responsible for the payment of fees to
CFS, and CFS agrees to seek payment of its fees solely from the Adviser.
6. LIMITATION OF LIABILITY. CFS 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 instructions
from the Adviser, provided, however, that such acts or omissions shall not have
resulted from CFS's willful misfeasance, bad faith or gross negligence.
7. COMPLIANCE WITH THE INVESTMENT COMPANY ACT OF 1940. The parties
hereto acknowledge and agree that nothing contained herein shall be construed to
require CFS to perform any services for the Adviser which services could cause
CFS to be deemed an "investment adviser" of a Trust within the meaning of
Section 2(a)(20) of the Act or to supersede or contravene the Prospectus or
Statement of Additional Information of any Trust or any provisions of the Act
and the rules thereunder.
8. TERMINATION. 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 CFS, (2) by vote, cast in person at a meeting
called for the purpose, of a majority of each Trust's trustees who are not
- 2 -
<PAGE>
parties to this Agreement or interested persons (as defined in the Act) of any
such party, and (3) by vote of a majority of each Trust's Board of Trustees or a
majority of a Trust's outstanding voting securities. This Agreement may be
terminated by either party upon sixty (60) days' written notice to the other
party. This Agreement shall terminate automatically with respect to a series in
the event of termination of a Management Agreement for that series. Upon the
termination of this Agreement, the Adviser shall pay CFS such compensation as
may be payable for the period prior to the effective date of such termination.
9. NO TRUST LIABILITY. CFS is hereby expressly put on notice that the
Trusts are not contracting parties to this Agreement and assume no obligations
pursuant to this Agreement. CFS shall seek satisfaction of any obligations
arising out of this Agreement only from the Adviser, and not from any Trust nor
its Trustees, officers, employees or shareholders. CFS shall not act as agent
for or bind either the Adviser or any Trust in any matter.
10. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the 1st day of September, 1997.
COUNTRYWIDE INVESTMENTS, INC.
By:/s/ Robert H. Leshner
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
- 3 -
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our
report dated October 17, 1997 and to all references to our Firm included
in or made a part of this Post-Effective Amendment No. 35.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
December 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> Countrywide Strategic Trust
<SERIES>
<NUMBER> 8
<NAME> Growth/Value Fund
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 19,842,469
<INVESTMENTS-AT-VALUE> 27,516,945
<RECEIVABLES> 16,876
<ASSETS-OTHER> 19,584
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,553,405
<PAYABLE-FOR-SECURITIES> 744,040
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,296
<TOTAL-LIABILITIES> 775,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,103,593
<SHARES-COMMON-STOCK> 1,684,685
<SHARES-COMMON-PRIOR> 1,350,818
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,674,476
<NET-ASSETS> 26,778,069
<DIVIDEND-INCOME> 153,095
<INTEREST-INCOME> 36,676
<OTHER-INCOME> 0
<EXPENSES-NET> 404,395
<NET-INVESTMENT-INCOME> (214,624)
<REALIZED-GAINS-CURRENT> 894,909
<APPREC-INCREASE-CURRENT> 7,431,395
<NET-CHANGE-FROM-OPS> 8,111,680
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 888,542
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 751,684
<NUMBER-OF-SHARES-REDEEMED> 434,401
<SHARES-REINVESTED> 16,584
<NET-CHANGE-IN-ASSETS> 11,670,404
<ACCUMULATED-NII-PRIOR> (50,747)
<ACCUMULATED-GAINS-PRIOR> 89,352
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,612
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 404,395
<AVERAGE-NET-ASSETS> 20,775,015
<PER-SHARE-NAV-BEGIN> 11.18
<PER-SHARE-NII> (0.13)
<PER-SHARE-GAIN-APPREC> 5.39
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.90
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> COUNTRYWIDE STRATEGIC TRUST
<SERIES>
<NUMBER> 9
<NAME> AGGRESSIVE GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 9,516,442
<INVESTMENTS-AT-VALUE> 14,230,179
<RECEIVABLES> 21,615
<ASSETS-OTHER> 19,584
<OTHER-ITEMS-ASSETS> 1,634
<TOTAL-ASSETS> 14,273,012
<PAYABLE-FOR-SECURITIES> 278,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,527
<TOTAL-LIABILITIES> 289,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,626,476
<SHARES-COMMON-STOCK> 858,688
<SHARES-COMMON-PRIOR> 598,307
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (356,478)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,713,737
<NET-ASSETS> 13,983,735
<DIVIDEND-INCOME> 14,849
<INTEREST-INCOME> 19,827
<OTHER-INCOME> 0
<EXPENSES-NET> 183,555
<NET-INVESTMENT-INCOME> (148,879)
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<APPREC-INCREASE-CURRENT> 4,653,168
<NET-CHANGE-FROM-OPS> 4,147,811
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<INTEREST-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 10.95
<PER-SHARE-NII> (0.17)
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</TABLE>
