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. 33
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 33
----
(Check appropriate box or boxes.)
COUNTRYWIDE STRATEGIC TRUST
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(Exact name of Registrant as Specified in Charter)
FILE NOS. 811-3651 and 2-80859
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312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 629-2000
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Robert H. Leshner, 312 Walnut Street, 21st Floor,
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Cincinnati, Ohio 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of securities under
Rule 24f-2 by filing Registrant's initial registration statement
effective April 14, 1983. Pursuant to paragraph (b)(1) of Rule
24f-2, Registrant filed a Rule 24f-2 Notice for the fiscal year
ended March 31, 1997 on May 20, 1997.
TOTAL NUMBER OF PAGES:
EXHIBIT INDEX ON PAGE:
<PAGE>
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, Financial
Highlights
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(s), Application
8........................... How to Redeem Shares, Shareholder
Services
9........................... None
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
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10.......................... Cover Page
11.......................... Table of Contents
12.......................... The Trust
13.......................... Definitions, Policies and Risk
Considerations, Investment Limitations,
Portfolio Turnover
14.......................... Trustees and Officers
15.......................... Principal Security Holders
16.......................... The Investment Adviser and Underwriter,
Distribution Plans, 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 Adviser and Underwriter
22.......................... Historical Performance Information
23.......................... Annual Report
<PAGE>
PROSPECTUS
August 1, 1997
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
GOVERNMENT MORTGAGE FUND
The Government Mortgage Fund (the "Fund"), a series of Countrywide
Strategic Trust, seeks high current income, consistent with the protection of
capital, by investing primarily in mortgage-related securities issued or
guaranteed as to principal and interest by the United States Government, its
agencies or instrumentalities. Under normal circumstances, the Fund will invest
at least 65% of its total assets in securities issued or guaranteed by the
Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
Countrywide Investments, Inc. (the "Adviser") manages the Fund's
investments and its business affairs.
This Prospectus sets forth concisely the information about the Fund
that you should know before investing. Please retain this Prospectus for
future reference. A Statement of Additional Information dated August 1,
1997 has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference in its entirety. A copy of the
Statement of Additional Information can be obtained at no charge by calling one
of the numbers listed below.
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For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . . . 800-543-0407
Cincinnati . . . . . . . . . . . . . . . . . . . . . . . 513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
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Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... 2%
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
Adviser to a participating unaffiliated dealer.
** A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees After Waivers(A) .67%
12b-1 Fees(B) .01%
Other Expenses .52%
Total Fund Operating Expenses -----
After Waivers(C) 1.20%
=====
(A) Absent waivers of management fees, such fees would have been .75% for
the fiscal year ended March 31, 1997.
(B) The Fund may incur 12b-1 fees in an amount up to .25% of its average
net assets. 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 1.28% for the fiscal year ended March 31, 1997.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred during the most recent fiscal year. THE EXAMPLE BELOW SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example
You would pay the following 1 Year $ 32
expenses on a $1,000 3 Years 57
investment, assuming (1) 5 Years 85
5% annual return and (2) 10 Years 163
redemption at the end of
each time period:
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<PAGE>
FINANCIAL HIGHLIGHTS
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The following information, which has been audited by Arthur Andersen
LLP, is an integral part of the audited financial statements and should be read
in conjunction with the financial statements. The financial statements as of
March 31, 1997 and related auditors' report appear in the Statement of
Additional Information of the Fund, 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>
Per Share Data for a Share Outstanding Throughout Each Year
Year Ended March 31,
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1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year ............. $9.43 $9.22 $ 9.85 $10.47 $10.18 $10.04 $ 9.78 $ 9.81 $10.17 $10.76
------ ------- ------- ------- ------- ------- ------- ------ ------ ------
Income from investment operations:
Net investment income......... 0.55 0.56 0.58 0.64 0.69 0.79 0.81 0.86 0.82 0.84
Net realized and unrealized
gains (losses) on investments (0.20) 0.21 (0.59) (0.59) 0.47 0.14 0.26 (0.03) (0.33) (0.56)
------ ------- ------- ------- ------- ------- ------- ------- ------ -------
Total from investment operations 0.35 0.77 (0.01) 0.05 1.16 0.93 1.07 0.83 0.49 0.28
------ ------- ------- ------- ------- ------- ------- ------- ------ -------
Less distributions:
Dividends from net
investment income ............ (0.55) (0.56) (0.58) (0.64) (0.69) (0.79) (0.81) (0.86) (0.82) (0.84)
Distributions from
net realized gains ........... -- -- (0.04) (0.03) (0.18) -- -- -- (0.03) (0.03)
----- ------- ------- ------- ------- ------- ------- ------- ------ -------
Total distributions............. (0.55) (0.56) (0.62) (0.67) (0.87) (0.79) (0.81) (0.86) (0.85) (0.87)
------ ------- ------- ------- ------- ------- ------- ------- ------ -------
Net asset value at end of year.. $9.23 $9.43 $ 9.22 $ 9.85 $10.47 $10.18 $10.04 $ 9.78 $ 9.81 $10.17
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Total return(A) ................ 3.76% 8.39% 0.06% 0.30% 11.71% 9.46% 11.37% 8.60% 4.96% 2.95%
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Net assets at end of year (000's) $21,843 $24,916 $26,174 $40,479 $31,633 $40,253 $43,753 $28,788 $31,047 $40,429
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Ratio of expenses to
average net assets ........... 1.20%(B) 1.20%(B) 1.20% 1.20% 1.20% 1.19% 1.30% 1.31%(B) 1.37% 1.60%
Ratio of net investment income
to average net assets......... 5.84% 5.82% 6.26% 6.14% 6.61% 7.73% 8.19% 8.60% 8.15% 8.31%
Portfolio turnover rate......... 76% 160% 205% 246% 188% 55% 53% 128% 140% 94%
<FN>
(A)The total returns shown do not include the effect of applicable sales loads.
(B)Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.28%, 1.24% and 1.34% for the years ended March
31, 1997, 1996 and 1990, respectively.
</FN>
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
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The Fund is a series of Countrywide Strategic Trust (the "Trust"). The
Fund seeks high current income, consistent with the protection of capital. The
Fund seeks to achieve its investment objective by investing primarily in
mortgage-related securities issued or guaranteed as to principal and interest by
the United States Government, its agencies or instrumentalities. The Fund is not
intended to be a complete investment program, and there is no assurance that the
Fund's investment objective can be achieved. The Fund's investment objective may
be changed by the Board of Trustees without shareholder approval, but only after
notification has been given to shareholders and after this Prospectus has been
revised accordingly. If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. Unless otherwise
indicated, all investment practices and limitations of the Fund are
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval.
Under normal circumstances, at least 65% of the Fund's total assets
will be invested in mortgage-related securities issued or guaranteed as to
principal and interest by the Government National Mortgage Association (GNMA
Certificates), the Federal Home Loan Mortgage Corporation (FHLMC Certificates)
or the Federal National Mortgage Association (FNMA Certificates). GNMA
Certificates, FHLMC Certificates, FNMA Certificates and other mortgage-related
securities eligible for purchase by the Fund are described below.
Mortgage-related securities purchased by the Fund will be either (i) issued by
United States Government sponsored corporations or (ii) rated Aaa by Moody's
Investors Service, Inc. or AAA by Standard & Poor's Ratings Group or, if not
rated, are of comparable quality as determined by the Adviser.
The market value of investments available to the Fund, and therefore
the Fund's yield and net asset value, will fluctuate due to changes in interest
rates, economic conditions, quality ratings and other factors beyond the control
of the Adviser. Mortgage-related securities and other debt securities are
subject to price fluctuations based upon changes in the level of interest rates,
which will generally result in all those securities changing in price in the
same way, i.e., all those securities experiencing appreciation when interest
rates decline and depreciation when interest rates rise. In addition, the
prepayment experience of the mortgages underlying mortgage-related securities
may affect the value of, and the return on an investment in, such securities.
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<PAGE>
For defensive purposes, the Fund may temporarily hold all or a portion
of its assets in short-term obligations such as bank debt instruments
(certificates of deposit, bankers' acceptances and time deposits), commercial
paper or repurchase agreements collateralized by U.S. Government obligations.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities include
GNMA Certificates, FHLMC Certificates, FNMA Certificates and collateralized
mortgage obligations ("CMOs").
GNMA Certificates are U.S. Government obligations guaranteed by the
Government National Mortgage Association (the GNMA) and are mortgage-backed
securities representing part ownership of a pool of mortgage loans. The pool of
mortgage loans underlying the GNMA Certificates is assembled by the issuer,
usually a private mortgage lender. The loans in the pool, issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations, are
either insured by the Federal Housing Administration or the Farmers' Home
Administration or guaranteed by the Veterans Administration. If the pool is
approved by the GNMA, GNMA Certificates are issued and sold to investors such as
the Fund. The Fund will invest only in GNMA Certificates of the pass-through
type. This type of GNMA Certificate entitles the holder to receive all interest
and principal payments owed on the pool of mortgage loans, net of fees paid to
the issuer and the GNMA. In addition, the timely payment of interest and
principal on this type of GNMA Certificate is guaranteed by the GNMA, even in
the event of the foreclosure of underlying mortgage loans. The GNMA guarantee is
backed by the full faith and credit of the United States. However, shares of the
Fund are not guaranteed or backed by either the GNMA or the United States
Government.
FHLMC Certificates are U.S. Government obligations guaranteed by the
Federal Home Loan Mortgage Corporation (the FHLMC). As with GNMA Certificates,
FHLMC Certificates are pass-through mortgage-backed securities representing part
ownership of a pool of mortgage loans. The FHLMC generally purchases such
mortgage loans from those lenders insured by the Federal Deposit Insurance
Corporation, or Federal Housing Administration mortgagees approved by the
Department of Housing and Urban Development. The securities and guarantees of
the FHLMC are not backed, directly or indirectly, by the full faith and credit
of the United States.
FNMA Certificates are U.S. Government obligations guaranteed by the
Federal National Mortgage Association (the FNMA). The FNMA is a U.S. Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. The FNMA
purchases residential mortgages from a list of approved sellers, which include
state and federally-chartered savings and loan
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<PAGE>
associations, mutual savings banks, commercial banks, credit unions and mortgage
banks. Pass-through securities issued by the FNMA are not backed by the full
faith and credit of the United States, although the Secretary of the Treasury of
the United States has discretionary authority to lend the FNMA up to $2.25
billion outstanding at any time.
CMOs generally are mortgage-backed obligations that separate mortgage
pools into short-term, medium-term and long-term portions. Each CMO receives
interest owed on the pool of mortgage loans, but principal is usually paid first
to the short-term CMOs, then to medium-term CMOs and then to long-term CMOs.
CMOs usually are issued by investment bankers, the FNMA, and home builders. The
Fund will invest in CMOs which are collateralized by pass-through
mortgage-backed securities issued by the GNMA, the FNMA and the FHLMC, or any
combination thereof. The CMOs in which the Fund invests will evidence interests
in pools of mortgage loans secured by first liens on 1-4 family residential
properties.
Investments in CMOs are subject to the same risks as direct investments
in the underlying mortgage-related securities, including the risks described
below with respect to prepayments of and payments on foreclosures of underlying
mortgage loans. In addition, in the event of a bankruptcy or other default of
the broker or agency issuing the CMO, the Fund could experience both delays in
liquidating its position and losses. The Fund will not invest more than 10% of
its net assets in CMOs for which there is no established market and other
illiquid securities. In addition, pursuant to the position of the staff of the
Securities and Exchange Commission, the Fund will not invest more than 5% of its
total assets in any CMO which is an investment company under the Investment
Company Act of 1940 and will not invest more than 10% of its total assets in all
such CMOs and securities of other investment companies.
The Fund may also invest in stripped mortgage-related securities, which
are derivative multiclass mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped mortgage-related securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
stripped mortgage-backed security will have one class receiving all of the
interest from the mortgage assets (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an
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<PAGE>
IO class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated AAA or Aaa,
and could even lose its entire investment. Although stripped mortgage-related
securities are purchased and sold by institutional investors through many
investment banking firms acting as brokers or dealers, extreme changes in
interest rates may result in illiquid markets for these securities. The Fund
will not invest more than 10% of its net assets in stripped mortgage-backed
securities for which there is no established market and other illiquid
securities. The Fund may invest more than 10% of its net assets in stripped
mortgage-related securities deemed to be liquid if the Adviser determines, under
the direction of the Board of Trustees, that the security can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of the Fund's net asset value per share.
Prepayments of and payments on foreclosures of mortgage loans
underlying a mortgage-related security are passed through to the registered
holder with the regular monthly payments of principal and interest, and have the
effect of reducing future payments. The mortgage loans underlying a
mortgage-related security may be prepaid at any time without penalty. If a
prepayment of a mortgage loan underlying a particular mortgage-related security
occurs, the return to the Fund may be lower if the Fund acquired the security at
a premium over par or higher if the Fund acquired the security at a discount
from par. In addition, prepayments of mortgage loans underlying a particular
mortgage-related security held by the Fund will reduce the market value of the
security to the extent the market value of the security at the time of
prepayment exceeds its par value. In periods of declining mortgage interest
rates, prepayments may occur with increasing frequency because, among other
reasons, mortgagors may be able to refinance outstanding mortgages at lower
interest rates. In general, a decline in interest rates will cause the net asset
value of the Fund to increase to the extent that prepayments do not occur, while
a rise in interest rates will cause the net asset value of the Fund to decrease.
Some of the pass-through mortgage securities in which the Fund invests
may be adjustable rate mortgage securities ("ARMS"). ARMS are collateralized by
adjustable rather than fixed-rate mortgages. The ARMS in which the Fund invests
are actively traded. Generally, adjustable rate mortgages have a specified
maturity date and amortize principal over their life. In periods
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<PAGE>
of declining interest rates there is a reasonable likelihood that ARMS will
experience increased rates of prepayment of principal. However, the major
difference between ARMS and fixed-rate mortgage securities is that the interest
rate can and does change in accordance with movements in a particular,
pre-specified, published interest rate index. There are two main categories of
indices: those based on U.S. Treasury obligations and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. The amount of interest on an adjustable rate mortgage is
calculated by adding a specified amount to the applicable index, subject to
limitations on the maximum and minimum interest that is charged during the life
of the mortgage or to maximum and minimum changes to that interest rate during a
given period. Because the interest rate on ARMS generally moves in the same
direction as market interest rates, the market value of ARMS tends to be more
stable than that of fixed-rate mortgage securities and ARMS tend to experience
lower rates of prepayment of principal than fixed-rate mortgage securities.
However, ARMS are also less likely than fixed-rate mortgage securities of
comparable quality and maturity to increase significantly in value during
periods of declining interest rates.
Additional Investment Information
---------------------------------
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in all types of
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes, and Treasury bonds. U.S. Treasury obligations also
include the separate principal and interest components of U.S. Treasury
obligations which are traded under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Agencies or instrumentalities
established by the United States Government include the Federal Home Loan Banks,
the Federal Land Bank, the GNMA, the FNMA, the FHLMC, the Student Loan Marketing
Association, the Small Business Administration, the Bank for Cooperatives, the
Federal Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm
Credit Banks, the Federal Agricultural Mortgage Corporation, the Resolution
Funding Corporation, the Financing Corporation of America and the Tennessee
Valley Authority. Some of these securities are supported by the full faith and
credit of the United States Government while others are supported only by the
credit of the agency or instrumentality, which may include the right of the
issuer to borrow from the United States Treasury. In the case of securities not
backed by the full faith and credit
- 8 -
<PAGE>
of the United States, the investor must look principally to the agency issuing
or guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States in the event the agency or
instrumentality does not meet its commitments. Shares of the Fund are not
guaranteed or backed by the United States Government.
DELAYED SETTLEMENT TRANSACTIONS. The Fund may trade securities on a
"when-issued" or "to-be-announced" basis. Securities issued on a when-issued or
to-be-announced basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. In a to-be-announced transaction, the
Fund has committed to purchasing or selling securities for which all specific
information is not yet known at the time of the trade, particularly the face
amount in transactions involving mortgage-related securities. The Fund will only
make commitments to purchase securities on a when- issued or to-be-announced
basis with the intention of actually acquiring the securities, but the Fund may
sell these securities before the settlement date if it is deemed advisable as a
matter of investment strategy or in order to meet its obligations, although it
would not normally expect to do so. The Fund will not enter into a delayed
settlement transaction which settles in more than 120 days.
Purchases of securities on a when-issued or to-be-announced basis are
subject to market fluctuations and their current value is determined in the same
manner as other portfolio securities. When effecting such purchases, a
segregated account of cash or liquid securities of the Fund in an amount
sufficient to make payment for the portfolio securities to be purchased will be
maintained with the Fund's Custodian at the trade date and valued daily at
market for the purpose of determining the adequacy of the securities in the
account. If the market value of segregated securities declines, additional cash
or liquid securities will be segregated on a daily basis so that the market
value of the Fund's segregated assets will equal the amount of the Fund's
commitments to purchase when-issued securities and securities on a
to-be-announced basis. The Fund's purchase of securities on a when-issued or
to-be-announced basis may increase its overall investment exposure and involves
a risk of loss if the value of the securities declines prior to the settlement
date or if the broker-dealer selling the securities fails to deliver after the
value of the securities has risen.
REPURCHASE AGREEMENTS. The Fund may enter into 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.
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<PAGE>
In the event of a bankruptcy or other default of the seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
security and losses. To minimize these possibilities, the Fund intends to enter
into repurchase agreements only with its Custodian, banks having assets in
excess of $10 billion and the largest and, in the Board of Trustees' judgment,
most creditworthy primary U.S. Government securities dealers. The Fund will only
enter into repurchase agreements which are collateralized by U.S. Government
obligations. Collateral for repurchase agreements is held in safekeeping in the
customer-only account of the Funds' Custodian at the Federal Reserve Bank. At
the time the Fund enters into a repurchase agreement, the value of the
collateral, including accrued interest, will equal or exceed the value of the
repurchase agreement and, in the case of a repurchase agreement exceeding one
day, the seller agrees to maintain sufficient collateral so the value of the
underlying collateral, including accrued interest, will at all times equal or
exceed the value of the repurchase agreement. The Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 10% of the value of its net assets would be invested in such
securities and other illiquid securities.
BORROWING AND PLEDGING. The Fund may borrow money from banks or other
persons. The Fund may borrow money in an amount not exceeding 10% of its total
assets as a temporary measure for extraordinary or emergency purposes and may
pledge assets in connection with borrowings, but will not pledge more than 10%
of its total assets. The Fund will not make any additional purchases of
portfolio securities if outstanding borrowings exceed 5% of the value of its
total assets. These policies do not preclude the Fund from entering into reverse
repurchase transactions (see below), provided that the Fund has asset coverage
of 300% of all its reverse repurchase commitments pursuant to such transactions
and all other outstanding borrowings of the Fund. Borrowings of the Fund,
including its current obligations under reverse repurchase agreements, will not
exceed one-third of the current market value of the Fund's total assets (less
all its liabilities other than obligations under reverse repurchase agreements
and other borrowings).
Borrowing magnifies the potential for gain or loss on the portfolio
securities of the Fund and, therefore, if employed, increases the possibility of
fluctuation in its net asset value. This is the speculative factor known as
leverage. To reduce the risks of borrowing, the Fund will limit its borrowings
as described above. The Fund's policies on borrowing and pledging are
fundamental policies which may not be changed without the affirmative vote of a
majority of its outstanding shares.
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<PAGE>
REVERSE REPURCHASE TRANSACTIONS. The Fund may enter into reverse
repurchase transactions. A reverse repurchase transaction involves the sale of a
money market instrument held by the Fund coupled with an agreement by the Fund
to repurchase the instrument at a stated price, date and interest payment. The
Fund will use the proceeds of a reverse repurchase transaction to purchase other
money market instruments which either mature at a date simultaneous with or
prior to the expiration of the reverse repurchase agreement or which are held
under an agreement to resell maturing as of that time.
The Fund will enter into a reverse repurchase transaction only when the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. Under the
Investment Company Act of 1940, reverse repurchase transactions may be
considered to be borrowings by the seller. The Fund may not enter into a reverse
repurchase transaction if, as a result, its current obligations under such
agreements and all of its other outstanding borrowings would exceed one-third of
the current market value of the Fund's total assets (less all its liabilities
other than obligations under such agreements and other borrowings). The Fund may
enter into reverse repurchase transactions with banks or broker-dealers. Entry
into such transactions requires the creation and maintenance of a segregated
account with the Fund's Custodian consisting of cash and/or liquid securities.
PORTFOLIO TURNOVER. The Fund's rate of portfolio turnover will depend
upon market and other conditions, and it will not be a limiting factor when
portfolio changes are deemed necessary or appropriate by the Adviser. The
portfolio turnover of the Fund may be greater than that of many other mutual
funds. High turnover involves correspondingly greater commission expenses and
transaction costs and increases the possibility that the Fund would not qualify
as regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund will not qualify as a regulated investment company if it derives 30% or
more of its gross income from gains (without offset for losses) from the sale or
other disposition of securities held for less than three months. High turnover
may result in the Fund recognizing greater amounts of income and capital gains,
which would increase the amount of income and capital gains which the Fund must
distribute to its shareholders in order to maintain its status as a regulated
investment company and to avoid the imposition of federal income or excise
taxes (see "Taxes").
- 11 -
<PAGE>
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in the 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 dealers having a sales agreement with the
Trust's principal underwriter, Countrywide Investments, Inc. (the "Adviser").
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 "Government Mortgage Fund." An account application is included in
this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not issued. The Trust and the
Adviser reserve the rights to limit the amount of investments and to refuse to
sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, the Transfer Agent and certain of their
affiliates, excluding such 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.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services
described in this section to the Transfer Agent at the address or numbers
listed below.
After an initial investment, all investors are considered participants
in the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Fund over a period of years and permits the automatic
reinvestment of dividends and distributions of the Fund in additional shares
without a sales load.
- 12 -
<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 Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354.
The check should be made payable to the Fund.
Under the Open Account Program, you may also purchase shares of the
Fund by bank wire. Please telephone the Transfer Agent (Nationwide call
toll-free 800-543-0407; in Cincinnati call 629-2050) for instructions. 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 Fund to a current shareholder, such broker-dealer will receive the
concessions described above with respect to additional investments by the
shareholder.
Shares of the Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Adviser 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 Adviser by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by the
Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's public
offering price. Direct investments received by the Transfer Agent after 4:00
p.m., Eastern time, and orders received from dealers after 5:00 p.m., Eastern
time, are confirmed at the public offering price next determined on the
following business day.
The public offering price of shares of the Fund applicable to investors
whose accounts are opened after January 31, 1995 is the next determined net
asset value per share plus a sales load as shown in the following table.
- 13 -
<PAGE>
Dealer
Reallowance
Sales Load as % of: as% of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- -------------------- ------- -------- -----
Less than $100,000 2.00% 2.04% 1.80%
$100,000 but less than $250,000 1.50 1.52 1.35
$250,000 but less than $500,000 1.00 1.01 .90
$500,000 but less than $1,000,000 .75 .76 .65
$1,000,000 or more None* None*
The public offering price of shares of the Fund applicable to investors
whose accounts were opened prior to February 1, 1995 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 $500,000 1.00% 1.01% 1.00%
$500,000 but less than $1,000,000 .75 .76 .75
$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 Adviser to a participating unaffiliated dealer and the
shares are redeemed within twelve months from the date of purchase.
Under certain circumstances, the Adviser may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Adviser retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For initial purchases of $1,000,000 or more made after October 1, 1995
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 Adviser to
participating unaffiliated dealers through whom such purchases are effected. In
determining a dealer's eligibility for such commission, purchases of shares of
the Fund may be aggregated with concurrent purchases of Class A shares of other
funds of Countrywide Investments. Dealers should contact the Adviser concerning
the applicability and calculation of the dealer's commission in the
- 14 -
<PAGE>
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 Charge for Certain
Purchases of Shares" below.
In addition to the compensation otherwise paid to securities dealers,
the Adviser may from time to time pay from its own resources additional cash
bonuses or other incentives to selected dealers in connection with the sale of
shares of the Fund. On some occasions, such bonuses or incentives may be
conditioned upon the sale of a specified minimum dollar amount of the shares of
the Fund and/or other funds of Countrywide Investments during a specific period
of time. Such bonuses or incentives may include financial assistance to dealers
in connection with conferences, sales or training programs for their employees,
seminars for the public, advertising, sales campaigns and other dealer-sponsored
programs or events.
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 Adviser with
the amount of his current purchases in order to take advantage of the reduced
sales loads set forth in the tables above. Purchases made in any load fund
distributed by the Adviser 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 Adviser 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 the 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 Adviser. 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 Fund. To make a 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
- 15 -
<PAGE>
proceeds of the shares redeemed, endorsed to the order of the Fund. The
redemption of shares of the other fund is, for federal income tax purposes, a
sale on which 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 Fund at net asset value. To the extent permitted by regulatory authorities,
a bank trust department may charge fees to clients for whose account it
purchases shares at net asset value. Federal and state credit unions may also
purchase shares at net asset value.
In addition, shares of the Fund may be purchased at net asset value by
broker-dealers who have a sales agreement with the Adviser, and their registered
personnel and employees, including members of the immediate families of such
registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
shares of the Fund at net asset value if their investment adviser or financial
planner has made arrangements to permit them to do so with the Trust and the
Adviser. The investment adviser or financial planner must notify the Transfer
Agent that an investment qualifies as a purchase at net asset value.
Employees, shareholders and customers of Countrywide Credit Industries,
Inc. or any affiliated company, including members of the immediate family of
such individuals and employee benefit plans established by such entities, may
also purchase shares of the Fund at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES.
A contingent deferred sales load is imposed upon certain redemptions of shares
of the Fund (or shares into which such shares were exchanged) purchased at net
asset value in amounts totaling $1 million or more, if the dealer's commission
described above was paid by the Adviser and the shares are redeemed within
twelve months from the date of purchase. The contingent deferred sales load will
be paid to the Adviser and will be equal to .75% of the lesser of (1) the net
asset value at the time of purchase of the shares being redeemed or (2) the net
asset value of such shares at the time of redemption. In determining whether the
contingent deferred sales load is payable, it is assumed that shares not subject
to the contingent deferred sales load are the first redeemed followed by other
shares held for the longest period of time. The contingent deferred sales load
will not be imposed upon shares representing reinvested dividends or capital
- 16 -
<PAGE>
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 Fund held for at least 12 months will
not be subject to the contingent deferred sales load and an exchange of such
shares into another fund of Countrywide Investments is not treated as a
redemption and will not trigger the imposition of the contingent deferred sales
load at the time of such exchange. A fund will "tack" the period for which such
shares being exchanged were held onto the holding period of the acquired shares
for purposes of determining if a contingent deferred sales load is applicable in
the event that the acquired shares are redeemed following the exchange; however,
the period of time that the redemption proceeds of such shares are held in a
money market fund will not count toward the holding period for determining
whether a contingent deferred sales load is applicable. See "Exchange
Privilege."
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986) 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 Adviser 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.
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.
- 17 -
<PAGE>
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 Fund while the
plan is in effect are generally undesirable because a sales load is incurred
whenever purchases are made.
Tax-Deferred Retirement Plans
------------------------------
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
----------------------
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in the 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 Fund.
- 18 -
<PAGE>
Reinvestment Privilege
----------------------
If you have redeemed shares of the 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 the Fund on each day that the Trust is open
for business by sending a written request to the Transfer Agent. The request
must state the number of shares or the dollar amount to be redeemed and 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 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 by the Fund's Custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from 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.
If a certificate for the shares was issued, it must be delivered to the
Transfer Agent, or the dealer in the case of a wire redemption, duly endorsed or
accompanied by a duly endorsed stock power, with the signature guaranteed by any
of the eligible guarantor institutions outlined above.
- 19 -
<PAGE>
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 Fund by
certified check or wire.
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
At the discretion of the Trust or the Transfer Agent, corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization. The Trust
reserves the right to require 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 Securities and Exchange Commission.
- 20 -
<PAGE>
EXCHANGE PRIVILEGE
- ------------------
Shares of the Fund and of any other fund of Countrywide Investments may
be exchanged for each other.
Shares of the Fund which are not subject to a contingent deferred sales
load may be exchanged for Class A 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 Fund subject to a contingent deferred sales load may be
exchanged, on the basis of relative net asset value per share, for shares of any
other fund which imposes a contingent deferred sales load and for shares of any
fund which is a money market fund. A fund will "tack" the period for which the
shares being exchanged were held onto the holding period of the acquired shares
for purposes of determining if a contingent deferred sales load is applicable in
the event that the acquired shares are redeemed following the exchange. The
period of time that shares are held in a money market fund will not count toward
the holding period for determining whether a contingent deferred sales load is
applicable.
The following are the funds of Countrywide Investments currently
offered to the public. Funds which may be subject to a front-end or contingent
deferred sales load are indicated by an asterisk.
Countrywide Tax-Free Trust Countrywide Strategic Trust
-------------------------- ---------------------------
Tax-Free Money Fund *Government Mortgage Fund
Ohio Tax-Free Money Fund *Equity Fund
California Tax-Free Money Fund *Utility Fund
Florida Tax-Free Money Fund
*Tax-Free Intermediate Term Fund
*Ohio Insured Tax-Free Fund Countrywide Investment Trust
----------------------------
Short Term Government Income Fund
Institutional Government Income 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
- 21 -
<PAGE>
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
- ---------------------------
All of the net investment income of the Fund is declared as a dividend to
shareholders of record on each business day of the Trust and paid monthly. The
Fund expects to distribute any net realized long-term capital gains at least
once each year. Management will determine the timing and frequency of the
distributions of any net realized short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
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.
- 22 -
<PAGE>
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.
An investor who has received in cash any dividend or capital gains
distribution from the 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
- -----
The 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.
The Fund intends to distribute substantially all of its net investment
income and any net realized capital gains to its shareholders. Distributions of
net investment income as well as from net realized short-term capital gains, if
any, are taxable as ordinary income. Since the Fund's investment income is
derived from interest rather than dividends, no portion of such distributions is
eligible for the dividends received deduction available to corporations.
Distributions of net realized long-term capital gains are taxable as long-term
capital gains regardless of how long you have held your Fund shares. Redemptions
and exchanges of shares of the Fund are taxable events on which a shareholder
may realize a gain or loss.
The Fund will mail to each of its shareholders a statement indicating
the amount and federal income tax status of all distributions made during the
year. In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions. Shareholders should consult their tax
advisors about the tax effect of distributions and withdrawals from the Fund and
the use of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
- 23 -
<PAGE>
OPERATION OF THE FUND
- ---------------------
The Fund is a diversified series of Countrywide Strategic Trust, an
open-end management investment company organized as a Massachusetts business
trust on November 18, 1982. The Board of Trustees supervises the business
activities of the Trust. Like other mutual funds, the Trust retains various
organizations to perform specialized services for the Fund.
The Trust retains Countrywide Investments, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202 (the "Adviser"), to manage the Fund's investments and its
business affairs. The Adviser was organized in 1974 and is also the investment
adviser to two other series of the Trust, five series of Countrywide Investment
Trust and six series of Countrywide Tax-Free Trust. The Adviser is an indirect
wholly-owned subsidiary of Countrywide Credit Industries, Inc., a New York Stock
Exchange listed company principally engaged in the business of residential
mortgage lending. The Fund pays the Adviser a fee equal to the annual rate of
.75% of the average value of its daily net assets up to $200 million; .7% of
such assets from $200 million to $500 million; and .5% of such assets in excess
of $500 million.
Scott Weston, Assistant Vice President-Investments of the Adviser, is
primarily responsible for managing the portfolio of the Fund. Mr. Weston has
been employed by the Adviser since 1992 and has been managing the Fund's
portfolio since March 1996.
The Fund is responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio (the "Transfer Agent"), an indirect wholly-owned subsidiary of
Countrywide Credit Industries, Inc., to serve as the Fund's transfer agent,
dividend paying agent and shareholder service agent.
- 24 -
<PAGE>
The Transfer Agent also provides accounting and pricing services to the
Fund. The Transfer Agent receives a monthly fee from the Fund for calculating
daily net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, the Transfer Agent has been retained by the Adviser to
assist the Adviser in providing administrative services to the Fund. In this
capacity, the Transfer Agent supplies executive, administrative and regulatory
services, supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission and state securities authorities. The Adviser
(not the Fund) pays the Transfer Agent a fee for these administrative services
equal to the annual rate of .1% of the average value of the Fund's daily net
assets.
The Adviser serves as principal underwriter for the Fund and, as such,
is the exclusive agent for the distribution of shares of the Fund. Angelo R.
Mozilo, Robert H. Leshner, Robert G. Dorsey and John F. Splain are officers of
both the Trust and the Adviser.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Fund as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Fund. Subject to the requirements of the
Investment Company Act of 1940 and procedures adopted by the Board of Trustees,
the Fund may execute portfolio transactions through any broker or dealer and pay
brokerage commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or (iii) an
affiliated person of which is an affiliated person of the Trust or the Adviser.
Shares of the Fund have equal voting rights and liquidation rights. The
Fund shall vote separately on matters submitted to a vote of the shareholders
except in matters where a vote of all series of the Trust in the aggregate is
required by the Investment Company Act of 1940 or otherwise. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon the removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
- 25 -
<PAGE>
Amivest Corporation, P.O. Box 370 Cooper Station, New York, New York, may
be deemed to control the Fund by virtue of the fact that it owns of record more
than 25% of the Fund's shares as of the date of this Prospectus.
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Fund has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including payments to securities dealers and others who are engaged in
the sale of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of Fund shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by the Transfer Agent; expenses of
formulating and implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of preparing,
printing and distributing sales literature and prospectuses and statements of
additional information and reports for recipients other than existing
shareholders of the Fund; expenses of obtaining such information, analyses and
reports with respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and any other expenses related to the
distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is
.25% of the Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by the
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Adviser after the date the Plan
terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass- Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on
- 26 -
<PAGE>
the Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Fund, no preference will be shown for
such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules require fund-level accounting in which all sales charges -
front-end load, 12b-1 fees or contingent deferred load - terminate when a
percentage of gross sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
On each day that the Trust is open for business, the public offering
price (net asset value plus applicable sales load) of the shares of the Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange, currently 4:00 p.m., Eastern time. The Trust is open for
business on each day the New York Stock Exchange is open for business and on any
other day when there is sufficient trading in the Fund's investments that its
net asset value might be materially affected. The net asset value per share of
the Fund is calculated by dividing the sum of the value of the securities held
by the Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund, rounded
to the nearest cent.
The Fund's portfolio securities for which market quotations are readily
available are valued at their most recent bid prices as obtained from one or
more of the major market makers for such securities. Securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
PERFORMANCE INFORMATION
- -----------------------
From time to time, the Fund may advertise its "average annual total
return." The Fund may also advertise "yield." Both yield and average annual
total return figures are based on historical earnings and are not intended to
indicate future performance.
- 27 -
<PAGE>
The "average annual total return" of the Fund refers to the average
annual compounded rates of return over the most recent 1, 5 and 10 year periods
(which periods will be stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions and the
deduction of the current maximum sales load from the initial investment. The
Fund may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. A nonstandardized quotation of total return may
also indicate average annual compounded rates of return over periods other than
those specified for "average annual total return." These nonstandardized returns
do not include the effect of the applicable sales load which, if included, would
reduce total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's "average annual total return" as described above.
The "yield" of the Fund is computed by dividing the net investment
income per share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period.
From time to time, the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as determined by Lipper, or recognized
indicators. In connection with a ranking, the Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.
- 28 -
<PAGE>
Further information about the Fund's performance is contained in the
Trust's 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.
- 29 -
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT NO. _____________________
Account Application (For Fund Use Only)
<S> <C> <C> <C>
Government Mortgage Fund (8) FOR BROKER/DEALER USE ONLY
Firm Name:_____________________________
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
========================================================================================================================
Initial Investment of $_______________________
[] Check or draft enclosed payable to the Fund.
[] 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 your 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.
=======================================================================================================================
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 Fund's 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 Fund 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, Signature of Joint Owner, if Any
Trustee, etc.
________________________________________________ ____________________________________________________
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)
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 Fund.
ABA Routing Number______________________________
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 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 Fund for purchase of shares of the 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 Fund to its 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 Fund 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 Fund may be terminated by thirty (30) days written notice from
either party to the other.
========================================================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund)
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):
[] 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 Countywide 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
========================================================================================================================
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. Bodgon, M.D.
John R. Delfino
H. Jerome Lerner
Robert H. Leshner
Angelo R. Mozilo
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
INVESTMENT ADVISER
COUNTRYWIDE INVESTMENTS, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
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
- 30 -
<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 FUND .........................................
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.
- 31 -
<PAGE>
PROSPECTUS
August 1, 1997
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
EQUITY FUND
UTILITY FUND
The Equity Fund and the Utility Fund (individually a "Fund" and
collectively the "Funds") are two separate series of Countrywide Strategic
Trust.
The EQUITY FUND seeks long-term growth of capital, current income and
growth of income by investing primarily in dividend-paying common stocks.
The UTILITY FUND seeks a high level of current income by investing
primarily in securities of public utilities. Capital appreciation is a
secondary objective.
Each Fund offers two classes of shares: Class A shares (sold subject to
a maximum 4% front-end sales load and a 12b-1 fee of up to .25% of average daily
net assets) and Class C shares (sold subject to a 1% contingent deferred sales
load for a one-year period and a 12b-1 fee of up to 1% of average daily net
assets). Each Class A and Class C share of a Fund represents identical interests
in the investment portfolio of such Fund and has the same rights, except that
(i) Class C shares bear the expenses of higher distribution fees, which will
cause Class C shares to have a higher expense ratio and to pay lower dividends
than those related to Class A shares; (ii) certain other class specific expenses
will be borne solely by the class to which such expenses are attributable; and
(iii) each class has exclusive voting rights with respect to matters relating to
its own distribution arrangements.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
Countrywide Investments, Inc. (the "Adviser") manages the Funds'
investments and their business affairs.
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 August 1, 1997 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling one of the numbers listed below.
- -------------------------------------------------------------------------------
For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . 800-543-0407
Cincinnati . . . . . . . . . . . . . . . . . . . . . 513-629-2050
- -------------------------------------------------------------------------------
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.
- 2 -
<PAGE>
EXPENSE INFORMATION
- ------------------- Class A Class C
Shareholder Transaction Expenses Shares Shares
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . 4% None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price) . . . None* 1%
Sales Load Imposed on Reinvested Dividends . . . . None None
Exchange Fee . . . . . . . . . . . . . . . . . . . None None
Redemption Fee . . . . . . . . . . . . . . . . . . None** 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
Adviser to a participating unaffiliated dealer.
** A wire transfer fee is charged by the Funds' Custodian in the case of
redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Equity Fund Utility Fund
Class A Class C Class A Class C
Shares Shares Shares Shares
Management Fees .61(A) .61%(A) .75% .75%
12b-1 Fees(B) .01% .22% .12% .46%
Other Expenses .63% 1.17% .38% .79%
----- ----- ---- ----
Total Fund Operating Expenses 1.25%(C) 2.00%(C) 1.25% 2.00%
===== ===== ====== =====
(A) Absent waivers of management fees, such fees would have been .75% for the
fiscal year ended March 31, 1997.
(B) Class A shares may incur 12b-1 fees in an amount up to .25% of average
net assets and Class C shares may incur 12b-1 fees in an amount up to
1.00% of average net assets. 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 and expense reimbursements by the
Adviser, total Fund operating expenses would have been 1.43% and 2.14%
for Class A shares and Class C shares, respectively, for the fiscal year
ended March 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 during the most recent fiscal year. THE EXAMPLE BELOW SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example
You would pay the following Class A Class C
expenses on a $1,000 Shares Shares
------- ------
investment, assuming (1)
5% annual return and (2) 1 Year $ 52 $ 30
redemption at the end of 3 Years 78 63
each time period: 5 Years 106 108
10 Years 185 233
- 2 -
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The following information, which has been audited by Arthur Andersen LLP,
is an integral part of the audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of March
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>
EQUITY FUND - CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================================
FROM DATE OF
PUBLIC OFFERING
(AUG. 2, 1993)
YEAR ENDED MARCH 31, THROUGH
1997 1996 1995 MARCH 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 12.45 $ 9.84 $ 9.26 $ 10.02
--------------- --------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.12 0.13 0.15 0.08
Net realized and unrealized gains (losses) on
investments........................................ 1.35 2.60 0.59 (0.34)
--------------- --------------- --------------- ---------------
Total from investment operations.......................... 1.47 2.73 0.74 (0.26)
--------------- --------------- --------------- --------------
Less distributions:
Dividends from net investment income................... ( 0.12 ) (0.12) (0.16) (0.08)
Distributions from net realized gains.................. ( 0.04) -- -- (0.42)
---------------- --------------- --------------- ---------------
Total distributions....................................... ( 0.16) (0.12) ( 0.16 ) (0.50)
--------------- --------------- --------------- ----------------
Net asset value at end of period.......................... $ 13.76% $ 12.45 $ 9.84 $ 9.26
================ =============== =============== ===============
Total return(A) .......................................... 11.82% 27.90% 8.07% (3.98%)(D)
=============== =============== =============== ===============
Net assets at end of period (000's)....................... $ 14,983 $ 8,502 $ 4,300 $ 3,346
=============== =============== =============== ================
Ratio of expenses to average net assets(B) .............. 1.25% 1.25% 1.25% 1.24% (D)
Ratio of net investment income to average net assets ..... 0.91% 1.06% 1.57% 0.82% (D)
Portfolio turnover rate................................... 38% 38% 159% 109% (D)
Average commission rate per share(C)...................... $ 0.1199
<FN>
(A) The total returns shown do not include the effect of applicable sales
loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 1.43%, 2.02%, 1.94% and
2.04%(D) for the periods ended March 31, 1997, 1996, 1995 and 1994, respectively.
(C) Beginning with the year ended March 31, 1997, the Fund is required to disclose its
average commission rate per share for security trades on which commissions are
charged.
(D) Annualized.
- 3 -
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==================================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR ENDED MARCH 31, (JUNE 7, 1993)
------------------------------------------------- THROUGH
1997 1996 1995 MARCH 31, 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 12.46 $ 9.86 $ 9.26 $ 10.00
--------------- --------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.02 0.05 0.10 0.03
Net realized and unrealized gains (losses) on
investments......................................... 1.35 2.60 0.57 ( 0.32)
---------------- --------------- --------------- ---------------
Total from investment operations.......................... 1.37 2.65 0.67 ( 0.29 )
----------------- --------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.02) ( 0.05 ) ( 0.07 ) ( 0.03 )
Distributions from net realized gains.................. ( 0.04) -- -- ( 0.42 )
------------------ --------------- --------------- ---------------
Total distributions....................................... ( 0.06) ( 0.05 ) ( 0.07 ) ( 0.45 )
------------------ --------------- --------------- ---------------
Net asset value at end of period.......................... $ 13.77 $ 12.46 $ 9.86 $ 9.26
=============== =============== =============== =================
Total return(A) .......................................... 11.01% 26.90% 7.32% ( 3.58%)(D)
=============== =============== =============== ==================
Net assets at end of period (000's)....................... $ 2,770 $ 2,436 $ 1,995 $ 5,857
=============== =============== =============== ==================
Ratio of expenses to average net assets(B) .............. 2.00% 2.00% 2.00% 1.94% (D)
Ratio of net investment income to average net assets ..... 0.15% 0.38% 0.68% 0.58% (D)
Portfolio turnover rate................................... 38% 38% 159% 109% (D)
Average commission rate per share(C)...................... $ 0.1199
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) The total returns shown do not include the effect of applicable sales
loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 2.14%, 2.70%, 2.50% and
2.33%(D) for the periods ended March 31, 1997, 1996, 1995 and 1994, respectively.
(C) Beginning with the year ended March 31, 1997, the Fund is required to disclose its
average commission rate per share for security trades on which commissions are
charged.
(D) Annualized.
</FN>
</TABLE>
<PAGE>
- 4 -
<TABLE>
UTILITY FUND - CLASS A
Per Share Data for a Share Outstanding Throughout Each Period
Period
Year Ended March 31, Ended
--------------------------------------------------------------- March 31,
1997 1996 1995 1994 1993 1992 1991 1990(A)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............ $12.24 $10.47 $ 10.52 $ 11.34 $ 10.58 $ 10.01 $ 9.75 $ 9.53
-------- --------- --------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income.......................... 0.46 0.47 0.43 0.37 0.48 0.51 0.61 0.43
Net realized and unrealized gains (losses)
on investments............................... 0.22 1.77 (0.05) (0.59) 1.62 0.75 0.30 0.22
--------- --------- --------- --------- --------- --------- --------- --------
Total from investment operations.................. 0.68 2.24 0.38 (0.22) 2.10 1.26 0.91 0.65
--------- --------- --------- --------- --------- --------- --------- -------
Less distributions:
Dividends from net investment income (B) ...... (0.46) (0.47) (0.43) (0.37) (0.48) (0.51) (0.61) (0.43)
Distributions from net realized gains(B) ...... (0.02) -- -- (0.23) (0.86) (0.18) (0.04) --
---------- ---------- --------- --------- --------- --------- ------- ------
Total distributions............................... (0.48) (0.47) (0.43) (0.60) (1.34) (0.69) (0.65) (0.43)
---------- --------- --------- --------- --------- --------- --------- ------
Net asset value at end of period.................. $12.44 $12.24 $ 10.47 $ 10.52 $ 11.34 $ 10.58 $ 10.01 $ 9.75
========== ========= ========= ========= ========= ======= ======== =======
Total return(C) .................................. 5.61% 21.65% 3.68% ( 2.11%) 20.64% 11.84% 9.23% 8.56%(F)
=========== ========= ========= ========= ========= ========= ======== ======
Net assets at end of period (000's)............... $ 36,087 $40,424 $40,012 $ 40,373 $ 42,051 $29,398 $11,214 $ 5,752
=========== ========= ========= ========= ========= ========= ======== ======
Ratio of expenses to average net assets(D) ....... 1.25% 1.25% 1.25% 1.25% 1.40% 1.63% 1.80% 0.57%(F)
Ratio of net investment income to
average net assets(D) ........................ 3.65% 3.97% 4.06% 3.32% 4.41% 4.83% 6.25% 6.87%(F)
Portfolio turnover rate........................... 3% 11% 17% 91% 137% 33% 61% 119%(F)
Average commission rate per share(E).............. $ 0.1200
<FN>
(A) Represents the period from the initial public offering of shares (August 15,
1989) through March 31, 1990.
(B) For the periods ended prior to March 31, 1993, the per share data was
calculated using average shares outstanding throughout each period, whereas
for the years ended March 31, 1993 and thereafter, the per share data was
calculated based upon actual distributions. Actual distributions per share
based upon the actual number of shares outstanding on the ex-dividend dates
of distributions amounted to $.48, $.57, and $.29 from net investment income
for the periods ended March 31, 1992, 1991 and 1990, respectively, and $.13
and $.03 from net realized capital gains for the years ended March 31, 1992
and 1991, respectively.
(C) The total returns shown do not include the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.91% and 2.79%(F) for the
periods ended March 31, 1991 and 1990, respectively.
(E) Beginning with the year ended March 31, 1997, the Fund is required to
disclose its average commission rate per share for security trades on
which commissions are charged.
(F) Annualized.
</FN>
</TABLE>
<PAGE>
UTILITY FUND - CLASS C
<TABLE>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR YEAR (AUG. 2, 1993)
ENDED ENDED ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 12.23 $ 10.46 $ 10.51 $ 11.55
--------------- --------------- --------------- --------------
Income from investment operations:
Net investment income.................................. 0.35 0.37 0.35 0.23
Net realized and unrealized gains (losses) on
investments......................................... 0.24 1.78 ( 0.04) (0.81)
--------------- --------------- --------------- ----------------
Total from investment operations.......................... 0.59 2.15 0.31 (0.58)
--------------- --------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... (0.37) (0.38) ( 0.36 ) ( 0.23 )
Distributions from net realized gains.................. (0.02) -- -- ( 0.23 )
--------------- --------------- --------------- ---------------
Total distributions....................................... (0.39) (0.38) ( 0.36 ) ( 0.46 )
--------------- --------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.43 $ 12.23 $ 10.46 $ 10.51
=============== =============== =============== ===============
Total return(A) .......................................... 4.82% 20.78% 3.00% ( 7.89%)(C)
=============== =============== =============== ===============
Net assets at end of period (000's)....................... $ 3,099 $ 3,686 $ 3,599 $ 1,742
=============== =============== =============== ================
Ratio of expenses to average net assets .................. 2.00% 2.00% 2.00% 2.00%(C)
Ratio of net investment income to average net assets ..... 2.89% 3.19% 3.41% 2.19%(C)
Portfolio turnover rate................................... 3% 11% 17% 91%(C)
Average commission rate per share(B)...................... $ 0.1200
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Beginning with the year ended March 31, 1997, the Fund is required to disclose
its average commission rate per share for security trades on which commissions
are charged.
(C) Annualized.
- 5 -
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- ----------------------------------
The Equity Fund and the Utility Fund are two series of Countrywide
Strategic Trust (the "Trust"), each with its own portfolio and investment
objective(s). Neither Fund is intended to be a complete investment program, and
there is no assurance that the investment objectives of either Fund can be
achieved. Each Fund's investment objectives may be changed by the Board of
Trustees without shareholder approval, but only after notification has been
given to shareholders and after this Prospectus has been revised accordingly. If
there is a change in a Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. Unless otherwise indicated, all investment
practices and limitations of the Funds are nonfundamental policies which may be
changed by the Board of Trustees without shareholder approval.
Equity Fund
-----------
The Equity Fund seeks long-term growth of capital, current income and
growth of income by investing primarily in dividend-paying common stocks. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in common stocks. However, the Fund may, in seeking its investment objective,
invest in securities convertible into common stocks (such as convertible bonds,
convertible preferred stocks and warrants) which are rated at the time of
purchase in the four highest grades assigned by Moody's Investors Service, Inc.
(Aaa, Aa, A or Baa) or Standard & Poor's Ratings Group (AAA, AA, A or BBB) or
unrated securities determined by the Adviser to be of comparable quality.
Preferred stocks and bonds rated Baa or BBB have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to pay principal and interest or to pay the preferred stock
obligations than is the case with higher grade securities. Subsequent to its
purchase by the Fund, a security may cease to be rated or its rating may be
reduced below Baa or BBB, and the Adviser will consider such an event to be
relevant in its determination of whether the Fund should continue to hold such
security. The Fund will invest in securities of companies having at least three
years operating history.
The Adviser, in selecting securities for purchase, will employ a
quantitative screening strategy, searching for securities which the Adviser
believes offer above market growth at below market pricing. The Adviser attempts
to isolate such securities, out of its current database of approximately 1,600
securities which meet its specific criteria, based upon the following
characteristics: low relative price-earnings ratio valuation; consistent
profitability; positive earnings estimate trends; positive market trends; and
price neglect.
- 6 -
<PAGE>
The Fund may from time to time invest a portion of its assets in small,
unseasoned companies. While smaller companies generally have potential for rapid
growth, they often involve higher risks because they lack the management
experience, financial resources, product diversification and competitive
strengths of larger corporations. In addition, in many instances, the securities
of smaller companies are traded only over-the-counter or on a regional
securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations. When
making large sales, the Fund may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings and
other factors beyond the control of the Adviser. As a result, the yield and net
asset value of the Fund will fluctuate.
The Fund may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. To the extent that the Fund invests in
such securities, such investments may be subject to special risks, including
future political and economic developments and the possibility of seizure or
nationalization of companies, imposition of withholding taxes on income,
establishment of exchange controls or adoption of other restrictions, that might
affect an investment adversely.
When the Adviser believes substantial price risks exist for common stocks
and securities convertible into common stocks because of uncertainties in the
investment outlook or when in the judgment of the Adviser it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper, U.S. Government obligations
having a maturity of less than one year or repurchase agreements collateralized
by U.S. Government obligations. The Fund may, in seeking its objective,
temporarily invest all or a portion of its assets in long-term U.S. Treasury
obligations.
- 7 -
<PAGE>
Utility Fund
------------
The Utility Fund seeks a high level of current income. Capital appreciation
is a secondary objective. The Fund seeks to achieve its investment objectives by
investing primarily in securities of public utilities. The Fund may invest in
any type of security; however, under normal circumstances, at least 65% of its
total assets will be invested in securities of public utilities.
Under normal market conditions, the Fund will invest primarily in common,
preferred and convertible preferred stocks of public utilities that currently
pay dividends. The Fund may also invest in investment grade bonds of public
utilities. The Fund may purchase preferred stocks and bonds which are rated at
the time of purchase in the four highest grades assigned by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Ratings Group (AAA, AA, A
or BBB) or unrated securities determined by the Adviser to be of comparable
quality. Preferred stocks and bonds rated Baa or BBB have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to pay principal and interest or to
pay the preferred stock obligations than is the case with higher grade
securities. Subsequent to its purchase by the Fund, a security may cease to be
rated or its rating may be reduced below Baa or BBB, and the Adviser will
consider such an event to be relevant in its determination of whether the Fund
should continue to hold such security. The public utilities industry includes
companies that produce or supply electric power, natural gas, water, sanitary
services, telecommunications and other communications services (but not radio or
television broadcasters) for public use or consumption. The Fund may invest in
any combination of public utility companies. The Fund will invest in securities
of companies having at least three years operating history.
Historically, equity securities of public utilities have generated higher
yields than have equity securities of companies in other industries. The public
utilities industry has shown a tendency for steady increases in dividends
because the industry's profits have not been eroded by competition to the same
extent as other industries. In selecting securities for the Fund, the Adviser
will attempt to purchase stocks of public utilities exhibiting the following
characteristics: above average dividend yield; strong potential for dividend
increases; positive cash flow; improving fundamentals; stable financial
condition; and reasonable growth potential.
Investments in equity and debt securities are subject to inherent market
risks and fluctuations in value due to earnings, economic conditions, quality
ratings and other factors beyond the
- 8 -
<PAGE>
control of the Adviser. Debt securities are subject to price fluctuations based
upon changes in the level of interest rates, which will generally result in all
those securities changing in price in the same way, i.e., all those securities
experiencing appreciation when interest rates decline and depreciation when
interest rates rise. As a result, the yield and net asset value of the Fund will
fluctuate.
In addition, the Fund will be subject to the risks associated with the
public utility industry, including rate regulation by governmental agencies,
which may result in difficulties in obtaining an adequate return on invested
capital, in passing on cost increases and in financing large construction
projects. Public utilities furnishing power or other energy related services may
encounter difficulties in obtaining fuel at reasonable prices, shortages of
fuel, energy conservation measures, restrictions on operations and increased
costs and delays attributable to licensing and environmental considerations and
the special risks of constructing and operating nuclear power generating
facilities or other specialized types of facilities. The Fund will limit its
investments so that it will not be a public utility holding company or acquire
public utility company securities in violation of the Public Utility Holding
Company Act of 1935.
For defensive purposes, the Fund may temporarily hold all or a portion of
its assets in short-term obligations such as bank debt instruments (certificates
of deposit, bankers' acceptances and time deposits), commercial paper, U.S.
Government obligations having a maturity of less than one year or repurchase
agreements collateralized by U.S. Government obligations. The Fund may, in
seeking its objective, temporarily invest all or a portion of its assets in
long-term U.S. Treasury obligations.
The Utility Fund may also engage in the following investment techniques,
each of which may involve certain risks:
FOREIGN SECURITIES. The Fund may invest up to 10% of its total assets at
the time of purchase in securities of foreign issuers. When selecting foreign
investments, the Adviser will seek to invest in securities that have investment
characteristics and qualities comparable to the kinds of domestic securities in
which the Fund invests. The Fund may invest in securities of foreign issuers
directly or in the form of sponsored American Depository Receipts. American
Depository Receipts are receipts typically issued by an American bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. Where investments in foreign securities are made in currencies of
foreign countries, the value of the Fund's assets
- 9 -
<PAGE>
as measured in U.S. dollars may be affected favorably or unfavorably by changes
in currency rates and in exchange control regulations. Foreign investments may
be subject to special risks, including future political and economic
developments and the possibility of seizure or nationalization of companies,
imposition of withholding taxes on income, establishment of exchange controls or
adoption of other restrictions, that might affect an investment adversely. The
Fund will not invest in securities of foreign issuers which are not listed on a
recognized domestic or foreign exchange.
OPTIONS. The Fund may write (sell) exchange-listed call options on
securities it owns to earn premium income. When the Fund writes a call option,
it may terminate its obligation by purchasing a call option on the same security
in a closing transaction. For hedging purposes, the Fund may also purchase
exchange-listed put and call options on U.S. Government obligations and
exchange-listed put and call options on interest rate futures contracts (and
sell such options in closing transactions). The aggregate premiums paid for all
options held at any time by the Fund will not exceed 20% of the value of the
Fund's net assets.
Transactions in options involve special risks. The Fund may not be able to
enter into a closing transaction to cancel its obligations with respect to the
options it has written or purchased. If an option purchased by the Fund expires
unexercised, the Fund will lose the premium it paid. In addition, the Fund could
suffer a loss if the premium paid by the Fund in a closing transaction exceeds
the premium income it received. When the Fund writes a call option, its ability
to participate in the capital appreciation of the underlying security is
limited.
In addition to the risks which apply to all options transactions, there are
specific risks relating to options on U.S. Government obligations. Due to the
nature of the market for options on U.S. Government obligations, new expirations
for options on a particular issue held by the Fund may not be available, in
which case the Fund's ability to hedge its portfolio may be limited. Options on
interest rate futures contracts also involve additional risks. For example,
changes in the value of the underlying futures contract will not be fully
reflected in the value of the purchased option. Furthermore, if the Fund engages
in option transactions as part of its hedging strategy, there is the possibility
of imperfect correlation between the movements in prices of the hedging position
and the position being hedged. If a hedge is not fully effective for any reason
including imperfect correlation, the Fund would have been in a better position
if no hedge had been made. In particular,
- 10 -
<PAGE>
the Fund's ability to hedge with options on interest rate futures contracts may
be impaired due to distortion in the anticipated offsetting movements resulting
from differences in the nature of the market involved. Such differences include
differences in the applicable margin requirements, the liquidity of the markets
and the extent of the participation of speculators in the markets. The success
of any hedge will depend upon the Adviser's ability to predict the future
direction of stock prices or interest rates and incorrect predictions by the
Adviser may have an adverse effect on the Fund. In this regard, it should be
noted that the skills and techniques necessary to arrive at such predictions are
different from those needed to predict price changes in individual stocks.
Additional Investment Information
---------------------------------
U.S. GOVERNMENT OBLIGATIONS. "U.S. Government obligations" include
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes, and Treasury bonds. U.S. Treasury obligations also
include the separate principal and interest components of U.S. Treasury
obligations which are traded under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Agencies or instrumentalities
established by the United States Government include the Federal Home Loan Banks,
the Federal Land Bank, the Government National Mortgage Association, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Student Loan Marketing Association, the Small Business Administration, the Bank
for Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing
Bank, the Federal Farm Credit Banks, the Federal Agricultural Mortgage
Corporation, the Resolution Funding Corporation, the Financing Corporation of
America and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the United States Government while
others are supported only by the credit of the agency or instrumentality, which
may include the right of the issuer to borrow from the United States Treasury.
In the case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment, and may not be able to assert a claim
against the United States in the event the agency or instrumentality does not
meet its commitments. Shares of the Funds are not guaranteed or backed by the
United States Government.
- 11 -
<PAGE>
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Repurchase agreements are transactions by which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
time and price, thereby determining the yield during the term of the agreement.
In the event of a bankruptcy or other default of the seller of a repurchase
agreement, a Fund could experience both delays in liquidating the underlying
security and losses. To minimize these possibilities, each Fund intends to enter
into repurchase agreements only with its Custodian, banks having assets in
excess of $10 billion and the largest and, in the Board of Trustees' judgment,
most creditworthy primary U.S. Government securities dealers. Each Fund will
only enter into repurchase agreements which are collateralized by U.S.
Government obligations. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. At the time a Fund enters into a repurchase agreement, the value
of the collateral, including accrued interest, will equal or exceed the value of
the repurchase agreement and, in the case of a repurchase agreement exceeding
one day, the seller agrees to maintain sufficient collateral so the value of the
underlying collateral, including accrued interest, will at all times equal or
exceed the value of the repurchase agreement. A Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 10% (with respect to the Utility Fund) or 15% (with respect to the
Equity Fund) of the value of the net assets of the Fund would be invested in
such securities and other illiquid securities.
BORROWING AND PLEDGING. Each Fund may borrow money from banks or other
persons. Borrowing magnifies the potential for gain or loss on the portfolio
securities of the Funds and, therefore, if employed, increases the possibility
of fluctuation in a Fund's net asset value. This is the speculative factor known
as leverage. To reduce the risks of borrowing, the Funds will limit their
borrowings as described below. Each Fund's policies on borrowing and pledging
are fundamental policies which may not be changed without the affirmative vote
of a majority of its outstanding shares.
The Equity Fund may borrow money in an amount not exceeding 10% of its
total assets as a temporary measure for extraordinary or emergency purposes and
may pledge assets in connection with borrowings, but will not pledge more than
10% of its total assets. The Fund will not make any additional purchases of
portfolio securities if outstanding borrowings exceed 5% of the value of its
total assets.
The Utility Fund may borrow money from banks (provided there is 300% asset
coverage) or from banks or other persons for temporary purposes (in an amount
not exceeding 5% of its total
- 12 -
<PAGE>
assets). The Fund will not make any borrowing which would cause its outstanding
borrowings to exceed one-third of the value of its total assets. The Fund may
pledge assets in connection with borrowings but will not pledge more than
one-third of its total assets. The Fund will not make any additional purchases
of portfolio securities if outstanding borrowings exceed 5% of the value of its
total assets.
LENDING PORTFOLIO SECURITIES. Each Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes a Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that a Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or liquid securities, with the Funds' Custodian in an amount at
least equal to the market value of the loaned securities. Although each Fund
does have the ability to make loans of all of its portfolio securities, it is
the present intention of each Fund, which may be changed without shareholder
approval, to limit the amount of loans of portfolio securities to no more than
25% of its net assets.
PORTFOLIO TURNOVER. The Funds do not intend to use short-term trading as a
primary means of achieving their investment objectives. However, each Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. The portfolio turnover of the Funds may be greater
than that of many other mutual funds. High turnover involves correspondingly
greater commission expenses and transaction costs and increases the possibility
that the Funds would not qualify as regulated investment companies under
Subchapter M of the Internal Revenue Code. A Fund will not qualify as a
regulated investment company if it derives 30% or more of its gross income from
gains (without offset for losses) from the sale or other disposition of
securities held for less than three months. High turnover may result in a Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to its
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes (see "Taxes").
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 in either Fund for employees, shareholders and customers of
Countrywide Credit Industries, Inc. or any affiliated company, including members
of the immediate
- 13 -
<PAGE>
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 dealers having a sales agreement with the
Trust's principal underwriter, Countrywide Investments, Inc. (the "Adviser").
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 "Equity Fund" or the "Utility Fund," whichever is applicable. An
account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust and the
Adviser 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.
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.
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 Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354.
The check should be made payable to the applicable Fund.
- 14 -
<PAGE>
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.
Sales Load Alternatives
- -----------------------
Each Fund offers two classes of shares which may be purchased at the
election of the purchaser. The two classes of shares each represent interests in
the same portfolio of investments of a Fund, have the same rights and are
identical in all material respects except that (i) Class C shares bear the
expenses of higher distribution fees; (ii) certain other class specific expenses
will be borne solely by the class to which such expenses are attributable,
including transfer agent fees attributable to a specific class of shares,
printing and postage expenses related to preparing and distributing materials to
current shareholders of a specific class, registration fees incurred by a
specific class of shares, the expenses of administrative personnel and services
required to support the shareholders of a specific class, litigation or other
legal expenses relating to a class of shares, Trustees' fees or expenses
incurred as a result of issues relating to a specific class of shares and
accounting fees and expenses relating to a specific class of shares; and (iii)
each class has exclusive voting rights with respect to matters relating to its
own distribution arrangements. The net income attributable to Class C shares and
the dividends payable on Class C shares will be reduced by the amount of the
incremental expenses associated with the distribution fee (see "Distribution
Plans"). Shares of the Utility Fund purchased prior to August 1, 1993 are Class
A shares. Shares of the Equity Fund purchased prior to August 1, 1993 are Class
C shares.
- 15 -
<PAGE>
The Funds' alternative sales arrangements permit investors to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold his shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur a front-end sales load
and be subject to lower ongoing charges, as discussed below, or to have all of
the initial purchase price invested in the Funds with the investment thereafter
being subject to higher ongoing charges. A salesperson or any other person
entitled to receive any portion of a distribution fee may receive different
compensation for selling Class A or Class C shares.
As an illustration, investors who qualify for significantly reduced sales
loads as described below, might elect the Class A sales load alternative because
similar sales load reductions are not available for purchases under the Class C
sales load alternative. Moreover, shares acquired under the Class A sales load
alternative would be subject to lower ongoing distribution fees as described
below. Investors not qualifying for reduced initial sales loads who expect to
maintain their investment for an extended period of time might also elect the
Class A sales load alternative because over time the accumulated continuing
distribution fees on Class C shares may exceed the difference in initial sales
loads between Class A and Class C shares. Again, however, such investors must
weigh this consideration against the fact that less of their funds will be
invested initially under the Class A sales load alternative. Furthermore, the
higher ongoing distribution fees will be offset to the extent any return is
realized on the additional funds initially invested under the Class C sales load
alternative.
Some investors might determine that it would be more advantageous to
utilize the Class C sales load alternative to have more of their funds invested
initially, although remaining subject to higher ongoing distribution fees and,
for a one-year period, being subject to a contingent deferred sales load. For
example, based on estimated fees and expenses, an investor subject to the
maximum 4% initial sales load on Class A shares who elects to reinvest dividends
in additional shares would have to hold the investment in Class A shares
approximately 5 years before the accumulated ongoing distribution fees on the
alternative Class C shares would exceed the initial sales load plus the
accumulated ongoing distribution fees on Class A shares. In this example and
assuming the investment was maintained for more than 5 years, the investor might
consider purchasing Class A shares. This example does not take into account the
time value of money which reduces the impact of the higher ongoing Class C
distribution fees, fluctuations in net asset value or the effect of different
performance assumptions.
- 16 -
<PAGE>
In addition to the compensation otherwise paid to securities dealers, the
Adviser 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 specific period of time. Such
bonuses or incentives may include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising, sales campaigns and other dealer-sponsored programs or
events.
Class A Shares
- --------------
Class A 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 Adviser 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 Adviser 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 Class A shares 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 with respect to Class A
shares if a commission was paid by the Adviser to a participating
unaffiliated dealer and the shares are redeemed within twelve months from
the date of purchase.
- 17 -
<PAGE>
Under certain circumstances, the Adviser may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Funds may
be deemed to be underwriters under the Securities Act of 1933. The Adviser
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 Class A shares of the Funds of $1,000,000 or
more made after October 1, 1995 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 Adviser to participating unaffiliated dealers through whom such
purchases are effected. In determining a dealer's eligibility for such
commission, purchases of Class A shares of the Funds may be aggregated with
concurrent purchases of Class A shares of other funds of Countrywide
Investments. Dealers should contact the Adviser 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 Class A shares may result in the imposition
of a contingent deferred sales load if the dealer's commission described in this
paragraph was paid in connection with the purchase of such shares. See
"Contingent Deferred Sales Load for Certain Purchases of Class A Shares" below.
REDUCED SALES LOAD. 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 Class A shares of the load funds distributed by the
Adviser 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 Adviser 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 Adviser
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 Class A 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 Adviser. 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
- 18 -
<PAGE>
sixty days prior to your purchase of Class A shares of the Funds. To make a
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 Class A
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 Class A shares at net asset value.
In addition, Class A shares of the Funds may be purchased at net asset
value by broker-dealers who have a sales agreement with the Adviser, 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
Class A 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 Adviser. 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 Class A shares of the Funds at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES.
A contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Funds (or shares into which such Class A shares were exchanged)
purchased at net asset value in amounts totaling $1 million or more, if the
dealer's commission described above was paid by the Adviser and the shares are
redeemed within twelve months from the date of purchase. The contingent deferred
sales load will be paid to the
- 19 -
<PAGE>
Adviser and will be equal to .75% of the lesser of (1) the net asset value at
the time of purchase of the Class A shares being redeemed or (2) the net asset
value of such Class A shares at the time of redemption. In determining whether
the contingent deferred sales load is payable, it is assumed that shares not
subject to the contingent deferred sales load are the first redeemed followed by
other shares held for the longest period of time. The contingent deferred sales
load will not be imposed upon shares representing reinvested dividends or
capital gains distributions, or upon amounts representing share appreciation. If
a purchase of Class A shares is subject to the contingent deferred sales load,
the investor will be so notified on the confirmation for such purchase.
Redemptions of such Class A 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 Class A 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 Class A 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 Class A shares are held in a money market fund will not count toward the
holding period for determining whether a contingent deferred sales load is
applicable. See "Exchange Privilege".
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986) 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 Adviser may require
documentation prior to waiver of the charge, including death certificates,
physicians' certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the minimum 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
- 20 -
<PAGE>
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.
Class C Shares
- --------------
Class C shares of the Funds are sold on a continuous basis at the net
asset value 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 Adviser by 5:00 p.m., Eastern time, that day
are confirmed at the net asset value 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 Adviser 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 net asset
value. 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 net asset value next determined on the following business
day.
A contingent deferred sales load is imposed on Class C shares if an
investor redeems an amount which causes the current value of the investor's
account to fall below the total dollar amount of purchase payments subject to
the deferred sales load, except that no such charge is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or to the extent the amount redeemed is derived from
increases in the value of the account above the amount of purchase payments
subject to the deferred sales load.
Whether a contingent deferred sales load is imposed will depend on the
amount of time since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the contingent deferred sales load
according to the following schedule:
Year Since Purchase Contingent Deferred
Payment was Made Sales Load
------------------- --------------------
First Year 1%
Thereafter None
In determining whether a contingent deferred sales load is payable, it
is assumed that the purchase payment from which the redemption is made is the
earliest purchase payment (from which a redemption or exchange has not already
been effected). If the earliest purchase from which a redemption has not yet
been effected was made within one year before the redemption, then a deferred
sales load at the rate of 1% will be imposed.
- 21 -
<PAGE>
The following example will illustrate the operation of the contingent
deferred sales load. Assume that an individual opens an account and purchases
1,000 shares at $10 per share and that six months later the net asset value per
share is $12 and, during such time, the investor has acquired 50 additional
shares through reinvestment of distributions. If at such time the investor
should redeem 450 shares (proceeds of $5,400), 50 shares will not be subject to
the load because of dividend reinvestment. With respect to the remaining 400
shares, the load is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $4,000 of the
$5,400 redemption proceeds will be charged the load. At the rate of 1%, the
contingent deferred sales load would be $40. In determining whether an amount is
available for redemption without incurring a deferred sales load, the purchase
payments made for all Class C shares in the shareholder's account are
aggregated, and the current value of all such shares is aggregated.
All sales loads imposed on redemptions are paid to the Adviser. The
Adviser intends to pay a commission of 1% of the purchase amount to
participating brokers at the time the investor purchases Class C shares.
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986) 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 Adviser may require
documentation prior to waiver of the charge, including death certificates,
physicians' certificates, etc.
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 Class A shares of the Funds
while the plan is in effect are generally undesirable because a sales load is
incurred whenever purchases are made.
- 22 -
<PAGE>
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
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
--------------------
Shares of 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
- 23 -
<PAGE>
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 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 by the Funds' Custodian. 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.
If a certificate for the shares was issued, it must be delivered to the
Transfer Agent, or the dealer in the case of a wire redemption, duly endorsed or
accompanied by a duly endorsed stock power, with the signature guaranteed by any
of the eligible guarantor institutions outlined above.
A contingent deferred sales load may apply to a redemption of Class C
shares or to a redemption of certain Class A 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
- 24 -
<PAGE>
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.
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 Securities and Exchange Commission.
EXCHANGE PRIVILEGE
- ------------------
Shares of either Fund and of any other fund of Countrywide Investments
may be exchanged for each other.
Class A shares of the Funds which are not subject to a contingent
deferred sales load may be exchanged for Class A 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
- 25 -
<PAGE>
applicable to the shares being acquired over the sales load rate, if any,
previously paid on the shares being exchanged.
Class C shares of the Funds, as well as Class A 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.
Countrywide Tax-Free Trust Countrywide Strategic Trust
Tax-Free Money Fund *Equity Fund
Ohio Tax-Free Money Fund *Utility Fund
California Tax-Free Money Fund *Government Mortgage Fund
Florida Tax-Free Money Fund
*Tax-Free Intermediate Term Countrywide Investment Trust
Fund Short Term Government Income Fund
*Ohio Insured Tax-Free Fund Institutional Government Income 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
- 26 -
<PAGE>
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, if any, on a quarterly basis. Each Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
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.
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.
- 27 -
<PAGE>
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. Distributions of net realized
long-term capital gains are taxable as long-term capital gains regardless of how
long you have held your Fund shares. Redemptions and exchanges 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 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 45202 (the "Adviser"), to manage the Funds' investments and
their business affairs. The Adviser was organized in 1974 and is also the
investment adviser to one other series of the Trust, five series of Countrywide
Investment Trust and six series of Countrywide Tax-Free Trust. The Adviser 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 Adviser a fee equal to the
annual rate of .75% of the average value of its daily net assets up to $200
million; .7% of such assets from $200 million to $500 million; and .5% of such
assets in excess of $500 million.
- 28 -
<PAGE>
Susan Flischel, Vice President-Investments of the Adviser, is primarily
responsible for managing the portfolio of each Fund. Ms. Flischel has been
employed by the Adviser and affiliated companies in various capacities since
1986 and has been managing the portfolio of the Utility Fund since July 1993 and
the portfolio of the Equity Fund since March 1995.
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 Plans"), 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 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 Adviser to
assist the Adviser 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
Securities and Exchange Commission and state securities authorities. The Adviser
(not the Funds) pays the Transfer Agent a fee for these administrative services
equal to the annual rate of .1% of the average value of each Fund's daily net
assets.
The Adviser 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 Trust and the Adviser.
- 29 -
<PAGE>
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Funds as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Funds. Subject to the requirements of the
Investment Company Act of 1940 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 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 Investment Company Act of 1940 or otherwise. Each
class of shares of a Fund shall vote separately on matters relating to its plan
of distribution pursuant to Rule 12b-1 (see "Distribution Plans"). 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.
DISTRIBUTION PLANS
- ------------------
CLASS A SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Funds have adopted a plan of distribution (the "Class A Plan")
under which Class A shares may directly incur or reimburse the Adviser for
certain distribution- related expenses, including payments to securities dealers
and others who are engaged in the sale of such shares and who may be advising
investors regarding the purchase, sale or retention of such 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
- 30 -
<PAGE>
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' Class A shares.
Pursuant to the Class A Plan, the Funds may make payments to dealers
and other persons, including the Adviser and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Class A shares. For the
fiscal year ended March 31, 1997, Class A shares of the Utility Fund paid
$45,758 to the Adviser to reimburse it for payments made to dealers and other
persons who may be advising shareholders in this regard.
The annual limitation for payment of expenses pursuant to the Class A
Plan is .25% of each Fund's average daily net assets allocable to Class A
shares. Unreimbursed expenditures will not be carried over from year to year. In
the event the Class A 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
Adviser after the date the Class A Plan terminates.
CLASS C SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Funds have adopted a plan of distribution (the "Class C Plan")
which provides for two categories of payments. First, the Class C Plan provides
for the payment to the Adviser of an account maintenance fee, in an amount equal
to an annual rate of .25% of a Fund's average daily net assets allocable to
Class C shares, which may be paid to other dealers based on the average value of
such shares owned by clients of such dealers. In addition, the Class C shares
may directly incur or reimburse the Adviser in an amount not to exceed .75% per
annum of a Fund's average daily net assets allocable to Class C shares for
expenses incurred in the distribution and promotion of the Fund's Class C
shares, including payments to securities dealers and others who are engaged in
the sale of such shares and who may be advising investors regarding the
purchase, sale or retention of such 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 such shares.
- 31 -
<PAGE>
Pursuant to the Class C Plan, the Funds may make payments to dealers
and other persons, including the Adviser and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Class C shares. For the
fiscal year ended March 31, 1997, Class C shares of the Utility Fund and the
Equity Fund paid $15,242 and $5,834, respectively, to the Adviser to reimburse
it for payments made to dealers and other persons who may be advising
shareholders in this regard.
Unreimbursed expenditures will not be carried over from year to year.
In the event the Class C 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 Adviser after the date the Class C Plan terminates. The Adviser may make
payments to dealers and other persons in an amount up to .75% per annum of the
average value of Class C shares owned by their clients, in addition to the .25%
account maintenance fee described above.
GENERAL. Pursuant to the Plans, 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 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.
- 32 -
<PAGE>
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- -----------------------------------------------------
On each day that the Trust is open for business, the share price (net
asset value) of Class C shares and the public offering price (net asset value
plus applicable sales load) of Class A 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. Total return and yield are computed separately for
Class A and Class C shares. The yield of Class A shares is expected to be higher
than the yield of Class C shares due to the higher distribution fees imposed on
Class C shares.
- 33 -
<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, for
Class A shares, 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 Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index and the Standard & Poor's Utility 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
- 34 -
<PAGE>
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.
Further information about the Funds' performance is contained in the
Trust's 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.
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT NO. ____________________
Account Application (Check appropriate Fund) (For Fund Use Only)
<S> <C> <C> <C>
[] Equity Fund Class A Shares (29) $_________________ FOR BROKER/DEALER USE ONLY
[] Equity Fund Class C Shares (28) Firm Name: ____________________________
[] Utility Fund Class A Shares (25) $_________________ Home Office Address: ___________________
[] Utility Fund Class C Shares (20) 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 your 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.
======================================================================================================================
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 (CLASS A SHARES ONLY)
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.)
[] l 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__________________________
[] Equity Fund [] Utility 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 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):
[] 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
========================================================================================================================
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>
- 35 -
<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
Angilo R. Mozilo
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
Investment Adviser
Countrywide Investments, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
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
- 36 -
<PAGE>
TABLE OF CONTENTS
PAGE
EXPENSE INFORMATION.........................................
FINANCIAL HIGHLIGHTS .......................................
INVESTMENT OBJECTIVES AND POLICIES..........................
HOW TO PURCHASE SHARES......................................
SHAREHOLDER SERVICES........................................
HOW TO REDEEM SHARES........................................
EXCHANGE PRIVILEGE .......................................
DIVIDENDS AND DISTRIBUTIONS.................................
TAXES.......................................................
OPERATION OF THE FUNDS .....................................
DISTRIBUTION PLANS .........................................
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.
- 37 -
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
Government Mortgage Fund
Utility Fund
Equity Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the applicable Fund of Countrywide
Strategic Trust dated August 1, 1997. A copy of a Fund's Prospectus can be
obtained by writing the Trust at 312 Walnut Street, 21st Floor, Cincinnati, Ohio
45202-4094, or by calling the Trust nationwide toll-free 800-543-0407, or in
Cincinnati 629-2050.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
PAGE
THE TRUST............................................................3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS........................4
INVESTMENT LIMITATIONS..............................................17
TRUSTEES AND OFFICERS...............................................24
THE INVESTMENT ADVISER AND UNDERWRITER..............................26
DISTRIBUTION PLANS. . . . ..........................................29
SECURITIES TRANSACTIONS.............................................31
PORTFOLIO TURNOVER..................................................34
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE................34
OTHER PURCHASE INFORMATION..........................................35
TAXES............................................................. 36
REDEMPTION IN KIND..................................................37
HISTORICAL PERFORMANCE INFORMATION..................................37
PRINCIPAL SECURITY HOLDERS..........................................42
CUSTODIAN...........................................................42
AUDITORS............................................................42
TRANSFER AGENT . ...................................................43
ANNUAL REPORT...................................................... 44
- 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 three series of shares to investors: the Government
Mortgage Fund (formerly the U.S. Government Securities Fund), the Utility Fund
and the Equity Fund (referred to individually as a "Fund" and collectively as
the "Funds"). Each Fund has its own investment objective(s) and policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Both Class A shares and Class C shares of the Utility Fund and the
Equity Fund represent an interest in the same assets of such Fund, have the same
rights and are identical in all material respects except that (i) Class C shares
bear the expenses of higher distribution fees; (ii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable, including transfer agent fees attributable to a specific class of
shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expenses of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and expenses relating to a specific class of shares;
and (iii) each class has exclusive voting rights with respect to matters
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relating to its own distribution arrangements. The Board of Trustees may
classify and reclassify the shares of a Fund into additional classes of shares
at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
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A more detailed discussion of some of the terms used and investment
policies described in the Prospectuses (see "Investment Objectives and
Policies") appears below:
GNMA CERTIFICATES. The term "GNMA Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Government National Mortgage Association and
backed by the full faith and credit of the United States.
1. The Life of GNMA Certificates. The average life of GNMA Certificates
is likely to be substantially less than the original maturity of the mortgage
pools underlying the GNMA Certificates due to prepayments, refinancing and
payments from foreclosures. Thus, the greatest part of principal will usually be
paid well before the maturity of the mortgages in the pool. As prepayment rates
of individual mortgage pools will vary widely, it is not possible to accurately
predict the average life of a particular issue of GNMA Certificates. However,
statistics published by the FHA are normally used as an indicator of the
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expected average life of GNMA Certificates. These statistics indicate that the
average life of single-family dwelling mortgages with 25-30 year maturities, the
type of mortgages backing the vast majority of GNMA Certificates, is
approximately 12 years. However, mortgages with high interest rates have
experienced accelerated prepayment rates which would indicate a shorter average
life.
2. Yield Characteristics of GNMA Certificates. The coupon rate of
interest of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the GNMA Certificates, but
only by the amount of the fees paid to the GNMA and the issuer. For the most
common type of mortgage pool, containing single-family dwelling mortgages, the
GNMA receives an annual fee of 0.06 of 1% of the outstanding principal for
providing its guarantee, and the issuer is paid an annual fee of 0.44 of 1% for
assembling the mortgage pool and for passing through monthly payments of
interest and principal to Certificate holders.
The coupon rate by itself, however, does not indicate the yield which
will be earned on the GNMA Certificates for the following reasons:
(a) GNMA Certificates may be issued at a premium or
discount, rather than at par.
(b) After issuance, GNMA Certificates may trade in the
secondary market at a premium or discount.
(c) Interest is earned monthly, rather than semi-annually as
for traditional bonds. Monthly compounding has the effect of raising
the effective yield earned on GNMA Certificates.
(d) The actual yield of each GNMA Certificate is influenced by
the prepayment experience of the mortgage pool underlying the
Certificate. If mortgagors pay off their mortgages early, the principal
returned to Certificate holders may be reinvested at more or less
favorable rates.
3. Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Prices of GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
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FHLMC Certificates. The term "FHLMC Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Federal Home Loan Mortgage Corporation. The
Federal Home Loan Mortgage Corporation is the leading seller of conventional
mortgage securities in the United States. FHLMC Certificates are not guaranteed
by the United States or by any Federal Home Loan Bank and do not constitute
debts or obligations of the United States or any Federal Home Loan Bank.
Mortgage loans underlying FHLMC Certificates will consist of fixed rate
mortgages with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first liens on one-family or
two-to-four family residential properties. Mortgage interest rates may be mixed
in a pool. The seller/ servicer of each mortgage retains a minimum three-eighths
of 1% servicing fee, and any remaining excess of mortgage rate over coupon rate
is kept by the Federal Home Loan Mortgage Corporation. The coupon rate of a
FHLMC Certificate does not by itself indicate the yield which will be earned on
the Certificate for the reasons discussed above in connection with GNMA
Certificates.
FNMA Certificates. The term "FNMA Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Federal National Mortgage Association.
The FNMA, despite having U.S. Government agency status, is also a
private, for-profit corporation organized to provide assistance in the housing
mortgage market. The only function of the FNMA is to provide a secondary market
for residential mortgages. Mortgage loans underlying FNMA Certificates reflect a
considerable diversity and are purchased from a variety of mortgage originators.
They are typically collateralized by conventional mortgages (not FHA-insured or
VA-guaranteed). FNMA Certificates are highly liquid and usually trade in the
secondary market at higher yields than GNMA Certificates. The coupon rate of a
FNMA Certificate does not by itself indicate the yield which will be earned on
the Certificate for the reasons discussed above in connection with GNMA
Certificates.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage
Obligations ("CMOs") are fully-collateralized bonds which are the general
obligations of the issuer thereof. The key feature of the CMO structure is the
prioritization of the cash flows from a pool of mortgages among the several
classes of CMO holders, thereby creating a series of obligations with varying
rates and maturities appealing to a wide range of investors. CMOs generally are
secured by an assignment to a trustee under the indenture pursuant to which the
bonds are issued for
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collateral consisting of a pool of mortgages. Payments with respect to the
underlying mortgages generally are made to the trustee under the indenture.
Payments of principal and interest on the underlying mortgages are not passed
through to the holders of the CMOs as such (that is, the character of payments
of principal and interest is not passed through and therefore payments to
holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment of
interest on and repayment of principal of the CMOs. CMOs are issued in two or
more classes or series with varying maturities and stated rates of interest
determined by the issuer. Because interest and principal payments on the
underlying mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on which
are used to pay interest on each class and to retire successive maturities in
sequence. CMOs are designed to be retired as the underlying mortgages are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of CMO first to mature generally will be retired prior to
maturity. Therefore, although in most cases the issuer of CMOs will not supply
additional collateral in the event of such prepayments, there will be sufficient
collateral to secure CMOs that remain outstanding.
In 1983, the Federal Home Loan Mortgage Corporation began issuing CMOs.
Since FHLMC CMOs are the general obligations of the FHLMC, it will be obligated
to use its general funds to make payments thereon if payments generated by the
underlying mortgages are insufficient to pay principal and interest in its CMOs.
In addition, CMOs are issued by private entities, such as financial
institutions, mortgage bankers and subsidiaries of homebuilding companies. The
structural features of privately issued CMOs will vary considerably from issue
to issue, and the Adviser will consider such features, together with the
character of the underlying mortgage pool and the liquidity and credit rating of
the issue. The Adviser will consider privately issued CMOs as possible
investments only when the underlying mortgage collateral is insured, guaranteed
or otherwise backed by the U.S. Government or one or more of its agencies or
instrumentalities.
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities; the
first three classes pay interest at their stated rates beginning with the issue
date and the final class is typically an accrual class (or Z bond). The cash
flows from the underlying mortgage collateral are applied first to pay interest
and then to retire securities. The classes of securities are retired
sequentially. All principal payments are directed first to the shortest-maturity
class (or A bond). When
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those securities are completely retired, all principal payments are then
directed to the next-shortest-maturity security (or B bond). This process
continues until all of the classes have been paid off. Because the cash flow is
distributed sequentially instead of pro rata as with pass-through securities,
the cash flows and average lives of CMOs are more predictable, and there is a
period of time during which the investors into the longer- maturity classes
receive no principal paydowns.
WHEN-ISSUED SECURITIES AND SECURITIES PURCHASED ON A TO-BE- ANNOUNCED
BASIS. The Funds will only make commitments to purchase securities on a
when-issued or to-be-announced ("TBA") basis with the intention of actually
acquiring the securities. In addition, the Funds may purchase securities on a
when-issued or TBA basis only if delivery and payment for the securities takes
place within 120 days after the date of the transaction. In connection with
these investments, each Fund will direct the Custodian to place cash or liquid
securities in a segregated account in an amount sufficient to make payment for
the securities to be purchased. When a segregated account is maintained because
a Fund purchases securities on a when-issued or TBA 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 or TBA
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 or TBA 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 or TBA basis,
there will be a possibility that the market value of the Fund's assets will have
greater fluctuation. The purchase of securities on a when-issued or TBA basis
may involve a risk of loss if the broker-dealer selling the securities fails to
deliver after the value of the securities has risen.
When the time comes for a Fund to make payment for securities purchased
on a when-issued or TBA 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 or TBA basis themselves (which
may have a market value greater or less than the Fund's payment obligation).
Although a Fund will
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only make commitments to purchase securities on a when-issued or TBA 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.
STRIPS. STRIPS are U.S. Treasury bills, notes, and bonds that have been
issued without interest coupons or stripped of their unmatured interest coupons,
interest coupons that have been stripped from such U.S. Treasury securities, and
receipts or certificates representing interests in such stripped U.S. Treasury
securities and coupons. A STRIPS security pays no interest in cash to its holder
during its life although interest is accrued for federal income tax purposes.
Its value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is generally
an amount significantly less than its face value. Investing in STRIPS may help
to preserve capital during periods of declining interest rates. For example, if
interest rates decline, GNMA Certificates owned by a Fund which were purchased
at greater than par are more likely to be prepaid, which would cause a loss of
principal. In anticipation of this, a Fund might purchase STRIPS, the value of
which would be expected to increase when interest rates decline.
STRIPS do not entitle the holder to any periodic payments of interest
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make periodic distributions of interest. On the
other hand, because there are no periodic interest payments to be reinvested
prior to maturity, STRIPS eliminate the reinvestment risk and lock in a rate of
return to maturity. Current federal tax law requires that a holder of a STRIPS
security accrue a portion of the discount at which the security was purchased as
income each year even though the Fund received no interest payment in cash on
the security during the year.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
a Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York.
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Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Funds' Custodian at the Federal Reserve Bank. A Fund will not
enter into a repurchase agreement not terminable within seven days if, as a
result thereof, more than 10% (with respect to the Government Mortgage Fund and
the Utility Fund) or 15% (with respect to the Equity Fund) 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 that Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, a Fund may encounter 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, that Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case,
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the seller. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the security, in which
case a Fund may incur a loss if the proceeds to that Fund of the sale of the
security to a third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund involved will direct
the seller of the security to deliver additional securities so that the market
value of all securities subject to the repurchase agreement will equal or exceed
the repurchase price. It is possible that a Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. Each Fund (except the Government
Mortgage Fund) may lend its portfolio securities subject to the restrictions
stated in its 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.
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
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(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").
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
one to two hundred seventy days) unsecured promissory notes issued by
corporations in order to finance their current operations. Each Fund will only
invest in commercial paper rated A-1 by Standard & Poor's Ratings Group or
Prime-1 by Moody's Investors Service, Inc. or unrated paper of issuers who have
outstanding unsecured debt rated AA or better by Standard & Poor's or Aa or
better by Moody's. 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. The Funds do not presently intend
to invest in commercial paper.
The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial strength of the parent company and the relationships which
exist with the issuer; and recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations. These factors are all considered in
determining whether the commercial paper is rated Prime-1. Commercial paper
rated A (highest quality) by Standard & Poor's Ratings Group has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer has access to at least two additional
channels of borrowing; basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position
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within the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1.
FOREIGN SECURITIES. Subject to each Fund's investment policies and
quality and maturity standards, the Utility Fund and the Equity Fund may invest
in the securities (payable in U.S. dollars) of foreign issuers. The Utility Fund
may also invest in non-U.S. dollar-denominated securities principally traded in
financial markets outside the United States. 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 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 Trustees have approved the
Utility Fund's use of the options and futures strategies described below.
1. WRITING COVERED CALL OPTIONS ON EQUITY SECURITIES.
The Utility 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 underlying security in accordance with
the rules of the exchanges on which the option is traded and the appropriate
clearing agency.
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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 30% of its net assets would be committed to such transactions. As long
as the Securities and Exchange Commission continues to take the position that
unlisted options are illiquid securities, the Fund will not commit more than 10%
of its net assets to unlisted covered call transactions and other illiquid
securities. The ability of the Fund to write covered call options may be limited
by the tax requirement that less than 30% of the Fund's gross income be derived
from the sale or other disposition of securities held for less than 3 months.
2. PURCHASING OPTIONS ON U.S. GOVERNMENT SECURITIES.
The Utility Fund may purchase put options on U.S. Government securities to
protect against a risk that an anticipated rise in interest rates would result
in a decline in the value of the Fund's portfolio securities. The Fund may
purchase call options on U.S. Government securities as a means of obtaining
temporary exposure to market appreciation when the Fund is not fully invested.
A put option is a short-term contract (having a duration of nine months
or less) which gives the purchaser of the option, in return for a premium, the
right to sell the underlying security at a specified price during the term of
the option. A call option is a short-term contract which gives the purchaser of
the call option, in return for a premium, the right to buy the underlying
security at a specified price during the term of the option. The purchase of put
and call options on U.S. Government securities is analogous to the purchase of
puts and calls on stocks. The Fund will purchase options on U.S. Treasury Bonds,
Notes and Bills only.
There are special considerations applicable to options on U.S. Treasury
Bonds and Notes. Because trading interest in options written on U.S. Treasury
Bonds and Notes tends to center on the most recently auctioned issues, the
Exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of U.S. Treasury Bonds and Notes will thus be phased out as new
options are listed on more recent issues, and options representing a full range
of expirations will not ordinarily be available for every
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issue on which options are traded.
To terminate its rights with respect to put and call options which it
has purchased, the Fund may sell an option of the same series in a "closing sale
transaction." A profit or loss will be realized depending on whether the sale
price of the option plus transaction costs is more or less than the cost to the
Fund of establishing the position. If an option purchased by the Fund is not
exercised or sold, it will become worthless after its expiration date and the
Fund will experience a loss in the form of the premium and transaction costs
paid in establishing the option position.
The option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular option.
The option activities of the Fund may affect its turnover rate and the amount of
brokerage commissions paid by the Fund. The Fund pays a brokerage commission
each time it buys or sells a security in connection with the exercise of an
option. Such commissions may be higher than those which would apply to direct
purchases or sales of portfolio securities.
3. PURCHASING OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Utility
Fund may purchase put and call options on interest rate futures contracts. The
purchase of put options on interest rate 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 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.
An interest rate 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 interest rate futures which are traded on a
national exchange or board of trade and sell such options to terminate an
existing position. The Fund may not enter into interest rate futures contracts.
Options on interest rate futures are similar to options on stocks except that an
option on an interest rate future gives the purchaser the right, in return for
the premium paid, to assume a position in an interest rate 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 stock, at a specified exercise price at
any time during the period of the option.
- 15 -
<PAGE>
As with options on stocks, the holder of an option on an interest rate
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 transactions, there are several
special risks relating to options on interest rate 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 interest rate
futures, the purchase of options on interest rate futures involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options, plus transaction costs.
4. OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the
Utility 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.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities
at a specified price and are valid for a specific time period. Rights are
similar to warrants, but normally have a short duration and are distributed by
the issuer to its shareholders. The Utility Fund and the Equity Fund may
purchase warrants and rights, provided that neither Fund presently intends to
invest more than 5% of its respective net assets at the time of purchase in
warrants and rights other than those that have been acquired in units or
attached to other securities.
MAJORITY. As used in the Prospectuses 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% 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).
- 16 -
<PAGE>
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 THE GOVERNMENT MORTGAGE FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except as a
temporary measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets. While the Fund's
borrowings are in excess of 5% of its total assets, the Fund will not purchase
any additional portfolio securities. This investment limitation does not
preclude the Fund from entering into reverse repurchase transactions, provided
that the Fund has asset coverage of 300% for all borrowings of the Fund and
reverse repurchase commitments of the Fund pursuant to such transactions. The
Fund will not pledge, mortgage or hypothecate its assets (collateral
arrangements with respect to writing options and initial margin on futures
contracts are not deemed to be a pledge, mortgage or hypothecation of assets for
purposes of this investment limitation) except in connection with borrowings
described in this investment limitation.
2. Margin Purchases. The Fund will not purchase any securities on
"margin" (except such short-term credits as are necessary for the clearance of
transactions or to the extent necessary to engage in transactions described in
the Prospectus and Statement of Additional Information which involve margin
purchases).
3. Short Sales. The Fund will not make short sales of securities.
4. Options. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in the
Prospectus and Statement of Additional Information.
5. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases, rights or royalty contracts.
6. Underwriting. The Fund will not act as underwriters of
securities issued by other persons. This limitation is not applicable to the
extent that, in connection with the disposition of its portfolio securities,
the Fund may be deemed an underwriter under certain federal securities laws.
- 17 -
<PAGE>
7. Illiquid Investments. The Fund will not purchase securities which
cannot be readily resold to the public because of 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 10% of the value of the total assets of the Fund would be
invested in such securities.
8. Concentration. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
9. Real Estate. The 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.
10. Loans. The Fund will not make loans except (a) by 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) by entry into repurchase agreements.
11. Investing for Control. The Fund will not invest in companies for
the purpose of exercising control.
12. Other Investment Companies. The Fund will not acquire securities
issued by any other investment company or investment trust, except (a) in
connection with a merger, consolidation, acquisition of assets or
reorganization, or (b) by purchase in the open market where no underwriter or
dealer's commission or profit, other than customary broker's commission, is
involved and only if immediately thereafter not more than 10% of the total
assets of the Fund would be invested in the securities of such issuers and not
more than 3% of the securities of any other investment company would be owned by
the Fund.
13. Securities of One Issuer. The Fund will not invest more than 5% of
its total assets in the securities of any issuer; provided, however, that there
is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
- 18 -
<PAGE>
14. Securities of One Class. The Fund will not purchase more than 10%
of any class of securities of any issuer or more than 10% of the outstanding
voting securities of any issuer (all outstanding bonds and other evidence of
indebtedness will be deemed to be a single class of securities of the issuer,
and all kinds of stock of an issuer preferred over the common stock as to
dividends or liquidation will be deemed to constitute a single class regardless
of relative priorities, series designations, conversion rights or other
differences).
15. Securities Owned by Affiliates. The Fund will not purchase or
retain the securities of any issuers if those officers and Trustees of the Trust
or officers, directors, or partners of its Advisers, owning individually more
than one-half of 1% of the securities of such issuer, own in the aggregate more
than 5% of the securities of such issuer.
16. When-Issued or To-Be-Announced Securities. The Trust
will not make any commitment to purchase securities on a when-issued or
to-be-announced basis for the Government Mortgage Fund if more than 25% of the
Fund's assets would be so committed.
17. Senior Securities. The Fund will not issue or sell any senior
security as defined by the Investment Company Act of 1940 except insofar as
any borrowing that the Fund may engage in may be deemed to be an issuance of
a senior security.
THE LIMITATIONS APPLICABLE TO THE UTILITY FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Margin Purchases. The Fund will not purchase any securities on
"margin" (except such short-term credits as are necessary for the clearance
of transactions or to the extent
- 19 -
<PAGE>
necessary to engage in transactions described in the Prospectus and Statement of
Additional Information which involve margin purchases).
4. Short Sales. The Fund will not make short sales of securities.
5. Options. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in the
Prospectus and Statement of Additional Information.
6. Mineral Leases. The Fund will not purchase oil, gas or other
mineral leases, rights or royalty contracts.
7. Underwriting. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities, a Fund may be deemed
an underwriter under certain federal securities laws.
8. Illiquid Investments. The Fund will not purchase securities which
cannot be readily resold to the public because of 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 10% of the value of the net assets of the Fund would be
invested in such securities.
9. Real Estate. The Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, except that the Fund may purchase (a) securities
of companies (other than limited partnerships) which deal in real estate or (b)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
10. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
marketable bonds, debentures, commercial paper or corporate notes, and similar
marketable evidences of indebtedness which are part of an issue for the public.
11. Investing for Control. The Fund will not invest in companies for
the purpose of exercising control.
- 20 -
<PAGE>
12. Other Investment Companies. The Fund will not invest more than
10% of its total assets in securities of other investment companies. The Fund
will not invest more than 5% of its total assets in the securities of any single
investment company.
13. Amount Invested in One Issuer. The Fund will not invest more than
5% of its total assets in the securities of any issuer; provided, however, that
there is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
14. Voting Securities of Any Issuer. The Fund will not purchase 5% or
more of the outstanding voting securities of any electric or gas utility company
(as defined in the Public Utility Holding Company Act of 1935), or purchase more
than 10% of the outstanding voting securities of any other issuer.
15. Securities Owned by Affiliates. The Fund will not purchase or
retain the securities of any issuers if those officers and Trustees of the Trust
or officers, directors, or partners of its Adviser, owning individually more
than one-half of 1% of the securities of such issuer, own in the aggregate more
than 5% of the securities of such issuer.
16. Industry Concentration. Under normal market conditions, the Fund
will invest more than 25% of its total assets in the public utilities industry.
The Fund will not invest more than 25% of its total assets in any particular
industry except the public utilities industry. For purposes of this limitation,
the public utilities industry includes companies that produce or supply electric
power, natural gas, water, sanitary services, telecommunications and other
communications services (but not radio or television broadcasters) for public
use or consumption.
17. Senior Securities. The Fund will not issue or sell any senior
security as defined by the Investment Company Act of 1940 except insofar as any
borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.
THE LIMITATIONS APPLICABLE TO THE EQUITY FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) as a
temporary measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets. While the Fund's
borrowings are in excess of 5% of its total assets, the Fund will not purchase
any additional portfolio securities. The Fund will not pledge, mortgage or
hypothecate its assets except in connection with borrowings described in this
investment limitation.
- 21 -
<PAGE>
2. Margin Purchases. The Fund will not purchase any securities on
"margin" (except such short-term credit as are necessary for the clearance of
transactions).
3. Short Sales. The Fund will not make short sales of securities.
4. Options. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures.
5. Mineral Leases. The Fund will not purchase oil, gas or other
mineral leases or exploration or development programs.
6. Underwriting. The Fund will not act as underwriter of securities
issued by other persons, either directly or through a majority owned subsidiary.
This limitation is not applicable to the extent that, in connection with the
disposition of its portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal securities laws.
7. Illiquid Investments. The Fund will not purchase securities which
cannot be readily resold to the public because of 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 the Fund's net assets would be invested
in such securities.
8. Concentration. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
9. Real Estate. The Fund will not purchase, hold or deal in real
estate, including real estate limited partnerships.
10. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities if the borrower agrees to maintain collateral
marked to market daily in an amount at least equal to the market value of the
loaned securities, or (b) by engaging in repurchase agreements. For purposes of
this limitation, the term "loans" shall not include 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.
11. Investing for Control. The Fund will not invest in companies for
the purpose of exercising control.
- 22 -
<PAGE>
12. Other Investment Companies. The Fund will not invest more than
10% of its total assets in securities of other investment companies. The Fund
will not invest more than 5% of its total assets in the securities of any single
investment company.
13. Securities of One Issuer. The Fund will not purchase the securities
of any issuer if such purchase at the time thereof would cause more than 5% of
the value of its total assets to be invested in the securities of such issuer
(the foregoing limitation does not apply to investments in government securities
as defined in the Investment Company Act of 1940).
14. Securities of One Class. The Fund will not purchase the securities
of any issuer if such purchase at the time thereof would cause 10% of any class
of securities of such issuer to be held by the Fund, or acquire more than 10% of
the outstanding voting securities of such issuer. (All outstanding bonds and
other evidences of indebtedness shall be deemed to be a single class of
securities of the issuer).
15. Securities Owned by Affiliates. The Fund will not purchase or
retain the securities of any issuers if those officers and Trustees of the Trust
or officers, directors, or partners of its Adviser, owning individually more
than one-half of 1% of the securities of such issuer, own in the aggregate more
than 5% of the securities of such issuer.
16. Senior Securities. The Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemptions of securities, or
to arrangements with respect to transactions involving forward foreign currency
exchange contracts, options, futures contracts, short sales and other similar
permitted investments and techniques.
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.
The Trust has never pledged, mortgaged or hypothecated the assets of
any Fund, and the Trust presently intends to continue this policy. The Trust has
never acquired, nor does it presently intend to acquire, securities issued by
any other investment company or investment trust. The statements of intention in
this paragraph reflect nonfundamental policies which may be changed by the Board
of Trustees without shareholder approval.
- 23 -
<PAGE>
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the
Trust, their compensation from the Trust and their aggregate compensation from
Countrywide Investments (consisting of the Trust, Countrywide Tax-Free Trust and
Countrywide Investment Trust) for the fiscal year ended March 31, 1997. Each
Trustee who is an "interested person" of the Trust, as defined by the Investment
Company Act of 1940, is indicated by an asterisk. Each Trustee is also a Trustee
of Countrywide Tax- Free Trust and Countrywide Investment Trust.
AGGREGATE
COMPENSATION
COMPENSATION FROM
POSITION FROM COUNTRYWIDE
NAME AGE HELD TRUST INVESTMENTS
- ---- --- -------- ------------ ------------
Donald L. Bodgon, MD 66 Trustee $ 0 $ 0
John R. Delfino 63 Trustee 0 0
+H. Jerome Lerner 58 Trustee 2,983 9,030
*Robert H. Leshher 57 President/Trustee 0 0
*Angelo R. Mozilo 58 Chairman/Trustee 0 0
+Oscar P. Robertson 57 Trustee 2,583 7,750
John F. Seymour, Jr. 59 Trustee 0 0
+Sebastiano Sterpa 67 Trustee 0 0
Robert G. Dorsey 40 Vice President 0 0
John F. Splain 40 Secretary 0 0
Mark J. Seger 35 Treasurer 0 0
* Mr. Leshner and Mr. Mozilo, as officers and directors of
Countrywide Investments, Inc., are each an "interested
person" of the Trust within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
DONALD L. BOGDON, M.D., 435 Arden Avenue, Glendale, California is a
physician with Hematology Oncology Consultants and a Director of Verdugo VNA (a
hospice facility). Until 1996 he was President of Western Hematology/Oncology
and until 1993 he was Chairman of the Board of Glendale Memorial Hospital.
JOHN R. DELFINO, 2029 Century Park East, Los Angeles, California is
President of Concorde Capital Corporation (an investment firm). Until 1993 he
was a director of Cypress Financial and Chairman of Rancho Santa Margarita,
mortgage banking firms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc., a manufacturer of
electronic connectors.
- 24 -
<PAGE>
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, 155 North Lake Avenue, Pasadena, 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).
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,
- 25 -
<PAGE>
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., Capital Square Funds, The Dean
Family of Funds and The New York State Opportunity Funds and Assistant Vice
President of Williamsburg Investment Trust, Schwartz Investment Trust, Fremont
Mutual Funds, Inc., 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, Fremont Mutual Funds, Inc., Capitol Square Funds, The Gannett Welsh &
Kotler Funds, Interactive Investments, the New York State Opportunity Funds and
the Dean Family of Funds.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio is Vice
President and Fund Controller of Countrywide Fund Services, Inc. He is also
Treasurer of Countrywide Tax-Free Trust, Countrywide Investment Trust, Brundage,
Story and Rose Investment Trust, Williamsburg Investment Trust, Markman
MultiFund Trust, PRAGMA Investment Trust, Maplewood Investment Trust, a series
company, The Thermo Opportunity Fund, Inc., Capitol Square Funds, the New York
State Opportunity Funds and the Dean Family of Funds, Assistant Treasurer of
Schwartz Investment Trust, The Tuscarora Investment Trust, The Gannett Welsh &
Kotler Funds and Interactive Investments and Assistant Secretary of Fremont
Mutual Funds, Inc.
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 ADVISER AND UNDERWRITER
- ---------------------------------------
Countrywide Investments, Inc. (the "Adviser"), formerly Midwest Group
Financial Services, Inc., is the Funds' investment manager. The Adviser is a
subsidiary of Countrywide Financial Services, Inc., which is a wholly-owned
subsidiary of Countrywide Credit Industries, Inc., a New York Stock Exchange
listed company principally engaged in the business of residential mortgage
lending. Messrs. Mozilo and Leshner may be deemed to be affiliates of the
Adviser by reason of their position as Chairman and President, respectively,
of the Adviser. Messrs. Mozilo and
- 26 -
<PAGE>
Leshner, by reason of such affiliation, may directly or indirectly receive
benefits from the advisory fees paid to the Adviser.
Under the terms of the investment advisory agreements between the Trust
and the Adviser, the Adviser manages the Funds' investments. Each Fund pays the
Adviser a fee computed and accrued daily and paid monthly at an annual rate of
.75% of its average daily net assets up to $200,000,000, .7% of such assets from
$200,000,000 to $500,000,000 and .5% of such assets in excess of $500,000,000.
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 Adviser during the applicable six month period.
For the fiscal years ended March 31, 1997, 1996 and 1995, the
Government Mortgage Fund paid advisory fees of $150,601 (net of voluntary fee
waivers of $17,500), $190,075 (net of voluntary fee waivers of $9,000) and
$261,660, respectively. For the fiscal years ended March 31, 1997, 1996 and
1995, the Utility Fund paid advisory fees of $319,201, $328,982 and $325,780,
respectively. For the fiscal years ended March 31, 1997, 1996 and 1995, the
Equity Fund paid advisory fees of $91,182 (net of voluntary fee waivers of
$21,000), $5,214 (net of voluntary fee waivers of $53,777) and $12,853 (net of
voluntary fee waivers of $46,905), respectively; however, in order to further
reduce the operating expenses of the Equity Fund, the Adviser voluntarily
reimbursed the Fund for $5,834 of Class A expenses during the fiscal year ended
March 31, 1997, $5,308 of Class A expenses during the fiscal year ended March
31, 1996 and $14,964 of Class C expenses during the fiscal year ended March 31,
1995.
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 Adviser bears promotional expenses in
connection with the distribution of the Funds' shares to the extent that such
expenses are not assumed by the Funds under their plans of distribution (see
below). The compensation and expenses of any officer, Trustee or employee of the
Trust who is an officer, director, employee or stockholder of the Adviser are
paid by the Adviser.
By their terms, the Funds' investment advisory 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
- 27 -
<PAGE>
meeting called for the purpose of voting such approval. The Funds' investment
advisory agreements may be terminated at any time, on sixty days' written
notice, without the payment of any penalty, by the Board of Trustees, by a vote
of the majority of a Fund's outstanding voting securities, or by the Adviser.
The investment advisory agreements automatically terminate in the event of their
assignment, as defined by the Investment Company Act of 1940 and the rules
thereunder.
The Adviser is also the principal underwriter of the Funds and, as
such, the exclusive agent for distribution of shares of the Funds. The Adviser
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 Adviser currently allows concessions to dealers who sell shares of
the Funds. The Adviser receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Funds. The Adviser 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 the fiscal year
ended March 31, 1997, the aggregate underwriting commissions on sales of the
Trust's shares were $70,478 of which the Adviser paid $60,141 to unaffiliated
broker-dealers in the selling network, earned $3,617 as a broker-dealer in the
selling network and retained $6,720 in underwriting commissions. For the fiscal
year ended March 31, 1996, the aggregate underwriting commissions on sales of
the Trust's shares were $136,764 of which the Adviser paid $121,645 to
unaffiliated broker-dealers in the selling network, earned $8,240 as a
broker-dealer in the selling network and retained $6,879 in underwriting
commissions. For the fiscal year ended March 31, 1995, the aggregate
underwriting commissions on sales of the Trust's shares were $179,235 of which
the Adviser paid $160,038 to unaffiliated broker-dealers in the selling network,
earned $4,649 as a broker-dealer in the selling network and retained $14,548 in
underwriting commissions.
The Adviser retains the contingent deferred sales load on redemptions
of shares of the Utility Fund and the Equity Fund which are subject to a
contingent deferred sales load. For the fiscal year ended March 31, 1997, the
Adviser collected $1,141 and $505 of contingent deferred sales loads on
redemptions of Class C shares of the Utility Fund and the Equity Fund,
respectively.
The Funds may compensate dealers, including the Adviser and its affiliates,
based on the average balance of all accounts in the Funds for which the dealer
is designated as the party responsible for the account. See "Distribution Plans"
below.
- 28 -
<PAGE>
DISTRIBUTION PLANS
- ------------------
CLASS A SHARES -- As stated in the Prospectus, the Funds have adopted a
plan of distribution (the "Class A Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 which permits each Fund to pay for expenses
incurred in the distribution and promotion of the Funds' shares, including but
not limited to, the printing of prospectuses, statements of additional
information and reports used for sales purposes, advertisements, expenses of
preparation and printing of sales literature, promotion, marketing and sales
expenses, and other distribution-related expenses, including any distribution
fees paid to securities dealers or other firms who have executed a distribution
or service agreement with the Adviser. The Class A Plan expressly limits payment
of the distribution expenses listed above in any fiscal year to a maximum of
.25% of the average daily net assets of the Government Mortgage Fund and .25% of
the average daily net assets of the Class A shares of the Utility Fund and the
Equity Fund. Unreimbursed expenses will not be carried over from year to year.
CLASS C SHARES (Utility Fund and Equity Fund) -- The Utility Fund and
the Equity Fund have also adopted a plan of distribution (the "Class C Plan")
with respect to the Class C shares of such Funds. The Class C Plan provides for
two categories of payments. First, the Class C Plan provides for the payment to
the Adviser of an account maintenance fee, in an amount equal to an annual rate
of .25% of the average daily net assets of the Class C shares, which may be paid
to other dealers based on the average value of Class C shares owned by clients
of such dealers. In addition, a Fund may pay up to an additional .75% per annum
of the daily net assets of the Class C shares for expenses incurred in the
distribution and promotion of the shares, including prospectus costs for
prospective shareholders, costs of responding to prospective shareholder
inquiries, payments to brokers and dealers for selling and assisting in the
distribution of Class C shares, costs of advertising and promotion and any other
expenses related to the distribution of the Class C shares. Unreimbursed
expenditures will not be carried over from year to year. The Funds may make
payments to dealers and other persons in an amount up to .75% per annum of the
average value of Class C shares owned by their clients, in addition to the .25%
account maintenance fee described above.
GENERAL INFORMATION -- For the fiscal year ended March 31, 1997, the
aggregate distribution-related expenditures under the Plans were $1,934 for the
Government Mortgage Fund; $48,663 and $15,492 for Class A and Class C shares,
respectively, of the Utility Fund; and $791 and $6,027 for Class A and Class C
shares, respectively, of the Equity Fund. Amounts were spent as follows:
- 29 -
<PAGE>
Government Utility Utility Equity Equity
Mortgage Fund Fund Fund Fund
Fund Class A Class C Class A Class C
-------- ------- -------- ------- --------
Printing and
mailing of
prospectuses
and reports
to prospective
shareholders... $ 1,934 $ 2,905 $ 250 $ 791 $ 193
Payments to
broker-dealers
and others for
the sale or
retention of
assets........ - 45,758 15,242 - 5,834
------- ------- ------- ----- -------
$ 1,934 $48,663 $15,492 $ 791 $ 6,027
======= ======= ======= ===== =======
Agreements implementing the Plans (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Funds' shares, are in writing and have been approved
by the Board of Trustees. All payments made pursuant to the Plans are made in
accordance with written agreements.
The continuance of the Plans and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plans or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. A Plan may be terminated at any time
by a vote of a majority of the Independent Trustees or by a vote of the holders
of a majority of the outstanding shares of a Fund or the applicable class of a
Fund. In the event a Plan is terminated in accordance with its terms, the
affected Fund (or class) will not be required to make any payments for expenses
incurred by the Adviser after the termination date. Each Implementation
Agreement terminates automatically in the event of its assignment and may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of a Fund (or the
applicable class) on not more than 60 days' written notice to any other party to
the Implementation Agreement. The Plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval.
All material amendments to the Plans must be approved by a vote of the Trust's
Board of Trustees and by a vote of the Independent Trustees.
- 30 -
<PAGE>
In approving the Plans, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plans will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plans. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Funds pursuant
to the Plans and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each class of shares bears to the sales of all the shares
of such Fund. In addition, the selection and nomination of those Trustees who
are not interested persons of the Trust are committed to the discretion of the
Independent Trustees during such period.
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 Plans
and the Implementation Agreements.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Funds and the placing of
the Funds' securities transactions and negotiation of commission rates where
applicable are made by the 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. For the fiscal years ended
March 31, 1997, 1996 and 1995, the Utility Fund paid brokerage commissions of
$25,345, $43,560 and $80,464, respectively. For the fiscal years ended March 31,
1997, 1996, and 1995, the Equity Fund paid brokerage commissions of $34,257,
$23,064 and $71,412, respectively.
- 31 -
<PAGE>
Generally, the Funds attempt to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Funds may be purchased
directly from the issuer. Because the portfolio securities of the Government
Mortgage Fund are generally traded on a net basis and transactions in such
securities do not normally involve brokerage commissions, the cost of portfolio
securities transactions for this Fund will consist primarily of dealer or
underwriter spreads. No brokerage commissions have been paid by the Government
Mortgage Fund during the last three fiscal years.
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. During the fiscal year ended March 31, 1997,
the amount of brokerage transactions and related commissions for the Utility
Fund directed to brokers due to research services provided were $6,443,885 and
$25,345, respectively. During the fiscal year ended March 31, 1997, the amount
of brokerage transactions and related commissions for the Equity Fund directed
to brokers due to research services provided were $11,370,237 and $34,257,
respectively.
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 Adviser and other affiliates
of the Trust or the Adviser 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 Adviser if such
transactions would be unfair or unreasonable to
- 32 -
<PAGE>
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
Adviser nor affiliates of the Trust or the Adviser will receive reciprocal
brokerage business as a result of the brokerage business transacted by the Funds
with other brokers.
Amivest Corporation may be deemed to be an affiliate of the Trust by
virtue of the fact that it owned of record 5% or more of the outstanding shares
of one or more series of the Trust. During the fiscal year ended March 31, 1995,
the Equity Fund paid Amivest Corporation brokerage commissions of $1,800.
During the fiscal year ended March 31, 1997, the Funds entered into
repurchase transactions with the following of the Trust's regular broker-dealers
as defined under the Investment Company Act of 1940: Dean Witter Reynolds Inc.,
Fifth Third Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Nesbitt-Burns Securities, Inc.
CODE OF ETHICS. The Trust 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 Adviser and,
as described below, imposes additional, more onerous, restrictions on investment
personnel of the Adviser. The Code requires that all employees of 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 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 Adviser within periods of
trading by the Funds in the same (or equivalent) security.
- 33 -
<PAGE>
PORTFOLIO TURNOVER
- ------------------
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.
Generally, each Fund intends to invest for long-term purposes. 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 Government Mortgage 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. For the fiscal years ended
March 31, 1997, 1996 and 1995, the Government Mortgage Fund experienced
portfolio turnover of 76%, 160% and 205%, respectively.
Because the Utility Fund and the Equity Fund 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. For the
fiscal years ended March 31, 1997, 1996 and 1995, the Utility Fund experienced
portfolio turnover of 3%, 11% and 17%, respectively. For the fiscal years ended
March 31, 1997, 1996 and 1995, the Equity Fund experienced portfolio turnover of
38%, 38% and 159%, respectively.
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, 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
- 34 -
<PAGE>
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 Government Mortgage Fund and Class A shares of the Utility Fund and the
Equity Fund 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 Adviser 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 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 Adviser 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.
- 35 -
<PAGE>
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
Adviser. 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.
Each Fund has qualified and intends to qualify annually for the special
tax treatment afforded a "regulated investment company" under Subchapter M of
the Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. To so qualify a Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; (ii) derive less than 30% of its gross income
in each taxable year from the sale or other disposition of the following assets
held for less than three months: (a) stock or securities, (b) options, futures
or forward contracts not directly related to its principal business of investing
in stock or securities; and (iii) 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.
- 36 -
<PAGE>
Capital losses may be carried forward to offset any capital gains for eight
years, after which any undeducted capital loss remaining is lost as a deduction.
As of March 31, 1997, the Government Mortgage Fund had capital loss
carryforwards for federal income tax purposes of $4,463,989, none of which
expire prior to March 31, 2002.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
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:
- 37 -
<PAGE>
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 March 31, 1997 are as follows:
Government Mortgage Fund
1 Year +1.69%
5 Years +4.32%
10 Years +5.86%
Utility Fund (Class A)
1 Year +1.39%
5 Years +8.59%
Since inception (August 15, 1989) +9.10%
Utility Fund (Class C)
1 Year +4.82%
Since inception (August 2, 1993) +5.96%
Equity Fund (Class A)
1 Year +7.35%
Since inception (August 2, 1993) +10.57%
Equity Fund (Class C)
1 Year +11.01%
Since inception (June 7, 1993) +10.59%
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
return. The total returns of the Funds as calculated in this manner for each of
the last ten fiscal years (or since inception) are as follows:
- 38 -
<PAGE>
<TABLE>
<C> <C> <C> <C> <C> <C>
Government Utility Utility Equity Equity
Mortgage Fund Fund Fund Fund
Fund Class A Class C Class A Class C
--------- ------- ------- ------- -------
Period Ended
March 31, 1988 + 2.95%
March 31, 1989 + 4.97%
March 31, 1990 + 8.60% + 5.37%(1)
March 31, 1991 +11.37% + 9.23%
March 31, 1992 + 9.46% +11.84%
March 31, 1993 +11.71% +20.64%
March 31, 1994 + 0.30% - 2.11% - 5.21%(2) - 2.63%(2) - 2.91%(3)
March 31, 1995 + 0.06% + 3.68% + 3.00% + 8.07% + 7.32%
March 31, 1996 + 8.39% +21.65% +20.78% +27.90% +26.90%
March 31, 1997 + 3.76% + 5.61% + 4.82% +11.82% +11.01%
(1) From date of initial public offering on August 15, 1989
(2) From date of initial public offering on August 2, 1993
(3) From date of initial public offering on June 7, 1993
</TABLE>
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 March 31, 1997 are as follows:
Government Mortgage Fund
1 Year +3.76%
3 Years +4.02%
5 Years +4.75%
10 Years +6.08%
Since inception (June 4, 1984) +8.19%
Utility Fund (Class A)
1 Year + 5.61%
3 Years +10.03%
5 Years + 9.48%
Since inception (August 15, 1989) + 9.69%
Utility Fund (Class C)
1 Year + 4.82%
3 Years + 9.25%
Since inception (August 2, 1993) + 5.96%
Equity Fund (Class A)
1 Year +11.82%
3 Years +15.62%
Since inception (August 2, 1993) +11.81%
Equity Fund (Class C)
1 Year +11.01%
3 Years +14.77%
Since inception (June 7, 1993) +10.59%
- 39 -
<PAGE>
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 of the Funds 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 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 yield of the
Government Mortgage Fund for the thirty days ended March 31, 1997 was 5.72%. The
yields of Class A and Class C shares of the Utility Fund for the thirty days
ended March 31, 1997 were 3.47% and 2.87%, respectively. The yields of Class A
and Class C shares of the Equity Fund for the thirty days ended March 31, 1997
were 0.89% and 0.15%, respectively.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance. Average annual
total return and yield are computed separately for Class A and Class C shares of
the Utility Fund and the Equity Fund. The yield of Class A shares is expected to
be higher than the yield of Class C shares due to the higher distribution fees
imposed on Class C shares.
- 40 -
<PAGE>
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 and Lipper Fixed Income Fund
Performance Analysis measure 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 Government Mortgage Fund may provide comparative performance
information appearing in the U.S. Mortgage Funds category, the Utility Fund may
provide comparative performance information appearing in the Utility Funds
category and the Equity Fund may provide comparative performance information
appearing in the Growth & Income Funds category. In addition, the Funds may also
use comparative performance information of relevant indices, including the
following:
Lehman Brothers Mortgage-Backed Securities Index, which measures the
performance of 15 and 30-year fixed rate securities backed by mortgage pools of
the GNMA, the FHLMC and the FNMA. Graduated payment mortgages and balloons are
included in the index; buydowns, manufactured homes and graduated equity
mortgages are not.
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.
Dow Jones Industrial Average is a measurement of general market price
movement for 30 widely held stocks listed on the New York Stock Exchange.
S&P Utility Index is an unmanaged index consisting of three utility
groups totaling 40 companies -- 21 electric power companies, 11 natural gas
distributors and pipelines and 8 telephone companies.
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.
- 41 -
<PAGE>
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of July 3, 1997, Amivest Corporation, P.O. Box 370, Cooper Station,
New York, New York owned of record 32.14% of the outstanding shares of the
Government Mortgage Fund. Amivest Corporation may be deemed to control the
Government Mortgage Fund by virtue of the fact that it owns of record more than
25% of its outstanding shares. For purposes of voting on matters submitted to
shareholders, any person who owns more than 50% of the outstanding shares of a
Fund generally would be able to cast the deciding vote.
As of July 3, 1997, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
For the Sole Benefit of its Customers, 4800 Deer Lake Drive East, Jacksonville,
Florida owned of record 5.21% and 15.42% of the outstanding Class A and Class C
shares, respectively, of the Utility Fund; Orflex Employees 401K Plan, 470 W.
Northland Boulevard, Cincinnati, Ohio owned of record 7.04% of the outstanding
Class A shares of the Equity Fund; Martin S. Goldfarb, M.D., 919 N. Crescent,
Beverly Hills, California owned of record 16.76% of the outstanding Class A
shares of the Equity Fund; Clifford G. Neil Trust UA 3/15/96, Clifford G. Neil,
D.D.S. PC Profit Sharing Plan, 307 S. University, Carbondale, Illinois owned of
record 12.97% of the outstanding Class C shares of the Equity Fund; and The
Provident Bank Trustee, FBO KMK H. Weiss, P.O. Box 691198, Cincinnati, Ohio
owned of record 8.69% of the outstanding Class C shares of the Equity Fund.
As of July 3, 1997, the Trustees and officers of the Trust as a group
owned of record or beneficially 1.06% of the outstanding shares of the Trust,
including 1.23% of the outstanding Class A shares of the Utility Fund, 2.90% of
the outstanding Class A shares of the Equity Fund, 4.24% of the outstanding
Class C shares of the Equity Fund and less than 1% of the outstanding shares of
each other Fund (or Class thereof).
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has
been retained to act as Custodian for each Fund's investments. The Fifth Third
Bank acts as each Fund's depository, safekeeps its portfolio securities,
collects all income and other payments with respect thereto, disburses funds as
instructed and maintains records in connection with its duties. As compensation,
The Fifth Third Bank receives from each Fund a base fee at the annual rate of
.005% of average net assets (subject to a minimum annual fee of $1,500 per Fund
and a maximum fee of $5,000 per Fund) plus transaction charges for each security
transaction of the Funds.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent
auditors for the Trust for the fiscal year ending
- 42 -
<PAGE>
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 Adviser by
reason of common ownership. CFS receives for its services as transfer agent a
fee payable monthly at an annual rate of $21 per account from the Government
Mortgage Fund and $17 per account from each of the Utility Fund and the Equity
Fund; provided, however, that the minimum fee is $1,000 per month for each class
of shares of a Fund. In addition, the Funds pay out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts, forms,
reports, record storage and communication lines.
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, the Government
Mortgage Fund pays CFS a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $3,250
50,000,000 - 100,000,000 3,750
100,000,000 - 250,000,000 4,250
Over 250,000,000 4,750
The Utility Fund and the Equity Fund each pay CFS a fee in accordance with the
following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $3,500
50,000,000 - 100,000,000 4,000
100,000,000 - 150,000,000 4,500
150,000,000 - 200,000,000 5,000
200,000,000 - 250,000,000 5,500
Over 250,000,000 6,500
In addition, each Fund pays all costs of external pricing services.
- 43 -
<PAGE>
CFS is retained by the Adviser to assist the Adviser 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
Adviser equal to .1% of the average value of each Fund's daily net assets. The
Adviser 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 Adviser.
ANNUAL REPORT
- --------------
The Funds' financial statements as of March 31, 1997 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
- 44 -
<PAGE>
Photo of Robert H. Leshner
LETTER FROM THE PRESIDENT
===============================================================================
Dear Fellow Shareholders:
We are pleased to present the audited annual report for the Countrywide
Strategic Trust for the fiscal year ended March 31, 1997.
As you may already have noticed, our name and look have changed. We are
answering the phone as Countrywide Investments, and your statement bears the
Countrywide brand. Our Funds are now listed under the Countrywide name in local
and national newspapers, magazines and other publications.
Countrywide has a long-term commitment to be a leading provider of financial
services. It views the acquisition of Midwest Group as an opportunity to offer a
broader variety of financial products and services to complement its residential
lending and servicing operations. If we can be of assistance to you with your
home loan needs, please don't hesitate to call us at 800-586-9150, our hotline
number especially for Countrywide Investments shareholders.
As a result of these exciting changes, we now have access to Countrywide's broad
managerial, financial and technological resources. These tools will help us to
ensure that we continue to develop and deliver quality investment products and
services to help meet your financial goals.
What has not changed is the Funds' management team and the investment strategies
employed by the Funds. We remain committed to providing you with the same level
of quality service to which you are accustomed.
The economic expansion continues and inflation is nowhere to be found. Millions
of jobs have been added and the resulting unemployment rate is at its lowest
level since 1974. Spurred on by high employment and wages, consumer confidence
is near an all-time high.
We believe the economy will continue to enjoy moderate growth with few
inflationary threats. Though volatility in the equity markets is likely to
continue, relatively tame inflation and the sustainable level of economic growth
should provide a good foundation for stock prices. We expect large cap stocks to
continue to outperform their smaller cap peers, as investors will be more
inclined to own larger, well-known stocks.
The Countrywide Equity Fund and the Countrywide Utility Fund offer relatively
conservative ways to participate in the equity markets. The Equity Fund is
currently invested primarily in stocks comprising the S&P 500 Index. The Utility
Fund invests across the four utility sectors -- electric, gas, water and
telecommunications, providing investors with a degree of diversification within
this particular industry.
The Countrywide U.S. Government Securities Fund is a high-quality choice for
investors seeking current income, consistent with the protection of capital.
Countrywide Investments remains committed to providing conservative,
high-quality opportunities to help investors meet their financial goals. Our
success can be attributed to the support of shareholders like you. We thank you
for your continued confidence and look forward to serving your investment needs
in the years to come.
Sincerely,
/s/ Robert H. Leshner
Robert H. Leshner
President
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The U.S. Government Securities Fund seeks high current income, consistent with
the protection of capital, by investing primarily in mortgage-backed securities
which are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. For the fiscal year ended March
31, 1997, the Fund's total return (excluding the impact of the maximum 2%
front-end sales load) was 3.76%, as compared to 5.95% for the Lehman Brothers
Mortgage-Backed Securities Index.
The economy gained momentum in fiscal 1997 with gross domestic product (GDP)
averaging over 4.0% growth, up dramatically from the 1.7% average in fiscal
1996. This momentum was confirmed early in the year by a series of payroll
reports showing phenomenal job growth and a declining unemployment rate. The
fear of wage inflation helped push the yield on the 30-year Treasury bond to
7.20%. Generally speaking, bonds traded in a historically tight range during
most of fiscal 1997. When reviewing the fiscal year in its entirety, the most
striking factor in the taxable, fixed-income markets was the decline in interest
rate volatility, which favored mortgage-backed securities and other callable
securities.
Exposure to Treasury and non-callable U.S. Government agency securities (which
tend to lag mortgage-backed securities in a rising interest rate environment)
contributed to the Fund's underperformance during the early portion of the
fiscal year. A fundamental repositioning of the Fund took place in October 1996
in an effort to take advantage of declining volatility in the fixed-income
markets. Treasury and agency securities were sold from the investment portfolio
with the proceeds invested in pass-through mortgage-backed securities.
Subsequent to this repositioning, the Fund performed well over the remainder of
the fiscal year, benefitting from the combination of declining interest rate
volatility and a 75% to 80% weighting in mortgage-backed securities.
The Fund is positioned rather defensively as we move into fiscal 1998. The
duration of the Fund is in line with the peer group average and its exposure to
the mortgage-backed sector remains close to 80%. With mortgage-backed securities
having performed exceptionally well versus Treasury issues, positive relative
performance going forward could be difficult. With that in mind, we will turn
our focus to other mortgage-backed issues and U.S. Government agency securities
which have better upside potential. Once it appears the economy is slowing, we
will look to extend the duration of the Fund.
<TABLE>
<CAPTION>
<PAGE>
A REPRESENTATION OF THE GRAPHIC MATERIAL CONTAINED IN THE COUNTRYWIDE STRATEGIC
TRUST MARCH 31, 1997 ANNUAL REPORT IS SET FORTH BELOW:
Comparison of the Change in Value of a $10,000 Investment in the U.S. Government
Securities Fund* and the Lehman Brothers Mortgage-Backed Securities Index
LEHMAN BROTHERS MORTGAGE-BACKED U.S. GOVERNMENT SECURITIES FUND:
SECURITIES INDEX:
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
03/31/87 10,000 03/31/87 9,800
06/30/87 -1.37% 9,863 06/30/87 -2.63% 9,542
09/30/87 -2.08% 9,658 09/30/87 -4.12% 9,149
12/31/87 5.65% 10,204 12/31/87 6.63% 9,756
03/31/88 4.28% 10,640 03/31/88 3.42% 10,090
06/30/88 1.67% 10,818 06/30/88 1.44% 10,234
09/30/88 2.37% 11,074 09/30/88 2.16% 10,455
12/31/88 0.18% 11,094 12/31/88 0.63% 10,521
03/31/89 1.24% 11,232 03/31/89 0.66% 10,590
06/30/89 7.76% 12,103 06/30/89 5.05% 11,125
09/30/89 1.65% 12,303 09/30/89 0.85% 11,219
12/31/89 4.00% 12,795 12/31/89 3.47% 11,608
03/31/90 0.13% 12,812 03/31/90 -0.92% 11,501
06/30/90 3.79% 13,297 06/30/90 2.97% 11,842
09/30/90 1.48% 13,494 09/30/90 0.94% 11,954
12/31/90 4.98% 14,166 12/31/90 4.92% 12,543
03/31/91 3.07% 14,601 03/31/91 2.12% 12,808
06/30/91 1.90% 14,879 06/30/91 1.78% 13,037
09/30/91 5.48% 15,694 09/30/91 4.57% 13,632
12/31/91 4.45% 16,392 12/31/91 3.95% 14,171
03/31/92 -0.86% 16,251 03/31/92 -1.06% 14,020
06/30/92 4.02% 16,905 06/30/92 3.97% 14,576
09/30/92 2.98% 17,408 09/30/92 3.09% 15,026
12/31/92 0.72% 17,534 12/31/92 0.13% 15,045
03/31/93 2.96% 18,053 03/31/93 4.10% 15,662
06/30/93 1.86% 18,389 06/30/93 2.61% 16,071
09/30/93 0.96% 18,565 09/30/93 1.38% 16,292
12/31/93 0.90% 18,732 12/31/93 0.23% 16,330
03/31/94 -2.32% 18,298 03/31/94 -3.80% 15,709
06/30/94 -0.56% 18,195 06/30/94 -3.94% 15,090
09/30/94 0.87% 18,353 09/30/94 -0.13% 15,071
12/31/94 0.43% 18,432 12/31/94 -0.15% 15,047
03/31/95 5.24% 19,398 03/31/95 4.46% 15,719
06/30/95 5.22% 20,411 06/30/95 5.10% 16,521
09/30/95 2.10% 20,839 09/30/95 1.39% 16,750
12/31/95 3.32% 21,531 12/31/95 3.83% 17,392
03/31/96 -0.44% 21,436 03/31/96 -2.04% 17,037
06/30/96 0.80% 21,608 06/30/96 -0.28% 16,989
09/30/96 2.05% 22,051 09/30/96 1.57% 17,256
12/31/96 2.88% 22,686 12/31/96 2.60% 17,705
03/31/97 0.13% 22,715 03/31/97 -0.15% 17,679
Past performance is not predictive of future performance.
U.S. Government Securities Fund
Average Annual Total Returns
1 Year 5 Years 10 Years
1.69% 4.32% 5.86%
*The initial public offering of shares commenced on June 4, 1984.
</TABLE>
<PAGE>
TREASURY TOTAL RETURN FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Treasury Total Return Fund seeks the highest level of total return over the
long term, consistent with the protection of capital, by investing primarily in
direct obligations of the United States Treasury. High current income is a
secondary objective. For the fiscal year ended March 31, 1997, the Fund's total
return (excluding the impact of the maximum 4% front-end sales load) was 1.73%,
as compared to 4.20% for the Merrill Lynch Treasuries (All Maturities) Index.
Fiscal year 1997 began on a dour note with the yield on the 30-year Treasury
bond completing its climb from 5.90% to 7.20%. The spike in interest rates was
due to accelerating economic growth and the fear of wage pressures. Inflation,
usually a by-product of strong economic growth, remained quiet. This odd
combination of a robust economy and nominal inflation allowed bonds to trade in
a well-defined range (6.80% to 7.20% on the 30-year Treasury bond) for much of
the fiscal year. The fixed income markets did stage an impressive rally in the
latter part of the year, only to be followed by an equally impressive sell-off,
returning interest rates to the trading range established earlier in the year.
Economic growth and inflation were uncharacteristically consistent throughout
the fiscal year, resulting in declining interest rate volatility and fewer
trading opportunities.
With the heightened uncertainty (and rising interest rates) at the beginning of
the fiscal year, management pursued an investment strategy whereby approximately
half of Fund assets were invested in the 5-year Treasury note, with the other
half invested in a combination of cash and Treasury bills. This strategy was
effective, producing superior results relative to the Fund's peer group
throughout most of the fiscal year. In February 1997, strategic modelling
dictated a repositioning of the investment portfolio with a concentration in
30-year Treasury bonds. The ensuing spike in interest rates generated sub-par
performance for the month and ultimately hindered performance for the year ended
March 31, 1997.
The Fund entered fiscal 1998 conservatively positioned in Treasury bills and
cash. On May 19, 1997, the Board of Trustees approved a mandatory redemption of
all shares of the Fund to occur on or about July 15, 1997. In light of this
mandatory redemption, management will maintain the short-term position of the
Fund's investment portfolio.
<PAGE>
<TABLE>
<CAPTION>
Comparison of the Change in Value of a $10,000 Investment in the Treasury
Total Return Fund* and the Merrill Lynch Treasuries (All Maturities) Index
MERRILL LYNCH TREASURIES TREASURY TOTAL RETURN FUND:
(ALL MATURITIES) INDEX:
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
01/26/88 10,000 01/26/88 9,600
03/31/88 1.29% 10,129 03/31/88 -3.14% 9,299
06/30/88 0.89% 10,219 06/30/88 -1.80% 9,131
09/30/88 1.72% 10,394 09/30/88 1.38% 9,257
12/31/88 0.94% 10,492 12/31/88 -0.52% 9,209
03/31/89 1.06% 10,602 03/31/89 4.17% 9,593
06/30/89 8.21% 11,473 06/30/89 5.92% 10,161
09/30/89 0.79% 11,563 09/30/89 -0.69% 10,090
12/31/89 3.71% 11,992 12/31/89 4.46% 10,540
03/31/90 -1.24% 11,843 03/31/90 -4.70% 10,045
06/30/90 3.43% 12,250 06/30/90 3.90% 10,437
09/30/90 0.78% 12,345 09/30/90 -3.61% 10,059
12/31/90 5.55% 13,030 12/31/90 8.50% 10,914
03/31/91 2.03% 13,294 03/31/91 1.19% 11,044
06/30/91 1.39% 13,479 06/30/91 -0.73% 10,964
09/30/91 5.69% 14,245 09/30/91 8.21% 11,864
12/31/91 5.37% 15,010 12/31/91 6.35% 12,618
03/31/92 -1.77% 14,745 03/31/92 -4.61% 12,037
06/30/92 3.92% 15,323 06/30/92 3.06% 12,405
09/30/92 5.04% 16,095 09/30/92 5.20% 13,050
12/31/92 -0.01% 16,092 12/31/92 1.21% 13,207
03/31/93 4.55% 16,824 03/31/93 5.91% 13,988
06/30/93 2.88% 17,309 06/30/93 2.66% 14,360
09/30/93 3.29% 17,879 09/30/93 3.55% 14,870
12/31/93 -0.42% 17,803 12/31/93 -2.13% 14,554
03/31/94 -2.97% 17,274 03/31/94 -4.41% 13,913
06/30/94 -1.14% 17,077 06/30/94 -3.24% 13,463
09/30/94 0.40% 17,146 09/30/94 -0.95% 13,335
12/31/94 0.36% 17,207 12/31/94 1.41% 13,523
03/31/95 4.66% 18,009 03/31/95 1.08% 13,670
06/30/95 6.26% 19,136 06/30/95 1.36% 13,856
09/30/95 1.76% 19,473 09/30/95 1.18% 14,020
12/31/95 4.67% 20,381 12/31/95 1.26% 14,196
03/31/96 -2.32% 19,908 03/31/96 -0.87% 14,073
06/30/96 0.41% 19,990 06/30/96 0.32% 14,119
09/30/96 1.65% 20,319 09/30/96 1.29% 14,301
12/31/96 2.92% 20,913 12/31/96 1.76% 14,552
03/31/97 -0.80% 20,745 03/31/97 -1.62% 14,316
Past performance is not predictive of future performance.
Treasury Total Return Fund
Average Annual Total Returns
1 Year 5 Years Since Inception
(2.34%) 2.69% 3.98%
*The initial public offering of shares commenced on January 26, 1988.
</TABLE>
<PAGE>
UTILITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Utility Fund seeks a high level of current income by investing primarily in
securities of public utilities. Capital appreciation is a secondary objective.
The Fund's total returns for the fiscal year ended March 31, 1997 (excluding the
impact of the maximum 4% front-end sales load on Class A shares) were 5.61% and
4.82% for Class A shares and Class C shares, respectively.
Throughout most of fiscal 1997, the stock market continued its upward march,
while the bond market experienced lower bond prices and higher interest rates.
The Dow Jones Industrial Average (the Dow) gained in excess of 28% for the
calendar year, but one-third of its gain was attributed to just three stocks:
IBM, General Electric and United Technologies. The Dow and the S&P 500 Index
peaked in the first quarter of 1997, before retreating more than 5% from these
highs by March 31, 1997. Utility stocks were one of the worst performing sectors
of the Dow Jones Industry Groups for the year due to movement in interest rates
and the acceleration of deregulation. For the twelve months ended March 31,
1997, the S&P Utility Index returned 4.59%.
During the fiscal year 1997, there was a divergence among the four utility
sectors (electric, telecommunications, gas and water), with gas and water
utilities significantly outperforming the other two sectors. The Fund remained
diversified across all of these sectors with the heaviest concentration in the
electric area. While stock funds received record inflows of money, utility funds
had net outflows as investors chased after the higher returns in the growth
stock arena. Top performing stocks for the Fund included MCN Corp., Nicor, Inc.
and CINergy Corp. During the fiscal year, Bell Atlantic Corp., Enron Corp. and
CINergy Corp. were purchased into the Fund while Florida Progress Corp. and
Montana Power Co. were sold.
Looking forward, management expects volatility to continue in the utility sector
as long as the possibility for higher interest rates remains. Longer term, we
believe utilities are an attractive investment as the valuations and yields are
extremely compelling. As deregulation issues are resolved, quality utility
companies that are poised for competition and growth should thrive. The Fund
will continue to seek companies that are positioned favorably for the future and
have a strong potential for dividend increases, improving fundamentals,
financial stability and reasonable growth.
<PAGE>
<TABLE>
<CAPTION>
Comparison of the Change in Value of a $10,000 Investment in the Utility Fund*
and the Standard & Poor's Utility Index
STANDARD & POOR'S UTILITY INDEX: UTILITY FUND (CLASS A):
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
08/16/89 10,000 08/16/89 9,600
09/30/89 2.43% 10,243 09/30/89 0.73% 9,671
12/31/89 11.42% 11,412 12/31/89 6.72% 10,320
03/31/90 -7.45% 10,562 03/31/90 -1.99% 10,115
06/30/90 0.53% 10,618 06/30/90 0.28% 10,144
09/30/90 -4.50% 10,140 09/30/90 -2.86% 9,854
12/31/90 9.67% 11,120 12/31/90 7.19% 10,562
03/31/91 2.22% 11,367 03/31/91 4.61% 11,049
06/30/91 -4.20% 10,889 06/30/91 0.60% 11,115
09/30/91 7.90% 11,749 09/30/91 9.26% 12,144
12/31/91 8.49% 12,746 12/31/91 6.72% 12,960
03/31/92 -9.34% 11,556 03/31/92 -4.66% 12,356
06/30/92 7.79% 12,457 06/30/92 4.44% 12,905
09/30/92 7.88% 13,438 09/30/92 3.82% 13,398
12/31/92 2.53% 13,777 12/31/92 4.14% 13,953
03/31/93 10.79% 15,264 03/31/93 6.84% 14,906
06/30/93 1.86% 15,548 06/30/93 1.50% 15,130
09/30/93 6.70% 16,589 09/30/93 2.82% 15,556
12/31/93 -5.76% 15,634 12/31/93 -3.11% 15,073
03/31/94 -8.50% 14,305 03/31/94 -3.20% 14,591
06/30/94 -0.00% 14,304 06/30/94 -0.83% 14,469
09/30/94 0.45% 14,369 09/30/94 1.32% 14,660
12/31/94 -0.10% 14,355 12/31/94 0.74% 14,769
03/31/95 6.93% 15,349 03/31/95 2.43% 15,128
06/30/95 7.44% 16,491 06/30/95 5.03% 15,890
09/30/95 11.28% 18,350 09/30/95 6.90% 16,986
12/31/95 11.22% 20,409 12/31/95 9.96% 18,677
03/31/96 -4.78% 19,434 03/31/96 -1.46% 18,404
06/30/96 5.01% 20,408 06/30/96 4.77% 19,283
09/30/96 -3.31% 19,732 09/30/96 -3.27% 18,651
12/31/96 6.62% 21,038 12/31/96 5.92% 19,755
03/31/97 -3.38% 20,326 03/31/97 -1.61% 19,437
Past performance is not predictive of future performance.
Utility Fund
Average Annual Total Returns
1 Year 5 Years Since Inception
Class A 1.39% 8.59% 9.10%
Class C 4.82% --- 5.96%
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and
fees paid by shareholders in the different classes. The initial public
offering of Class A shares commenced on August 15, 1989, and the initial
public offering of Class C shares commenced on August 2, 1993.
</TABLE>
<PAGE>
EQUITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Equity Fund seeks long-term capital appreciation by investing primarily in
common stocks of companies that offer growth potential. The Fund's total returns
for the fiscal year ended March 31, 1997 (excluding the impact of the maximum 4%
front-end sales load for Class A shares) were 11.82% and 11.01% for Class A
shares and Class C shares, respectively.
Economic growth advanced at a greater than expected pace throughout the fiscal
year. Strong employment growth and high levels of consumer confidence translated
into increased spending and higher interest rates. Despite the strong economy,
inflation remained tame with some of the most-watched measures of inflation
flirting with their lowest levels in thirty years. Strong corporate earnings
provided a backdrop for higher stock prices. Yet most market gains were fairly
narrow as large capitalization stocks again outperformed in what could be
described as a "flight to quality" strategy. The Federal Reserve Board raised
short-term interest rates 0.25% in the first quarter of 1997, which led to a
brief market selloff. For the twelve months ended March 31, 1997, the S&P 500
Index returned 19.83%.
The Fund remained well-diversified during the fiscal year. Management continued
to emphasize quality, growth-oriented companies positioned to perform well in
their industries over the long term. Some of the Fund's holdings in the cyclical
and healthcare sectors of the equity market, however, adversely affected
performance as these sectors were subject to multiple selloffs throughout the
fiscal year. Holdings in financial services, technology and consumer staples
(non-cyclical) contributed positively to performance. Top performing stocks for
the Fund included Intel Corp., Bank of New York Co., Inc., General Electric Co.
and Bristol-Myers Squibb Co.
Despite the possibility of higher near-term interest rates, our outlook for
stock prices remains fairly positive. Management expects inflation to remain
under control, economic growth to moderate and corporate profits to continue
their upward climb, albeit at a slower pace. Companies will need to continue to
cut costs to remain competitive in the global economy as productivity and
efficiency become more important. Management anticipates continued investments
in the financial services, technology and healthcare sectors of the equity
market. The Fund will continue to seek opportunities in quality companies that
are leaders in their industries, with strong product lines and managements that
position their companies for future growth.
<PAGE>
<TABLE>
<CAPTION>
Comparison of the Change in Value of a $10,000 Investment in the Equity Fund*
and the Standard & Poor's 500 Index
STANDARD & POOR'S 500 INDEX: EQUITY FUND (CLASS C):
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
06/07/93 10,000 06/07/93 10,000
06/30/93 0.78% 10,078 06/30/93 0.10% 10,010
09/30/93 2.58% 10,338 09/30/93 1.20% 10,130
12/31/93 2.32% 10,578 12/31/93 -1.34% 9,994
03/31/94 -3.79% 10,177 03/31/94 -2.85% 9,709
06/30/94 0.42% 10,220 06/30/94 -4.04% 9,317
09/30/94 4.88% 10,718 09/30/94 5.05% 9,787
12/31/94 -0.02% 10,716 12/31/94 -0.37% 9,751
03/31/95 9.74% 11,760 03/31/95 6.86% 10,419
06/30/95 9.55% 12,883 06/30/95 6.48% 11,095
09/30/95 7.95% 13,907 09/30/95 7.19% 11,893
12/31/95 6.02% 14,744 12/31/95 7.43% 12,776
03/31/96 5.37% 15,535 03/31/96 3.49% 13,222
06/30/96 4.49% 16,232 06/30/96 4.35% 13,797
09/30/96 3.09% 16,734 09/30/96 2.23% 14,105
12/31/96 8.34% 18,129 12/31/96 2.74% 14,491
03/31/97 2.68% 18,615 03/31/97 1.29% 14,678
Past performance is not predictive of future performance.
Equity Fund
Average Annual Total Returns
1 Year Since Inception
Class A 7.35% 10.57%
Class C 11.01% 10.59%
*The chart above represents performance of Class C shares only, which will
vary from the performance of Class A shares based on the differences in loads
and fees paid by shareholders in the different classes. The initial public
offering of Class C shares commenced on June 7, 1993, and the initial public
offering of Class A shares commenced on August 2, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1997
===============================================================================
U.S. TREASURY
GOVERNMENT TOTAL
SECURITIES RETURN
FUND FUND
- - -------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investments in securities:
At acquisition cost...................... $ 19,990,769 $ 9,279,769
=============== ===============
At amortized cost........................ $ 20,000,988 $ 9,314,121
=============== ===============
At value (Note 2)........................ $ 19,781,936 $ 9,311,743
Investments in repurchase agreements (Note 2) 1,960,000 799,000
Cash ....................................... 2,994 433
Receivable for capital shares sold.......... 1,081 2,280
Receivable from Adviser (Note 4)............ -- 1,463
Interest receivable......................... 153,410 113
Other assets................................ 2,389 1,961
--------------- ---------------
TOTAL ASSETS............................. 21,901,810 10,116,993
--------------- --------------
LIABILITIES
Payable for capital shares redeemed......... 17,646 41,168
Dividends payable........................... 14,409 5,286
Payable to affiliates (Note 4).............. 16,690 4,600
Other accrued expenses and liabilities...... 9,850 6,567
--------------- ---------------
TOTAL LIABILITIES........................ 58,595 57,621
--------------- ---------------
NET ASSETS ................................. $ 21,843,215 $ 10,059,372
=============== ===============
Net assets consist of:
Paid-in capital............................. $ 26,526,256 $ 12,694,500
Accumulated net realized losses from
security transactions...................... (4,463,989) (2,632,750)
Net unrealized depreciation on
investments................................ (219,052) (2,378)
--------------- ---------------
Net assets.................................. $ 21,843,215 $ 10,059,372
=============== ===============
Shares of beneficial interest outstanding
(unlimited number
of shares authorized, no par value)(Note 5) 2,366,923 1,254,345
=============== ===============
Net asset value and redemption price
per share (Note 2)......................... $ 9.23 $ 8.02
=============== ===============
Maximum offering price per share (Note 2)... $ 9.42 $ 8.35
=============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1997
===============================================================================
UTILITY EQUITY
FUND FUND
- - -------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C>
At acquisition cost...................... $ 29,830,379 $ 10,669,330
=============== ===============
At amortized cost ....................... $ 29,819,096 $ 10,669,330
=============== ===============
At value (Note 2)........................ $ 36,453,797 $ 13,356,071
Investments in repurchase agreements (Note 2) 2,721,000 4,437,000
Cash ....................................... 574 --
Receivable for capital shares sold ......... 13,026 5,604
Receivable for securities sold.............. -- 355,038
Dividends and interest receivable........... 154,884 11,117
Other assets................................ 5,079 2,113
--------------- ---------------
TOTAL ASSETS............................. 39,348,360 18,166,943
--------------- ---------------
LIABILITIES
Bank overdraft.............................. -- 354,042
Payable for capital shares redeemed......... 82,008 39,013
Dividends payable........................... 35,727 733
Payable to affiliates (Note 4).............. 27,939 13,113
Other accrued expenses and liabilities...... 16,259 7,251
--------------- ---------------
TOTAL LIABILITIES........................ 161,933 414,152
--------------- ---------------
NET ASSETS ................................. $ 39,186,427 $ 17,752,791
=============== ===============
Net assets consist of:
Paid-in capital............................. $ 32,299,943 $ 14,901,612
Accumulated net realized gains from
security transactions...................... 251,541 164,431
Undistributed net investment income......... 242 7
Net unrealized appreciation on investments.. 6,634,701 2,686,741
--------------- ---------------
Net assets.................................. $ 39,186,427 $ 17,752,791
=============== ===============
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares... $ 36,087,240 $ 14,982,638
=============== ===============
Shares of beneficial interest outstanding
(unlimited number f shares authorized,
no par value) (Note 5)..................... 2,900,247 1,088,598
=============== ===============
Net asset value and redemption price
per share (Note 2)......................... $ 12.44 $ 13.76
=============== ===============
Maximum offering price per share (Note 2)... $ 12.96 $ 14.33
=============== ===============
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares .. $ 3,099,187 $ 2,770,153
=============== ===============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5)..................... 249,358 201,191
=============== ===============
Net asset value, offering price and
redemption price per share (Note 2)........ $ 12.43 $ 13.77
=============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1997
===============================================================================
U.S. TREASURY
GOVERNMENT TOTAL
SECURITIES RETURN
FUND FUND
- - -------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest................................. $ 1,581,093 $ 673,624
--------------- ---------------
EXPENSES
Investment advisory fees (Note 4)........ 168,101 92,874
Accounting services fees (Note 4)........ 39,000 33,000
Transfer agent fees (Note 4)............. 20,620 29,782
Postage and supplies..................... 13,323 18,569
Professional fees........................ 11,623 8,623
Registration fees........................ 9,363 9,435
Custodian fees........................... 7,379 4,674
Trustees' fees and expenses.............. 5,948 5,948
Insurance expense........................ 3,536 2,678
Distribution expenses (Note 4)........... 1,934 1,098
Reports to shareholders.................. 1,304 1,648
Other expenses........................... 4,326 2,461
--------------- ---------------
TOTAL EXPENSES......................... 286,457 210,790
Fees waived by the Adviser (Note 4)........ (17,500) (56,000)
--------------- ---------------
NET EXPENSES........................... 268,957 154,790
--------------- ---------------
NET INVESTMENT INCOME....................... 1,312,136 518,834
--------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized losses from security
transactions................................ (386,798) (561,549)
Net change in unrealized
appreciation/depreciation on investments.... (119,168) 286,795
--------------- ---------------
NET REALIZED AND UNREALIZED LOSSES
ON INVESTMENTS ....................... (505,966) (274,754)
--------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.. $ 806,170 $ 244,080
=============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1997
===============================================================================
UTILITY EQUITY
FUND FUND
- - -------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends................................ $ 1,765,979 $ 165,852
Interest ................................ 320,037 157,477
--------------- ---------------
TOTAL INVESTMENT INCOME................ 2,086,016 323,329
--------------- ---------------
EXPENSES
Investment advisory fees (Note 4)......... 319,201 112,182
Accounting services fees (Note 4)......... 42,000 42,000
Transfer agent fees, Class A (Note 4)..... 37,542 12,000
Transfer agent fees, Class C (Note 4)..... 12,000 12,000
Distribution expenses, Class A (Note 4)... 48,663 791
Distribution expenses, Class C (Note 4)...... 15,492 6,027
Postage and supplies..................... 23,180 9,341
Registration fees, Common ............... 3,712 2,461
Registration fees, Class A............... 7,294 6,348
Registration fees, Class C............... 6,104 5,428
Professional fees........................ 18,123 9,123
Custodian fees .......................... 6,595 5,799
Trustees' fees and expenses.............. 5,948 5,948
Insurance expense ....................... 5,273 1,953
Reports to shareholders.................. 3,086 959
Other expenses........................... 3,252 1,761
--------------- ---------------
TOTAL EXPENSES......................... 557,465 234,121
Fees waived by the Adviser (Note 4)...... -- (21,000)
Class A expenses reimbursed by the
Adviser (Note 4)........................ -- (5,834)
--------------- ---------------
NET EXPENSES........................... 557,465 207,287
--------------- ---------------
NET INVESTMENT INCOME....................... 1,528,551 116,042
--------------- ---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security
transactions............................ 349,605 482,875
Net change in unrealized
appreciation/depreciation on investments. 517,054 952,569
--------------- ---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 866,659 1,435,444
--------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.. $ 2,395,210 $ 1,551,486
=============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended March 31, 1997 and 1996
=============================================================================================================
U.S. GOVERNMENT TREASURY TOTAL
SECURITIES FUND RETURN FUND
1997 1996 1997 1996
- - -------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income....................... $ 1,312,136 $ 1,542,510 $ 518,834 $ 998,195
Net realized gains (losses) from security
transactions.............................. (386,798) 1,132,774 (561,549) 19,746
Net change in unrealized appreciation/
depreciation on investments............... (119,168) (506,128) 286,795 (305,916)
------------ ------------- ----------- -----------
Net increase in net assets from operations..... 806,170 2,169,156 244,080 712,025
------------ ------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.................. (1,312,136) (1,542,510) (518,834) (998,195)
------------ ------------- ----------- -----------
Decrease in net assets from distributions
to shareholders........................... (1,312,136) (1,542,510) (518,834) (998,195)
------------ ------------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold................... 2,971,422 3,262,088 131,548 541,010
Net asset value of shares issued in
reinvestment of distributions to shareholders 1,068,202 1,232,943 433,120 863,694
Payments for shares redeemed................. (6,606,868) (6,379,727) (5,574,811) (11,748,023)
------------ ------------- ----------- -----------
Net decrease in net assets from capital
share transactions.......................... (2,567,244) (1,884,696) (5,010,143) (10,343,319)
------------ ------------- ----------- ------------
TOTAL DECREASE IN NET ASSETS .................. (3,073,210) (1,258,050) (5,284,897) (10,629,489)
NET ASSETS:
Beginning of year........................... 24,916,425 26,174,475 15,344,269 25,973,758
------------ ------------- ------------- -------------
End of year................................. $ 21,843,215 $ 24,916,425 $10,059,372 $15,344,269
============ ============= ============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended March 31, 1997 and 1996
==============================================================================================================
UTILITY EQUITY
FUND FUND
1997 1996 1997 1996
- - --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income....................... $ 1,528,551 $ 1,706,915 $ 116,042 $ 68,491
Net realized gains from security transactions 349,605 338,447 482,875 292,780
Net change in unrealized appreciation/
depreciation on investments............... 517,054 6,353,364 952,569 1,472,570
------------ ------------ ----------- -----------
Net increase in net assets from operations..... 2,395,210 8,398,726 1,551,486 1,833,841
------------ ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A......... (1,429,043) (1,586,046) (112,251) (59,987)
From net investment income, Class C......... (99,266) (120,869) (3,811) (8,477)
From net realized gains on security
transactions, Class A...................... (62,089) -- (43,452) --
From net realized gains on security
transactions, Class C...................... (5,448) -- (9,121) --
------------ ------------ ---------- ---------
Decrease in net assets from distributions
to shareholders........................... (1,595,846) (1,706,915) (168,635) (68,464)
------------ ------------ ---------- ---------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold................... 3,695,972 5,363,503 7,488,016 4,389,037
Net asset value of shares issued in
reinvestment of distributions to
shareholders.............................. 1,310,464 1,407,457 149,729 57,517
Payments for shares redeemed................ (10,075,932) (12,476,946) (2,279,007) (1,513,954)
------------ ------------ ----------- ----------
Net increase (decrease) in net assets from
Class A share transactions.................. (5,069,496) (5,705,986) 5,358,738 2,932,600
------------ ------------ ----------- ----------
CLASS C
Proceeds from shares sold................... 978,844 1,386,159 665,009 485,970
Net asset value of shares issued in
reinvestment of distributions to
shareholders.............................. 90,743 111,439 12,637 8,355
Payments for shares redeemed................ (1,723,275) (1,984,950) (604,567) (549,348)
------------ ------------- ----------- ----------
Net increase (decrease) in net assets from
Class C share transactions.................. (653,688) (487,352) 73,079 (55,023)
----------- ----------- ---------- ----------
Net increase (decrease) from capital
share transactions............................ (5,723,184) (6,193,338) 5,431,817 2,877,577
----------- ------------ ----------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... (4,923,820) 498,473 6,814,668 4,642,954
NET ASSETS:
Beginning of year........................... 44,110,247 43,611,774 10,938,123 6,295,169
------------ ------------ ----------- ----------
End of year................................. $ 39,186,427 $ 44,110,247 $17,752,791 $10,938,123
============ ============ ============ ===========
UNDISTRIBUTED NET INVESTMENT INCOME ......... $ 242 $ -- $ 7 $ 27
============ ============== ============ ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
===============================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
===============================================================================================================
Year Ended March 31,
===============================================================================================================
1997 1996 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 9.43 $ 9.22 $ 9.85 $ 10.47 $ 10.18
-------- -------- -------- --------- ----------
Income from investment operations:
Net investment income........................ 0.55 0.56 0.58 0.64 0.69
Net realized and unrealized
gains (losses) on investments.............. (0.20) 0.21 (0.59) (0.59) 0.47
-------- --------- -------- --------- ----------
Total from investment operations................ 0.35 0.77 (0.01) 0.05 1.16
---------- --------- -------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.55) (0.56) (0.58) (0.64) (0.69)
Distributions from net realized gains........ -- -- (0.04) (0.03) (0.18)
---------- --------- -------- --------- ----------
Total distributions............................. (0.55) (0.56) (0.62) (0.67) (0.87)
---------- --------- -------- --------- ----------
Net asset value at end of year.................. $ 9.23 $ 9.43 $ 9.22 $ 9.85 $ 10.47
========== ========= ======== ======== ==========
Total return(A) ................................ 3.76% 8.39% 0.06% 0.30% 11.71%
========== ========= ======== ======== =========
Net assets at end of year (000's) .............. $ 21,843 $ 24,916 $ 26,174 $ 40,479 $31,633
========== ========= ======== ======== =========
Ratio of expenses to average net assets(B) ..... 1.20% 1.20% 1.20% 1.20% 1.20%
Ratio of net investment income to
average net assets......................... 5.84% 5.82% 6.26% 6.14% 6.61%
Portfolio turnover rate......................... 76% 160% 205% 246% 188%
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.28% and 1.24% for the years ended March 31, 1997
and 1996, respectively (Note 4).
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
=================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
=================================================================================================================
Year Ended March 31,
=================================================================================================================
1997 1996 1995 1994 1993
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 8.22 $ 8.36 $ 8.95 $ 9.70 $ 9.10
---------- --------- ---------- -------- ---------
Income from investment operations:
Net investment income........................ 0.34 0.38 0.43 0.37 0.55
Net realized and unrealized
gains (losses) on investments.............. (0.20) (0.14) (0.59) (0.39) 0.87
---------- --------- --------- --------- ---------
Total from investment operations................ 0.14 0.24 (0.16) (0.02) 1.42
---------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income ........ (0.34) (0.38) (0.43) (0.37) (0.55)
Distributions from net realized gains ....... -- -- -- (0.36) (0.27)
---------- --------- ---------- --------- ----------
Total distributions............................. (0.34) (0.38) (0.43) (0.73) (0.82)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 8.02 $ 8.22 $ 8.36 $ 8.95 $ 9.70
========== ========= ========== ========= ==========
Total return(A) ................................ 1.73% 2.95% (1.75%) (0.54%) 16.21%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 10,059 $ 15,344 $ 25,974 $ 32,190 $43,427
========== ========= ========= ========= ==========
Ratio of expenses to average net assets(B) ..... 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average net assets 4.19% 4.66% 5.06% 3.84% 5.82%
Portfolio turnover rate......................... 135% 0% 63% 526% 161%
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.70%, 1.42% and 1.37% for the years ended March 31,
1997, 1996 and 1995, respectively (Note 4).
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS A
FINANCIAL HIGHLIGHTS
================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
================================================================================================================
Year Ended March 31,
================================================================================================================
1997 1996 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 12.24 $ 10.47 $ 10.52 $ 11.34 $ 10.58
---------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income........................ 0.46 0.47 0.43 0.37 0.48
Net realized and unrealized
gains (losses) on investments.............. 0.22 1.77 (0.05) (0.59) 1.62
---------- --------- ---------- --------- ----------
Total from investment operations................ 0.68 2.24 0.38 (0.22) 2.10
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.46) (0.47) (0.43) (0.37) (0.48)
Distributions from net realized gains........ (0.02) -- -- (0.23) (0.86)
---------- --------- ---------- --------- ----------
Total distributions............................. (0.48) (0.47) (0.43) (0.60) (1.34)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 12.44 $ 12.24 $ 10.47 $ 10.52 $ 11.34
========== ========= ========== ========= ==========
Total return(A) ................................ 5.61% 21.65% 3.68% (2.11%) 20.64%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 36,087 $ 40,424 $ 40,012 $ 40,373 $42,051
========== ========= ========== ========= ==========
Ratio of expenses to average net assets......... 1.25% 1.25% 1.25% 1.25% 1.40%
Ratio of net investment income to average net assets 3.65% 3.97% 4.06% 3.32% 4.41%
Portfolio turnover rate......................... 3% 11% 17% 91% 137%
Average commission rate per share(B)............ $ 0.1200
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Beginning with the year ended March 31, 1997, the Fund is required to
disclose its average commission rate per share for security trades on which
commissions are charged.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS C
FINANCIAL HIGHLIGHTS
=================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
=================================================================================================================
Period Ended
Year Ended March 31, March 31,
1997 1996 1995 1994(A)
- - -----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
Net asset value at beginning of period......... $ 12.23 $ 10.46 $ 10.51 $ 11.55
------------ ------------ ----------- -----------
Income from investment operations:
Net investment income....................... 0.35 0.37 0.35 0.23
Net realized and unrealized gains
(losses) on investments..................... 0.24 1.78 (0.04) (0.81)
------------ ------------ ----------- -----------
Total from investment operations............... 0.59 2.15 0.31 (0.58)
------------ ------------ ----------- -----------
Less distributions:
Dividends from net investment income........ (0.37) (0.38) (0.36) (0.23)
Distributions from net realized gains....... (0.02) -- -- (0.23)
------------ ------------ ----------- -----------
Total distributions............................ (0.39) (0.38) (0.36) (0.46)
------------ ------------ ------------- -------------
Net asset value at end of period............... $ 12.43 $ 12.23 $ 10.46 $ 10.51
============ ============ =========== ===========
Total return(B) ............................... 4.82% 20.78% 3.00% 7.89%)(D)
============ ============= =========== ===========
Net assets at end of period (000's)............ $ 3,099 $ 3,686 $ 3,599 $ 1,742
============ ============= =========== ===========
Ratio of expenses to average net assets ....... 2.00% 2.00% 2.00% 2.00%(D)
Ratio of net investment income to
average net assets........................... 2.89% 3.19% 3.41% 2.19%(D)
Portfolio turnover rate........................ 3% 11% 17% 91%(D)
Average commission rate per share(C)........... $ 0.1200
- - -------------------------------------------------------------------------------
<FN>
(A) Represents the period from date of public offering (August 2, 1993) through
March 31, 1994.
(B) The total returns shown do not include the effect of
applicable sales loads.
(C) Beginning with the year ended March 31, 1997, the Fund is required to
disclose its average commission rate per share for security trades on which
commissions are charged.
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS A
FINANCIAL HIGHLIGHTS
===============================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===============================================================================================================
Period Ended
Year Ended March 31, March 31,
1997 1996 1995 1994(A)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 12.45 $ 9.84 $ 9.26 $ 10.02
------------ ------------- ----------- -----------
Income from investment operations:
Net investment income....................... 0.12 0.13 0.15 0.08
Net realized and unrealized gains (losses)
on investments............................. 1.35 2.60 0.59 (0.34)
------------ ------------- ----------- -----------
Total from investment operations............... 1.47 2.73 0.74 (0.26)
------------ ------------- ----------- -----------
Less distributions:
Dividends from net investment income........ (0.12) (0.12) (0.16) (0.08)
Distributions from net realized gains....... (0.04) -- -- (0.42)
------------ ------------- ----------- -----------
Total distributions............................ (0.16) (0.12) (0.16) (0.50)
------------ ------------- ----------- -----------
Net asset value at end of period............... $ 13.76 $ 12.45 $ 9.84 $ 9.26
============ ============= =========== ===========
Total return(B) ............................... 11.82% 27.90% 8.07% (3.98%)(E)
============ ============= =========== =============
Net assets at end of period (000's)............ $ 14,983 $ 8,502 $ 4,300 $ 3,346
============ ============= =========== =============
Ratio of expenses to average net assets(C) ... 1.25% 1.25% 1.25% 1.24%(E)
Ratio of net investment income to
average net assets............................ 0.91% 1.06% 1.57% 0.82%(E)
Portfolio turnover rate........................ 38% 38% 159% 109%(E)
Average commission rate per share(D)........... $ 0.1199
<FN>
(A) Represents the period from date of public offering (August 2, 1993) through
March 31, 1994.
(B) The total returns shown do not include the effect of applicable sales loads.
(C) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.43%, 2.02%, 1.94% and
2.04%(E) for the periods ended March 31, 1997, 1996, 1995 and 1994,
respectively (Note 4).
(D) Beginning with the year ended March 31, 1997, the Fund is required to
disclose its average commission rate per share for security trades on which
commissions are charged.
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS C
FINANCIAL HIGHLIGHTS
===============================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===============================================================================================================
Period Ended
Year Ended March 31, March 31,
1997 1996 1995 1994(A)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 12.46 $ 9.86 $ 9.26 $ 10.00
------------ ------------ ------------ -----------
Income from investment operations:
Net investment income....................... 0.02 0.05 0.10 0.03
Net realized and unrealized gains (losses)
on investments............................. 1.35 2.60 0.57 (0.32)
------------ ------------ ----------- -----------
Total from investment operations............... 1.37 2.65 0.67 (0.29)
------------ ------------ ----------- -----------
Less distributions:
Dividends from net investment income........ (0.02) (0.05) (0.07) (0.03)
Distributions from net realized gains....... (0.04) -- -- (0.42)
------------ ------------ ----------- -----------
Total distributions............................ (0.06) (0.05) (0.07) (0.45)
------------ ------------ ----------- -----------
Net asset value at end of period............... $ 13.77 $ 12.46 $ 9.86 $ 9.26
============ ============ =========== ===========
Total return(B) ............................... 11.01% 26.90% 7.32% (3.58%)(E)
============ ============ =========== ===========
Net assets at end of period (000's)............ $ 2,770 $ 2,436 $ 1,995 $ 5,857
============ ============ =========== ===========
Ratio of expenses to average net assets(C) ... 2.00% 2.00% 2.00% 1.94%(E)
Ratio of net investment income to average
net assets.................................... 0.15% 0.38% 0.68% 0.58%(E)
Portfolio turnover rate........................ 38% 38% 159% 109%(E)
Average commission rate per share(D)........... $ 0.1199
- - ---------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from date of public offering (June 7, 1993) through
March 31, 1994.
(B) The total returns shown do not include the effect of
applicable sales loads.
(C) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 2.14%, 2.70%, 2.50% and
2.33%(E) for the periods ended March 31, 1997, 1996, 1995 and 1994,
respectively (Note 4).
(D) Beginning with the year ended March 31, 1997, the Fund is required to
disclose its average commission rate per share for security trades on which
commissions are charged.
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
===============================================================================
1. ORGANIZATION
The U.S. Government Securities Fund, the Treasury Total Return Fund, the Utility
Fund and the Equity Fund (collectively, the Funds) are each a diversified series
of shares of Countrywide Strategic Trust (the Trust). The Trust (formerly
Midwest Strategic Trust) is registered under the Investment Company Act of 1940
as an open-end management investment company. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November 18,
1982. The Declaration of Trust, as amended, permits the Trustees to issue an
unlimited number of shares of each Fund.
The U.S. Government Securities Fund seeks high current income, consistent with
the protection of capital, by investing primarily in obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies or instrumentalities (U.S. Government obligations). It is anticipated
that the Fund will invest primarily in mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association, the Federal Home
Loan Mortgage Corporation or the Federal National Mortgage Association.
The Treasury Total Return Fund seeks the highest level of total return over the
long term, consistent with the protection of capital, by investing primarily in
direct obligations of the United States Treasury. High current income is a
secondary objective. The maturities of the U.S. Treasury obligations in which
the Fund invests will be allocated based upon interest rate trends projected by
the Adviser.
The Utility Fund seeks a high level of current income by investing primarily in
securities of public utilities. Capital appreciation is a secondary objective.
The Equity Fund seeks long-term capital appreciation by investing primarily in
common stocks which are believed by the Adviser to offer growth potential.
The Utility Fund and the Equity Fund each offer two classes of shares: Class A
shares (sold subject to a maximum 4% front-end sales load and a distribution fee
of up to 0.25% of average daily net assets) and Class C shares (sold subject to
a maximum contingent deferred sales load of 1% if redeemed within a one-year
period from purchase and a distribution fee of up to 1% of average daily net
assets). Each Class A and Class C share of a Fund represents an identical
interest in the investment portfolio of such Fund and has the same rights,
except that (i) Class C shares bear the expenses of higher distribution fees,
which is expected to cause Class C shares to have a higher expense ratio and to
pay lower dividends than Class A shares; (ii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable; and (iii) each class has exclusive voting rights with respect to
matters relating to its own distribution arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of business of the regular session of the New York Stock Exchange (currently
4:00 p.m., Eastern time). U.S. Government obligations and mortgage-backed
securities are generally valued at their most recent bid price as obtained from
one or more of the major market makers for such securities or are valued based
on estimates of market values obtained from yield data relating to instruments
or securities with similar characteristics. Portfolio securities traded on stock
exchanges and securities traded in the over-the-counter market are valued at the
last sales price as of the close of business on the day the securities are being
valued. Securities not traded on a particular day, or for which the last sale
price is not readily available, are valued at the closing bid price quoted by
brokers that make markets in the securities. Securities 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.
<PAGE>
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' custodian, at the Federal
Reserve Bank of Cleveland. At the time each 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.
Share valuation -- The net asset value per share of the U.S. Government
Securities Fund and the Treasury Total Return Fund is calculated daily by
dividing the total value of each Fund's assets, less liabilities, by the number
of shares outstanding. The maximum offering price per share of the U.S.
Government Securities 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
maximum offering price per share of the Treasury Total Return 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). The redemption price per share of each Fund is
equal to the net asset value per share.
The net asset value per share of Class A shares and Class C shares of the
Utility Fund and the Equity Fund is calculated daily for each class by dividing
the total value of the Fund's assets attributable to that class, less
liabilities attibutable to that class, by the number of shares of that class
outstanding. The maximum offering price of Class A shares of each 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). The offering price of Class C shares of each Fund
is equal to net asset value per share.
The redemption price per share of Class A shares and Class C shares of the
Utility Fund and the Equity Fund is equal to the net asset value per share.
However, Class C shares of each Fund are subject to a contingent deferred sales
load of 1% of the original purchase price if redeemed within a one-year period
from the date of purchase.
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are amortized in accordance with income tax regulations which approximate
generally accepted accounting principles.
Distributions to shareholders -- Dividends arising from net investment income
are declared daily and paid on the last business day of each month to
shareholders of the U.S. Government Securities Fund and the Treasury Total
Return Fund. Dividends arising from net investment income, if any, are declared
and paid quarterly to shareholders of the Utility Fund and the Equity 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.
Allocations between classes -- Investment income earned, realized capital gains
and losses, and unrealized appreciation and depreciation for the Utility Fund
and the Equity Fund is allocated daily to each class of shares based upon its
proportionate share of total net assets of the Fund. Class specific expenses are
charged directly to the class incurring the expense. Common expenses which are
not attributable to a specific class are allocated daily to each class of shares
based upon its proportionate share of total net assets of the Fund.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Securities traded on a to-be-announced basis -- The U.S. Government Securities
Fund frequently trades portfolio securities on a "to-be-announced" (TBA) basis.
In a TBA transaction, the Fund has committed to purchase securities for which
all specific information is not yet known at the time of the trade, particularly
the face amount in mortgage-backed securities transactions. Securities purchased
on a TBA basis are not settled until they are delivered to the Fund, normally 15
to 45 days later. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other portfolio
securities. When effecting such transactions, assets of a dollar amount
sufficient to make payment for the portfolio securities to be purchased are
placed in a segregated account on the trade date.
<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 revenues 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 applicable 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 is 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 ending 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 March 31, 1997:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
U.S. Govt. Treasury Total
Securities Return Utility Equity
Fund Fund Fund Fund
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation.................. $ 21,426 $ -- $ 6,948,075 $ 2,805,286
Gross unrealized depreciation.................. (240,478) (2,378) (313,374) (118,545)
------------ ------------ ----------- -------------
Net unrealized appreciation (depreciation)..... $ (219,052) $ (2,378) $ 6,634,701 $ 2,686,741
============ ============ =========== ===========
Federal income tax cost........................ $ 20,000,988 $ 9,314,121 $29,819,096 $10,669,330
============ ============ =========== ===========
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1997, the U.S. Government Securities Fund and the Treasury Total
Return Fund, had capital loss carryforwards for federal income tax purposes of
$4,463,989 and $2,088,542, respectively, none of which expire prior to March 31,
2002. These capital loss carryforwards may be utilized in future years to offset
net realized capital gains prior to distributing such gains to shareholders. The
Treasury Total Return Fund also elected to defer until the Fund's tax year
ending March 31, 1998, $544,208 of net realized losses from security
transactions which were incurred after October 31, 1996.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the year ended March 31, 1997:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
U.S. Govt. Treasury Total
Securities Return Utility Equity
Fund Fund Fund Fund
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of investment securities............. $ 16,094,659 $ 10,535,063 $ 1,250,475 $ 7,279,891
============ ============ =========== ===========
Proceeds from sales and maturities
of investment securities..................... $ 20,275,487 $ 19,483,499 $ 5,175,139 $ 4,515,821
============ ============ =========== ===========
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
The Chairman and the President of the Trust are also officers of Countrywide
Financial Services, Inc., whose subsidiaries include Countrywide Investments,
Inc. (the Adviser), the Trust's investment adviser and principal underwriter,
and Countrywide Fund Services, Inc. (CFS), the Trust's transfer agent,
shareholder service agent and accounting services agent. Countrywide Financial
Services, Inc. is a wholly-owned subsidiary of Countrywide Credit Industries,
Inc., a New York Stock Exchange listed company principally engaged in the
business of residential mortgage lending.
<PAGE>
MANAGEMENT AGREEMENTS
Each Fund's investments are managed by the Adviser under the terms of separate
Management Agreements. Under the terms of the Management Agreements, each Fund
pays the Adviser a fee, which is computed and accrued daily and paid monthly, at
an annual rate of 0.75% of its average daily net assets up to $200 million,
0.70% of such net assets from $200 million to $500 million and 0.50% of such net
assets in excess of $500 million.
In order to reduce the operating expenses of the U.S. Government Securities Fund
and the Treasury Total Return Fund for the year ended March 31, 1997, the
Adviser voluntarily waived advisory fees of $17,500 and $56,000, respectively.
In order to reduce the operating expenses of the Equity Fund, the Adviser
voluntarily waived advisory fees of $21,000 and reimbursed the Fund for $5,834
of Class A expenses for the same period.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and CFS, CFS maintains the records for
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee at an annual
rate of $21.00 per shareholder account from each of the U.S. Government
Securities Fund and the Treasury Total Return Fund and $17.00 per shareholder
account from each of the Utility Fund and Equity Fund, subject to a $1,000
minimum monthly fee for each Fund, or for each class of shares of a Fund, as
applicable. In addition, each Fund pays out-of-pocket expenses including, but
not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, CFS receives a monthly fee,
based on current asset levels, of $3,250 from the U.S. Government Securities
Fund, $2,750 from the Treasury Total Return Fund, and $3,500 from each of the
Utility Fund and the Equity Fund. In addition, each Fund pays certain
out-of-pocket expenses incurred by CFS in obtaining valuations of such Fund's
portfollio securities.
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as the
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Adviser, the Adviser earned
$504, $750, $5,717, and $3,367 from underwriting and broker commissions on the
sale of shares of the U.S. Government Securities Fund, the Treasury Total Return
Fund, the Utility Fund and the Equity Fund, respectively, for the year ended
March 31, 1997. In addition, the Adviser collected $1,141 and $505 of contingent
deferred sales loads on the redemption of Class C shares of the Utility Fund and
the Equity Fund, respectively.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is 0.25% of average daily net
assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of each Fund having two classes of shares may directly incur or reimburse
the Adviser for expenses related to the distribution and promotion of shares.
The annual limitation for payment of such expenses under the Class C Plan is 1%
of average daily net assets attributable to Class C shares.
<PAGE>
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 years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
U.S. Government Treasury Total
Securities Fund Return Fund
1997 1996 1997 1996
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................... 317,801 343,417 16,063 64,654
Shares issued in reinvestment of distributions
to shareholders............................. 114,706 129,033 53,010 103,352
Shares redeemed................... (707,804) (667,998) (681,539) (1,406,629)
----------- ----------- ----------- -----------
Net decrease in shares outstanding............. (275,297) (195,548) (612,466) (1,238,623)
Shares outstanding, beginning of year.......... 2,642,220 2,837,768 1,866,811 3,105,434
----------- ----------- ----------- -----------
Shares outstanding, end of year................ 2,366,923 2,642,220 1,254,345 1,866,811
=========== =========== =========== ===========
- - -------------------------------------------------------------------------------------------------------------
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Utility Equity
Fund Fund
1997 1996 1997 1996
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................... 295,396 454,436 562,866 376,432
Shares issued in reinvestment of distributions
to shareholders............................. 104,692 120,422 11,085 5,108
Shares redeemed................................ (802,704) (1,093,005) (168,288) (135,368)
---------- ---------- --------- ---------
Net increase (decrease) in shares outstanding.. (402,616) (518,147) 405,663 246,172
Shares outstanding, beginning of year.......... 3,302,863 3,821,010 682,935 436,763
---------- ---------- --------- ---------
Shares outstanding, end of year................ 2,900,247 3,302,863 1,088,598 682,935
========== ========== ========== ==========
CLASS C
Shares sold.................................... 79,210 120,511 50,018 42,510
Shares issued in reinvestment of distributions
to shareholders............................. 7,261 9,544 930 775
Shares redeemed................................ (138,592) (172,643) (45,330) (50,111)
---------- ---------- ---------- ---------
Net increase (decrease) in shares outstanding.. (52,121) (42,588) 5,618 (6,826)
Shares outstanding, beginning of year.......... 301,479 344,067 195,573 202,399
---------- ---------- ---------- ---------
Shares outstanding, end of year................ 249,358 301,479 201,191 195,573
============ ========== ========== ==========
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
6. MANDATORY REDEMPTION OF TREASURY TOTAL RETURN FUND (UNAUDITED)
On May 19, 1997, subsequent to the date of these financial statements and the
related auditors' report, the Board of Trustees determined to exercise its
authority pursuant to the Trust's Agreement and Declaration of Trust to require
the redemption of all outstanding shares of the Treasury Total Return Fund. This
mandatory redemption will occur on or about July 15, 1997.
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997
===========================================================================================================
Par Market
Value U.S. GOVERNMENT AGENCY ISSUES-- 90.6% Value
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 500,000 Federal Home Loan Bank, 7.00%, 8/28/02..................................... $ 493,357
400,000 Federal Home Loan Mortgage Corp., 6.56%, 3/12/03........................... 388,935
2,000,000 Federal Home Loan Mortgage Corp., 7.05%, 6/08/05........................... 1,959,816
1,558,238 Federal Home Loan Mortgage Corp. #E00228, 6.50%, 7/01/08................... 1,513,688
1,971,329 Federal Home Loan Mortgage Corp. #G30054, 7.50%, 9/01/16................... 1,957,550
1,908,859 Federal National Mortgage Assoc. #250689, 7.50%, 9/01/03................... 1,924,416
1,011,461 Federal National Mortgage Assoc. #50811, 7.50%, 12/01/12................... 1,005,261
1,589,694 Federal National Mortgage Assoc. #190666, 7.00%, 3/01/14................... 1,547,868
2,580,975 Federal National Mortgage Assoc. #220114, 7.00%, 6/01/23................... 2,483,930
2,788,540 Federal National Mortgage Assoc. #317691, 7.00%, 8/01/25................... 2,672,565
986,943 Federal National Mortgage Assoc. #351694, 7.50%, 11/01/26.................. 969,829
986,707 Federal National Mortgage Assoc. #358484, 7.50%, 11/01/26.................. 969,597
1,872,116 Government National Mortgage Assoc. #319358, 8.00%, 4/15/22................ 1,895,124
- - --------------- ---------------
$ 20,154,862 TOTAL U.S. GOVERNMENT AGENCY ISSUES
===============
(Amortized Cost $20,000,988)............................................... $ 19,781,936
---------------
<CAPTION>
===============================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(1)-- 9.0% Value
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 1,960,000 Dean Witter Reynolds, Inc., 6.25%, dated 3/31/97, due 4/01/97,
repurchase proceeds $1,960,340.......................................... $ 1,960,000
- - --------------- ---------------
$ 1,960,000 TOTAL REPURCHASE AGREEMENTS ............................................... $ 1,960,000
=============== ---------------
TOTAL U.S. GOVERNMENT AGENCY ISSUES
AND REPURCHASE AGREEMENTS-- 99.6% ...................................... $ 21,741,936
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.4% .............................. 101,279
---------------
NET ASSETS-- 100.0% ....................................................... $ 21,843,215
===============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Government
obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997
===============================================================================================================
Par Market
Value U.S. TREASURY OBLIGATIONS -- 92.6% Value
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 9,400,000 U.S. Treasury Bills, 6/05/97............................................... $ 9,311,743
- - --------------- ---------------
$ 9,400,000 TOTAL U.S. TREASURY OBLIGATIONS
===============
(Amortized Cost $9,314,121)................................................ $ 9,311,743
---------------
<CAPTION>
================================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(1)-- 7.9% Value
- - ----------------------------------------------------------------------------------------------------------------
$ 799,000 Fifth Third Bank, 5.09%, dated 3/31/97, due 4/01/97,
repurchase proceeds $799,113............................................ $ 799,000
- - ---------------
$ 799,000 TOTAL REPURCHASE AGREEMENTS ............................................... $ 799,000
=============== -------------
TOTAL U.S. TREASURY OBLIGATIONS AND
REPURCHASE AGREEMENTS -- 100.5% ........................................ $ 10,110,743
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.5)% ............................ (51,371)
-------------
NET ASSETS-- 100.0% ....................................................... $ 10,059,372
=============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Treasury obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997
===============================================================================
Market
COMMON STOCK -- 87.6% Shares Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC UTILITIES -- 46.3%
Baltimore Gas & Electric Co ................ 50,050 $ 1,338,838
CMS Energy Corp............................. 60,000 1,972,500
Central Louisiana Electric.................. 30,000 787,500
CINergy Corp................................ 50,000 1,706,250
DPL, Inc.................................... 50,000 1,206,250
Dominion Resources, Inc..................... 30,000 1,091,250
Duke Power Co............................... 50,000 2,206,250
FPL Group, Inc.............................. 50,000 2,206,250
Kansas City Power & Light Co................ 60,000 1,680,000
Northern States Power Co.................... 46,000 2,179,250
Scana Corp.................................. 70,000 1,776,250
---------------
$ 18,150,588
---------------
TELECOMMUNICATIONS -- 24.7%
Ameritech Corp.............................. 35,000 $ 2,152,500
AT&T Corp................................... 30,000 1,042,500
Bell Atlantic Corp.......................... 25,000 1,521,875
BellSouth Corp.............................. 50,000 2,112,500
GTE Corp.................................... 50,000 2,331,250
Lucent Technologies, Inc.................... 9,722 512,835
---------------
$ 9,673,460
--------------
GAS COMPANIES -- 12.9%
Enron Corp.................................. 15,000 $ 570,000
Indiana Energy, Inc......................... 15,000 369,375
MCN Corp.................................... 70,000 1,968,750
Nicor, Inc.................................. 20,000 640,000
Oneok, Inc.................................. 25,000 650,000
Wicor, Inc.................................. 25,000 850,000
---------------
$ 5,048,125
---------------
WATER COMPANIES -- 3.7%
American Water Works, Inc................... 70,000 $ 1,470,000
---------------
TOTAL COMMON STOCK (Cost $27,728,589)....... $ 34,342,173
---------------
<CAPTION>
===============================================================================
Par Market
CORPORATE BONDS -- 5.4% Value Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
Dayton Power & Light Co., 8.40%, 12/01/22... $ 1,000,000 $ 1,024,734
New York Telephone Co., 9.375%, 7/15/31..... 1,000,000 1,086,890
--------------- ---------------
TOTAL CORPORATE BONDS
(Amortized Cost $2,090,507) .............. $ 2,000,000 $ 2,111,624
=============== ---------------
TOTAL INVESTMENTS AT VALUE-- 93.0%
(Amortized Cost $29,819,096)............... $ 36,453,797
---------------
<PAGE>
<CAPTION>
REPURCHASE AGREEMENTS(1) -- 7.0% Face Market
Value Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
Dean Witter Reynolds, Inc., 6.25%,
dated 3/31/97, due 4/01/97,
repurchase proceeds $2,721,472........... $ 2,721,000 $ 2,721,000
--------------- ---------------
TOTAL REPURCHASE AGREEMENTS ................ $ 2,721,000 $ 2,721,000
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE
AGREEMENTS AT VALUE-- 100.0%............. $ 39,174,797
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.0% 11,630
---------------
NET ASSETS-- 100.0%......................... $ 39,186,427
===============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Government
obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997
===============================================================================
Market
COMMON STOCK -- 75.2% Shares Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER, NON-CYCLICAL -- 23.3%
Albertson's, Inc............................ 15,000 $ 510,000
Columbia/HCA Healthcare Corp................ 12,000 403,500
Newell Co................................... 10,000 335,000
PepsiCo, Inc................................ 14,700 479,588
Pfizer, Inc................................. 8,000 673,000
Procter & Gamble Co......................... 4,000 460,000
Sara Lee Corp............................... 10,000 405,000
Schering-Plough Corp........................ 6,000 436,500
United Healthcare Corp...................... 9,000 428,625
---------------
$ 4,131,213
---------------
TECHNOLOGY -- 14.2%
Compaq Computer Corp.(1).................... 4,000 306,500
Electronic Data Systems Corp................ 10,000 403,750
Hewlett-Packard Co.......................... 10,000 532,500
Intel Corp.................................. 3,500 486,937
Loral Space & Communications(1)............. 11,000 155,375
Lucent Technologies, Inc.................... 1,944 102,546
Motorola, Inc............................... 9,000 543,375
---------------
$ 2,530,983
---------------
FINANCIAL SERVICES -- 12.4%
AFLAC, Inc.................................. 12,000 $ 450,000
American General Corp....................... 8,600 350,450
American International Group................ 3,000 352,125
Bank of New York Co., Inc................... 16,000 588,000
Norwest Corp................................ 10,000 462,500
---------------
$ 2,203,075
---------------
CONSUMER, CYCLICAL -- 11.2%
Gap, Inc.................................... 16,000 $ 536,000
Lowe's Companies, Inc....................... 9,000 336,375
McDonald's Corp............................. 12,000 567,000
The Walt Disney Co.......................... 7,500 547,500
---------------
$ 1,986,875
---------------
INDUSTRIAL -- 8.4%
Deere & Co.................................. 11,000 $ 478,500
Diebold, Inc................................ 10,500 395,063
Emerson Electric Co......................... 4,800 216,000
Millipore Corp.............................. 9,500 402,562
---------------
$ 1,492,125
---------------
CONGLOMERATES -- 3.1%
General Electric Co......................... 5,600 $ 555,800
---------------
ENERGY -- 2.6%
Enron Corp.................................. 12,000 $ 456,000
---------------
TOTAL COMMON STOCK (Cost $10,669,330) ...... $ 13,356,071
---------------
<PAGE>
<CAPTION>
Face Market
REPURCHASE AGREEMENTS(2) -- 25.0% Value Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
Dean Witter Reynolds, Inc., 6.25%,
dated 3/31/97, due 4/01/97, repurchase
proceeds $4,437,770....................... $ 4,437,000 $ 4,437,000
--------------- ---------------
TOTAL REPURCHASE AGREEMENTS................. $ 4,437,000 $ 4,437,000
=============== ---------------
TOTAL COMMON STOCK AND
REPURCHASE AGREEMENTS AT VALUE-- 100.2%.. $ 17,793,071
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.2)% (40,280)
---------------
NET ASSETS-- 100.0%......................... $ 17,752,791
===============
<FN>
(1) Non-income producing security.
(2) Repurchase agreements are fully collateralized by U.S. Government
obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
===============================================================================
ARTHUR ANDERSEN LLP
To the Shareholders and Board of Trustees of Countrywide Strategic Trust
(formerly, Midwest Strategic Trust):
We have audited the accompanying statements of assets and liabilities of the
U.S. Government Securities Fund, Treasury Total Return Fund, Utility Fund and
Equity Fund of the Countrywide Strategic Trust (a Massachusetts business trust),
including the portfolios of investments, as of March 31, 1997, and the related
statements of operations, the statements of changes in net assets, and the
financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, by correspondence with custodians and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Government Securities Fund, Treasury Total Return Fund, Utility Fund and
Equity Fund of Countrywide Strategic Trust as of March 31, 1997, the results of
their operations, the changes in their net assets, and their financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
April 28, 1997
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
February 28, 1997 (Unaudited)
===============================================================================
On February 28, 1997, a Special Meeting of Shareholders of the Trust was held
(1) to approve or disapprove a new investment advisory agreement with
Countrywide Investments, Inc. (formerly Midwest Group Financial Services, Inc.),
(2) to elect eight trustees and (3) to ratify or reject the selection of Arthur
Andersen LLP as the Trust's independent public accountants for the current
fiscal year. The total number of shares of the Trust present by proxy
represented 65.4% of the shares entitled to vote at the meeting. Each of the
matters submitted to shareholders was approved.
The results of the voting for or against the approval of the new investment
advisory agreement by each Fund follows:
- - ----------------------------------------------------------------------------------------------------------
Number of Shares
For Against Abstain
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Fund 1,386,173.356 7,257.249 65,168.136
Treasury Total Return Fund 690,869.625 21,503.234 135,493.791
Utility Fund 2,079,766.689 20,329.944 109,212.611
Equity Fund 724,973.062 4,061.722 22,058.929
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The results of the voting for the election of trustees follows:
- - ----------------------------------------------------------------------------------------------------------
Withhold
Nominees For Election Authority Status
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald L. Bogdon, M.D. 5,199,438.647 67,429.701 New Trustee
John R. Delfino 5,198,698.666 68,169.682 New Trustee
H. Jerome Lerner 5,198,658.952 68,209.396 Incumbent
Robert H. Leshner 5,204,752.328 62,116.020 Incumbent
Angelo R. Mozilo 5,197,160.798 69,707.550 New Trustee
Oscar P. Robertson 5,206,830.117 60,038.231 Incumbent
John F. Seymour, Jr. 5,199,434.758 67,433.590 New Trustee
Sebastiano Sterpa 5,197,664.433 69,203.915 New Trustee
</TABLE>
- - ------------------------------------------------------------------------------
The results of the voting for or against the ratification of Arthur Andersen LLP
as independent public accountants by each Fund follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Number of Shares
For Against Abstain
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Fund 1,435,598.498 5,512.464 17,487.779
Treasury Total Return Fund 780,081.371 10,404.979 57,380.300
Utility Fund 2,122,637.785 8,418.304 78,253.155
Equity Fund 738,937.654 163.221 11,992.838
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
COUNTRYWIDE INVESTMENTS
- - ------------------------
COUNTRYWIDE STRATEGIC TRUST
312 Walnut St., 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll Free) 800-543-8721
Cincinnati: 629-2000
Rate Line: 579-0999
Shareholder Services
Nationwide: (Toll Free) 800-543-0407
Cincinnati: 629-2050
BOARD OF TRUSTEES
Angelo R. Mozilo, Chairman
Robert H. Leshner, President
Donald L. Bogdon, M.D.
John R. Delfino
H. Jerome Lerner
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
INVESTMENT ADVISER
Countrywide Investments, Inc.
312 Walnut St., 21st Floor
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
This report is authorized for distribution only when it is accompanied or
preceded by a current prospectus of Countrywide Strategic Trust.
<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, March
31, 1997
Statements of Operations For the Year Ended
March 31, 1997
Statements of Changes in Net Assets For the
Years Ended March 31, 1997 and 1996
Portfolio of Investments, March 31, 1997
Notes to Financial Statements
(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.
(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.
<PAGE>
(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) Form of 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. 32, is hereby incorporated by
reference.
(v) Form of 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. 32, is hereby incorporated by
reference.
(vi) Form of Subadvisory Agreement between
Countrywide Investments, Inc. and
Mastrapasqua & Associates, Inc. for the
Growth/Value Fund and the Aggressive Growth
Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
32, 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.
<PAGE>
(ii) Form of Underwriter's Dealer Agreement,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
32, is hereby incorporated by reference.
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or
Officers - None.
(8) Custody Agreement with The Fifth Third
Bank, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
31, is hereby incorporated by reference.
(9)(i) Registrant's Accounting and Pricing
Services Agreement with Countrywide Fund
Services, Inc., which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 32, is hereby incorporated
by reference.
(ii) Registrant's Transfer, Dividend Disbursing,
Shareholder Service and Plan Agency
Agreement with Countrywide Fund Services,
Inc., which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
32, is hereby incorporated by reference.
(iii) Administration Agreement between
Countrywide Investments, Inc. and
Countrywide Fund Services, Inc., which was
filed as an Exhibit to Registrant's
Post-Effective Amendment No. 32, is hereby
incorporated by reference.
(iv) License Agreement with Countrywide Credit
Industries, Inc., which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 32, is hereby incorporated by
reference.
(10) Opinion and Consent of Goodwin, Procter &
Hoar, which was filed with Registrant's
Rule 24f-2 Notice for the fiscal year ended
March 31, 1997, is hereby incorporated by
reference.
(11) Consent of Independent Auditors is filed
herewith.
(12) Financial Statements Omitted from Item 23 -
None.
<PAGE>
(13) Letter of Initial Stockholder, which
was filed as an Exhibit to Registrant's
Pre-Effective Amendment No. 1, is hereby
incorporated by reference.
(14) (i) Copy of Midwest Group Individual Retirement
Account Plan, including Schedule of Fees,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
22, is hereby incorporated by reference.
(ii) Copy of Midwest Group 403(b) Plan,
including Schedule of Fees, which was filed
as an Exhibit to Registrant's Post-
Effective 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. 32, 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
are filed herewith.
(ii) Financial Data Schedule for Growth/Value
Fund and Aggressive Growth Fund, which were
filed as Exhibits to Registrant's Post-
Effective Amendment No. 32, are hereby
incorporated by reference.
(18) Amended Rule 18f-3 Plan Adopted with
Respect to the Multiple Class Distribution
System is filed herewith.
(19) Power of Attorney for John R. Delfino is
filed herewith.
<PAGE>
Item 25. Persons Controlled by or Under Common Control with the
Registrant
-------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of June 30, 1997)
- ------- -----------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
Government Mortgage Fund 732
Utility Fund
Class A Shares 1,726
Class C Shares 170
Equity Fund
Class A Shares 658
Class C Shares 129
Growth/Value Fund 0
Aggressive Growth 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 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
<PAGE>
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
Trustees and officers against liabilities rising from action
involving willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
their offices.
The Advisory Agreements provide that the Adviser shall not be
liable for any error of judgment or mistake of law or for any
loss suffered by the Registrant in connection with the matters
to which the Agreements relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Adviser in the performance of its duties or from the reckless
disregard by the Adviser of its obligations under the
Agreement. Registrant will advance attorneys' fees or other
expenses incurred by the Adviser in defending a proceeding,
upon the undertaking by or on behalf of the Adviser to repay
the advance unless it is ultimately determined that the
Adviser is entitled to indemnification.
The Underwriting Agreement with the Adviser provides that the
Adviser, its directors, officers, employees, shareholders and
control persons shall not be liable for any error of judgment
or mistake of law or for any loss suffered by Registrant in
connection with the matters to which the Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of any of such persons in the
performance of the Adviser's duties or from the reckless
disregard by any of such persons of the Adviser's obligations
and duties under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by any such person
in defending a proceeding, upon the undertaking by or on
behalf of such person to repay the advance if it is ultimately
determined that such person is not entitled to
indemnification.
<PAGE>
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 six series of
Countrywide Tax-Free Trust and five series of
Countrywide Investment Trust, both of which are
registered investment companies. The Adviser also
serves as subadvisor to the Capitol Square Bond
Fund series of Capitol Square Funds, a registered
investment company. 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.
<PAGE>
(e) A Director of LandSafe, Inc.* and Chairman
and a director of various Landsafe
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) David Sambol - A Director of the Adviser.
(a) A Director of Countrywide Financial Services
Inc., Countrywide Fund Services, Inc. and
Countrywide Securities Corporation.
(b) Managing Director - Capital Markets of
Countrywide Credit Industries, Inc. and
Countrywide Home Loans, Inc.
(c) CEO, President and a Director of Countrywide
Capital Markets, Inc. and Countrywide
Servicing Exchange,*a loan servicing broker.
(7) John J. Goetz - Vice President and Chief
Investment Officer of the Adviser.
(a) Vice President of Countrywide Financial
Services, Inc. until February 1997.
(8) Maryellen Peretzky - Vice President-
Administration, Human Resources and Operations of
the Adviser.
(a) 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 and The Gannett Welsh &
Kotler Funds.
<PAGE>
(9) Sharon L. Karp - Vice President-Marketing of the
Adviser.
(a) Vice President of Countrywide Financial
Services, Inc. until February 1997.
(10) John F. Splain - Secretary and General Counsel of
the Adviser.
(a) Vice President, Secretary and General
Counsel of Countrywide Fund Services, Inc.
(b) Secretary and General Counsel of Countrywide
Financial Services, Inc.
(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 Fremont Mutual Funds,
Inc., Schwartz Investment Trust, The Gannett
Welsh & Kotler Funds, Capitol Square Funds,
Interactive Investments, Dean Family of
Funds and The New York State Opportunity
Funds, registered investment companies.
(e) Secretary of Leeb Personal Finance(TM)
Investment Trust, a registered investment
company, until November 1996.
(11) Robert G. Dorsey - Treasurer of the Adviser.
(a) President and Treasurer of Countrywide Fund
Services, Inc.
(b) Vice President-Finance and Treasurer of
Countrywide Financial Services, Inc.
(c) Vice President of Countrywide Tax-Free
Trust, Countrywide Investment Trust,
Countrywide Stategic Trust, Brundage, Story
and Rose Investment Trust, Markman MultiFund
Trust, PRAGMA Investment Trust, Maplewood
Investment Trust, a series company, The
Thermo Opportunity Fund, Inc., Capitol
Square Funds, Dean Family of Funds and The
New York State Opportunity Funds.
<PAGE>
(d) Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust,
Fremont Mutual Funds, Inc., The Gannett
Welsh & Kotler Funds, The Tuscarora
Investment Trust and Interactive
Investments.
(e) Vice President of Leeb Personal Finance(TM)
Investment Trust until November 1996.
(12) Susan F. Flischel - Vice President-Investments of
the Adviser
(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
Item 29. Principal Underwriters
- ------- ----------------------
(a) Countrywide Investments, Inc. also acts as
underwriter for Countrywide Tax-Free Trust,
Countrywide Investment Trust, The Milestone Funds
and Brundage, Story and Rose 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.
<PAGE>
Position Position
with with
(b) Name Underwriter Registrant
---- ----------- -----------
* Angelo R. Mozilo Chairman and Chairman and
Director Trustee
Robert H. Leshner President President
and Director and Trustee
* Andrew S. Bielanski Director None
* Thomas H. Boone Director None
* Marshall M. Gates Director None
* David Sambol Director None
John J. Goetz Vice None
President and
Chief
Investment
Officer
Maryellen Peretzky Vice President- None
Administration,
Human Resources
and Operations
Sharon L. Karp Vice President- None
Marketing
John F. Splain Secretary and Secretary
General Counsel
Robert G. Dorsey Treasurer Vice
President
Susan F. Flischel Vice President- None
Investments
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.
<PAGE>
Item 32. Undertakings
- ------- ------------
(a) Not Applicable.
(b) Not Applicable
(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
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
<PAGE>
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 it 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 July,
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 July, 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*
July 31, 1997
EXHIBIT INDEX
1. Consent of Arthur Andersen LLP
2. Financial Data Schedule for Government Mortgage Fund
3. Financial Data Schedule for Utility Fund Class A
4. Financial Data Schedule for Utility Fund Class C
5. Financial Data Schedule for Equity Fund Class A
6. Financial Data Schedule for Equity Fund Class C
7. Amended Rule 18f-3 Plan Adopted with Respect to the Multiple
Class Distribution System
8. Power of Attorney for John R. Delfino
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our
report dated April 28, 1997 and to all references to our Firm included in or
made a part of this Post-Effective Amendment No. 33.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
July 31, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> COUNTRYWIDE STRATEGIC TRUST
<SERIES>
<NUMBER> 3
<NAME> U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 21,960,988
<INVESTMENTS-AT-VALUE> 21,741,936
<RECEIVABLES> 154,491
<ASSETS-OTHER> 2,389
<OTHER-ITEMS-ASSETS> 2,994
<TOTAL-ASSETS> 21,901,810
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,595
<TOTAL-LIABILITIES> 58,595
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,526,256
<SHARES-COMMON-STOCK> 2,366,923
<SHARES-COMMON-PRIOR> 2,642,220
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,463,989)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (219,052)
<NET-ASSETS> 21,843,215
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,581,093
<OTHER-INCOME> 0
<EXPENSES-NET> 268,957
<NET-INVESTMENT-INCOME> 1,312,136
<REALIZED-GAINS-CURRENT> (386,798)
<APPREC-INCREASE-CURRENT> (119,168)
<NET-CHANGE-FROM-OPS> 806,170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,312,136
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 317,801
<NUMBER-OF-SHARES-REDEEMED> 707,804
<SHARES-REINVESTED> 114,706
<NET-CHANGE-IN-ASSETS> (3,073,210)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,077,191)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 168,101
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 286,457
<AVERAGE-NET-ASSETS> 22,451,672
<PER-SHARE-NAV-BEGIN> 9.43
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> (.20)
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.23
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> COUNTRYWIDE STRATEGIC TRUST
<SERIES>
<NUMBER> 51
<NAME> UTILITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 32,540,096
<INVESTMENTS-AT-VALUE> 39,174,797
<RECEIVABLES> 167,910
<ASSETS-OTHER> 5,079
<OTHER-ITEMS-ASSETS> 574
<TOTAL-ASSETS> 39,348,360
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 161,933
<TOTAL-LIABILITIES> 161,933
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,299,943
<SHARES-COMMON-STOCK> 2,900,247
<SHARES-COMMON-PRIOR> 3,302,863
<ACCUMULATED-NII-CURRENT> 242
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 251,541
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,634,701
<NET-ASSETS> 36,087,240
<DIVIDEND-INCOME> 1,765,979
<INTEREST-INCOME> 320,037
<OTHER-INCOME> 0
<EXPENSES-NET> 557,465
<NET-INVESTMENT-INCOME> 1,528,551
<REALIZED-GAINS-CURRENT> 349,605
<APPREC-INCREASE-CURRENT> 517,054
<NET-CHANGE-FROM-OPS> 2,395,210
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,429,043
<DISTRIBUTIONS-OF-GAINS> 62,089
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 295,396
<NUMBER-OF-SHARES-REDEEMED> 802,704
<SHARES-REINVESTED> 104,692
<NET-CHANGE-IN-ASSETS> (4,337,248)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (30,527)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 319,201
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 557,465
<AVERAGE-NET-ASSETS> 39,232,666
<PER-SHARE-NAV-BEGIN> 12.24
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> .46
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.44
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> COUNTRYWIDE STRATEGIC TRUST
<SERIES>
<NUMBER> 53
<NAME> UTILITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 32,540,096
<INVESTMENTS-AT-VALUE> 39,174,797
<RECEIVABLES> 167,910
<ASSETS-OTHER> 5,079
<OTHER-ITEMS-ASSETS> 574
<TOTAL-ASSETS> 39,348,360
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 161,933
<TOTAL-LIABILITIES> 161,933
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,299,943
<SHARES-COMMON-STOCK> 249,358
<SHARES-COMMON-PRIOR> 301,479
<ACCUMULATED-NII-CURRENT> 242
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 251,541
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,634,701
<NET-ASSETS> 3,099,187
<DIVIDEND-INCOME> 1,765,979
<INTEREST-INCOME> 320,037
<OTHER-INCOME> 0
<EXPENSES-NET> 557,465
<NET-INVESTMENT-INCOME> 1,528,551
<REALIZED-GAINS-CURRENT> 349,605
<APPREC-INCREASE-CURRENT> 517,054
<NET-CHANGE-FROM-OPS> 2,395,210
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 99,266
<DISTRIBUTIONS-OF-GAINS> 5,448
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 79,210
<NUMBER-OF-SHARES-REDEEMED> 138,592
<SHARES-REINVESTED> 7,261
<NET-CHANGE-IN-ASSETS> (586,572)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (30,527)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 319,201
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 557,465
<AVERAGE-NET-ASSETS> 3,402,753
<PER-SHARE-NAV-BEGIN> 12.23
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> .37
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.43
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> COUNTRYWIDE STRATEGIC TRUST
<SERIES>
<NUMBER> 71
<NAME> EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 15,106,330
<INVESTMENTS-AT-VALUE> 17,793,071
<RECEIVABLES> 371,759
<ASSETS-OTHER> 2,113
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,166,943
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 414,152
<TOTAL-LIABILITIES> 414,152
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,901,612
<SHARES-COMMON-STOCK> 1,088,598
<SHARES-COMMON-PRIOR> 682,935
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 164,431
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,686,741
<NET-ASSETS> 14,982,638
<DIVIDEND-INCOME> 165,852
<INTEREST-INCOME> 157,477
<OTHER-INCOME> 0
<EXPENSES-NET> 207,287
<NET-INVESTMENT-INCOME> 116,042
<REALIZED-GAINS-CURRENT> 482,875
<APPREC-INCREASE-CURRENT> 952,569
<NET-CHANGE-FROM-OPS> 1,551,486
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 112,251
<DISTRIBUTIONS-OF-GAINS> 43,452
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 562,866
<NUMBER-OF-SHARES-REDEEMED> 168,288
<SHARES-REINVESTED> 11,085
<NET-CHANGE-IN-ASSETS> 6,480,776
<ACCUMULATED-NII-PRIOR> 27
<ACCUMULATED-GAINS-PRIOR> (265,871)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234,121
<AVERAGE-NET-ASSETS> 12,289,832
<PER-SHARE-NAV-BEGIN> 12.45
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 1.35
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.76
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> COUNTRYWIDE STRATEGIC TRUST
<SERIES>
<NUMBER> 73
<NAME> EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 15,106,330
<INVESTMENTS-AT-VALUE> 17,793,071
<RECEIVABLES> 371,759
<ASSETS-OTHER> 2,113
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,166,943
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 414,152
<TOTAL-LIABILITIES> 414,152
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,901,612
<SHARES-COMMON-STOCK> 201,191
<SHARES-COMMON-PRIOR> 195,573
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 164,431
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,686,741
<NET-ASSETS> 2,770,153
<DIVIDEND-INCOME> 165,852
<INTEREST-INCOME> 157,477
<OTHER-INCOME> 0
<EXPENSES-NET> 207,287
<NET-INVESTMENT-INCOME> 116,042
<REALIZED-GAINS-CURRENT> 482,875
<APPREC-INCREASE-CURRENT> 952,569
<NET-CHANGE-FROM-OPS> 1,551,486
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,811
<DISTRIBUTIONS-OF-GAINS> 9,121
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50,018
<NUMBER-OF-SHARES-REDEEMED> 45,330
<SHARES-REINVESTED> 930
<NET-CHANGE-IN-ASSETS> 333,892
<ACCUMULATED-NII-PRIOR> 27
<ACCUMULATED-GAINS-PRIOR> (265,871)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112,182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234,121
<AVERAGE-NET-ASSETS> 2,715,402
<PER-SHARE-NAV-BEGIN> 12.46
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.35
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.77
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Amended February 28, 1997
AMENDED RULE 18f-3 PLAN ADOPTED WITH RESPECT TO THE MULTIPLE
CLASS DISTRIBUTION SYSTEM OF COUNTRYWIDE INVESTMENTS
- --------------------------------------------------------------------------------
Countrywide Investment Trust, Countrywide Tax-Free Trust and
Countrywide Strategic Trust (the "Trusts") have each adopted this Plan pursuant
to Rule 18f-3 promulgated under the Investment Company Act of 1940 (the "1940
Act"). The individual series of the Trusts which are not money market funds are
referred to collectively, in whole or in part, as the context requires, as the
"Funds." The individual series of the Trusts which are money market funds are
referred to collectively, in whole or in part, as the context requires, as the
"Money Market Funds." The Funds and the Money Market Funds are referred to
collectively, in whole or in part, as the context requires, as the "Countrywide
Funds."
Each Trust is an open-end management investment company registered
under the 1940 Act. Countrywide Investments, Inc. (the "Distributor") provides
investment advisory and management services to each of the Countrywide Funds and
acts as principal underwriter for the Countrywide Funds.
This Plan permits the Funds to issue and sell up to three classes of
shares and the Money Market Funds to issue and sell up to two classes of shares
for the purpose of establishing a multiple class distribution system (the
"Multiple Class Distribution System"). The Plan further permits the Funds to
assess a contingent deferred sales charge ("CDSC") on certain redemptions of a
class of the Funds' shares and to waive the CDSC in certain instances. These
guidelines set forth the conditions
<PAGE>
pursuant to which the Multiple Class Distribution System will operate and the
duties and responsibilities of the Trustees of each Trust with respect to the
Multiple Class Distribution System.
DESCRIPTION OF THE MULTIPLE CLASS DISTRIBUTION SYSTEM
- -----------------------------------------------------
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE FUNDS. The Multiple Class
Distribution System enables each Fund to offer investors the option of
purchasing shares in one of three manners: (1) subject to a conventional
front-end sales load and a distribution fee not to exceed .35% of average net
assets (Class A shares); (2) subject to either no front-end sales load or a
front-end sales load which is smaller than the sales load on Class A shares, and
in addition subject to a distribution fee and service fee of up to 1% of average
net assets (Class B shares); or (3) subject to a CDSC and a distribution fee and
service fee of up to 1% of average net assets (Class C shares).
The actual creation and issuance of multiple classes of shares will be
made on a Fund-by-Fund basis, and some Funds may not in fact create or issue any
new classes of shares or may create or issue only two of the three classes of
shares described herein.
The three classes will each represent interests in the same portfolio
of investments of such Fund. The three classes will be identical except that (i)
the distribution fees payable by a Fund attributable to each class pursuant to
the distribution plans adopted by the Funds in accordance with Rule 12b-1 under
the 1940
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<PAGE>
Act will be higher for Class B shares and Class C shares than for Class A
shares; (ii) each class may bear different Class Expenses (as defined below);
(iii) each class will vote separately as a class with respect to a Fund's Rule
12b-1 distribution plan; (iv) each class has different exchange privileges; and
(v) each class may bear a different name or designation.
Investors purchasing Class A shares will do so at net asset value plus
a front-end sales load in the traditional manner. The sales load may be subject
to reductions for larger purchases, under a combined purchase privilege, under a
right of accumulation or under a letter of intent. The sales load may be subject
to certain other reductions permitted by Section 22(d) of the 1940 Act and set
forth in the registration statement of each Trust. The public offering price for
the Class A shares will be computed in accordance with Rule 22c-1, Section 22(d)
and other relevant provisions of the 1940 Act and the rules and regulations
thereunder. Each Fund will also pay a distribution fee pursuant to the Fund's
Rule 12b-1 distribution plan at an annual rate of up to .35% of 1% of the
average daily net asset value of the Class A shares.
Investors purchasing Class B shares of a Fund will do so at either net
asset value without a front-end sales load or at net asset value plus a
front-end sales load which is less than the front-end sales load applicable to
Class A shares of such Fund. The sales load on Class B shares, if any, may be
subject to reductions for larger purchases, under a combined purchase
- 3 -
<PAGE>
privilege or under a letter of intent. The public offering price for the Class B
shares will be computed in accordance with Rule 22c-1, Section 22(d) and other
relevant provisions of the 1940 Act and the rules and regulations thereunder.
Each Fund will also pay a distribution fee pursuant to the Fund's Rule 12b-1
distribution plan at an annual rate of up to 1% of the average daily net asset
value of the Class B shares.
Investors purchasing Class C shares will do so at net asset value per
share without the imposition of a sales load at the time of purchase. Each Fund
will pay a distribution fee pursuant to the distribution plan at an annual rate
of up to 1% of the average daily net asset value of the Class C shares. In
addition, an investor's proceeds from a redemption of Class C shares made within
a specified period of time of their purchase generally will be subject to a CDSC
imposed by the Distributor. The CDSC will range from 1% to 5% (but may be higher
or lower) on shares redeemed during the first year after purchase and will be
reduced at a rate of 1% (but may be higher or lower) per year over the CDSC
period, so that redemptions of shares held after that period will not be subject
to a CDSC. The CDSC will be made subject to the conditions set forth below. The
Class C alternative is designed to permit the investor to purchase Class C
shares without the assessment of a front-end sales load and at the same time
permit the Distributor to pay financial intermediaries selling shares of each
Fund a commission on the sale of the Class C shares.
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<PAGE>
Under the Trusts' distribution plans, the Distributor will not be
entitled to any specific percentage of the net asset value of each class of
shares of the Funds or other specific amount. As described above, each Fund will
pay a distribution fee pursuant to its distribution plan at an annual rate of up
to .35% of the average daily net assets of such Fund's Class A shares and up to
1% of the average daily net asset value of such Fund's Class B shares and Class
C shares. Under the Trusts' distribution plans, payments will be made for
expenses incurred in providing distribution-related services (including, in the
case of the Class C shares, commission expenses as described in more detail
below). Each Fund will accrue at a rate (but not in excess of the applicable
maximum percentage rate) which is reviewed by each Trust's Board of Trustees
quarterly. Such rate is intended to provide for accrual of expenses at a rate
that will not exceed the unreimbursed amounts actually expended for distribution
by a Fund. If at any time the amount accrued by a Fund would exceed the amount
of distribution expenses incurred with respect to such Fund during the fiscal
year (plus, in the case of Class C shares, prior unreimbursed commission-related
expenses), then the rate of accrual will be adjusted accordingly. In no event
will the amount paid by the Funds exceed the unreimbursed expenses previously
incurred in providing distribution-related services.
Proceeds from the distribution fee and, in the case of Class C shares,
the CDSC, will be used to compensate financial
- 5 -
<PAGE>
intermediaries with a service fee based upon a percentage of the average daily
net asset value of the shares maintained in the Funds by their customers and to
defray the expenses of the Distributor with respect to providing distribution
related services, including commissions paid on the sale of Class C shares.
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE MONEY MARKET FUNDS. The
Multiple Class Distribution System enables each Money Market Fund to offer
investors the option of purchasing shares in one of two manners: (1) subject to
a distribution fee not to exceed .35% of average net assets (Class A, or
"Retail" shares); or (2) subject to no distribution fee with a higher minimum
initial investment requirement (Class B, or "Institutional" shares).
The actual creation and issuance of multiple classes of shares will be
made on a fund-by-fund basis, and some Money Market Funds may not in fact create
or issue any new class of shares described herein.
The two classes will each represent interests in the same portfolio of
investments of such Money Market Fund. The two classes will be identical except
that (i) Retail shares will be subject to distribution fees pursuant to the
distribution plans adopted by the Money Market Funds in accordance with Rule
12b-1 under the 1940 Act, (ii) each class may bear different Class Expenses (as
defined below); (iii) each class has exclusive voting rights with respect to
matters affecting only that class;
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<PAGE>
and (iv) each class may bear a different name or designation.
Investors purchasing Retail shares will do so at net asset
value. Each Retail share will also pay a distribution fee pursuant to the Money
Market Fund's Rule 12b-1 distribution plan at an annual rate of up to .35% of 1%
of the average daily net asset value of the Retail shares.
Investors purchasing Institutional shares of a Money Market
Fund will do so at net asset value. Each Institutional share will not be
subject to any distribution fees.
Under the Trusts' distribution plans, the Distributor will not be
entitled to any specific percentage of the net asset value of Retail shares or
other specific amount. As described above, each class of Retail shares will pay
a distribution fee pursuant to its distribution plan at an annual rate of up to
.35% of the average daily net assets of such Money Market Fund's Retail shares.
Under the Trusts' distribution plans, payments will be made for expenses
incurred in providing distribution-related services. Retail shares will accrue
distribution expenses at a rate (but not in excess of the applicable maximum
percentage rate) which is reviewed by each Trust's Board of Trustees quarterly.
Such rate is intended to provide for accrual of expenses at a rate that will not
exceed the unreimbursed amounts actually expended for distribution by Retail
shares. If at any time the amount accrued by Retail shares would exceed the
amount of distribution expenses incurred with respect to such Retail shares
during the fiscal year, then the rate of accrual will be
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<PAGE>
adjusted accordingly. In no event will the amount paid by Retail shares exceed
the unreimbursed expenses previously incurred in providing distribution-related
services. Proceeds from the distribution fee will be used to compensate
financial intermediaries with a service fee based upon a percentage of the
average daily net asset value of the Retail shares maintained by their customers
and to defray the expenses of the Distributor with respect to providing
distribution related services.
GENERAL. All classes of shares of each Countrywide Fund will have
identical voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except for the differences mentioned above.
Under the Multiple Class Distribution System, the Board of Trustees
could determine that any of certain expenses attributable to the shares of a
particular class of shares will be borne by the class to which they were
attributable ("Class Expenses"). Class Expenses are limited to (a) transfer
agency fees identified by the Trusts as being attributable to a class of shares;
(b) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxy statements to
current shareholders of a specific class; (c) SEC and Blue Sky registration fees
incurred by a class of shares; (d) the expenses of administrative personnel and
services as required to support the shareholders of a specific class; (e)
litigation or other legal expenses relating
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<PAGE>
to a specific class of shares; (f) Trustees' fees or expenses incurred as a
result of issues relating to a specific class of shares; (g) accounting fees and
expenses relating to a specific class of shares; and (h) additional incremental
expenses not specifically identified above that are subsequently identified and
determined to be properly allocated to one class of shares and approved by the
Board of Trustees.
Under the Multiple Class Distribution System, certain expenses could be
attributable to more than one Countrywide Fund ("Countrywide Fund Expenses").
All such Countrywide Fund Expenses would be first allocated among Countrywide
Funds, based on the aggregate net assets of such Countrywide Funds, and then
borne on such basis by each Countrywide Fund and without regard to class.
Expenses that were attributable to a particular Countrywide Fund but not to a
particular class thereof ("Series Expenses"), would be borne by each class on
the basis of the net assets of such class in relation to the aggregate net
assets of the Countrywide Fund. In addition to distribution fees, Class Expenses
may be applied to the shares of a particular class. Any additional Class
Expenses not specifically identified above in the preceding paragraph which are
subsequently identified and determined to be properly applied to one class of
shares shall not be so applied until approved by the Board of Trustees.
Subject to the approval of the Board of Trustees, certain expenses may
be applied differently if their current application becomes no longer
appropriate. For example, if a Class Expense
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<PAGE>
is no longer attributable to a specific class, it may be charged to the
applicable Countrywide Fund or Countrywide Funds, as appropriate. In addition,
if application of all or a portion of a particular expense to a class is
determined by the Internal Revenue Service or counsel to the Trusts to result in
a preferential dividend for which, pursuant to Section 562(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), a Countrywide Fund would not be
entitled to a dividends paid deduction, all or a portion of the expense may be
treated as a Series Expense or a Countrywide Fund Expense. Similarly, if a
Countrywide Fund Expense becomes attributable to a specific Countrywide Fund it
may be treated as a Series Expense.
Because of the varying distribution fees and Class Expenses that may be
borne by each class of shares, the net income of (and dividends payable with
respect to) each class may be different from the net income of (and dividends
payable with respect to) the other classes of shares of a Countrywide Fund.
Dividends paid to holders of each class of shares in a Countrywide Fund would,
however, be declared and paid on the same days and at the same times and, except
as noted with respect to the varying distribution fees and Class Expenses would
be determined and paid in the same manner. To the extent that a Fund has
undistributed net income, the net asset value per share of each class of such
Fund's shares will vary.
Each Countrywide Fund will briefly describe the salient features of the
Multiple Class Distribution System in its prospectus. Each Countrywide Fund will
disclose in its
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<PAGE>
prospectus the respective expenses, performance data, distribution arrangements,
services, fees, sales loads, deferred sales loads and exchange privileges
applicable to each class of shares offered through that prospectus. The
shareholder reports of each Countrywide Fund will disclose the respective
expenses and performance data applicable to each class of shares. The
shareholder reports will contain, in the statement of assets and liabilities and
statement of operations, information related to the Countrywide Fund as a whole
generally and not on a per class basis. Each Countrywide Fund's per share data,
however, will be prepared on a per class basis with respect to all classes of
shares of such Countrywide Fund. The information provided by the Distributor for
publication in any newspaper or similar listing of the Funds' net asset values
and public offering prices will separately present Class A, Class B and Class C
shares.
The Class C alternative is designed to permit the investor to purchase
Class C shares without the assessment of a front-end sales load and at the same
time permit the Distributor to pay financial intermediaries selling shares of
the Funds a commission on the sale of the Class C shares. Proceeds from the
distribution fee and the CDSC will be used to compensate financial
intermediaries with a service fee and to defray the expenses of the Distributor
with respect to providing distribution related services, including commissions
paid on the sale of Class C shares.
The CDSC will not be imposed on redemptions of shares which
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<PAGE>
were purchased more than a specified period, up to six years (the "CDSC Period")
prior to their redemption. The CDSC will be imposed on the lesser of the
aggregate net asset value of the shares being redeemed either at the time of
purchase or redemption. No CDSC will be imposed on shares acquired through
reinvestment of income dividends or capital gains distributions. In determining
whether a CDSC is applicable, unless the shareholder otherwise specifically
directs, it will be assumed that a redemption is made first of any Class C
shares derived from reinvestment of distributions, second of Class C shares held
for a period longer than the CDSC Period, third of any class B shares in the
shareholder's account, fourth of any Class A shares in the shareholder's
account, and fifth of Class C shares held for a period not longer than the CDSC
Period.
In addition, the Funds will waive the CDSC on redemptions following the
death or disability of a shareholder as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986. The Distributor will require satisfactory proof
of death or disability before it determines to waive the CDSC. In cases of death
or disability, the CDSC may be waived where the decedent or disabled person is
either an individual shareholder or owns the shares with his or her spouse as a
joint tenant with rights of survivorship if the redemption is made within one
year of death or initial determination of disability.
Under the Multiple Class Distribution System, Class A shares and Class
B shares of a Countrywide Fund (including Retail shares and Institutional shares
of a Money Market Fund) will be
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<PAGE>
exchangeable for (a) Class A shares of the other Funds, (b) Class B shares of
the other Funds, (c) shares of the Money Market Funds and (d) shares of any
Countrywide Fund which offers only one class of shares (provided such
Countrywide Fund does not impose a CDSC) on the basis of relative net asset
value per share, plus an amount equal to the difference, if any, between the
sales charge previously paid on the exchanged shares and sales charge payable at
the time of the exchange on the acquired shares.
Class C shares of a Fund will be exchangeable for (a) Class C shares of
the other Funds, (b) shares of the Money Market Funds and (c) shares of any Fund
which offers only one class of shares and which imposes a CDSC on the basis of
relative net asset value per share. A Fund will "tack" the period for which
original Class C shares were held onto the holding period of the acquired Class
C shares for purposes of determining what, if any, CDSC is applicable in the
event that the acquired Class C shares are redeemed following the exchange. In
the event of redemptions of shares after an exchange, an investor will be
subject to the CDSC of the Fund with the longest CDSC period and/or highest CDSC
schedule which may have been owned by him or her, resulting in the greatest CDSC
payment. The period of time that Class C shares are held in a Money Market Fund
will not count toward the CDSC holding period. The Countrywide Funds will comply
with Rule 11a-3 under the 1940 Act as to any exchanges.
LEGAL ANALYSIS
- --------------
The Board of Trustees of each Trust has determined to
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<PAGE>
rely on Rule 18f-3 under the 1940 Act and to discontinue reliance on an Order
previously received from the Securities and Exchange Commission (the "SEC")
exempting the Countrywide Funds from the provisions of Sections 18(f), 18(g) and
18(i) of the 1940 Act to the extent that the issuance and sale of multiple
classes of shares representing interests in the same Countrywide Fund might be
deemed: (a) to result in a "senior security" within the meaning of Section
18(g); (b) prohibited by Section 18(f); and (c) to violate the equal voting
provisions of Section 18(i).
The Distributor believes that the Multiple Class Distribution System
as described herein will better enable the Countrywide Funds to meet the
competitive demands of today's financial services industry. Under the Multiple
Class Distribution System, an investor will be able to choose the method of
purchasing shares that is most beneficial given the amount of his or her
purchase, the length of time the investor expects to hold his or her shares, and
other relevant circumstances. The System permits the Countrywide Funds to
facilitate both the distribution of their securities and provide investors with
a broader choice as to the method of purchasing shares without assuming
excessive accounting and bookkeeping costs or unnecessary investment risks.
The allocation of expenses and voting rights relating to the Rule 12b-1
plans in the manner described is equitable and does not discriminate against any
group of shareholders. In addition, such arrangements should not give rise to
any conflicts of
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<PAGE>
interest because the rights and privileges of each class of shares are
substantially identical.
The Distributor believes that the Multiple Class Distribution System
will not increase the speculative character of the shares of the Countrywide
Funds. The Multiple Class Distribution System does not involve borrowing, nor
will it affect the Countrywide Funds' existing assets or reserves, and does not
involve a complex capital structure. Nothing in the Multiple Class Distribution
System suggests that it will facilitate control by holders of any class of
shares.
The Distributor believes that the ability of the Funds to implement
the CDSC is appropriate in the public interest, consistent with the protection
of investors, and consistent with the purposes fairly intended by the policy and
provisions of the 1940 Act. The CDSC arrangement will provide shareholders the
option of having their full payment invested for them at the time of their
purchase of shares of the Funds with no deduction of a sales charge.
CONDITIONS OF OPERATING UNDER THE MULTIPLE CLASS DISTRIBUTION SYSTEM
- --------------------------------------------------------------------
The operation of the Multiple Class Distribution System shall at all
times be in accordance with Rule 18f-3 under the 1940 Act and all other
applicable laws and regulations, and in addition, shall be subject to the
following conditions:
1. Each class of shares will represent interests in the
same portfolio of investments of a Countrywide Fund, and be
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identical in all material respects, except as set forth below. The only
differences among the various classes of a Countrywide Fund will relate solely
to: (a) the impact of the disproportionate Rule 12b-1 distribution plan payments
allocated to each of the Class A shares, Class B shares or Class C shares of a
Fund; (b) the impact of the Rule 12b-1 distribution plan payments imposed on
Retail shares but not Institutional shares of a Money Market Fund; (c) Class
Expenses, which are limited to (i) transfer agency fees (including the
incremental cost of monitoring a CDSC applicable to a specific class of shares),
(ii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders of a specific class, (iii) SEC and Blue Sky registration fees
incurred by a class of shares, (iv) the expenses of administrative personnel and
services as required to support the shareholders of a specific class, (v)
litigation or other legal expenses relating to a specific class of shares, (vi)
Trustees' fees or expenses incurred as a result of issues relating to a specific
class of shares, and (vii) accounting fees and expenses relating to a specific
class of shares; (d) the fact that each class will vote separately as a class
with respect to the Rule 12b-1 distribution plans or any other matter affecting
only that class; (e) the different exchange privileges of the various classes of
shares; and (f) the designation of each class of shares of the Countrywide
Funds. Any additional incremental expenses not specifically identified
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<PAGE>
above that are subsequently identified and determined to be properly allocated
to one class of shares shall not be so allocated until approved by the Board of
Trustees.
2. The Trustees of each Trust, including a majority of the Trustees who
are not interested persons of the Trust, have approved this Plan as being in the
best interests of each class individually and each Countrywide Fund as a whole.
In making this finding, the Trustees evaluated the relationship among the
classes, the allocation of expenses among the classes, potential conflicts of
interest among classes, and the level of services provided to each class and the
cost of those services.
3. Any material changes to this Plan, including but not limited to a
change in the method of determining Class Expenses that will be applied to a
class of shares, will be reviewed and approved by votes of the Board of Trustees
of each Trust, including a majority of the Trustees who are not interested
persons of the Trust.
4. On an ongoing basis, the Trustees of each of the Trusts, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will monitor
each Countrywide Fund for the existence of any material conflicts between the
interests of the classes of shares. The Trustees, including a majority of the
Trustees who are not interested persons of the Trust, shall take such action as
is reasonably necessary to eliminate any such conflicts that may develop. The
Distributor will be responsible for reporting any potential or existing
conflicts to the
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Trustees. If a conflict arises, the Distributor at its own cost will remedy
such conflict up to and including establishing a new registered management
investment company.
5. The Trustees of each Trust will receive quarterly and annual
Statements complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be
amended from time to time. In the Statements, only distribution expenditures
properly attributable to the sale of a class of shares will be used to support
the Rule 12b-1 fee charged to shareholders of such class of shares. Expenditures
not related to the sale of a particular class will not be presented to the
Trustees to justify any fee attributable to that class. The Statements,
including the allocations upon which they are based, will be subject to the
review and approval of the independent Trustees in the exercise of their
fiduciary duties.
6. Dividends paid by a Countrywide Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount,
except that distribution fee payments and Class Expenses relating to each
respective class of shares will be borne exclusively by that class.
7. The Countrywide Funds have established the manner in which the net
asset value of the multiple classes of shares will be determined and the manner
in which dividends and distributions will be paid. Attached hereto as Exhibit A
is a procedures memorandum and worksheets with respect to the methodology and
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<PAGE>
procedures for calculating the net asset value and dividends and distributions
of the various classes and the proper allocation of income and expenses among
the classes.
8. The Distributor represents that it has in place, and will continue
to maintain, adequate facilities in place to ensure implementation of the
methodology and procedures for calculating the net asset value and dividends and
distributions among the various classes of shares.
9. If a Countrywide Fund offers separate classes of shares through
separate prospectuses, each such prospectus will disclose (i) that the
Countrywide Fund issues other classes, (ii) that those other classes may have
different sales charges and other expenses, which may affect performance, (iii)
a telephone number investors may call to obtain more information concerning the
other classes available to them through their sales representative, and (iv)
that investors may obtain information concerning those classes from their sales
representative or the Distributor.
10. The Distributor has adopted compliance standards as to when Class
A, Class B and Class C shares may appropriately be sold to particular investors.
The Distributor will require all persons selling shares of the Countrywide Funds
to agree to conform to such standards.
11. Each Countrywide Fund will briefly describe the salient
features of the Multiple Class Distribution System in its prospectus. Each
Countrywide Fund will disclose in its
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prospectus the respective expenses, performance data, distribution arrangements,
services, fees, sales loads, deferred sales loads and exchange privileges
applicable to each class of shares offered through that prospectus. Each
Countrywide Fund will disclose the respective expenses and performance data
applicable to each class of shares in every shareholder report. The shareholder
reports will contain, in the statement of assets and liabilities and statement
of operations, information related to the Countrywide Fund as a whole generally
and not on a per class basis. Each Countrywide Fund's per share data, however,
will be prepared on a per class basis with respect to all classes of shares of
such Countrywide Fund. The information provided by the Trusts for publication in
any newspaper or similar listing of the Funds' net asset values and public
offering prices will separately present Class A, Class B and Class C shares.
12. The Trusts will comply with the provisions of Rule 6c-10 under the
1940 Act, IC-20916 (February 23, 1995), as such rule is currently adopted and as
it may be amended.
<PAGE>
EXHIBIT A
COUNTRYWIDE INVESTMENT TRUST
COUNTRYWIDE STRATEGIC TRUST
COUNTRYWIDE TAX-FREE TRUST
MULTIPLE-CLASS FUNDS
METHODOLOGY, PROCEDURES
AND
INTERNAL ACCOUNTING CONTROLS
<PAGE>
INTRODUCTION
Countrywide Investment Trust, Countrywide Tax-Free Trust and
Countrywide Strategic Trust (the "Trusts") are Massachusetts business trusts
registered under the Investment Company Act of 1940 as open-end management
investment companies. Countrywide Investments, Inc. (the "Distributor") acts as
the investment manager to each Countrywide Fund and serves as each Countrywide
Fund's principal underwriter. The Distributor is a subsidiary of Countrywide
Financial Services, Inc. The Trusts presently offer the following series of
shares (collectively, the "Funds") representing interests in separate investment
portfolios:
Countrywide Strategic Trust Countrywide Tax-Free Trust
U.S. Government Securities Fund Tax-Free Intermediate Term Fund
Treasury Total Return Fund Ohio Insured Tax-Free Fund
*Utility Fund
*Equity Fund
Countrywide Investment Trust
Intermediate Term Government Income Fund
*Global Bond Fund
Adjustable Rate U.S. Government Securities Fund
* Periodic (non-daily) dividend Funds
Each Fund may offer multiple classes of shares as more fully described
in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System would
enable each Fund to offer investors the option of purchasing shares in one of
three manners: (1) subject to a conventional front-end sales load and a
distribution fee not to exceed .35% of average net assets (Class A shares); (2)
subject to either no front-end sales load or to a front-end sales load which is
smaller than the sales load on Class A shares, and also subject to a
distribution fee and service fee of up to 1% of average net assets (Class B
shares); or (3) subject to a contingent deferred sales charge and a distribution
fee and service fee of up to 1% of average net assets (Class C shares). Each of
the Funds which invests primarily in domestic debt securities intends that
substantially all net investment income will be declared as a dividend daily and
paid monthly. Each of the Funds designated by an asterisk in the above chart
declares and pays net investment income at the end of each calendar quarter
(such Funds are referred to herein as "periodic dividend Funds"). Future series
of the Trusts may declare dividends daily or periodically. The Funds and any
future series of the Trusts will declare and pay substantially all net realized
gains, if any, at least annually.
The Trusts presently offer the following series of shares
(collectively, the "Money Market Funds") representing interests in separate
investment portfolios:
Countrywide Tax-Free Trust
Florida Tax-Free Money Fund
Ohio Tax-Free Money Fund
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<PAGE>
Each Money Market Fund may offer two classes of shares as more fully
described in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System
would enable each Money Market Fund to offer investors the option of purchasing
shares in one of two manners: (1) subject to a distribution fee not to exceed
.35% of average net assets (Retail shares); or (2) subject to no distribution
fee with a higher minimum initial investment requirement (Institutional shares).
Each of the Money Market Funds intends that substantially all net investment
income will be declared as a dividend daily and paid monthly.
Pursuant to an Accounting Services Agreement, Countrywide Fund
Services, Inc. ("CFS") maintains the Countrywide Funds' accounting records and
performs the daily calculations of each Countrywide Fund's net asset value. Thus
the procedures and internal accounting controls for the Countrywide Funds
include the participation of CFS.
The internal accounting control environment at CFS provides for minimal
risk of error. This has been accomplished through the use of competent and
well-trained employees, adequate facilities and established internal accounting
control procedures.
Additional procedures and internal accounting controls have been
designed for the multiple class funds. These procedures and internal accounting
controls have been reviewed by management of the Trusts and CFS to ensure that
the risks associated with multiple- class funds are adequately addressed.
The specific internal accounting control objectives and the related
methodology, procedures and internal accounting controls to achieve these stated
objectives are outlined below.
METHODOLOGY, PROCEDURES AND INTERNAL
ACCOUNTING CONTROLS FOR MULTIPLE-CLASS FUNDS
The three internal accounting control objectives to be achieved are:
(1) The daily net asset value for all classes of shares of
each Countrywide Fund is accurately calculated.
(2) Recorded expenses of a Countrywide Fund are properly
allocated between each class of shares.
(3) Dividend distributions are accurately calculated for each
class of shares.
1. Control Objective
The daily net asset value for all classes of shares of each Countrywide
Fund is accurately calculated.
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<PAGE>
Methodology, Procedures and Internal Accounting Controls
--------------------------------------------------------
a. Securities of the Funds will be valued daily at their current
market value by a reputable pricing source. Security positions
will be reconciled from the Trusts' records and to custody
records and reviewed for completeness and accuracy.
b. Securities of the Money Market Funds will be valued daily on
an amortized cost basis in accordance with written procedures
adopted pursuant to Rule 2a-7 of the 1940 Act.
c. Prepaid and intangible assets will be amortized over their
estimated useful lives. These assets will be reviewed monthly
to ensure a proper presentation and amortization during the
period.
d. Investment income, realized and unrealized gains or losses
will be calculated daily from CFS's portfolio system and
reconciled to the general ledger. Yields and fluctuations in
security prices will be monitored on a daily basis by CFS
personnel. Interest and dividend receivable amounts will be
reconciled to holdings reports.
e. An estimate of all expenses for each Countrywide Fund will be
accrued daily. Daily expense accruals will be reviewed and
revised, as required, to reflect actual payments made to
vendors.
f. Capital accounts for each class of shares will be updated
based on daily share activity and reconciled to transfer
agent reported outstanding shares.
g. All balance sheet asset, liability and capital accounts
will be reconciled to subsidiary records for completeness
and accuracy.
h. For each Countrywide Fund, a pricing worksheet (see
attached example) will be prepared daily which calculates
the net asset value of settled shares by class (for the
Money Market Funds and the other daily dividend funds) or
net asset value of outstanding shares (for periodic
dividend funds) and the percentage of net asset value of
such class to the total of all classes of shares.
Investment income and joint expenses will be allocated by
class of shares according to such percentages. Realized
and unrealized gains will be allocated by class of shares
according to such percentages.
i. Prior day net assets by class will be rolled forward to
current day net assets by class of shares by adjusting for
current day income, expense and distribution activity.
(There may or may not be distribution activity in the
periodic dividend funds.) Net assets by class of shares
will then be divided by the number of outstanding shares
for each class to obtain the net asset value per share.
Net asset values will be reviewed and approved by
- 3 -
<PAGE>
supervisors.
j. Net asset values per share of the different classes of shares
for daily dividend funds should be identical except with
respect to possible differences attributable to rounding.
Differences, if any, will be investigated by the accounting
supervisor.
k. Net asset values per share of the different classes of shares
for the periodic dividend funds may be different as a result
of accumulated income between distribution dates and the
effect of class specific expenses. Other differences, if any,
will be investigated by the accounting supervisor.
2. Control Objective
Recorded expenses of a Countrywide Fund are properly allocated between
each class of shares.
Methodology, Procedures and Internal Accounting Controls
--------------------------------------------------------
a. Expenses will be classified as being either joint or class
specific on the pricing worksheet.
b. Certain expenses will be attributable to more than one
Countrywide Fund. Such expenses will be first allocated
among the Countrywide Funds, based on the aggregate net
assets of such Countrywide Funds, and then borne on such
basis by each Countrywide Fund and without regard to
class. These expenses could include, for example,
Trustees' fees and expenses, unallocated audit and legal
fees, insurance premiums, expenses relating to shareholder
reports and printing expenses. Expenses that are
attributable to a particular Countrywide Fund but not to a
particular class thereof will be borne by each class on
the basis of the net assets of such class in relation to
the aggregate net assets of the Countrywide Fund. These
expenses could include, for example, advisory fees and
custodian fees, and fees related to the preparation of
separate documents for current shareholders of a
particular Countrywide Fund.
c. Class specific expenses are those identifiable with each
individual class of shares. These expenses include 12b-1
distribution fees; transfer agent fees as identified by
CFS as being attributable to a specific class; printing
and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and
proxies to current shareholders of a particular class; SEC
and Blue Sky registration fees; the expenses of
administrative personnel and services required to support
the shareholders of a specific class; litigation or other
legal expenses relating solely to one class of shares;
Trustees' fees incurred as a result of issues relating to
one class of shares; and accounting fees and expenses
relating to a specific class of shares.
- 4 -
<PAGE>
d. Joint expenses will be allocated daily to each class of shares
based on the percentage of the net asset value of shares of
such class to the total of the net asset value of shares of
all classes of shares. Class specific expenses will be charged
to the specific class of shares. Both joint expenses and class
specific expenses are compared against expense projections.
e. The total of joint and class specific expense limits will
be reviewed to ensure that voluntary or contractual
expense limits are not exceeded. Amounts will be adjusted
to ensure that any limits are not exceeded. Expense
waivers and reimbursements will be calculated and
allocated to each class of shares based upon the pro rata
percentage of the net assets of a Countrywide Fund as of
the end of the prior day, adjusted for the previous day's
share activity.
f. Each Fund and class will accrue distribution expenses at a
rate (but not in excess of the applicable maximum
percentage rate) which will be reviewed by the Board of
Trustees on a quarterly basis. Such distribution expenses
will be calculated at an annual rate not to exceed .25%
(except that such amount is .35% for the series of
Countrywide Investment Trust) of the average daily net
assets of a Fund's Class A shares (including Retail shares
of a Money Market Fund) and not to exceed 1% of the
average daily net assets of a Fund's Class B shares and
Class C shares. Under the distribution plans, payments
will be made only for expenses incurred in providing
distribution related services. Unreimbursed distribution
expenses of the Distributor will be determined daily and
the Distributor shall not be entitled to reimbursement for
any amount with respect to any day on which there exist no
unreimbursed distribution expenses.
g. Expense accruals for both joint and class specific expenses
are reviewed each month. Based upon these reviews, adjustments
to expense accruals or expense projections are made as needed.
h. Expense ratios and yields for each class of shares will be
reviewed daily to ensure that differences in yield relate
solely to acceptable expense differentials.
i. Any change to the classification of expenses as joint or
class specific is reviewed and approved by the Board of
Trustees.
j. CFS will perform detailed expense analyses to ensure that
expenses are properly charged to each Countrywide Fund and
to each class of shares. Any expense adjustments required
- 5 -
<PAGE>
as a result of this process will be made.
3. Control Objective
Dividend distributions are accurately calculated for each class of
shares.
Methodology, Procedures and Internal Accounting Controls
---------------------------------------------------------
a. The Money Market Funds and the other daily dividend Funds
declare substantially all net investment income daily.
b. The periodic dividend Funds declare substantially all net
investment income periodically.
c. Investment income, including amortization of discount and
premium, where applicable, is recorded by each Countrywide
Fund and is allocated to each class of shares based upon its
pro rata percentage of the net assets of the Countrywide Fund
as of the end of the prior day, adjusted for the previous
day's share activity.
d. For Money Market Funds and the other daily dividend Funds,
distributable income is calculated for each class of shares on
the pricing worksheet from which daily dividends and
distributions are calculated. The dividend rates are
calculated on a settlement date basis for class shares
outstanding.
e. Each non-daily dividend Fund will determine the amount of
accumulated income available for all classes after
deduction of allocated expenses but before consideration
of any class specific expenses. This amount will be
divided by total outstanding shares for all classes
combined to arrive at a gross dividend rate for all
shares. From this gross rate, a class specific amount per
share for each class (representing the unique and
incrementally higher, if any, expenses accrued during the
period to that class divided by the shares outstanding for
that class) is subtracted. The result is the actual per
share rate available for each class in determining amounts
to distribute.
f. Realized capital gains, if any, are allocated daily to each
class based upon its relative percentage of the total net
assets of the Countrywide Fund as of the end of the prior day,
adjusted for the previous day's share activity.
g. Capital gains are distributed at least once every twelve
months with respect to each class of shares.
h. The capital gains distribution rate will be determined on
the ex-date by dividing the total realized gains of the
- 6 -
<PAGE>
Countrywide Fund to be declared as a distribution by the total
outstanding shares of the Countrywide Fund as of the record
date.
i. Capital gains dividends per share should be identical for
each class of shares within a Countrywide Fund.
Differences, if any, will be investigated and resolved.
j. Distributions are reviewed annually by CFS at fiscal year end
and as required for excise tax purposes during the fiscal year
to ensure compliance with IRS regulations and accuracy of
calculations.
There are several pervasive procedures and internal accounting controls which
impact all three of the previously mentioned objectives.
a. CFS's supervisory personnel will be involved on a daily basis
to ensure that the methodology and procedures for calculating
the net asset value and dividend distribution for each class
of shares is followed and a proper allocation of expenses
among each class of shares is performed.
b. CFS fund accountants will receive overall supervision.
Their work with regard to multiple class calculations will
be reviewed and approved by supervisors.
c. CFS's pricing worksheets will be clerically checked and
verified against corresponding computer system generated
reports.
- 7 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
1 Prior day NAV per share (unrounded)
Allocation Percentages
Complete for all Funds:
2 Shares O/S - prior day
3 Prior day shares activity
4 Adjusted shares O/S [2 + 3]
5 Adjusted net assets [4 x 1]
6 % Assets by class
For daily dividend funds complete Rows 7 - 11
For periodic (non daily) dividend funds
insert same # from Rows 2 - 6
7 Settled shares prior day
8 Prior day settled shares activity
9 Adjusted settled shares O/S [7 & 8]
10 Adjusted settled assets [9 x 1]
11 % Assets by class
Income and Expenses
12 Daily income * Expenses:
13 Management Fee*
14 12-1 Fee
15 Other Joint Expenses*
16 Direct Class Expenses
17 Daily expenses [13+14+15+16]
18 Daily Net Income [12 - 17]
19 Dividend Rate (Daily Dividend Funds Only)
[18/9]
Capital
20 Income distribution
21 Undistributed Net Income [18 - 20]
22 Capital share activity
23 Realized Gains/Losses:
24 Short-Term**
25 Long-Term**
26 Capital gain distribution
27 Unrealized appreciation/depreciation**
28 Daily net asset change
[21 + 22 + 24 + 25 + 26 + 27]
- 8 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
NAV Proof
29 Prior day net assets
30 Current day net assets [28 + 29]
31 NAV per share [30 / 4]
32 Sales Load as a percent of offering price
33 Offering Price [31 / (100% - 32)]
* - Allocated based on Line 11 percentages.
** - Allocated based on Line 6 percentages.
- 9 -
<PAGE>
MULTIPLE CLASS PRICING
FINANCIAL STATEMENT DISCLOSURE
Statement of Assets and Liabilities
- -----------------------------------
- Assets and liabilities will be disclosed in accordance
with standard reporting format.
- The following will be disclosed for each class:
Net Assets:
Class A Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $ --- per share based
on --- shares outstanding.
Class B Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $--- per share based
on --- shares outstanding.
Class C Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $--- per share based
on --- shares outstanding.
- 10 -
<PAGE>
Net Assets for Money Market Funds:
Retail Shares
--------------------------------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Net Assets - equivalent to $1.00 per share based on
--- shares outstanding.
Institutional Shares
--------------------------------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Net Assets - equivalent to $1.00 per share based on
--- shares outstanding.
Statement of Operations
- -----------------------
- Standard reporting format, except that class specific expenses
will be disclosed for each class.
Statement of Changes in Net Assets
- -----------------------------------
- Show components by each class of shares and in total as
follows:
Current Year
- -------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional
Prior Year
- -------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional
Selected Share Data and Ratios
- Show components by each class as follows:
Current Year
- -------------------------------------------------------------------------------
Class A Class B Class C Retail Institutional
Prior Years
- -------------------------------------------------------------------------------
Class A Class B Class C Retail Institutional
Notes to Financial Statements
- Note on share transactions will include information on
each class of shares for two years
- Notes will include additional disclosure regarding
allocation of expenses between classes.
- Notes will describe the distribution arrangements,
incorporating disclosure on any classes' 12b-1 fee
arrangements.
- 11 -
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, COUNTRYWIDE STRATEGIC TRUST, a business trust organized under the
laws of the Commonwealth of Massachusetts (hereinafter referred to as the
"Trust"), has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
as amended, a registration statement with respect to the issuance and sale of
the shares of the Trust; and
WHEREAS, the undersigned is a Trustee of the Trust, as indicated beside his
name;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JOHN F.
SPLAIN and SANDOR E. SAMUELS, and each of them, his attorneys for him and in
his name, place and stead, to execute and file any amended registration
statement or statements and amended prospectus or prospectuses or amendments or
supplements to any of the foregoing, hereby giving and granting to said
attorneys full power and authority to do and perform all and every act and
thing whatsoever requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do
if personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
23rd day of July, 1997.
/s/ John R. Delfino
--------------------------------
JOHN R. DELFINO
Trustee
STATE OF CALIFORNIA )
) ss:
COUNTY OF )
On the 23rd day of July, 1997, personally appeared before me, JOHN R.
DELFINO, known to me to be the person described in and who executed the
foregoing instrument, and who acknowledged to me that he executed and delivered
the same for the purposes therein expressed.
WITNESS my hand and official seal this 23rd day of July, 1997.
/s/ C. Joy Estes
----------------------------
Notary Public
C. Joy Estes
Comm.#1011575
Notary Public-California
LOS ANGELES COUNTY
My Comm.Expires DEC 19, 1997
