PROSPECTUS
August 1, 1996
Revised March 31, 1997
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
U.S. GOVERNMENT SECURITIES FUND
TREASURY TOTAL RETURN FUND
==============================================================================
The U.S. Government Securities Fund and the Treasury Total Return Fund
(individually a "Fund" and collectively the "Funds") are two separate series
of Countrywide Strategic Trust.
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-related 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.
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, 1996, and
amended March 31, 1997 has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference in its entirety. A copy of
the Statement of Additional Information can be obtained at no charge by
calling one of the numbers listed below.
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For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free)....................................... 800-543-0407
Cincinnati................................................... 513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<PAGE>
<TABLE>
<CAPTION>
EXPENSE INFORMATION
============================================================================================================
U.S.
GOVERNMENT TREASURY
SECURITIES TOTAL RETURN
SHAREHOLDER TRANSACTION EXPENSES FUND FUND
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................... 2% 4%
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price).......................... None * None *
Sales Load Imposed on Reinvested Dividends.............................. None None
Exchange Fee............................................................ None None
Redemption Fee.......................................................... None ** None **
<FN>
* 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."
</FN>
<CAPTION>
U.S.
GOVERNMENT TREASURY
SECURITIES TOTAL RETURN
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND FUND
<S> <C> <C>
Management Fees After Waivers (A) ...................................... .71% .58%
12b-1 Fees(B) .......................................................... .01% .01%
Other Expenses.......................................................... .48% .66%
------- -------
Total Fund Operating Expenses After Waivers (C) ........................ 1.20% 1.25%
======= =======
<FN>
(A) Absent waivers of management fees, such fees would have been .75% for the
fiscal year ended March 31, 1996.
(B) Each 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 1.24% and 1.42% for the U.S. Government Securities Fund
and the Treasury Total Return Fund, respectively, for the fiscal year
ended March 31, 1996.
</FN>
</TABLE>
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 expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
U.S.
GOVERNMENT TREASURY
SECURITIES TOTAL RETURN
FUND FUND
1 Year $ 32 $ 52
3 Years 57 78
5 Years 85 106
10 Years 163 185
<PAGE>
<TABLE>
<CAPTION>
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, 1996 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.
U.S. GOVERNMENT SECURITIES FUND
Per Share Data for a Share Outstanding Throughout Each Year
===============================================================================================================================
Year Ended March 31,
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year. $ 9.22 $ 9.85 $ 10.47 $ 10.18 $ 10.04 $ 9.78 $ 9.81 $ 10.17 $ 10.76 $10.88
------ ------ ------- ------- ------- ------- ------- ------- ------- ------
Income from investment
operations:
Net investment income 0.56 0.58 0.64 0.69 0.79 0.81 0.86 0.82 0.84 0.88
Net realized and
unrealized gains (losses)
on investments... 0.21 (0.59) (0.59) 0.47 0.14 0.26 (0.03) (0.33) (0.56) --
------ ------ ------- ------- ------- ------- ------- ------- ------- ------
Total from investment
operations........ 0.77 (0.01) 0.05 1.16 0.93 1.07 0.83 0.49 0.28 0.88
------ ------ ------- ------- ------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net
investment income (0.56) (0.58) (0.64) (0.69) (0.79) (0.81) (0.86) (0.82) (0.84) (0.88)
Distributions from net
realized gains... -- (0.04) (0.03) (0.18) -- -- -- (0.03) (0.03) (0.12)
------ ------ ------- ------- ------- ------- ------- ------- ------- ------
Total distributions. (0.56) (0.62) (0.67) (0.87) (0.79) (0.81) (0.86) (0.85) (0.87) (1.00)
Net asset value at
end of year....... $ 9.43 $ 9.22 $ 9.85 $ 10.47 $ 10.18 $ 10.04 $ 9.78 $ 9.81 $ 10.17 $10.76
====== ====== ======= ======= ======= ======= ======== ======= ======= ======
Total return(A) .... 8.39% 0.06% 0.30% 11.71% 9.46% 11.37% 8.60% 4.96% 2.95% 8.62%
====== ====== ======= ======= ======= ======= ======== ======= ======= ======
Net assets at
end of year (000's) $ 24,916 $26,174 $40,479 $31,633 $ 40,253 $ 43,753 $ 28,788 $ 31,047 $ 40,429 $ 54,657
====== ====== ======= ======= ======= ======= ======== ======= ======= ======
Ratio of expenses to
average net assets 1.20%(B) 1.20% 1.20% 1.20% 1.19% 1.30% 1.31%(B) 1.37% 1.60% 1.25%(B)
Ratio of net investment
income to average
net assets........ 5.82% 6.26% 6.14% 6.61% 7.73% 8.19% 8.60% 8.15% 8.31% 8.23%
Portfolio turnover rate 160% 205% 246% 188% 55% 53% 128% 140% 94% 93%
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<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 1.24%, 1.34% and 1.32% for the years ended
March 31, 1996, 1990 and 1987, respectively.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
Per Share Data for a Share Outstanding Throughout Each Period
==================================================================================================================================
From Date
of Public
Offering
(Jan. 26.,
1988)
Through
Year Ended March 31, March 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period....... $ 8.36 $ 8.95 $ 9.70 $ 9.10 $ 9.00 $ 8.78 $ 8.98 $ 9.25 $ 9.60
------ ------ ------- ------- ------- ------- ------- ------- ------
Income from investment operations:
Net investment income..... 0.38 0.43 0.37 0.55 0.60 0.61 0.63 0.58 0.09
Net realized and unrealized
gains (losses) on investments (0.14) (0.59) (0.39) 0.87 0.17 0.22 (0.20) (0.27) (0.35)
------ ------ ------- ------- ------- ------- ------- ------- ------
Total from investment operations 0.24 (0.16) (0.02) 1.42 0.77 0.83 0.43 0.31 (0.26)
------ ------ ------- ------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net
investment income(A) .. (0.38) (0.43) (0.37) (0.55) (0.60) (0.61) (0.63) (0.58) (0.09)
Distributions from net
realized gains(A) ....... -- -- (0.36) (0.27) (0.07) -- -- -- --
------ ------ ------- ------- ------- ------- ------- ------- ------
Total distributions......... (0.38) (0.43) (0.73) (0.82) (0.67) (0.61) (0.63) (0.58) (0.09)
------ ------ ------- ------- ------- ------- ------- ------- ------
Net asset value at end of period $8.22 $8.36 $8.95 $9.70 $9.10 $9.00 $8.78 $8.98 $9.25
====== ====== ======= ======= ======= ======= ======= ======= ======
Total return(B) ............ 2.95% (1.75%) (0.54%) 16.21% 8.98% 9.95% 4.71% 3.16% (16.59%)(D)
====== ====== ======= ======= ======= ======= ======= ======= =======
Net assets at end of period (000's) $15,344 $25,974 $32,190 $43,427 $49,071 $65,326 $76,818 $69,253 $19,186
====== ====== ======= ======= ======= ======= ======= ======= ======
Ratio of expenses to
average net assets........ 1.25%(C) 1.25%(C) 1.25% 1.25% 1.25% 1.21% 1.17% 1.23% 1.59%(D)
Ratio of net investment income
to average net assets.... 4.66% 5.06% 3.84% 5.82% 6.58% 6.96% 6.86% 6.51% 5.28%(D)
Portfolio turnover rate..... 0% 63% 526% 161% 130% 198% 111% 588% 0%
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<FN>
(A 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 $.61, $.62, $.63, $.54 and $.05 from net
investment income for the periods ended March 31, 1992, 1991, 1990, 1989
and 1988, respectively, and $.08 from net realized gains for the year ended
March 31, 1992.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C) Absent fee waivers by the Adviser, the ratios of expenses to average
net assets would have been 1.42% and 1.37% for the years ended March 31,
1996 and 1995, respectively.
(D) Annualized.
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
==============================================================================
The U.S. Government Securities Fund and the Treasury Total Return 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.
U.S. GOVERNMENT SECURITIES FUND
The U.S. Government Securities Fund seeks high current income, consistent with
the protection of capital. The Fund seeks to achieve its investment objective
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" described below). Under normal circumstances,
at least 65% of the Fund's total assets will be invested in U.S. Government
obligations. It is anticipated that the assets of the Fund will be invested
principally 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.
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
<PAGE>
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 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 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 several investment banking firms
acting as brokers or dealers, these securities were only recently developed.
As a result, established trading markets have not yet developed for certain
stripped mortgage-related securities. The Fund will not invest more than 10%
<PAGE>
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 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.
TREASURY TOTAL RETURN FUND
The Treasury Total Return Fund seeks the highest level of total return over
the long term, consistent with the protection of capital. High current income
is a secondary objective. The Fund seeks to achieve its investment objectives
by investing primarily in direct obligations of the United States Treasury
("U.S. Treasury obligations" described below). Under normal circumstances, at
least 65% of the Fund's total assets will be invested in U.S. Treasury
obligations. It is anticipated that the remainder of the Fund's assets will be
invested in repurchase agreements collateralized by U.S. Treasury obligations.
Although the Fund will normally limit its investment in repurchase agreements
to 35% of its total assets, the Fund may, for temporary defensive purposes,
invest up to 50% of its assets in repurchase agreements. For a discussion of
repurchase agreements, see "Additional Investment Information."
In pursuing the Fund's investment objectives, the Adviser will actively manage
the Fund's portfolio in light of market conditions and trends. When in the
opinion of the Adviser, market indicators point to lower interest rates, the
average maturity of the Fund's portfolio will be lengthened to take advantage
of the anticipated increase in bond prices. When rising interest rates are
indicated, the average maturity of the portfolio will be shortened to protect
the Fund against the anticipated decrease in bond prices.
<PAGE>
In order to interpret the trend in interest rates, the Adviser uses a
composite indicator with different subvariables, each of which is in some way
reflective of the overall strength of the economy. Any reversal in the
interest rate trend projected by this indicator mandates a dramatic shift in
the allocation of the maturities of the Fund's portfolio holdings. If the
indicator projects falling interest rates, the Adviser will convert 50% to
100% of the Fund's portfolio to long-term U.S. Treasury obligations.
Conversely, if the indicator projects higher interest rates, the Adviser will
convert 50% to 100% of the Fund's portfolio to short-term U.S. Treasury
obligations. Depending on market conditions, the Adviser may invest up to 100%
of the Fund's portfolio in obligations of the same maturity.
The Adviser anticipates that this technique will enable the Fund to (1)
capture the capital appreciation generated by long-term U.S. Treasury
obligations during periods of falling interest rates and (2) protect these
gains by shifting portfolio assets to short-term U.S. Treasury obligations
during periods of rising interest rates.
The U.S. Treasury obligations in which the Fund may invest include direct
obligations of the United States Treasury such as Treasury bills, Treasury
notes and Treasury bonds. U.S. Treasury obligations are backed by the "full
faith and credit" of the United States Government. However, shares of the Fund
are not guaranteed or backed by the United States Government. The Fund may
invest up to 20% of its net assets in U.S. Treasury obligations traded under
the Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program. The Fund may invest in U.S. Treasury obligations of any
maturity.
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. U.S. Treasury obligations 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, securities
with longer maturities generally offer both higher yields and greater exposure
to market fluctuation from changes in interest rates. Consequently, to the
extent the Fund is significantly invested in U.S. Treasury obligations with
longer maturities, investors in the Fund should be aware that there is a
possibility of greater fluctuation in the Fund's net asset value.
Because a substantial portion of the Fund's portfolio securities may be sold
when the Adviser believes that market indicators point to a change in the
level of interest rates, the Fund may experience a very substantial portfolio
turnover rate.
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 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 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.
<PAGE>
DELAYED SETTLEMENT TRANSACTIONS. Each Fund may trade securities on a
"when-issued" or "to-be-announced" basis. Obligations issued on a when-issued
or to-be-announced basis are settled by delivery and payment after the date of
the transaction, usually within 15 to 45 days. In a to-be-announced
transaction, a 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 Funds will only make commitments to purchase obligations on a
when-issued or to-be-announced basis with the intention of actually acquiring
the obligations, but a 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
Funds will not enter into a delayed settlement transaction which settles in
more than 120 days.
Purchases of securities on a when-issued or to-be-announced basis are subject
to market fluctuations and their current value is determined in the same
manner as other portfolio securities. When effecting such purchases for a
Fund, a segregated account of cash or U.S. Government obligations 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 U.S. Government obligations will be segregated on
a daily basis so that the market value of the Fund's segregated assets will
equal the amount of the Fund's commitments to purchase when-issued obligations
and securities on a to-be-announced basis. A 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. 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 enter into repurchase agreements which are
collateralized by U.S. Government obligations in which that Fund could invest
directly. 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% 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 U.S. Government Securities Fund may borrow money in an amount not
exceeding 10% of 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 U.S.
Government Securities 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
<PAGE>
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).
The Treasury Total Return Fund may borrow money from banks (provided there is
300% asset coverage) or from banks or other persons for temporary purposes (in
an amount not exceeding 5% of its total assets). The Fund will not make any
borrowing which would cause its outstanding borrowings to exceed one-third of
the value of its total assets. The Fund may pledge assets in connection with
borrowings but will not pledge more than one-third of its total assets. The
Fund will not make any additional purchases of portfolio securities if
outstanding borrowings exceed 5% of the value of its total assets.
REVERSE REPURCHASE TRANSACTIONS. The U.S. Government Securities 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 U.S. Government obligations.
LENDING PORTFOLIO SECURITIES. The Treasury Total Return Fund may make
short-term loans of its portfolio securities to banks, brokers and dealers.
Lending portfolio securities exposes the 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 the 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 U.S.
Government obligations, with the Fund's Custodian in an amount at least equal
to the market value of the loaned securities. Although the Fund does have the
ability to make loans of all of its portfolio securities, it is the present
intention of the 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").
<PAGE>
HOW TO PURCHASE SHARES
==============================================================================
Your initial investment in either Fund ordinarily must be at least $1,000
($250 for tax-deferred retirement plans). 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 "U.S. Government Securities Fund" or the
"Treasury Total Return 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 ordinarily issued, but you
may receive a certificate without charge by sending a written request to the
Transfer Agent. Certificates for fractional shares will not be issued. If a
certificate has been issued to you, you will not be permitted to exchange
shares by telephone or to use the automatic withdrawal plan as to those
shares. 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 the Transfer Agent, P.O. Box 5354, Cincinnati, Ohio 45201-5354. The
check should be made payable to the applicable Fund.
Under the Open Account Program, you may also purchase shares of the Funds by
bank wire. Please telephone the Transfer Agent (Nationwide call toll-free
800-543-0407; in Cincinnati call 629-2050) for instructions. Your bank may
impose a charge for sending your wire. There is presently no fee for receipt
of wired funds, but the Transfer Agent reserves the right to charge
shareholders for this service upon thirty days' prior notice to shareholders.
Each additional purchase request must contain the name of your account and
your account number to permit proper crediting to your account. While there is
no minimum amount required for subsequent investments, the Trust reserves the
right to impose such requirement. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for
selling shares of the Funds to a current shareholder, such broker-dealer will
receive the concessions described above with respect to additional investments
by the shareholder.
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
<PAGE>
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 U.S. Government Securities 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.
<TABLE>
<CAPTION>
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
<S> <C> <C> <C>
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*
</TABLE>
The public offering price of shares of the U.S. Government Securities 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.
<TABLE>
<CAPTION>
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
<S> <C> <C> <C>
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*
</TABLE>
The public offering price of shares of the Treasury Total Return Fund is the
next determined net asset value per share plus a sales load as shown in the
following table.
<TABLE>
<CAPTION>
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
<S> <C> <C> <C>
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*
<FN>
* 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.
</FN>
</TABLE>
<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 $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 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
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 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.
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 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 sixty days prior to your purchase of 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 shares of the
Funds at net asset value. To the extent permitted by regulatory authorities, a
bank trust department may charge fees to clients for whose account it
purchases shares at net asset value. Federal and state credit unions may also
purchase shares at net asset value.
<PAGE>
In addition, 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 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.
Trustees, directors, officers and employees of the Trust, the Adviser, the
Transfer Agent or any affiliated company, including members of the immediate
family of such individuals and employee benefit plans established by such
entities, may also purchase shares of the Funds at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES. A contingent
deferred sales load is imposed upon certain redemptions of shares of the Funds
(or shares into which such shares were exchanged) purchased at net asset value
in amounts totaling $1 million or more, if the dealer's commission described
above was paid by the 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 gains distributions, or upon amounts representing share
appreciation. If a purchase of shares is subject to the contingent deferred
sales load, the investor will be so notified on the confirmation for such
purchase.
Redemptions of such shares of the Funds held for at least 12 months will not
be subject to the contingent deferred sales load and an exchange of such
shares into another fund of Countrywide Investments is not treated as a
redemption and will not trigger the imposition of the contingent deferred
sales load at the time of such exchange. A fund will "tack" the period for
which such shares being exchanged were held onto the holding period of the
acquired shares for purposes of determining if a contingent deferred sales
load is applicable in the event that the acquired shares are redeemed
following the exchange; however, the period of time that the redemption
proceeds of such shares are held in a money market fund will not count toward
the holding period for determining whether a contingent deferred sales load is
applicable. See "Exchange Privilege."
The contingent deferred sales load is currently waived for any partial or
complete redemption following death or disability (as defined in the 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 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.
<PAGE>
SHAREHOLDER SERVICES
==============================================================================
Contact the Transfer Agent (Nationwide call toll-free 800-543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
AUTOMATIC WITHDRAWAL PLAN
If the shares in your account have a value of at least $5,000, you may elect
to receive, or may designate another person to receive, monthly or quarterly
payments in a specified amount of not less than $50 each. There is no charge
for this service. Purchases of additional shares of the Funds while the plan
is in effect are generally undesirable because a sales load is incurred
whenever purchases are made.
TAX-DEFERRED RETIREMENT PLANS
Shares of either Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and
their non-employed spouses
-- 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.
<PAGE>
HOW TO REDEEM SHARES
==============================================================================
You may redeem shares of either Fund on each day that the Trust is open for
business by sending a written request to the Transfer Agent. The request must
state the number of shares or the dollar amount to be redeemed and your
account number. The request must be signed exactly as your name appears on the
Trust's account records. If the shares to be redeemed have a value of $25,000
or more, your signature must be guaranteed by any eligible guarantor
institution, including banks, brokers and dealers, municipal securities
brokers and dealers, government securities brokers and dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations.
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per
share next 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 certain shares
purchased at net asset value. See "How to Purchase Shares."
Shares are redeemed at their net asset value per share next determined after
receipt by the Transfer Agent of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment
is normally made within three business days after tender in such form,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares
of the Funds by certified check or wire.
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to
be genuine or the delivery or transmittal of the redemption proceeds by wire.
The affected shareholders will bear the risk of any such loss. The privilege
of exchanging shares by telephone is automatically available to all
shareholders. The Trust or the Transfer Agent, or both, will employ reasonable
procedures to determine that telephone instructions are genuine. If the Trust
and/or the Transfer Agent do not employ such procedures, they may be liable
for losses due to unauthorized or fraudulent instructions. These procedures
may include, among others, requiring forms of personal identification prior to
acting upon telephone instructions, providing written confirmation of the
transactions and/or tape recording telephone instructions.
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 $1,000 (based on actual amounts invested including any
sales load paid, unaffected by market fluctuations), or $250 in the case of
<PAGE>
tax-deferred retirement plans, 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.
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 applicable to the shares
being acquired over the sales load rate, if any, previously paid on the shares
being exchanged.
Shares of the Funds subject to a contingent deferred sales load may be
exchanged, on the basis of relative net asset value per share, for shares of
any other fund which imposes a contingent deferred sales load and for shares
of any fund which is a money market fund. A fund will "tack" the period for
which the shares being exchanged were held onto the holding period of the
acquired shares for purposes of determining if a contingent deferred sales
load is applicable in the event that the acquired shares are redeemed
following the exchange. The period of time that shares are held in a money
market fund will not count toward the holding period for determining whether a
contingent deferred sales load is applicable.
The following are the funds of Countrywide Investments currently offered to
the public. Funds which may be subject to a front-end or contingent deferred
sales load are indicated by an asterisk.
COUNTRYWIDE TAX-FREE TRUST COUNTRYWIDE INVESTMENT TRUST
Tax-Free Money Fund Short Term Government Income Fund
Ohio Tax-Free Money Fund Institutional Government Income Fund
California Tax-Free Money Fund *Intermediate Term Government Income Fund
Florida Tax-Free Money Fund *Adjustable Rate U.S. Government
*Tax-Free Intermediate Term Fund Securities Fund
*Ohio Insured Tax-Free Fund *Global Bond Fund
COUNTRYWIDE STRATEGIC TRUST
*U.S. Government Securities Fund
*Equity Fund
*Utility Fund
*Treasury Total Return Fund
You may request an exchange by sending a written request to the Transfer
Agent. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are
unable to execute your transaction by telephone (for example during times of
unusual market activity) consider requesting your exchange by mail or by
visiting the Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati,
Ohio 45202. An exchange will be effected at the next determined net asset
value (or offering price, if sales load is applicable) after receipt of a
request by the Transfer Agent.
Exchanges may only be made for shares of funds then offered for sale in your
state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated
by the Board of Trustees upon 60 days' prior notice to shareholders. An
exchange results in a sale of fund shares, which may cause you to recognize a
capital gain or loss. Before making an exchange, contact the Transfer Agent to
obtain a current prospectus for any of the other funds of Countrywide
Investments and more information about exchanges among Countrywide
Investments.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
==============================================================================
All of the net investment income of each Fund is declared as a dividend to
shareholders of record on each business day of the Trust and paid monthly.
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.
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. Since the Funds' 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 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.
<PAGE>
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 (the "Adviser"), to manage the Funds' investments and their
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. 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.
Scott Weston, Assistant Vice President-Investments of the Adviser, is
primarily responsible for managing the portfolio of the U.S. Government
Securities Fund. Mr. Weston has been employed by the Adviser since 1992 and
has been managing the Fund's portfolio since March 1996. Prior to 1992, Mr.
Weston was employed by Adex International, Inc. as a cost control manager.
The Treasury Total Return Fund has been managed by a committee of the Adviser's
portfolio managers since March 1997.
The Funds are responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Funds' shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Funds, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders,
expenses of shareholders' meetings and proxy solicitations, and such
extraordinary or non-recurring expenses as may arise, including litigation to
which the Funds may be a party and indemnification of the Trust's officers and
Trustees with respect thereto.
The Trust has retained Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio (the "Transfer Agent"), an indirect wholly-owned subsidiary
of Countrywide Credit Industries, Inc., to serve as the Funds' transfer agent,
dividend paying agent and shareholder service agent.
The Transfer Agent also provides accounting and pricing services to the Funds.
The Transfer Agent receives a monthly fee 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. Robert H.
Leshner, President and a director of the Adviser, is President and a Trustee
of the Trust. John F. Splain, Secretary and General Counsel of the Adviser, is
Secretary of the Trust.
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
<PAGE>
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. 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 PLAN
===============================================================================
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Funds
have adopted a plan of distribution (the "Plan") under which the Funds 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 Funds and who may be advising investors regarding
the purchase, sale or retention of Fund shares; expenses of maintaining
personnel who engage in or support distribution of shares or who render
shareholder support services not otherwise provided by the Transfer Agent;
expenses of formulating and implementing marketing and promotional activities,
including direct mail promotions and mass media advertising; expenses of
preparing, printing and distributing sales literature and prospectuses and
statements of additional information and reports for recipients other than
existing shareholders of the Funds; expenses of obtaining such information,
analyses and reports with respect to marketing and promotional activities as
the Trust may, from time to time, deem advisable; and any other expenses
related to the distribution of the Funds' shares.
The annual limitation for payment of expenses pursuant to the Plan is .25% of
each Fund's average daily net assets. Unreimbursed expenditures will not be
carried over from year to year. In the event the Plan is terminated by a Fund
in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Adviser after the date the Plan
terminates.
Pursuant to the Plan, the Funds may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may
differ from the interpretations of federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to
state law. If a bank were prohibited from continuing to perform all or a part
of such services, management of the Trust believes that there would be no
material impact on the Funds or their shareholders. Banks may charge their
customers fees for offering these services to the extent permitted by
applicable regulatory authorities, and the overall return to those
shareholders availing themselves of the bank services will be lower than to
those shareholders who do not. The Funds may from time to time purchase
securities issued by banks which provide such services; however, in selecting
investments for the Funds, no preference will be shown for such securities.
The National Association of Securities Dealers, in its Rules of Fair Practice,
places certain limitations on asset-based sales 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.
<PAGE>
CALCULATION OF SHARE PRICE AND PUBLIC
OFFERING PRICE
==============================================================================
On each day that the Trust is open for business, the public offering price
(net asset value plus applicable sales load) of the shares of each Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange, currently 4:00 p.m., Eastern time. The Trust is open for
business on each day the New York Stock Exchange is open for business and on
any other day when there is sufficient trading in a Fund's investments that
its net asset value might be materially affected. The net asset value per
share of each Fund is calculated by dividing the sum of the value of the
securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares
outstanding of the Fund, rounded to the nearest cent.
The Funds' 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 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.
The "average annual total return" of a Fund refers to the average annual
compounded rates of return over the most recent 1, 5 and 10 year periods or,
where the Fund has not been in operation for such period, over the life of the
Fund (which periods will be stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions and the
deduction of the current maximum sales load from the initial investment. A
Fund may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of
a period, assuming no activity in the account other than reinvestment of
dividends and capital gains distributions. A nonstandardized quotation of
total return may also indicate average annual compounded rates of return over
periods other than those specified for "average annual total return." These
nonstandardized returns do not include the effect of the applicable sales load
which, if included, would reduce total return. A nonstandardized quotation of
total return will always be accompanied by a Fund's "average annual total
return" as described above.
The "yield" of a Fund is computed by dividing the net investment income per
share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day
of the period (using the average number of shares entitled to receive
dividends). The yield formula assumes that net investment income is earned and
reinvested at a constant rate and annualized at the end of a six-month period.
From time to time, the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Funds may also
compare their performance to that of other selected mutual funds, averages of
the other mutual funds within their categories as determined by Lipper, or
recognized indicators. 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
<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>
ACCOUNT NO. __________________
(For Fund Use Only)
ACCOUNT APPLICATION (Check appropriate Fund)
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
o TREASURY TOTAL RETURN FUND (22) $_________________
o U.S. GOVERNMENT SECURITIES FUND (8) $_________________
- --------------------------------------------------
FOR BROKER/DEALER USE ONLY
Firm Name:____________________________________
Home Office Address:__________________________
Branch Address:_______________________________
Rep Name & No.:_______________________________
Rep Signature:________________________________
- --------------------------------------------------
===============================================================================
o Check or draft enclosed payable to the Fund(s) designated above
($1,000 minimum).
o Bank Wire From: __________________________________________________________
o Exchange From: __________________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX I.D.#
________________________________________________ ____________________________
Name of Individual, Corporation, Organization, (In case of custodial account
or Minor, etc. please list minor's S.S.#)
________________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other_______
ADDRESS PHONE
________________________________________________ ( )_______________________
Street or P.O. Box Business Phone
________________________________________________ ( )_______________________
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant (Right of survivorship presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Non-Profit
o Other
Occupation and Employer Name/Address__________________________________________
Are you an associated person of an NASD member? o Yes o 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:
o 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.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of
all reportable payments will be withheld until I provide a number.
==============================================================================
<PAGE>
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions
paid in cash.
==============================================================================
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.)
o I agree to the Letter of Intent in the current Prospectus of Countrywide
Strategic 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):
o $100,000 o $250,000 o $500,000 o $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, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
____________________________________ ________________________________________
Title of Corporate Officer, Date
Trustee, etc.
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.
<PAGE>
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___________________
o U.S. Government Securities Fund FI Account Number____________________
o Treasury Total Return Fund
o Checking Account o Savings Account
___________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
___________________________________ o the 15th day of each month
City State o both the 15th and last business day
X__________________________________ X_____________________________________
(Signature of Depositor EXACTLY (Signature of Joint Tenant - if any)
as it appears on FI Records)
(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 amount. 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 if the claim for the amount of
such erroneous payment is made by you within six (6) months from the date of
such erroneous payment; your participation in this arrangement and that of the
Funds may be terminated by thirty (30) days written notice from either party
to the other.
==============================================================================
AUTOMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND(S))
This is an authorization for you to withdraw $_________ from my mutual fund
account beginning the last business day of the month of_________
.
Please Indicate Withdrawal Schedule (Check One): Please indicate which Fund:
o U.S. Government Securities Fund o Treasury Total Return Fund
o MONTHLY -- Withdrawals will be made on the last business day of each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o ANNUALLY -- Please make withdrawals on the last business day of the
month of: _____________________.
Please Select Payment Method (Check One):
o EXCHANGE: Please exchange the withdrawal proceeds into another
Countrywide account number: __ __-__ __ __ __ __ __-__
o CHECK: Please mail a check for my withdrawal proceeds to the mailing
address on this account.
o 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.
o 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
o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee_________________________________________________________________
Please send to:_______________________________________________________________
Street address City State Zip
==============================================================================
<PAGE>
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of
Countrywide Strategic Trust (the Trust) and that
______________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf
of the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the
Trust, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to
sign any documents necessary or appropriate to appoint Countrywide Fund
Services, Inc. as redemption agent of the corporation or organization for
shares of the applicable series of the Trust, to establish or acknowledge
terms and conditions governing the redemption of said shares and to otherwise
implement the privileges elected on the Application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
______________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of______________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on at which a quorum was
present and acting throughout, and that the same are now in full force and
effect. I further certify that the following is (are) duly elected officer(s)
of the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
NAME TITLE
_____________________________________ ______________________________________
_____________________________________ ______________________________________
_____________________________________ ______________________________________
Witness my hand and seal of the corporation or organization this____________day
of_________________, 19_______
_____________________________________ ______________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
INCOME
TOTAL RETURN
PROSPECTUS
AUGUST 1, 1996
Revised March 31, 1997
U.S. GOVERNMENT
SECURITIES FUND
TREASURY TOTAL
RETURN FUND
COUNTRYWIDE
INVESTMENTS
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
BOARD OF TRUSTEES
Donald L. Bogdon, M.D.
John R. Delfino
H. Jerome Lerner
Robert H. Leshner
Angelo R. Mozilo
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
INVESTMENT 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
Rate Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
==================================================
TABLE OF CONTENTS
Expense Information........................... 2
Financial Highlights.......................... 3
Investment Objectives and Policies............ 5
How to Purchase Shares ....................... 11
Shareholder Services.......................... 15
How to Redeem Shares.......................... 16
Exchange Privilege............................ 17
Dividends and Distributions................... 18
Taxes......................................... 18
Operation of the Funds........................ 19
Distribution Plan............................. 20
Calculation of Share Price and
Public Offering Price.................... 21
Performance Information....................... 21
==================================================
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.
<PAGE>
PROSPECTUS
August 1, 1996
Revised March 31, 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 capital appreciation by investing primarily in
common stocks which are believed by the Adviser to offer growth potential.
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, 1996, and
amended March 31, 1997 has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference in its entirety. A copy of
the Statement of Additional Information can be obtained at no charge by
calling one of the numbers listed below.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
EXPENSE INFORMATION
===========================================================================================================
CLASS A CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES
<S> <C> <C>
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 **
<FN>
* 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."
</FN>
<CAPTION>
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
<S> <C> <C> <C> <C>
Management Fees.................................. .07% (A) .07% (A) .75% .75%
12b-1 Fees(B) ................................... .01% .26% .11% .59%
Other Expenses................................... 1.17% 1.67% .39% .66%
----------- ----------- ---------- -----------
Total Fund Operating Expenses................... 1.25% (C) 2.00% (C) 1.25% 2.00%
=========== =========== ========== ===========
<FN>
(A) Absent waivers of management fees, such fees would have been .75% for the
fiscal year ended March 31, 1996.
(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 2.02% and 2.70% for
Class A shares and Class C shares, respectively, for the fiscal year ended
March 31, 1996.
</FN>
</TABLE>
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 expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
CLASS A CLASS C
SHARES SHARES
1 Year.................. $ 52 $ 30
3 Years................. 78 63
5 Years................. 106 108
10 Years................ 185 233
<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, 1996 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>
<CAPTION>
EQUITY FUND - CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, MARCH 31, MARCH 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.......................... $ 9.84 $ 9.26 $ 10.02
------------ ------------ -------------
Income from investment operations:
Net investment income........................................ 0.13 0.15 0.08
Net realized and unrealized gains (losses) on investments.... 2.60 0.59 (0.34)
------------ ------------ -------------
Total from investment operations................................ 2.73 0.74 (0.26)
------------ ------------ -------------
Less distributions:
Dividends from net investment income......................... (0.12) (0.16) (0.08)
Distributions from net realized gains........................ -- -- (0.42)
------------ ------------ -------------
Total distributions............................................. (0.12) (0.16) (0.50)
------------ ------------ -------------
Net asset value at end of period................................ $ 12.45 $ 9.84 $ 9.26
============ ============ =============
Total return(A) ................................................ 27.90% 8.07% (3.98%)(C)
============ ============ =============
Net assets at end of period (000's)............................. $ 8,502 $ 4,300 $ 3,346
============ ============ =============
Ratio of expenses to average net assets(B) .................... 1.25% 1.25% 1.24%(C)
Ratio of net investment income to average net assets ........... 1.06% 1.57% 0.82%(C)
Portfolio turnover rate......................................... 38% 159% 109%(C)
- ------------------------------------------------------------------------------------------------------------------
<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 2.02%, 1.94% and
2.04%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively.
(C) Annualized.
</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 YEAR (JUNE 7, 1993)
ENDED ENDED THROUGH
MARCH 31, MARCH 31, MARCH 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.......................... $ 9.86 $ 9.26 $ 10.00
------------ ------------ -------------
Income from investment operations:
Net investment income........................................ 0.05 0.10 0.03
Net realized and unrealized gains (losses) on investments.... 2.60 0.57 (0.32)
------------ ------------ -------------
Total from investment operations................................ 2.65 0.67 (0.29)
------------ ------------ -------------
Less distributions:
Dividends from net investment income......................... (0.05) (0.07) (0.03)
Distributions from net realized gains........................ -- -- (0.42)
------------ ------------ -------------
Total distributions............................................. (0.05) (0.07) (0.45)
------------ ------------ -------------
Net asset value at end of period................................ $ 12.46 $ 9.86 $ 9.26
============ ============ =============
Total return(A) ................................................ 26.90% 7.32% (3.58%)(C)
============ ============ =============
Net assets at end of period (000's)............................. $ 2,436 $ 1,995 $ 5,857
============ ============ =============
Ratio of expenses to average net assets(B) .................... 2.00% 2.00% 1.94%(C)
Ratio of net investment income to average net assets ........... 0.38% 0.68% 0.58%(C)
Portfolio turnover rate......................................... 38% 159% 109%(C)
- ---------------------------------------------------------------------------------------------------------------------
<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 2.70%, 2.50% and
2.33%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively.
(C) Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==================================================================================================================================
PERIOD
ENDED
YEAR ENDED MARCH 31, MARCH 31,
1996 1995 1994 1993 1992 1991 1990(A)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ..... $10.47 $10.52 $11.34 $10.58 $10.01 $9.75 $9.53
------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income .................... 0.47 0.43 0.37 0.48 0.51 0.61 0.43
Net realized and unrealized gains (losses)
on investments .......................... 1.77 (0.05) (0.59) 1.62 0.75 0.30 0.22
------- ------- ------- ------- ------- ------- -------
Total from investment operations ........... 2.24 0.38 (0.22) 2.10 1.26 0.91 0.65
------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (B) . (0.47) (0.43) (0.37) (0.48) (0.51) (0.61) (0.43)
Distributions from net realized gains(B) . -- -- (0.23) (0.86) (0.18) (0.04) --
------- ------- ------- ------- ------- ------- -------
Total distributions ........................ (0.47) (0.43) (0.60) (1.34) (0.69) (0.65) (0.43)
------- ------- ------- ------- ------- ------- -------
Net asset value at end of period ........... $12.24 $10.47 $10.52 $11.34 $10.58 $10.01 $9.75
======= ======= ======= ======= ======= ======= =======
Total return(C) ............................ 21.65% 3.68% (2.11%) 20.64% 11.84% 9.23% 8.56%(E)
======= ======= ======= ======= ======= ======= =======
Net assets at end of period (000's) ........ $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% 1.40% 1.63% 1.80% 0.57%(E)
Ratio of net investment income to
average net assets ...................... 3.97% 4.06% 3.32% 4.41% 4.83% 6.25% 6.87%(E)
Portfolio turnover rate .................... 11% 17% 91% 137% 33% 61% 119%(E)
- ----------------------------------------------------------------------------------------------------------------------------------
<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%
(E)for the periods ended March 31, 1991 and 1990, respectively.
(E) Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, MARCH 31, MARCH 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.......................... $ 10.46 $ 10.51 $ 11.55
------------ ------------ -------------
Income from investment operations:
Net investment income........................................ 0.37 0.35 0.23
Net realized and unrealized gains (losses) on investments.... 1.78 (0.04) (0.81)
------------ ------------ -------------
Total from investment operations................................ 2.15 0.31 (0.58)
------------ ------------ -------------
Less distributions:
Dividends from net investment income......................... (0.38) (0.36) (0.23)
Distributions from net realized gains........................ -- -- (0.23)
------------ ------------ -------------
Total distributions............................................. (0.38) (0.36) (0.46)
------------ ------------ -------------
Net asset value at end of period................................ $ 12.23 $ 10.46 $ 10.51
============ ============ =============
Total return(A) ................................................ 20.78% 3.00% (7.89%)(B)
============ ============ =============
Net assets at end of period (000's)............................. $ 3,686 $ 3,599 $ 1,742
============ ============ =============
Ratio of expenses to average net assets ........................ 2.00% 2.00% 2.00%(B)
Ratio of net investment income to average net assets ........... 3.19% 3.41% 2.19%(B)
Portfolio turnover rate......................................... 11% 17% 91%(B)
- ------------------------------------------------------------------------------------------------------------------
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Annualized.
</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 capital appreciation by investing primarily in
common stocks which are believed by the Adviser to offer growth potential.
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 of long-term capital appreciation, 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.
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
<PAGE>
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. If, in addition to believing
that substantial price risks exist for common stocks and securities
convertible into common stocks, the Adviser believes that market indicators
point to lower interest rates, the Fund may, in seeking its objective of
long-term capital appreciation, temporarily invest all or a portion of its
assets in long-term U.S. Treasury obligations.
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 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 of a high level of current income, temporarily invest
all or a portion of its assets in long-term U.S. Treasury obligations.
<PAGE>
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 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,
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
<PAGE>
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.
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 enter into repurchase agreements which are
collateralized by U.S. Government obligations in which that Fund could invest
directly. 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 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 U.S. Government obligations, 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
<PAGE>
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). 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 ordinarily issued, but you
may receive a certificate without charge by sending a written request to the
Transfer Agent. Certificates for fractional shares will not be issued. If a
certificate has been issued to you, you will not be permitted to exchange
shares by telephone or to use the automatic withdrawal plan as to those
shares. 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 the Transfer Agent, P.O. Box 5354, Cincinnati, Ohio 45201-5354. The
check should be made payable to the applicable Fund.
Under the Open Account Program, you may also purchase shares of the Funds by
bank wire. Please telephone the Transfer Agent (Nationwide call toll-free
800-543-0407; in Cincinnati call 629-2050) for instructions. Your bank may
impose a charge for sending your wire. There is presently no fee for receipt
of wired funds, but the Transfer Agent reserves the right to charge
shareholders for this service upon thirty days' prior notice to shareholders.
Each additional purchase request must contain the name of your account and
your account number to permit proper crediting to your account. While there is
no minimum amount required for subsequent investments, the Trust reserves the
right to impose such requirement. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for
selling shares of the Funds to a current shareholder, such broker-dealer will
receive the concessions described above with respect to additional investments
by the shareholder.
<PAGE>
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.
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.
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
<S> <C> <C> <C>
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*
<FN>
*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.
</FN>
</TABLE>
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.
<PAGE>
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 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.
Trustees, directors, officers and employees of the Trust, the Adviser, the
Transfer Agent 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 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 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
<PAGE>
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.
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.
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.
<PAGE>
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.
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.
<PAGE>
HOW TO REDEEM SHARES
==============================================================================
You may redeem shares of either Fund on each day that the Trust is open for
business by sending a written request to the Transfer Agent. The request must
state the number of shares or the dollar amount to be redeemed and your
account number. The request must be signed exactly as your name appears on the
Trust's account records. If the shares to be redeemed have a value of $25,000
or more, your signature must be guaranteed by any eligible guarantor
institution, including banks, brokers and dealers, municipal securities
brokers and dealers, government securities brokers and dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations.
You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per
share next 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 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 $1,000 (based on actual amounts invested including any
sales load paid, unaffected by market fluctuations), or $250 in the case of
tax-deferred retirement plans, 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.
<PAGE>
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 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 INVESTMENT TRUST
Tax-Free Money Fund Short Term Government Income Fund
Ohio Tax-Free Money Fund Institutional Government Income Fund
California Tax-Free Money Fund *Intermediate Term Government Income Fund
Florida Tax-Free Money Fund *Adjustable Rate U.S. Government
*Tax-Free Intermediate Term Fund Securities Fund
*Ohio Insured Tax-Free Fund *Global Bond Fund
COUNTRYWIDE STRATEGIC TRUST
*U.S. Government Securities Fund
*Equity Fund
*Utility Fund
*Treasury Total Return Fund
You may request an exchange by sending a written request to the Transfer
Agent. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are
unable to execute your transaction by telephone (for example during times of
unusual market activity) consider requesting your exchange by mail or by
visiting the Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati,
Ohio 45202. An exchange will be effected at the next determined net asset
value (or offering price, if sales load is applicable) after receipt of a
request by the Transfer Agent.
Exchanges may only be made for shares of funds then offered for sale in your
state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated
by the Board of Trustees upon 60 days' prior notice to shareholders. An
exchange results in a sale of fund shares, which may cause you to recognize a
capital gain or loss. Before making an exchange, contact the Transfer Agent to
obtain a current prospectus for any of the other funds of Countrywide
Investments and more information about exchanges among Countrywide
Investments.
DIVIDENDS AND DISTRIBUTIONS
==============================================================================
Each Fund expects to distribute substantially all of its net investment
income, 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.
<PAGE>
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.
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 (the "Adviser"), to manage the Funds' investments and their
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. 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.
The Equity Fund is managed by a committee of the Adviser's portfolio managers.
Susan Flischel, Vice President-Investments of the Adviser, is primarily
responsible for managing the portfolio of the Utility 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.
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
<PAGE>
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. Robert H.
Leshner, President and a director of the Adviser, is President and a Trustee
of the Trust. John F. Splain, Secretary and General Counsel of the Adviser, is
Secretary of the Trust.
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 shares of the Funds and who may be
advising investors regarding the purchase, sale or retention of Fund shares;
expenses of maintaining personnel who engage in or support distribution of
shares or who render shareholder support services not otherwise provided by
the Transfer Agent; expenses of formulating and implementing marketing and
promotional activities, including direct mail promotions and mass media
advertising; expenses of preparing, printing and distributing sales literature
and prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Funds; expenses of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, deem advisable;
and any other expenses related to the distribution of the Funds' Class A
shares.
<PAGE>
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, 1996, Class A shares of the Utility Fund paid
$41,297 to the Adviser to reimburse it for payments made to dealers and other
persons who may be advising shareholders regarding the retention of shares of
the Fund.
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 Fund 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 shares of the Funds 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 the Funds' Class C
shares.
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, 1996, Class C shares of the Utility Fund and the
Equity Fund paid $21,703 and $5,308, 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.
<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.
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 &
<PAGE>
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 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>
ACCOUNT NO.__________________
(For Fund Use Only)
ACCOUNT APPLICATION (Check appropriate Fund)
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
o EQUITY FUND CLASS A SHARES (29) $_________________
o EQUITY FUND CLASS C SHARES (28)
o UTILITY FUND CLASS A SHARES (25) $_________________
o UTILITY FUND CLASS C SHARES (20)
- -------------------------------------------------
FOR BROKER/DEALER USE ONLY
Firm Name:____________________________________
Home Office Address:__________________________
Branch Address: __________________________
Rep Name & No.: __________________________
Rep Signature: __________________________
- -------------------------------------------------
==============================================================================
o Check or draft enclosed payable to the Fund(s) designated above
($1,000 minimum).
o Bank Wire From: __________________________________________________________
o Exchange From: __________________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX I.D.#
___________________________________________ _______________________________
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minor's S.S.#)
___________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other
ADDRESS PHONE
___________________________________________ ( )_____________________________
Street or P.O. Box Business Phone
___________________________________________ ( )_____________________________
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant (Right of survivorship presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Non-Profit
o Other
Occupation and Employer Name/Address__________________________________________
Are you an associated person of an NASD member? o Yes o 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:
o 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.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of
all reportable payments will be withheld until I provide a number.
==============================================================================
<PAGE>
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital
gains distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions
paid in cash.
==============================================================================
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.)
o I agree to the Letter of Intent in the current Prospectus of Countrywide
Strategic 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):
o $100,000 o $250,000 o $500,000 o $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, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
__________________________________ ______________________________________
Title of Corporate Officer, Date
Trustee, etc.
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
<PAGE>
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 ABA Routing Number_________________
(check the appropriate Fund.)
o Equity Fund o Utility Fund FI Account Number__________________
o Checking Account o Savings Account
______________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
______________________________________ o the 15th day of each month
City State o both the 15th and last business day
X_____________________________________ X_____________________________________
(Signature of Depositor EXACTLY as (Signature of Joint Tenant - if any)
it appears on FI Records)
(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
amount. 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 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 Please indicate which Fund:
Schedule: (Check One) o Equity Fund o Utility Fund
o MONTHLY -- Withdrawals will be made on the last business day of each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o ANNUALLY -- Please make withdrawals on the last business day of the
month of:_____________.
Please Select Payment Method (Check One):
o EXCHANGE: Please exchange the withdrawal proceeds into another
Countrywide account number: __ __-__ __ __ __ __ __-__
o CHECK: Please mail a check for my withdrawal proceeds to the mailing
address on this account.
o 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.
o 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
o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee_________________________________________________________________
Please send to:_______________________________________________________________
Street address City State Zip
==============================================================================
<PAGE>
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of
Countrywide Strategic Trust (the Trust) and that
______________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf
of the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the
Trust, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to
sign any documents necessary or appropriate to appoint Countrywide Fund
Services, Inc. as redemption agent of the corporation or organization for
shares of the applicable series of the Trust, to establish or acknowledge terms
and conditions governing the redemption of said shares and to otherwise
implement the privileges elected on the Application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
______________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of______________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on_____ at which a quorum was
present and acting throughout, and that the same are now in full force and
effect. I further certify that the following is (are) duly elected officer(s)
of the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
NAME TITLE
_____________________________________ _____________________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
Witness my hand and seal of the corporation or organization this____________day
of_____________________, 19_______
_____________________________________ _____________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
INCOME
CAPITAL APPRECIATION
PROSPECTUS
AUGUST 1, 1996
Revised March 31, 1997
EQUITY
FUND
UTILITY
FUND
COUNTRYWIDE
INVESTMENTS
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
BOARD OF TRUSTEES
Donald L. Bogdon, M.D.
John R. Delfino
H. Jerome Lerner
Robert H. Leshner
Angelo R. Mozilo
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
INVESTMENT 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
Rate Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
==================================================
TABLE OF CONTENTS
Expense Information........................... 2
Financial Highlights.......................... 3
Investment Objectives and Policies............ 7
How to Purchase Shares ....................... 11
Shareholder Services.......................... 16
How to Redeem Shares.......................... 17
Exchange Privilege............................ 18
Dividends and Distributions................... 18
Taxes......................................... 19
Operation of the Funds........................ 19
Distribution Plans............................ 20
Calculation of Share Price and
Public Offering Price.................... 22
Performance Information....................... 22
==================================================
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.
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
Amended March 31, 1997
U.S. Government Securities Fund
Treasury Total Return 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, 1996 and revised March 31, 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.......................................................26
THE INVESTMENT ADVISER AND UNDERWRITER......................................28
DISTRIBUTION PLANS. . . . ..................................................31
SECURITIES TRANSACTIONS.....................................................33
PORTFOLIO TURNOVER..........................................................36
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................37
OTHER PURCHASE INFORMATION..................................................37
TAXES.......................................................................38
REDEMPTION IN KIND..........................................................39
HISTORICAL PERFORMANCE INFORMATION..........................................40
PRINCIPAL SECURITY HOLDERS..................................................45
CUSTODIAN...................................................................45
AUDITORS....................................................................45
TRANSFER AGENT . ...........................................................46
ANNUAL REPORT...............................................................47
- 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 four series of shares to investors: the U.S. Government
Securities Fund, the Treasury Total Return Fund (formerly the Leshner Financial
Treasury Total Return Fund), the Utility Fund (formerly the Leshner Financial
Utility Fund) and the Equity Fund (formerly the Leshner Financial 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
- 3 -
<PAGE>
expenses relating to a specific class of shares; and (iii) each class has
exclusive voting rights with respect to matters relating to its own distribution
arrangements. The Board of Trustees may classify and reclassify the shares of a
Fund into additional classes of shares at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
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
- 4 -
<PAGE>
of a particular issue of GNMA Certificates. However, statistics published by the
FHA are normally used as an indicator of the 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
- 5 -
<PAGE>
Certificate's coupon rate and the prepayment experience of the pool of mortgages
backing each Certificate.
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.
- 6 -
<PAGE>
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 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.
- 7 -
<PAGE>
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 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 U.S.
Government obligations in a segregated account in an amount sufficient to make
payment for the securities to be purchased. When a segregated account is
maintained because a Fund purchases securities on a when-issued 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.
- 8 -
<PAGE>
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 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
- 9 -
<PAGE>
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 10% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, including
accrued interest, will equal or exceed the value of the repurchase agreement,
and in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed the value of the repurchase agreement. The
collateral securing the seller's obligation must 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
- 10 -
<PAGE>
treated as an unsecured creditor of the seller. As an unsecured creditor, a Fund
would be at the risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt obligation purchased for a Fund,
the Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to 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 U.S. Government
Securities 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
- 11 -
<PAGE>
banks, trust companies and mutual savings banks, or of banks or institutions the
accounts of which are insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation. Certificates of deposit are
negotiable certificates evidencing the indebtedness of a commercial bank to
repay funds deposited with it for a definite period of time (usually from
fourteen days to one year) at a stated or variable interest rate. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft which has been drawn on it by a customer, which instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time at a stated interest
rate. Investments in time deposits maturing in more than seven days will be
subject to each Fund's restrictions on illiquid investments (see "Investment
Limitations").
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
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<PAGE>
requirements; long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed; the issuer has access to at least two
additional channels of borrowing; basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position within the
industry; and the reliability and quality of management are unquestioned. The
relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1.
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
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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.
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 rules promulgated under the California Corporate Securities Law prohibit
the Fund from engaging in unlisted covered call transactions, the Fund will not
do so. In addition, 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 state regulations which require the Fund
to commit no more than a specified percentage of its assets to such transactions
and 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
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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 invests 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. Of
such 5%, no more than 2% of a Fund's assets at the time of purchase may be
invested in warrants which are not listed on either the New York Stock Exchange
or the American Stock Exchange.
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).
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 U.S. GOVERNMENT SECURITIES
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.
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<PAGE>
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 nderwriter 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 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.
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<PAGE>
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.
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 U.S. Government Securities Fund if more than 25% of the Fund's
assets would be so committed.
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<PAGE>
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 TREASURY TOTAL RETURN 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. This limitation is not applicable to
when- issued purchases.
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. 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
(including restricted securities), the Fund may be deemed an underwriter under
certain federal securities laws.
4. Illiquid Investments. The Fund will not invest more than 10% of
its net assets in securities for which there are legal or
contractual restrictions on resale and other illiquid securities.
5. Real Estate. The Fund will not purchase, hold or deal
in real estate.
6. Commodities. The Fund will not purchase, hold or deal
in commodities or commodities futures contracts, or invest in oil, gas or other
mineral explorative or development programs. This limitation is not applicable
to the extent that the U.S. Treasury Obligations in which the Fund may otherwise
invest would be considered to be such commodities, contracts or investments.
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<PAGE>
7. Loans. The Fund will not make loans to other persons,
except (a) by loaning portfolio securities, or (b) by engaging in repurchase
agreements. For purposes of this limitation, the term "loans" shall not include
the purchase of a portion of an issue of U.S. Treasury Obligations.
8. Margin Purchases. The Fund will not purchase securities or
evidences of interest thereon on "margin." This limitation is not applicable
to short-term credit obtained by the Fund for the clearance of purchases and
sales or redemption of securities.
9. Short Sales and Options. The Fund will not sell any
securities short or sell put and call options. This limitation is not applicable
to the extent that sales by the Fund of securities in which the Fund may
otherwise invest would be considered to be sales of options.
10. Other Investment Companies. The Fund will not invest more than
5% of its total assets in the securities of any investment company and
will not invest more than 10% of its total assets in securities of other
investment companies.
11. Concentration. The Fund will not invest more than 25%
of its total assets in a particular industry; this limitation is not applicable
to investments in obligations issued by the U.S. Government, its territories and
possessions, the District of Columbia and their respective agencies and
instrumentalities or repurchase agreements with respect thereto.
12. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases or exploration or development programs.
13. 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.
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<PAGE>
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 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.
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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.
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.
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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.
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.
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<PAGE>
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.
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)
- 25 -
<PAGE>
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 Treasury Total Return Fund
does not intend to invest in obligations issued by territories and possessions
of the United States, the District of Columbia and their respective agencies and
instrumentalities or repurchase agreements with respect thereto. The statements
of intention in this paragraph reflect nonfundamental policies which may be
changed by the Board of Trustees without shareholder approval.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the
Trust and their aggregate compensation from the Trust and the funds of
Countrywide Investments (consisting of the Trust, Countrywide Tax-Free Trust and
Countrywide Investment Trust) for the fiscal year ended March 31, 1996. 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.
<TABLE>
<C> <C> <C> <C> <C>
COMPENSATION
COMPENSATION FROM
NAME AGE POSITION HELD FROM TRUST COUNTRYWIDE INVESTMENTS
Donald L. Bodgon, MD 66 Trustee $ 0 $ 0
John R. Delfino 63 Trustee 0 0
H. Jerome Lerner 58 Trustee 2,483 7,150
*Robert H. Leshner 57 President/Trustee 0 0
*Angelo R. Mozilo 58 Trustee 0 0
Oscar P. Robertson 57 Trustee 583 5,050
John F. Seymour, Jr. 59 Trustee 0 0
Sebastiano Sterpa 67 Trustee 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.
</TABLE>
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
- 26 -
<PAGE>
DONALD L. BOGDON, M.D., 435 Arden Avenue, Glendale, California is a
physician with Hematology Oncology Consultants and a Director of Verdugo VNA (a
hospice facility). Until 1996 he was President of Western Hematology/Oncology
and until 1993 he was Chairman of the Board of Glendale Memorial Hospital.
JOHN R. DELFINO, 2029 Century Park East, Los Angeles,
California is President of Concorde Capital Corporation (an investment firm).
Until 1993 he was a director of Cypress Financial and Chairman of Rancho Santa
Margarita, mortgage banking firms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc., a manufacturer of
electronic connectors.
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is President
and a director of Countrywide Investments, Inc. (the investment
adviser and principal underwriter of the Trust) and Countrywide Financial
Services, Inc. (a financial services company and parent of Countrywide
Investments, Inc. and Countrywide Fund Services, Inc.). He is Vice Chairman and
a director of Countrywide Fund Services, Inc. (a registered transfer agent) and
President and a Trustee of Countrywide Tax- Free Trust and Countrywide
Investment Trust, registered investment companies.
ANGELO R. MOZILO, 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.
- 27 -
<PAGE>
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.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio is Secretary and
General Counsel of Countrywide Investments, Inc. and Countrywide Financial
Services, Inc. and Vice President, Secretary and General Counsel of Countrywide
Fund 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 and Interactive Investments, all of which are registered
investment companies.
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. and Capitol Square 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 $1,000 and a fee of $750 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
- 28 -
<PAGE>
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 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, 1996, 1995 and 1994, the U.S.
Government Securities Fund paid advisory fees of $190,075 (net of voluntary fee
waivers of $9,000), $261,660, and $269,160, respectively. For the fiscal years
ended March 31, 1996, 1995 and 1994, the Treasury Total Return Fund paid
advisory fees of $125,571 (net of voluntary fee waivers of $35,800), $176,208
(net of voluntary fee waivers of $32,713) and $295,134, respectively. For the
fiscal years ended March 31, 1996, 1995 and 1994, the Utility Fund paid advisory
fees of $328,982, $325,780 and $338,922, respectively. For the fiscal years
ended March 31, 1996, 1995 and 1994, the Equity Fund paid advisory fees of
$5,214 (net of voluntary fee waivers of $53,777), $12,853 (net of voluntary fee
waivers of $46,905) and $48,685, respectively; however, in order to reduce the
operating expenses of the Equity Fund, the Adviser voluntarily reimbursed the
Fund for $5,308 of Class A expenses during the fiscal year ended March 31, 1996,
$14,964 of Class C expenses during the fiscal year ended March 31, 1995 and
$14,221 and $18,412 of Class A and Class C expenses, respectively, during the
fiscal year ended March 31, 1994.
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.
- 29 -
<PAGE>
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 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, 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 (along with affiliates) $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 (along with affiliates) $4,649 as a broker-dealer in the selling network
and retained $14,548 in underwriting commissions. For the fiscal year ended
March 31, 1994, the aggregate underwriting commissions on sales of the Trust's
shares were $527,108 of which the Adviser paid $477,147 to unaffiliated
broker-dealers in the selling network, earned (along with affiliates) $19,065 as
a broker-dealer in the selling network and retained $30,896 in underwriting
commissions.
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.
- 30 -
<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 U.S. Government Securities Fund and
the Treasury Total Return 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, 1996, the
aggregate distribution-related expenditures under the Plans were $2,528 for the
U.S. Government Securities Fund; $2,317 for the Treasury Total Return Fund;
$45,893 and $22,116 for Class A and Class C shares, respectively, of the Utility
Fund; and $556 and $5,545 for Class A and Class C shares, respectively, of the
Equity Fund. Amounts were spent as follows:
- 31 -
<PAGE>
U.S. Treasury
Government Total Utility Utility Equity Equity
Securities Return Fund Fund Fund Fund
Fund Fund Class A Class C Class A Class C
--------- ------ ------- ------- ------- -------
Printing and
mailing of
prospectuses
and reports
to prospective
shareholders... $ 2,528 $ 2,317 $ 4,596 $ 413 $ 556 $ 237
Payments to
broker-dealers
and others for
the sale or
retention of
assets........ - - 41,297 21,703 - 5,308
------- ------- ------- ------ ----- -------
$ 2,528 $ 2,317 $45,893 $22,116 $ 556 $ 5,545
======= ======= ======= ======== ===== =======
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.
- 32 -
<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, 1996, 1995 and 1994, the Utility Fund paid brokerage commissions of
$43,560, $80,464 and $47,578, respectively. For the fiscal years ended March 31,
1996, 1995 and 1994, the Equity Fund paid brokerage commissions of $23,064,
$71,412 and $46,069, respectively.
- 33 -
<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 U.S.
Government Securities Fund and the Treasury Total Return 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
these Funds will consist primarily of dealer or underwriter spreads. No
brokerage commissions have been paid by the U.S. Government Securities Fund or
the Treasury Total Return 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, 1996,
the amount of brokerage transactions and related commissions for the Utility
Fund directed to brokers due to research services provided were $11,138,486 and
$43,560, respectively. During the fiscal year ended March 31, 1996, the amount
of brokerage transactions and related commissions for the Equity Fund directed
to brokers due to research services provided were $7,310,262 and $23,064,
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. For the fiscal year ended
- 34 -
<PAGE>
March 31, 1994, the Utility Fund and the Equity Fund paid to the Adviser
brokerage commissions of $10,160 and $21,420, respectively. No Fund will effect
any brokerage transactions in its portfolio securities with the Adviser if such
transactions would be unfair or unreasonable to its shareholders. Over-the-
counter transactions will be placed either directly with principal market makers
or with broker-dealers. Although the 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, 1994, the Utility Fund and the Equity Fund paid
Amivest Corporation brokerage commissions of $6,000 and $5,538, respectively.
During the fiscal year ended March 31, 1996, 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: Daiwa Securities America
Inc., Dean Witter Reynolds Inc., Fuji Securities Inc., Nesbitt-Burns Securities,
Inc. and Prudential-Bache 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.
- 35 -
<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 U.S. Government Securities 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, 1996 and 1995, the U.S. Government Securities Fund experienced
portfolio turnover of 160% and 205%, respectively.
The Treasury Total Return Fund is managed in light of the Adviser's
interpretation of market conditions and trends. When, in the opinion of the
Adviser, market indicators point to lower interest rates, the Adviser will
convert a substantial portion of the Fund's portfolio to long-term U.S. Treasury
obligations. When, in the opinion of the Adviser, market indicators point to
higher interest rates, the Adviser will convert a substantial portion of the
Fund's portfolio to short-term U.S. Treasury obligations. If the Adviser
projects more than one shift in interest rates within a fiscal year, there may
be a very substantial turnover of the Fund's portfolio. For the fiscal years
ended March 31, 1996 and 1995, the Treasury Total Return Fund experienced
portfolio turnover of 0% and 63%, 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, 1996 and 1995, the Utility Fund experienced
portfolio turnover of 11% and 17%, respectively. For the fiscal years ended
March 31, 1996 and 1995, the Equity Fund experienced portfolio turnover of 38%
and 159%, respectively.
- 36 -
<PAGE>
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 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 U.S. Government Securities Fund and the Treasury Total Return 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.
- 37 -
<PAGE>
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Trust to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases
at the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. The Trust does not impose a front-end sales load or
imposes a reduced sales load in connection with purchases of shares of a Fund
made under the reinvestment privilege or the purchases described in the "Reduced
Sales Load," "Purchases at Net Asset Value" or "Exchange Privilege" sections in
the Prospectus because such purchases require minimal sales effort by the
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
- 38 -
<PAGE>
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. 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, 1996, the U.S. Government Securities
Fund, the Treasury Total Return Fund, the Utility Fund and the Equity Fund had
capital loss carryforwards for federal income tax purposes of $4,077,191,
$2,071,201, $30,527 and $265,871, respectively, none of which expire until at
least 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
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<PAGE>
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:
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, 1996 are as follows:
U.S. Government Securities Fund
1 Year +6.22%
5 Years +5.45%
10 Years +6.35%
Treasury Total Return Fund
1 Year -1.17%
5 Years +4.11%
Since inception (January 26, 1988) +4.26%
- 40 -
<PAGE>
Utility Fund (Class A)
1 Year +16.79%
5 Years +9.84%
Since inception (August 15, 1989) +9.64%
Utility Fund (Class C)
1 Year +20.78%
Since inception (August 2, 1993) 6.39%
Equity Fund (Class A)
1 Year +22.79%
Since inception (August 2, 1993) +10.11%
Equity Fund (Class C)
1 Year +26.90%
Since inception (June 7, 1993) +10.43%
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:
U.S. Treasury
Government Total Utility Utility Equity Equity
Securities Return Fund Fund Fund Fund
Fund Fund Class A Class C Class A Class C
Period Ended
March 31, 1987 + 8.62%
March 31, 1988 + 2.95% - 3.14%(1)
March 31, 1989 + 4.97% + 3.16%
March 31, 1990 + 8.60% + 4.71% + 5.37%(2)
March 31, 1991 +11.37% + 9.95% + 9.23%
March 31, 1992 + 9.46% + 8.98% +11.84%
March 31, 1993 +11.71% +16.21% +20.64%
March 31, 1994 + 0.30% - 0.54% - 2.11% - 5.21%(3) - 2.63%(3) - 2.91%(4)
March 31, 1995 + 0.06% - 1.75% + 3.68% + 3.00% + 8.07% + 7.32%
March 31, 1996 + 8.39% + 2.95% +21.65% +20.78% +27.90% +26.90%
(1) From date of initial public offering on January 26, 1988
(2) From date of initial public offering on August 15, 1989
(3) From date of initial public offering on August 2, 1993
(4) From date of initial public offering on June 7, 1993
- 41 -
<PAGE>
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, 1996 are as follows:
U.S. Government Securities Fund
1 Year +8.39%
3 Years +2.84%
5 Years +5.87%
10 Years +6.56%
Since inception (June 4, 1984) +8.58%
Treasury Total Return Fund
1 Year +2.95%
3 Years +0.20%
5 Years +4.97%
Since inception (January 26, 1988) +4.78%
Utility Fund (Class A)
1 Year +21.65%
3 Years + 7.28%
5 Years +10.74%
Since inception (August 15, 1989) +10.32%
Utility Fund (Class C)
1 Year +20.78%
Since inception (August 2, 1993) + 6.39%
Equity Fund (Class A)
1 Year +27.90%
Since inception (August 2, 1993) +11.81%
Equity Fund (Class C)
1 Year +26.90%
Since inception (June 7, 1993) +10.43%
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:
- 42 -
<PAGE>
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 U.S. Government Securities
Fund for March 1996 was 5.51%. The yield of the Treasury Total Return Fund for
March 1996 was 4.37%. The yields of Class A and Class C shares of the Utility
Fund for March 1996 were 3.62% and 2.97%, respectively. The yields of Class A
and Class C shares of the Equity Fund for March 1996 were 0.71% and 0.01%,
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.
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:
- 43 -
<PAGE>
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 U.S. Government Securities Fund may provide comparative performance
information appearing in the U.S. Mortgage Funds category, the Treasury Total
Return Fund may provide comparative performance information appearing in the
U.S. Treasury 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 Capital
Appreciation 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.
Merrill Lynch Treasuries (All Maturities) Index, which
measures the current performance of U.S. Treasury obligations on a specific
date. U.S. Treasury obligations are backed by the "full faith and credit" of the
United States Government.
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.
- 44 -
<PAGE>
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of July 5, 1996, Amivest Corporation, P.O. Box 370, Cooper Station,
New York, New York owned of record 20.88% of the outstanding shares of the U.S.
Government Securities Fund; Merrill Lynch/FDS, 4800 Deer Lake Drive East,
Jacksonville, Florida owned of record 6.39% and 5.77% 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 9.01% of the
outstanding Class A shares of the Equity Fund; Martin S. Goldfarb, M.D., 919 N.
Crescent, Beverly Hills, California owned of record 6.45% of the outstanding
Class A shares of the Equity Fund; Clifford G. Neil, D.D.S. PC Profit Sharing
Plan, 307 S. University, Carbondale, Illinois owned of record 12.62% of the
outstanding Class C shares of the Equity Fund; Ella B. Cobb c/o J.B. Cobb
Executor, 166 W. Oakridge Park, Metairie, Louisiana owned of record 7.71% of the
outstanding Class C shares of the Equity Fund; and KMK Profit Sharing 401K FBO
H. Weiss c/o Provident Bank, Trustee, One East Fourth Street, Cincinnati, Ohio
owned of record 7.41% of the outstanding Class C shares of the Equity Fund.
As of July 5, 1996, the Trustees and officers of the Trust as a group
owned of record or beneficially 1.58% of the outstanding shares of the Trust,
including 3.16% of the outstanding Class A shares of the Utility Fund, 3.30% of
the outstanding Class A shares of the Equity Fund, 4.12% 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 March 31, 1997. 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.
- 45 -
<PAGE>
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 each of the U.S.
Government Securities Fund and the Treasury Total Return 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 U.S.
Government Securities 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 Treasury Total Return Fund pays CFS a fee in accordance with the following
schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $2,750
50,000,000 - 100,000,000 3,250
100,000,000 - 250,000,000 3,750
Over 250,000,000 4,250
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.
- 46 -
<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, 1996 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
- 47 -
<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, 1996, the Fund's total return (excluding the impact of the maximum
2% front-end sales load) was 8.39%, as compared to 10.49% for the Lehman
Brothers Mortgage-Backed Securities Index.
The economy slowed in 1995 following above average growth in 1994. Gross
domestic product moderated from a 3.5% annual growth rate in 1994 to 1.3% in
1995. The slowdown, which began in the first quarter of 1995, prompted the
Federal Reserve Board to lower the widely followed Federal Funds rate three
times in an effort to stimulate the economy. Interest rates declined
dramatically during the calendar year with intermediate and long maturities
declining approximately 2%. However, economic growth accelerated in the first
quarter of 1996, causing interest rates to reverse their year-long trend. This
resulted in increased bond price volatility as investors grappled with the
uncertainty regarding the future direction of the economy.
Throughout the fiscal year ended March 31, 1996, the Fund maintained a
combination of mortgage-backed securities, government agency securities and
Treasury issues. A core position of passthrough mortgage-backed securities and
callable agency securities generated current income while a smaller position
in Treasuries and non-callable agency securities produced capital
appreciation. Management also executed a sector rotation strategy whereby the
Fund was able to capitalize on inefficiencies in the market by buying
undervalued sectors while selling those considered overvalued. The Fund was
well-positioned for the declining interest rate environment which prevailed
throughout 1995. However, the unexpected rise in rates in early 1996 hurt the
Fund's comparative performance for the fiscal year.
As a result of heightened market volatility and the potential for an increase
in inflation, the Fund will maintain a cautious approach in the months ahead.
Until it becomes apparent that the economy is positioned for trend growth and
that inflation remains subdued, the Fund will pursue a defensive strategy
which emphasizes current income over total return. We expect market volatility
to continue through the summer months with the possibility of further
increases in interest rates. Longer term, we are more constructive on the
market as we believe trend growth will resume in the latter part of 1996.
<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, 1996, the
Fund's total return (excluding the impact of the maximum 4% front-end sales
load) was 2.95%, as compared to 10.55% for the Merrill Lynch Treasuries (All
Maturities) Index.
Following a series of Federal Funds rate increases in 1994, the economy
moderated notably in 1995. By mid-year, economic reports indicated that the
manufacturing sector was contracting and that gross domestic product (GDP) was
virtually stagnant. The Federal Reserve Board, noting the lack of inflationary
pressures, opted to reverse course and lowered short-term interest rates in
the first of three easing moves totaling .75%. Intermediate and long-term
rates followed suit, declining approximately 2%. However, economic growth
rebounded in the first quarter of 1996, reversing a year-long trend of
declining interest rates, highlighting the potential for inflation and
increasing bond price volatility.
In response to the economic surge in 1994, management moved the investment
portfolio of the Fund into short-term Treasury issues and cash equivalents in
early 1995. This cautious outlook came on the heels of one of the worse
one-year periods in bond market history. Based on the uncertainty and
volatility that was characteristic of the bond market in the first half of
1995, management deemed it prudent to remain invested in short-term
maturities. As the economy moderated and the Federal Reserve Board utilized
monetary policy to stimulate economic activity, the pull-back in bond prices
anticipated by management never materialized. The Fund remained invested in
short-term obligations for the balance of the year and, as a result,
underperformed the peer group.
The current economic environment is a challenging one for fixed-income
investors. The economy appears to be rebounding solidly following a harsh
winter with muted economic activity. Growth in the first quarter of 1996 came
in much stronger than expected, exacerbating the sell-off in the bond market
which began in January. The short-term nature of the securities in the Fund
has benefitted performance in recent months, helping to mitigate the impact of
a 1% rise in long-term rates. Longer term, management anticipates moderate
growth in the economy and low inflation. The maturities of the U.S. Treasury
obligations in which the Fund invests will continue to be allocated based upon
projected interest rate trends.
<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, 1996
(excluding the impact of the maximum 4% front-end sales load on Class A
shares) were 21.65% and 20.78% for Class A shares and Class C shares,
respectively.
Interest rates remained at low levels throughout 1995 providing a healthy
environment for utility stocks. The utility market followed the general stock
market in producing impressive returns for the year. This was a dramatic
turnaround from the disappointing performance of utility stocks during 1994.
Competition and its impact on utility stocks received much discussion as
electric utility companies now face deregulation and increased competition
(brought on by the Energy Act of 1992). Telecommunications companies are also
undergoing change and will soon be allowed to enter the long distance and
cable markets. In the first quarter of 1996, as interest rates moved higher,
stock and utility markets diverged with stocks largely performing well and
utilities showing weakness. For the twelve months ended March 31, 1996, the
S&P Utility Index returned 26.61%.
Throughout the fiscal year, the Fund maintained a diversified portfolio that
consisted of electric, gas, water and telecommunications utility stocks.
Management's focus has been on quality utility companies that are positioned
favorably for increased competition with better than average potential for
earnings and dividend growth. Comparative performance of the Fund to the S&P
Utility Index was influenced by the growth-oriented concentration of the Index
with heavy weightings in telecommunications and technology sectors, whereas
the Fund focused more on higher-yielding utility holdings. Top performing
stocks for the Fund included GTE Corp. (the largest non-Bell
telecommunications system), Duke Power Co. (a Carolinas-based electric
utility) and MCN Corp. (a Michigan-based natural gas utility).
Looking forward, we anticipate moderate growth in the economy and low
inflation which would likely keep interest rates at their current levels or
lower and bode well for utility stocks. Earnings growth in this sector,
partially due to cost containment efforts, should continue and translate into
better dividend growth. The recent rise in interest rates and related decline
in utility stock prices is presenting the Fund with an opportunity to buy into
healthy utility companies at improved values. Management believes the Fund is
well-positioned to take advantage of such buying opportunities and benefit
from the earnings and dividend growth projected for the utility market.
<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, 1996 (excluding the impact of the
maximum 4% front-end sales load for Class A shares) were 27.90% and 26.90% for
Class A shares and Class C shares, respectively.
Growth in the economy advanced at a more moderate pace during 1995. Inflation
remained subdued and interest rates moved lower. These factors, combined with
strong corporate earnings reports, provided a healthy environment for the
stock market. Large capitalization stocks were the investments of choice and
proved to be the clear market leaders. In the first quarter of 1996, equities
continued their upward trend, despite increased volatility and speculation
that the economy might be stronger than anticipated. Steady inflows of money
pouring into stocks have kept the equity markets near record high levels. For
the twelve months ended March 31, 1996, the S&P 500 Index returned 32.10%.
Throughout the fiscal year, the Fund maintained a disciplined approach to
investing and remained well-diversified. Management continued to emphasize
quality, growth-oriented companies with above average long-term prospects
utilizing criteria such as identified competitive advantages and strong,
consistent earnings growth. Exposure to the technology and health-related
sectors of the market and emphasis on large-cap growth stocks helped
contribute to the Fund's total return and comparative performance for the
fiscal year ended March 31, 1996. Top performing stocks for the Fund included
Loral Corp. (acquired at a premium by Lockheed Martin Corp.), Gap, Inc., and
United Healthcare Corp.
Additional upward movements in interest rates could put near-term pressure on
stock prices. However, our outlook for the stock market remains positive as we
expect inflation to stay under control and the economy to experience moderate
growth. Corporate profits should continue their upward path as profits margins
improve, but not at the accelerated pace witnessed in 1995. In response,
management anticipates maintaining the Fund's exposure to the technology and
health-care sectors to benefit from corporate productivity enhancements and
the population's aging trend. As opportunities arise, the Fund will continue
to invest in quality companies that are well-positioned for the future.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
===================================================================================================================
U.S. TREASURY
GOVERNMENT TOTAL
SECURITIES RETURN
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C>
At acquisition cost.................................................... $ 24,581,898 $ 15,539,375
=============== ===============
At amortized cost...................................................... $ 24,557,654 $ 15,523,699
=============== ===============
At value (Note 2)...................................................... $ 24,457,770 $ 15,234,526
Investments in repurchase agreements (Note 2)............................. 246,000 --
Cash ..................................................................... 274 49,765
Receivable for capital shares sold........................................ 827 584
Interest receivable....................................................... 280,964 135,097
Other assets.............................................................. 2,850 2,749
--------------- ---------------
TOTAL ASSETS........................................................... 24,988,685 15,422,721
--------------- --------------
LIABILITIES
Payable for capital shares redeemed....................................... 17,217 53,373
Dividends payable......................................................... 21,765 7,316
Payable to affiliates (Note 4)............................................ 21,161 13,504
Other accrued expenses and liabilities.................................... 12,117 4,259
--------------- ---------------
TOTAL LIABILITIES...................................................... 72,260 78,452
--------------- ---------------
NET ASSETS ............................................................... $ 24,916,425 $ 15,344,269
=============== ===============
Net assets consist of:
Capital shares............................................................ $ 29,093,500 $ 17,704,643
Accumulated net realized losses from security transactions................ ( 4,077,191 ) ( 2,071,201 )
Net unrealized depreciation on investments................................ ( 99,884 ) ( 289,173 )
--------------- ---------------
Net assets................................................................ $ 24,916,425 $ 15,344,269
=============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5)........................... 2,642,220 1,866,811
=============== ===============
Net asset value and redemption price per share (Note 2)................... $ 9.43 $ 8.22
=============== ===============
Maximum offering price per share (Note 2)................................. $ 9.62 $ 8.56
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
===================================================================================================================
UTILITY EQUITY
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C>
At acquisition cost.................................................... $ 33,405,437 $ 7,422,385
=============== ===============
At amortized cost...................................................... $ 33,396,763 $ 7,422,385
=============== ===============
At value (Note 2)...................................................... $ 39,514,410 $ 9,156,557
Investments in repurchase agreements (Note 2)............................. 4,620,000 1,791,000
Cash ..................................................................... 210 510
Receivable for capital shares sold ....................................... 62,725 2,581
Dividends and interest receivable......................................... 153,511 7,502
Other assets.............................................................. 5,952 1,185
--------------- ---------------
TOTAL ASSETS........................................................... 44,356,808 10,959,335
--------------- ---------------
LIABILITIES
Payable for capital shares redeemed....................................... 139,483 6,079
Dividends payable......................................................... 41,688 343
Payable to affiliates (Note 4)............................................ 49,940 7,290
Other accrued expenses and liabilities ................................... 15,450 7,500
--------------- ---------------
TOTAL LIABILITIES...................................................... 246,561 21,212
--------------- ---------------
NET ASSETS ............................................................... $ 44,110,247 $ 10,938,123
--------------- ---------------
Net assets consist of:
Capital shares ........................................................... $ 38,023,127 $ 9,469,795
Accumulated net realized losses from security transactions................ ( 30,527 ) ( 265,871 )
Accumulated undistributed net investment income........................... -- 27
Net unrealized appreciation on investments ............................... 6,117,647 1,734,172
--------------- ---------------
Net assets ............................................................... $ 44,110,247 $ 10,938,123
=============== ===============
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ................................ $ 40,424,488 $ 8,501,862
=============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5)........................... 3,302,863 682,935
=============== ===============
Net asset value and redemption price per share (Note 2)................... $ 12.24 $ 12.45
=============== ===============
Maximum offering price per share (Note 2)................................. $ 12.75 $ 12.97
=============== ===============
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ................................ $ 3,685,759 $ 2,436,261
=============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5)........................... 301,479 195,573
=============== ===============
Net asset value, offering price and redemption price per share (Note 2)... $ 12.23 $ 12.46
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
===================================================================================================================
U.S. TREASURY
GOVERNMENT TOTAL
SECURITIES RETURN
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest............................................................... $ 1,861,030 $ 1,267,152
--------------- ---------------
EXPENSES
Investment advisory fees (Note 4)...................................... 199,075 161,371
Accounting services fees (Note 4)...................................... 39,750 33,750
Transfer agent fees (Note 4)........................................... 24,940 40,423
Postage and supplies................................................... 15,597 28,136
Professional fees...................................................... 13,631 7,661
Registration fees...................................................... 7,767 9,365
Custodian fees......................................................... 9,215 6,413
Trustees' fees and expenses............................................ 5,503 5,503
Insurance expense...................................................... 4,362 3,487
Distribution expenses (Note 4)......................................... 2,528 2,317
Reports to shareholders................................................ 2,597 4,153
Other expenses......................................................... 2,555 2,178
--------------- ---------------
TOTAL EXPENSES....................................................... 327,520 304,757
Fees waived by the Adviser (Note 4).................................... ( 9,000 ) ( 35,800 )
--------------- ---------------
NET EXPENSES......................................................... 318,520 268,957
--------------- ---------------
NET INVESTMENT INCOME .................................................... 1,542,510 998,195
--------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions.......................... 1,132,774 19,746
Net change in unrealized appreciation/depreciation on investments...... ( 506,128 ) ( 305,916 )
--------------- ---------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ................ 626,646 ( 286,170 )
--------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................... $ 2,169,156 $ 712,025
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
===================================================================================================================
UTILITY EQUITY
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends ............................................................. $ 1,761,248 $ 112,004
Interest .............................................................. 521,903 71,086
--------------- ---------------
TOTAL INVESTMENT INCOME ............................................. 2,283,151 183,090
--------------- ---------------
EXPENSES
Investment advisory fees (Note 4) ..................................... 328,982 58,991
Accounting services fees (Note 4) ..................................... 45,000 45,000
Transfer agent fees, Class A (Note 4).................................. 42,457 12,000
Transfer agent fees, Class C (Note 4).................................. 12,000 12,000
Distribution expenses, Class A (Note 4) ............................... 45,893 556
Distribution expenses, Class C (Note 4) ............................... 22,116 5,545
Postage and supplies................................................... 27,742 7,757
Registration fees, Common ............................................. 4,907 2,617
Registration fees, Class A ............................................ 3,931 2,539
Registration fees, Class C ............................................ 2,479 2,569
Professional fees ..................................................... 13,785 8,684
Custodian fees ........................................................ 6,387 5,979
Trustees' fees and expenses ........................................... 5,503 5,503
Reports to shareholders ............................................... 5,846 1,105
Insurance expense ..................................................... 5,496 1,365
Other expenses ........................................................ 3,712 1,474
--------------- ---------------
TOTAL EXPENSES ...................................................... 576,236 173,684
Fees waived by the Adviser (Note 4).................................... -- ( 53,777 )
Class A expenses reimbursed by the Adviser (Note 4).................... -- ( 5,308 )
--------------- ---------------
NET EXPENSES ........................................................ 576,236 114,599
--------------- ---------------
NET INVESTMENT INCOME .................................................... 1,706,915 68,491
--------------- ---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions ......................... 338,447 292,780
Net change in unrealized appreciation/depreciation on investments...... 6,353,364 1,472,570
--------------- ---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ......................... 6,691,811 1,765,350
--------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .............................. $ 8,398,726 $ 1,833,841
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET
ASSETS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
===================================================================================================================
U.S. GOVERNMENT TREASURY TOTAL
SECURITIES FUND RETURN FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income........................ $ 1,542,510 $ 2,181,908 $ 998,195 $ 1,408,592
Net realized gains (losses) from
security transactions...................... 1,132,774 ( 5,097,610) 19,746 ( 1,660,245)
Net change in unrealized appreciation/
depreciation on investments................ ( 506,128) 2,526,800 ( 305,916 ) ( 348,543)
------------ ------------- ------------- ------------
Net increase (decrease) in net assets from
operations................................. 2,169,156 ( 388,902) 712,025 ( 600,196)
------------ ------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................... ( 1,542,510) ( 2,181,908) ( 998,195) ( 1,408,592)
From net realized gains from security
transactions.............................. -- ( 128,416) -- --
------------ ------------- ------------- ------------
Decrease in net assets from distributions to
shareholders.............................. ( 1,542,510) ( 2,310,324) ( 998,195) ( 1,408,592)
------------ ------------- ------------- ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold.................... 3,262,088 4,299,872 541,010 3,955,275
Net asset value of shares issued in reinvestment
of distributions to shareholders........... 1,232,943 1,876,091 863,694 1,234,357
Payments for shares redeemed................. ( 6,379,727) ( 17,781,225) ( 11,748,023) ( 9,480,316)
------------ ------------- ------------- ------------
Net decrease in net assets from capital
share transactions........................... ( 1,884,696) ( 11,605,262) ( 10,343,319) ( 4,290,684)
------------ ------------- ------------- ------------
TOTAL DECREASE IN NET ASSETS ................... ( 1,258,050) ( 14,304,488) ( 10,629,489) ( 6,299,472)
NET ASSETS:
Beginning of year............................ 26,174,475 40,478,963 25,973,758 32,273,230
------------ ------------- ------------- ------------
End of year.................................. $ 24,916,425 $ 26,174,475 $ 15,344,269 $ 25,973,758
============ ============= ============= ============
ACCUMULATED UNDISTRIBUTED NET
INVESTMENT INCOME ........................... $ -- $ -- $ -- $ --
============ ============= ============= ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
===================================================================================================================
UTILITY EQUITY
FUND FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income........................ $ 1,706,915 $ 1,748,651 $ 68,491 $ 88,431
Net realized gains (losses)
from security transactions................. 338,447 ( 330,519) 292,780 ( 558,651)
Net change in unrealized appreciation/
depreciation on investments................ 6,353,364 91,379 1,472,570 983,919
------------ ------------- ------------- ------------
Net increase in net assets from operations...... 8,398,726 1,509,511 1,833,841 513,699
------------ ------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A.......... ( 1,586,046) ( 1,651,628) ( 59,987) ( 64,588)
From net investment income, Class C.......... ( 120,869) ( 97,023) ( 8,477) ( 25,618)
------------ ------------- ------------- ------------
Decrease in net assets from distributions
to shareholders.............................. ( 1,706,915) ( 1,748,651) ( 68,464) ( 90,206)
------------ ------------- ------------- ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold.................... 5,363,503 8,624,377 4,389,037 1,844,954
Net asset value of shares issued in
reinvestment of distributions to shareholders 1,407,457 1,451,000 57,517 61,635
Payments for shares redeemed................. ( 12,476,946) ( 10,224,952) ( 1,513,954) ( 1,218,368)
------------ ------------- ------------- ------------
Net increase (decrease) in net assets from
Class A share transactions................... ( 5,705,986) ( 149,575) 2,932,600 688,221
------------ ------------- ------------- ------------
CLASS C
Proceeds from shares sold.................... 1,386,159 2,807,607 485,970 341,886
Net asset value of shares issued in
reinvestment of distributions to shareholders 111,439 91,538 8,355 24,412
Payments for shares redeemed................. ( 1,984,950) ( 1,012,792) ( 549,348) ( 4,386,211)
------------ ------------- ------------- ------------
Net increase (decrease) in net assets from
Class C share transactions................... ( 487,352) 1,886,353 ( 55,023) ( 4,019,913)
------------ ------------- ------------- ------------
Net increase (decrease) from capital
share transactions......................... ( 6,193,338) 1,736,778 2,877,577 ( 3,331,692)
------------ ------------- ------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... 498,473 1,497,638 4,642,954 ( 2,908,199)
NET ASSETS:
Beginning of year............................ 43,611,774 42,114,136 6,295,169 9,203,368
------------ ------------- ------------- ------------
End of year.................................. $ 44,110,247 $ 43,611,774 $ 10,938,123 $ 6,295,169
============ ============= ============= ============
ACCUMULATED UNDISTRIBUTED NET
INVESTMENT INCOME ......................... $ -- $ -- $ 27 $ --
============ ============= ============= ============
<FN>
See accompanying notes to financial statements.
</FN>
</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,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 9.22 $ 9.85 $ 10.47 $ 10.18 $ 10.04
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income........................ 0.56 0.58 0.64 0.69 0.79
Net realized and unrealized
gains (losses) on investments.............. 0.21 ( 0.59) ( 0.59) 0.47 0.14
---------- ---------- ---------- ---------- ----------
Total from investment operations................ 0.77 ( 0.01) 0.05 1.16 0.93
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income......... ( 0.56 ) ( 0.58) ( 0.64) ( 0.69 ) ( 0.79 )
Distributions from net realized gains........ -- ( 0.04) ( 0.03) ( 0.18 ) --
---------- ---------- ---------- ---------- ----------
Total distributions............................. ( 0.56 ) ( 0.62) ( 0.67) ( 0.87 ) ( 0.79 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 9.43 $ 9.22 $ 9.85 $ 10.47 $ 10.18
========== ========== ========== ========== ==========
Total return(A) ................................ 8.39% 0.06% 0.30% 11.71% 9.46%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .............. $24,916 $ 26,174 $ 40,479 $ 31,633 $ 40,253
========== ========== ========== ========== ==========
Ratio of expenses to average net assets(B) ..... 1.20% 1.20% 1.20% 1.20% 1.19%
Ratio of net investment income to average
net assets.................................. 5.82% 6.26% 6.14% 6.61% 7.73%
Portfolio turnover rate......................... 160% 205% 246% 188% 55%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales
loads.
(B)Absent fee waivers by the Adviser, the ratio of expenses to average net
assets would have been 1.24% for the year ended March 31, 1996 (Note 4).
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 8.36 $ 8.95 $ 9.70 $ 9.10 $ 9.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income........................ 0.38 0.43 0.37 0.55 0.60
Net realized and unrealized
gains (losses) on investments.............. ( 0.14 ) ( 0.59) ( 0.39) 0.87 0.17
---------- ---------- ---------- ---------- ----------
Total from investment operations................ 0.24 ( 0.16) ( 0.02) 1.42 0.77
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income(A) .... ( 0.38 ) ( 0.43) ( 0.37) ( 0.55 ) ( 0.60 )
Distributions from net realized gains(A) .... -- -- ( 0.36) ( 0.27 ) ( 0.07 )
---------- ---------- ---------- ---------- ----------
Total distributions............................. ( 0.38 ) ( 0.43) ( 0.73) ( 0.82 ) ( 0.67 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 8.22 $ 8.36 $ 8.95 $ 9.70 $ 9.10
========== ========== ========== ========== ==========
Total return(B) ................................ 2.95% (1.75%) ( 0.54%) 16.21% 8.98%
========== ========== ========== ========== ==========
Net assets at end of year (000's)............... $15,344 $ 25,974 $ 32,190 $ 43,427 $ 49,071
========== ========== ========== ========== ==========
Ratio of expenses to average net assets(C) ..... 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net assets................................. 4.66% 5.06% 3.84% 5.82% 6.58%
Portfolio turnover rate......................... 0% 63% 526% 161% 130%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)For the years ended prior to March 31, 1993, the per share data was
calculated using average shares outstanding throughout each year, 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 date
of distribution amounted to $.61 from net investment income and $.08 from
net realized gains for the year ended March 31, 1992.
(B)The total returns shown do not include the effect of applicable sales
loads.
(C)Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.42% and 1.37% for the years ended March 31, 1996
and 1995, respectively (Note 4).
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS A
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 10.47 $ 10.52 $ 11.34 $ 10.58 $ 10.01
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income........................ 0.47 0.43 0.37 0.48 0.51
Net realized and unrealized
gains (losses) on investments.............. 1.77 ( 0.05) ( 0.59) 1.62 0.75
---------- ---------- ---------- ---------- ----------
Total from investment operations................ 2.24 0.38 ( 0.22) 2.10 1.26
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (A) .... ( 0.47 ) ( 0.43) ( 0.37) ( 0.48 ) ( 0.51 )
Distributions from net realized gains(A) .... -- -- ( 0.23) ( 0.86 ) ( 0.18 )
---------- ---------- ---------- ---------- ----------
Total distributions............................. ( 0.47 ) ( 0.43) ( 0.60) ( 1.34 ) ( 0.69 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 12.24 $ 10.47 $ 10.52 $ 11.34 $ 10.58
========== ========== ========== ========== ==========
Total return(B) ................................ 21.65% 3.68% ( 2.11%) 20.64% 11.84%
========== ========== ========== ========== ==========
Net assets at end of year (000's)............... $40,424 $ 40,012 $ 40,373 $ 42,051 $ 29,398
========== ========== ========== ========== ==========
Ratio of expenses to average net assets......... 1.25% 1.25% 1.25% 1.40% 1.63%
Ratio of net investment income to average
net assets................................. 3.97% 4.06% 3.32% 4.41% 4.83%
Portfolio turnover rate......................... 11% 17% 91% 137% 33%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)For the years ended prior to March 31, 1993, the per share data was
calculated using average shares outstanding throughout each year, 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 date
of distribution amounted to $.48 from net investment income and $.13 from
net realized capital gains for the year ended March 31, 1992.
(B)The total returns shown do not include the effect of applicable sales
loads.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS C
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.46 $ 10.51 $ 11.55
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.37 0.35 0.23
Net realized and unrealized gains (losses) on
investments......................................... 1.78 ( 0.04) (0.81)
--------------- --------------- ---------------
Total from investment operations.......................... 2.15 0.31 ( 0.58 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.38 ) ( 0.36 ) ( 0.23 )
Distributions from net realized gains.................. -- -- ( 0.23 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.38 ) ( 0.36 ) ( 0.46 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.23 $ 10.46 $ 10.51
=============== =============== ===============
Total return(A) .......................................... 20.78% 3.00% ( 7.89%) (B)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 3,686 $ 3,599 $ 1,742
=============== =============== ===============
Ratio of expenses to average net assets .................. 2.00% 2.00% 2.00% (B)
Ratio of net investment income to average net assets ..... 3.19% 3.41% 2.19% (B)
Portfolio turnover rate................................... 11% 17% 91% (B)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales
loads.
(B)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS A
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 9.84 $ 9.26 $ 10.02
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.13 0.15 0.08
Net realized and unrealized gains (losses) on
investments........................................ 2.60 0.59 ( 0.34)
--------------- --------------- ---------------
Total from investment operations.......................... 2.73 0.74 ( 0.26 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.12 ) ( 0.16 ) ( 0.08 )
Distributions from net realized gains.................. -- -- ( 0.42 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.12 ) ( 0.16 ) ( 0.50 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.45 $ 9.84 $ 9.26
=============== =============== ===============
Total return(A) .......................................... 27.90% 8.07% ( 3.98%) (C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 8,502 $ 4,300 $ 3,346
=============== =============== ===============
Ratio of expenses to average net assets(B) .............. 1.25% 1.25% 1.24% (C)
Ratio of net investment income to average net assets ..... 1.06% 1.57% 0.82% (C)
Portfolio turnover rate................................... 38% 159% 109% (C)
- - -------------------------------------------------------------------------------------------------------------------
<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 2.02%, 1.94% and
2.04%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively
(Note 4).
(C)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS C
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (JUNE 7, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 9.86 $ 9.26 $ 10.00
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.05 0.10 0.03
Net realized and unrealized gains (losses) on
investments......................................... 2.60 0.57 ( 0.32)
--------------- --------------- ---------------
Total from investment operations.......................... 2.65 0.67 ( 0.29 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.05 ) ( 0.07 ) ( 0.03 )
Distributions from net realized gains.................. -- -- ( 0.42 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.05 ) ( 0.07 ) ( 0.45 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.46 $ 9.86 $ 9.26
=============== =============== ===============
Total return(A) .......................................... 26.90% 7.32% ( 3.58%) (C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 2,436 $ 1,995 $ 5,857
=============== =============== ===============
Ratio of expenses to average net assets(B) .............. 2.00% 2.00% 1.94% (C)
Ratio of net investment income to average net assets ..... 0.38% 0.68% 0.58% (C)
Portfolio turnover rate................................... 38% 159% 109% (C)
- - -------------------------------------------------------------------------------------------------------------------
<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 2.70%, 2.50% and
2.33%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively
(Note 4).
(C)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
==============================================================================
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 Midwest Strategic Trust (the Trust). The Trust
is registered under the Investment Company Act of 1940, as amended, 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 .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 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
rights with respect to matters relating to its own distribution arrangements.
<PAGE>
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 listed 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. On limited occasions, if the valuation provided by a pricing
service ignores certain market conditions affecting the value of a security,
or if the pricing service cannot provide a valuation, the fair value of the
security will be determined in good faith consistent with procedures
established by the Board of Trustees.
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 a Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the value
of the repurchase agreement. Each Fund enters into repurchase agreements only
with institutions deemed to be creditworthy by the Adviser, including banks
having assets in excess of $10 billion and primary U.S. Government securities
dealers.
Share valuation -- The net asset value of each 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 of Class A shares and Class C shares of each 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 each of
the Utility Fund and the Equity Fund is equal to the net asset value per
share. However, Class C shares of the Utility Fund and the Equity Fund are
each 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.
<PAGE>
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 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 from net investment income 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.
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.
<PAGE>
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so
qualifies, and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes 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.
<TABLE>
The following information is based upon the federal income tax cost of
portfolio investments (excluding repurchase agreements) as of March 31, 1996:
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
U.S. GOVT. TREASURY TOTAL
SECURITIES RETURN UTILITY EQUITY
FUND FUND FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation................... $ 94,194 $ 3,428 $ 6,419,511 $ 1,875,191
Gross unrealized depreciation................... ( 194,078) ( 292,601) ( 301,864) ( 141,019)
------------ ------------- ------------- ------------
Net unrealized appreciation (depreciation)...... $ ( 99,884) $ ( 289,173) $ 6,117,647 $ 1,734,172
============ ============= ============= ============
Federal income tax cost......................... $ 24,557,654 $ 15,523,699 $ 33,396,763 $ 7,422,385
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1996, the U.S. Government Securities Fund, the Treasury Total
Return Fund, the Utility Fund and the Equity Fund had capital loss
carryforwards for federal income tax purposes of $4,077,191, $2,071,201,
$30,527 and $265,871, respectively, none of which expire until at least 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.
<PAGE>
3. INVESTMENT TRANSACTIONS
<TABLE>
Investment transactions (excluding short-term investments) were as follows for
the year ended March 31, 1996:
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
U.S. GOVT. TREASURY TOTAL
SECURITIES RETURN UTILITY EQUITY
FUND FUND FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of investment securities............. $ 41,611,129 $ 9,509,531 $ 4,588,799 $ 5,107,424
============ ============= ============= ============
Proceeds from sales and maturities of
investment securities..................... $ 39,645,016 $ -- $ 12,070,713 $ 2,564,330
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
The President of the Trust is the controlling shareholder of Leshner
Financial, Inc., whose subsidiaries include Midwest Group Financial Services,
Inc. (the Adviser), the Trust's principal underwriter and investment adviser,
and MGF Service Corp. (MGF), the shareholder servicing and transfer agent and
accounting and pricing agent for the Trust.
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, computed and accrued daily and paid monthly, at an
annual rate of 0.75% of its average daily net assets up to $200,000,000, 0.7%
of such net assets from $200,000,000 to $500,000,000 and 0.5% of such net
assets in excess of $500,000,000.
States in which shares of the Trust are offered may impose an expense
limitation based upon net assets. The Adviser has agreed to reimburse each
Fund for expenses which exceed the lowest applicable expense limitation of any
state. No such reimbursement was required for the year ended March 31, 1996.
In order to reduce the operating expenses of the U.S. Government Securities
Fund and the Treasury Total Return Fund, the Adviser voluntarily waived
advisory fees of $9,000 and $35,800, respectively, during the year. In order
to reduce the operating expenses of the Equity Fund, the Adviser voluntarily
waived advisory fees of $53,777 and reimbursed the Fund for $5,308 of Class A
expenses during the year.
<PAGE>
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and MGF, MGF 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. Under the terms of the Agreement, MGF receives for its
services a fee payable monthly 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
MGF, MGF calculates the daily net asset value per share and maintains the
financial books and records of each Fund. For these services, MGF receives a
monthly fee from each Fund. The monthly fee, based on current asset levels, is
$3,250 for the U.S. Government Securities Fund, $2,750 for the Treasury Total
Return Fund, and $3,500 for each of the Utility Fund and the Equity Fund. In
addition, each Fund pays certain out-of-pocket expenses incurred by MGF 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
$704, $1,317, $11,472, and $1,625 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, 1996.
<PAGE>
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 .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.
<TABLE>
<CAPTION>
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 share transactions for the years
ended March 31, 1996 and 1995:
- - -------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT TREASURY TOTAL
SECURITIES FUND RETURN FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..................................... 343,417 456,445 64,654 471,081
Shares issued in reinvestment of distributions
to shareholders.............................. 129,033 203,373 103,352 145,610
Shares redeemed................................. ( 667,998) ( 1,932,052) ( 1,406,629) ( 1,115,965)
------------ ------------- ------------- ------------
Net decrease in shares outstanding.............. ( 195,548) ( 1,272,234) ( 1,238,623) ( 499,274)
Shares outstanding, beginning of year........... 2,837,768 4,110,002 3,105,434 3,604,708
------------ ------------- ------------- ------------
Shares outstanding, end of year................. 2,642,220 2,837,768 1,866,811 3,105,434
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
<CAPTION>
UTILITY EQUITY
FUND FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold..................................... 454,436 817,927 376,432 197,947
Shares issued in reinvestment of distributions
to shareholders.............................. 120,422 139,905 5,108 6,598
Shares redeemed................................. ( 1,093,005) ( 975,981) ( 135,368) ( 129,000)
------------ ------------- ------------- ------------
Net increase (decrease) in shares outstanding... ( 518,147) ( 18,149) 246,172 75,545
Shares outstanding, beginning of year........... 3,821,010 3,839,159 436,763 361,218
------------ ------------- ------------- ------------
Shares outstanding, end of year................. 3,302,863 3,821,010 682,935 436,763
============ ============= ============= ============
CLASS C
Shares sold..................................... 120,511 266,298 42,510 37,075
Shares issued in reinvestment of distributions
to shareholders.............................. 9,544 8,821 775 2,646
Shares redeemed................................. ( 172,643) ( 96,684) ( 50,111) ( 469,556)
------------ ------------- ------------- ------------
Net increase (decrease) in shares outstanding... ( 42,588) 178,435 ( 6,826) ( 429,835)
Shares outstanding, beginning of year........... 344,067 165,632 202,399 632,234
------------ ------------- ------------- ------------
Shares outstanding, end of year................. 301,479 344,067 195,573 202,399
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
PAR MARKET
VALUE INVESTMENTS -- 98.2% VALUE
- - -------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 13.3%
$ 2,000,000 U.S. Treasury Notes, 6.25%, 8/31/00.......................................... $ 2,010,624
1,000,000 U.S. Treasury Bonds, 10.75%, 8/15/05......................................... 1,298,125
- - -------------- -------------
$ 3,000,000 TOTAL U.S. TREASURY OBLIGATIONS (Amortized Cost $3,311,423).................. $ 3,308,749
- - -------------- -------------
U.S. GOVERNMENT AGENCY ISSUES -- 84.9%
$ 3,000,000 Federal Home Loan Mortgage Corp., 7.65%, 5/10/05............................. $ 3,061,209
2,000,000 Federal Home Loan Mortgage Corp., 7.05%, 6/8/05.............................. 1,997,852
1,815,095 Federal Home Loan Mortgage Corp. Pool #E00228, 6.50%, 7/1/08................. 1,786,018
2,000,000 Federal National Mortgage Assoc., 6.35%, 6/10/05............................. 1,964,628
1,153,307 Federal National Mortgage Assoc. Pool #50811, 7.50%, 12/1/12................. 1,159,119
1,754,569 Federal National Mortgage Assoc. Pool #190666, 7.00%, 3/1/14................. 1,730,286
2,867,460 Federal National Mortgage Assoc. Pool #220114, 7.00%, 6/1/23................. 2,799,501
1,986,700 Federal National Mortgage Assoc. Pool #317689, 6.50%, 8/1/25................. 1,887,355
2,983,237 Federal National Mortgage Assoc. Pool #317691, 7.00%, 8/1/25................. 2,906,776
1,950,777 Federal National Mortgage Assoc. Pool #63859, 6.50%, 9/1/25.................. 1,856,277
- - -------------- -------------
$ 21,511,145 TOTAL U.S. GOVERNMENT AGENCY ISSUES
- - --------------
(Amortized Cost $21,246,231)............................................. $ 21,149,021
-------------
$ 24,511,145 TOTAL INVESTMENTS AT VALUE-- 98.2%
==============
(Amortized Cost $24,557,654)............................................. $ 24,457,770
-------------
<CAPTION>
===================================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS (1) -- 1.0% VALUE
- - -------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$ 246,000 Nesbitt Burns Securities, Inc., 5.00%, dated 3/29/96, due 4/1/96,
- - --------------
repurchase proceeds $246,103............................................. $ 246,000
-------------
$ 246,000 TOTAL REPURCHASE AGREEMENTS ................................................. $ 246,000
============== -------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS -- 99.2% ....................... $ 24,703,770
OTHER ASSETS AND LIABILITIES, NET-- 0.8% ................................... 212,655
-------------
NET ASSETS-- 100.0% ......................................................... $ 24,916,425
-------------
<FN>
(1)Repurchase agreements are fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
PAR MARKET
VALUE U.S. TREASURY OBLIGATIONS-- 99.3% VALUE
- - -------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$ 6,000,000 U.S. Treasury Notes, 6.25%, 8/31/96.......................................... $ 6,018,750
1,000,000 U.S. Treasury Notes, 6.00%, 10/15/99......................................... 1,000,000
8,500,000 U.S. Treasury Notes, 5.25%, 1/31/01.......................................... 8,215,776
- - -------------- -------------
$ 15,500,000 TOTAL U.S. TREASURY OBLIGATIONS
==============
(Amortized Cost $15,523,699)............................................. $ 15,234,526
-------------
OTHER ASSETS AND LIABILITIES, NET-- 0.7% ................................... 109,743
-------------
NET ASSETS-- 100.0% ......................................................... $ 15,344,269
-------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
MARKET
COMMON STOCK -- 84.8% SHARES VALUE
- - -------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 50.7%
<S> <C> <C>
Baltimore Gas & Electric Co................................................... 50,050 $ 1,382,631
CMS Energy Corp............................................................... 60,000 1,770,000
Central Louisiana Electric.................................................... 30,000 806,250
CINergy Corp.................................................................. 40,000 1,200,000
DPL, Inc...................................................................... 50,000 1,193,750
Dominion Resources, Inc....................................................... 45,000 1,783,125
Duke Power Co................................................................. 50,000 2,525,000
FPL Group, Inc................................................................ 50,000 2,262,500
Florida Progress Corp......................................................... 65,000 2,218,125
Kansas City Power & Light Co.................................................. 90,000 2,295,000
Montana Power Co.............................................................. 35,000 756,875
Northern States Power Co...................................................... 46,000 2,242,500
Scana Corp.................................................................... 70,000 1,925,000
-------------
......................................................................... $ 22,360,756
-------------
TELECOMMUNICATIONS -- 20.5%
Ameritech Corp................................................................ 35,000 $ 1,907,500
AT&T Corp..................................................................... 30,000 1,837,500
Bell Atlantic Corp............................................................ 20,000 1,235,000
BellSouth Corp................................................................ 50,000 1,850,000
GTE Corp...................................................................... 50,000 2,193,750
-------------
......................................................................... $ 9,023,750
-------------
GAS COMPANIES -- 10.5%
Indiana Energy, Inc........................................................... 15,000 $ 360,000
MCN Corp...................................................................... 100,000 2,312,500
Nicor, Inc.................................................................... 20,000 535,000
Oneok, Inc.................................................................... 25,000 596,875
Wicor, Inc.................................................................... 25,000 843,750
-------------
......................................................................... $ 4,648,125
-------------
WATER COMPANIES -- 3.1%
American Water Works, Inc..................................................... 35,000 $ 1,347,500
-------------
TOTAL COMMON STOCK (Cost $31,303,647)......................................... $ 37,380,131
-------------
<CAPTION>
===================================================================================================================
PAR MARKET
CORPORATE BONDS -- 4.8% VALUE VALUE
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dayton Power and Light, 8.40%, 12/1/22........................................ $ 1,000,000 $ 1,041,858
New York Telephone Co., 9.375%, 7/15/31....................................... 1,000,000 1,092,421
-------------- -------------
TOTAL CORPORATE BONDS (Amortized Cost $2,093,116)............................. $ 2,000,000 $ 2,134,279
-------------- -------------
TOTAL INVESTMENTS AT VALUE-- 89.6% (Amortized Cost $33,396,763)............... $ 39,514,410
-------------
<PAGE>
<CAPTION>
UTILITY FUND (CONTINUED)
===================================================================================================================
FACE MARKET
REPURCHASE AGREEMENTS(1) -- 10.5% VALUE VALUE
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nesbitt Burns Securities, Inc., 5.00%, dated 3/29/96, due 4/1/96,
repurchase proceeds $4,621,925........................................... $ 4,620,000 $ 4,620,000
-------------- -------------
TOTAL REPURCHASE AGREEMENTS .................................................. $ 4,620,000 $ 4,620,000
============== -------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 100.1% ................ $ 44,134,410
OTHER ASSETS AND LIABILITIES, NET-- (0.1%) ................................... ( 24,163 )
-------------
NET ASSETS-- 100.0% .......................................................... $ 44,110,247
-------------
<FN>
(1)Repurchase agreements are fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
MARKET
COMMON STOCK -- 83.7% SHARES VALUE
- - -------------------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 21.1%
<S> <C> <C>
AT&T Corp..................................................................... 6,000 $ 367,500
Compaq Computer Corp.(1) ..................................................... 8,000 309,000
DSC Communications Corp....................................................... 14,000 378,000
Intel Corp.................................................................... 6,000 341,250
Loral Corp.................................................................... 11,000 539,000
Motorola, Inc................................................................. 7,000 371,000
-------------
......................................................................... $ 2,305,750
-------------
CONSUMER, NON-CYCLICAL -- 20.1%
Albertson's, Inc.............................................................. 7,400 $ 274,725
Bristol-Myers Squibb Co....................................................... 3,000 256,875
Mylan Laboratories............................................................ 16,000 336,000
Procter & Gamble Co........................................................... 4,000 339,000
Schering-Plough Corp.......................................................... 6,000 348,750
Unilever NV................................................................... 2,000 271,500
United Healthcare Corp........................................................ 6,000 369,000
-------------
......................................................................... $ 2,195,850
-------------
CONSUMER, CYCLICAL -- 15.0%
The Walt Disney Co............................................................ 2,623 $ 167,543
Ford Motor Co................................................................. 8,000 275,000
Gap, Inc...................................................................... 6,000 332,250
General Motors Corp., Class E................................................. 4,000 228,000
Lowe's Companies, Inc......................................................... 9,000 321,750
McDonald's Corp............................................................... 6,500 312,000
-------------
......................................................................... $ 1,636,543
-------------
FINANCIAL SERVICES -- 10.0%
AFLAC, Inc.................................................................... 6,750 $ 210,938
American General Corp......................................................... 8,600 296,700
American International Group.................................................. 3,000 280,875
Bank of New York Co., Inc..................................................... 6,000 309,000
-------------
......................................................................... $ 1,097,513
-------------
INDUSTRIAL -- 9.7%
Deere & Co.................................................................... 7,500 $ 313,125
Emerson Electric Co........................................................... 2,400 193,800
Nucor Corp.................................................................... 3,500 206,938
Sherwin-Williams Co........................................................... 7,800 346,125
-------------
......................................................................... $ 1,059,988
-------------
ENERGY -- 3.2%
Enron Corp.................................................................... 9,500 $ 350,313
-------------
CONGLOMERATES -- 2.5%
General Electric Co........................................................... 3,600 $ 280,350
-------------
<PAGE>
<CAPTION>
EQUITY FUND (CONTINUED)
===================================================================================================================
MARKET
SHARES VALUE
- - -------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 2.1%
<S> <C> <C>
Morton International, Inc..................................................... 6,000 $ 230,250
-------------
TOTAL COMMON STOCK (Cost $7,422,385).......................................... $ 9,156,557
-------------
<CAPTION>
===================================================================================================================
FACE MARKET
REPURCHASE AGREEMENTS(2) -- 16.4% AMOUNT VALUE
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nesbitt Burns Securities, Inc., 5.00%, dated 3/29/96, due 4/1/96,
repurchase proceeds $1,791,746........................................... $ 1,791,000 $ 1,791,000
-------------- -------------
TOTAL REPURCHASE AGREEMENTS .................................................. $ 1,791,000 $ 1,791,000
============== -------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 100.1% ................ $ 10,947,557
OTHER ASSETS AND LIABILITIES, NET-- (0.1%) .................................. ( 9,434 )
-------------
NET ASSETS-- 100.0% .......................................................... $ 10,938,123
-------------
<FN>
(1)Non-income producing security.
(2)Repurchase agreements are fully collateralized by U.S. Government
obligations.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
==============================================================================
To the Shareholders and Board of Trustees of Midwest Strategic Trust:
We have audited the accompanying statements of assets and liabilities of the
Treasury Total Return Fund, Utility Fund, Equity Fund and U.S. Government
Securities Fund of the Midwest Strategic Trust (a Massachusetts business
trust), including the portfolios of investments, as of March 31, 1996, 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 accounting
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, 1996, by correspondence with the custodian. 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
Treasury Total Return Fund, Utility Fund, Equity Fund and U.S. Government
Securities Fund of the Midwest Strategic Trust as of March 31, 1996, the
results of their operations, the changes in their net assets, and the
financial highlights for the periods indicated thereon, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
April 26, 1996
<PAGE>
<TABLE>
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 8, 1995 (UNAUDITED)
==============================================================================
On December 8, 1995, a Special Meeting of Shareholders of the Trust was held
to elect Trustees to serve on the Board and 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 58.0% of the shares entitled to vote at the meeting.
The results of the voting for Trustees were as follows:
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
WITHHOLD
NOMINEES FOR ELECTION AUTHORITY STATUS
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dale P. Brown 5,604,499.018 68,378.746 Incumbent
Gary W. Heldman 5,571,909.785 100,967.979 New Trustee
H. Jerome Lerner 5,600,680.140 72,197.624 New Trustee
Robert H. Leshner 5,597,856.794 75,020.970 Incumbent
Richard A. Lipsey 5,583,720.100 89,157.664 Incumbent
Donald J. Rahilly 5,590,326.361 82,551.403 Incumbent
Fred A. Rappoport 5,566,887.711 105,990.053 Incumbent
Oscar P. Robertson 5,605,767.904 67,109.860 New Trustee
Robert B. Sumerel 5,591,488.056 81,389.708 Incumbent
- - -------------------------------------------------------------------------------------------------------------------
<CAPTION>
The results of the voting for Arthur Andersen LLP by each Fund were as
follows:
- - -------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
FOR AGAINST ABSTAIN
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Fund 1,835,038.503 7,684.377 32,199.143
Treasury Total Return Fund 1,340,426.396 7,443.348 34,284.657
Utility Fund 2,032,011.308 10,400.155 40,223.035
Equity Fund 325,598.067 5,831.574 1,737.201
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix
A representation of the graphic material contained in the Midwest Strategic
Trust March 31, 1996 Annual Report is set forth below.
1. 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 MBS INDEX: U.S. GOVERNMENT SECURITIES FUND
QTLY QTLY
DATE RETURN BALANCE DATE RETURN BALANCE
03/31/86 10,000 03/31/86 9,800
06/30/86 0.66% 10,066 06/30/86 -0.62% 9,739
09/30/86 3.93% 10,462 09/30/86 3.26% 10,056
12/31/86 3.78% 10,857 12/31/86 3.64% 10,422
03/31/87 2.21% 11,097 03/31/87 2.14% 10,645
06/30/87 -1.37% 10,945 06/30/87 -2.63% 10,365
09/30/87 -2.08% 10,717 09/30/87 -4.12% 9,938
12/31/87 5.65% 11,323 12/31/87 6.63% 10,597
03/31/88 4.28% 11,807 03/31/88 3.42% 10,959
06/30/88 1.67% 12,005 06/30/88 1.44% 11,117
09/30/88 2.37% 12,289 09/30/88 2.16% 11,357
12/31/88 0.18% 12,311 12/31/88 0.63% 11,428
03/31/89 1.24% 12,464 03/31/89 0.66% 11,504
06/30/89 7.76% 13,431 06/30/89 5.05% 12,084
09/30/89 1.65% 13,653 09/30/89 0.85% 12,187
12/31/89 4.00% 14,199 12/31/89 3.47% 12,609
03/31/90 0.13% 14,217 03/31/90 -0.92% 12,493
06/30/90 3.79% 14,756 06/30/90 2.97% 12,863
09/30/90 1.48% 14,975 09/30/90 0.94% 12,985
12/31/90 4.98% 15,720 12/31/90 4.92% 13,624
03/31/91 3.07% 16,203 03/31/91 2.12% 13,913
06/30/91 1.90% 16,511 06/30/91 1.78% 14,161
09/30/91 5.48% 17,416 09/30/91 4.57% 14,807
12/31/91 4.45% 18,191 12/31/91 3.95% 15,393
03/31/92 -0.86% 18,034 03/31/92 -1.06% 15,229
06/30/92 4.02% 18,759 06/30/92 3.97% 15,833
09/30/92 2.98% 19,318 09/30/92 3.09% 16,322
12/31/92 0.72% 19,457 12/31/92 0.13% 16,342
03/31/93 2.96% 20,033 03/31/93 4.10% 17,013
06/30/93 1.86% 20,406 06/30/93 2.61% 17,456
09/30/93 0.96% 20,602 09/30/93 1.38% 17,697
12/31/93 0.90% 20,787 12/31/93 0.23% 17,738
03/31/94 -2.32% 20,305 03/31/94 -3.80% 17,064
06/30/94 -0.56% 20,191 06/30/94 -3.94% 16,391
09/30/94 0.87% 20,367 09/30/94 -0.13% 16,370
12/31/94 0.43% 20,454 12/31/94 -0.15% 16,345
03/31/95 5.24% 21,526 03/31/95 4.46% 17,074
06/30/95 5.22% 22,650 06/30/95 5.10% 17,945
09/30/95 2.10% 23,125 09/30/95 1.39% 18,194
12/31/95 3.32% 23,893 12/31/95 3.83% 18,892
03/31/96 -0.44% 23,788 03/31/96 -2.04% 18,506
Past performance is not predictive of future performance.
U.S. Government Securities Fund - Average Annual Total Returns*
1 Year 5 Years 10 Years
6.22% 5.45% 6.35%
* The initial public offering of shares commenced on June 4, 1984.
2. 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.
M. L. TREASURIES (ALL MATURITIES) INDEX: TREASURY TOTAL RETURN FUND:
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
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
Past performance is not predictive of future performance.
Treasury Total Return Fund - Average Annual Total Returns
1 Year 5 years Since Inception*
(1.17%) 4.11% 4.26%
*The initial public offering of shares commenced on January 26, 1988.
3. 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):
QTLY QTLY
DATE RETURN BALANCE DATE RETURN BALANCE
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
Past performance is not predictive of future performance.
Utility Fund - Average Annual Total Returns
1 Year 5 Years Since Inception
Class A 16.79% 9.84% 9.64%
Class C 20.78% N/A 6.39%
*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.
4. 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
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
Past performance is not predictive of future performance.
Equity Fund - Average Annual Total Returns
1 Year Since Inception
Class A 22.79% 10.11%
Class C 26.90% 10.43%
*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.
