Capital Appreciation
PROSPECTUS
DECEMBER 31, 1997
INTERNATIONAL
EQUITY FUND
Logo: Countrywide Investments
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PROSPECTUS
December 31, 1997
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
INTERNATIONAL EQUITY FUND
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THE INTERNATIONAL EQUITY FUND (the "Fund"), a separate series of Countrywide
Strategic Trust, seeks to provide long-term capital appreciation by investing
primarily in foreign equity securities (or other securities with equity
characteristics). The production of any current income is incidental to this
objective.
Bankers Trust Company (the "Adviser") manages the Fund's investments under the
supervision of Countrywide Investments, Inc. (the "Manager"). See "Operation of
the Fund."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANKING OR DEPOSITORY INSTITUTION. SHARES ARE NOT FEDERALLY GUARANTEED
OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Fund that
investors should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated December 31, 1997 has
been filed with the Securities and Exchange Commission and is hereby
incorporated by reference in its entirety. A copy of the Statement of Additional
Information can be obtained at no charge by calling one of the numbers listed
below.
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FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
Nationwide (Toll-Free).............................................800-543-0407
Cincinnati.........................................................513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE INFORMATION
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price).............................................. 4%
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price).................. None *
Sales Load Imposed on Reinvested Dividends . ..................... None
Exchange Fee...................................................... None
Redemption Fee.................................................... None **
* Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of .75% if a redemption occurred
within 12 months of purchase and a commission was paid by the Manager to a
participating unaffiliated dealer.
** A wire transfer fee is charged in the case of redemptions made by wire. Such
fee is subject to change and is currently $8. See "How to Redeem Shares".
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees.................................................. 1.00%
12b-1 Fees....................................................... .25% (A)
Other Expenses................................................... .70%
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Total Fund Operating Expenses.................................... 1.95%
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(A)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.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on estimated amounts for the current fiscal year. THE EXAMPLE BELOW SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year $59
3 Years $99
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INVESTMENT OBJECTIVE AND POLICIES
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The International Equity Fund, a separate series of Countrywide Strategic Trust
(the "Trust"), seeks long-term capital appreciation from investment in foreign
equity securities (or other securities with equity characteristics), primarily
issues included in the Europe, Australia and Far East Index; the production of
any current income is incidental to this objective. The Fund is not intended to
be a complete investment program, and there is no assurance that the investment
objective of the Fund can be achieved. The Fund's investment objective may be
changed by the Board of Trustees without shareholder approval, but only after
notification has been given to shareholders and after this prospectus has been
revised accordingly. If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their current financial position and needs. Unless otherwise
indicated, all investment practices and limitations of the Fund are
non-fundamental policies which may be changed by the Board of Trustees without
shareholder approval.
The Fund invests primarily in established companies based in developed countries
outside the United States. See "Risks of Investing in Foreign Securities" below.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in the equity securities of issuers based in at least three countries
other than the United States. The Fund's investments will generally be
diversified among several geographic regions and countries.
In countries and regions with well-developed capital markets where more
information is available, the Adviser will seek to select individual investments
for the Fund. Criteria for selection of individual securities include the
issuer's competitive position, prospects for growth, managerial strength,
earnings quality, underlying asset value, relative market value and overall
marketability.
In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Fund may choose to
invest only at the market level. Here, to the extent available and consistent
with applicable regulations, the Fund may seek to achieve country exposure
through use of options or futures based on an established local index or through
investment in other registered investment companies rather than investing
directly in individual securities. Investment in other investment companies is
limited in amount by the Investment Company Act of 1940, will involve the
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies and may result in a duplication of fees and expenses.
The Fund may invest in securities of companies having various levels of net
worth, including smaller companies whose securities may be more volatile than
securities offered by larger companies with higher levels of net worth. While
smaller companies generally have potential for rapid growth, they often involve
higher risks because they lack the management experience, financial resources,
product diversification and competitive strengths of larger corporations. In
addition, in many instances, the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
wider price fluctuations. When making large sales, the Fund may to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time.
The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets
and may invest in restricted or unlisted securities.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings and
other factors beyond the control of the Adviser. As a result, the return and net
asset value of the Fund will fluctuate.
When the Adviser believes substantial price risks exist for common stocks and
other equity securities because of uncertainties in the investment outlook or
when in the judgment of the Adviser it is otherwise warranted in selling to
manage the Fund's portfolio, the Fund may temporarily hold for defensive
purposes all or a portion of its assets in short-term obligations such as bank
debt instruments (certificates of deposit, bankers' acceptances and time
deposits), commercial paper, U.S. Government obligations having a maturity of
less than one year, shares of money market investment companies or repurchase
agreements collateralized by U.S. Government obligations.
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RISKS OF INVESTING IN FOREIGN SECURITIES
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Investors should realize
that the value of the Fund's foreign investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Fund's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether favorably
or unfavorably, in areas such as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. In general, less information is publicly
available with respect to foreign issuers than is available with respect to U.S.
companies. Most foreign companies are also not subject to the uniform accounting
and financial reporting requirements applicable to issuers in the United States.
Any foreign investments made by the Fund must be made in compliance with U.S.
and foreign currency restrictions and tax laws restricting the amounts and types
of foreign investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the Fund as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is authorized to enter into certain
foreign currency exchange transactions. Furthermore, the Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. The settlement periods
for foreign securities, which are often longer than those for securities of U.S.
issuers, may affect the Fund's liquidity. Finally, there may be less government
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.
The world's industrialized markets generally include but are not limited to the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States; the world's emerging markets generally include but are not
limited to the following: Argentina, Bolivia, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, the Czech Republic, Ecuador, Egypt, Greece, Hungary,
India, Indonesia, Israel, the Ivory Coast, Jordan, Malaysia, Mexico, Morocco,
Nicaragua, Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Romania,
Russia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.
ADDITIONAL INVESTMENT INFORMATION
EQUITY SECURITIES. As used herein, "equity securities" are defined as common
stock, preferred stock, trust or limited partnership interests, rights and
warrants to subscribe to or purchase such securities, sponsored or unsponsored
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs"), and convertible securities, consisting of
debt securities or preferred stock that may be converted into common stock or
that carry the right to purchase common stock. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial conditions and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
CONVERTIBLE SECURITIES. A convertible security is a bond or preferred stock
which may be converted at a stated price within a specific period of time into a
specified number of shares of common stock of the same or different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed income stream--generally higher in yield than in the
income derived from a common stock but lower than that afforded by a
non-convertible debt security--a convertible security also affords an investor
the opportunity, through its conversion feature, to participate in the capital
appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
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when interest rates rise; however, the price of a convertible security generally
increase as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
PREFERRED STOCK. Preferred stock has a preference in liquidation (and, generally
dividends) over common stock but is subordinated in liquidation to debt. As a
general rule the market value of preferred stocks with fixed dividend rates and
no conversion rights varies inversely with interest rates and perceived credit
risk, with the price determined by the dividend rate. Some preferred stocks are
convertible into other securities, for example common stock, at a fixed price
and ratio or upon the occurrence of certain events. The market price of
convertible preferred stocks generally reflects an element of conversion value.
Because many preferred stocks lack a fixed maturity date, these securities
generally fluctuate substantially in value when interest rates change; such
fluctuations often exceed those of long-term bonds of the same issuer. Some
preferred stocks pay an adjustable dividend that may be based on an index,
formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks of the
issuer as corporate bonds. In addition, because preferred stock is junior to
debt securities and other obligations of an issuer, deterioration in the credit
rating of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar yield characteristics.
Preferred stocks may be rated by Standard & Poor's Ratings Group ("S&P") and
Moody's Investors Service, Inc. ("Moody's") although there is no minimum rating
which a preferred stock must have (and a preferred stock may not be rated) to be
an eligible investment for the Fund. The Adviser expects, however, that
generally the preferred stocks in which the Fund invests will be rated at least
CCC by S&P or Caa by Moody's or, if unrated, of comparable quality in the
opinion of the Adviser. Preferred stocks rated CCC by S&P are regarded as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations and represent the highest degree of speculation among
securities rated between BB and CCC; preferred stocks rated Caa by Moody's are
likely to be in arrears on dividend payments. Moody's ratings with respect to
preferred stocks do not purport to indicate the future status of payments of
dividends.
WARRANTS are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant tends to
be more volatile than its underlying securities and ceases to have value if it
is not exercised prior to its expiration date. In addition, changes in the value
of a warrant do not necessarily correspond to changes in the value of its
underlying securities.
ADRS, GDRS AND EDRS are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively, ADRs,
GDRs and EDRs are alternatives to the purchase of the underlying securities in
their national markets and currencies. ADRs, GDRs and EDRs are subject to the
same risks as the foreign securities to which they relate.
See "Risks of Investing in Foreign Securities" herein.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Repurchase
agreements are transactions by which the Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
time and price, thereby determining the yield during the term of the agreement.
In the event of a bankruptcy or other default of the seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
security and losses. To minimize these possibilities, the Fund intends to enter
into repurchase agreements only with its Custodian, banks having assets in
excess of $10 billion and the largest and, in the judgment of the Adviser, most
creditworthy primary U.S. Government securities dealers. The Fund will enter
into repurchase agreements which are collateralized by U.S. Government
obligations. Collateral for repurchase agreements is held in safekeeping in the
customer-only account of the Fund's Custodian at the Federal Reserve Bank. At
the time the Fund enters into a repurchase agreement, the value of the
collateral, including accrued interest, will equal or exceed the value of the
repurchase agreement and, in the case of a repurchase agreement exceeding one
day, the seller agrees to maintain sufficient collateral so the value of the
underlying collateral, including accrued interest, will at all times equal or
exceed the value of the repurchase agreement. The Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 15% of the value of the net assets of the Fund would be invested in
such securities and other illiquid securities.
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RULE 144A SECURITIES. Rule 144A Securities are securities in the United States
that are not registered for sale under Federal securities laws but which can be
resold to institutions under SEC Rule 144A under the Securities Act of 1933.
Provided that a dealer or institutional trading market in such securities
exists, these restricted securities are treated as exempt from the 15% limit on
illiquid securities. Under the supervision of the Board of Trustees, the Adviser
determines the liquidity of restricted securities and, through reports from the
Adviser, the Board will monitor trading activity in restricted securities. If
institutional trading in restricted securities were to decline, the liquidity of
the Fund could be adversely affected.
DELAYED SETTLEMENT TRANSACTIONS. Obligations issued on a when-issued or
to-be-announced basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. In a to-be-announced transaction, the
Fund has committed to purchasing or selling securities for which all specific
information is not yet known at the time of the trade, particularly the face
amount in transactions involving mortgage-related securities. The Fund will only
make commitments to purchase obligations on a when-issued or to-be-announced
basis with the intention of actually acquiring the obligations, but the Fund may
sell these securities before the settlement date if it is deemed advisable as a
matter of investment strategy or in order to meet its obligations, although it
would not normally expect to do so. The Fund will not enter into a delayed
settlement transaction which settles in more than 120 days.
Purchases of securities on a when-issued or to-be-announced basis are subject to
market fluctuations and their current value is determined in the same manner as
other portfolio securities. When effecting such purchases for the Fund, a
segregated account of cash or liquid securities of the Fund in an amount
sufficient to make payment for the portfolio securities to be purchased will be
maintained with the Fund's Custodian at the trade date and valued daily at
market for the purpose of determining the adequacy of the securities in the
account. If the market value of segregated securities declines, additional cash
or securities will be segregated on a daily basis so that the market value of
the Fund's segregated assets will equal the amount of the Fund's commitments to
purchase when-issued obligations and securities on a to-be-announced basis. The
Fund's purchase of securities on a when-issued or to-be-announced basis may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date or if the
broker-dealer selling the securities fails to deliver after the value of the
securities has risen.
BORROWING AND PLEDGING. The Fund may borrow money from banks, provided that,
immediately after any such borrowings, there is asset coverage of 300% for all
borrowings of the Fund. The Fund will not make any borrowing which would cause
its outstanding borrowings to exceed one-third of the value of its total assets.
The Fund may pledge assets in connection with borrowings but will not pledge
more than one-third of its total assets. Borrowing magnifies the potential for
gain or loss on the portfolio securities of the Fund and, therefore, if
employed, increases the possibility of fluctuation in the Fund's net asset
value. This is the speculative factor known as leverage. The Fund's policies on
borrowing and pledging are fundamental policies which may not be changed without
the affirmative vote of a majority of its outstanding shares. It is the Fund's
present intention, which may be changed by the Board of Trustees without
shareholder approval, to borrow only for emergency or extraordinary purposes and
not for leverage.
LENDING PORTFOLIO SECURITIES. The Fund may, from time to time, lend securities
on a short-term basis (i.e., for up to seven days) to banks, brokers and dealers
and receive as collateral cash, U.S. Government obligations or irrevocable bank
letters of credit (or any combination thereof), which collateral will be
required to be maintained at all times in an amount equal to at least 100% of
the current value of the loaned securities plus accrued interest. Such loans
will not be made if as a result the aggregate of all outstanding loans exceeds
one-third of the value of the Fund's total assets. Securities lending will
afford the Fund the opportunity to earn additional income because the Fund will
continue to be entitled to the interest payable on the loaned securities and
also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in recovering the securities lent or even loss of rights in the
collateral in the event of the insolvency of the borrower of the securities. The
Fund will have the right to regain record ownership of loaned securities in
order to exercise beneficial rights. The Fund may pay reasonable fees in
connection with arranging such loans.
DERIVATIVES. The Fund may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from a traditional security, asset, or market
index. There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated with those
uses. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a fund from
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exposure to changing interest rates, securities prices, or currency exchange
rates and as a low cost method of gaining exposure to a particular securities
market without investing directly in those securities. However, some derivatives
are used for leverage, which tends to magnify the effects of an instrument's
price changes as market conditions change. Leverage involves the use of a small
amount of money to control a large amount of financial assets, and can in some
circumstances, lead to significant losses. The Adviser will use derivatives only
in circumstances where they offer what the Adviser believes is the most
efficient means of improving the risk/reward profile of the Fund and when
consistent with the Fund's investment objective and policies. The use of
derivatives for non-hedging purposes may be considered speculative.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may enter into foreign currency
exchange transactions to convert to and from different foreign currencies and to
convert foreign currencies to and from the U.S. dollar. The Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund to
purchase or to sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the Fund's securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The price matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Fund may write covered put and call options
and purchase put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of portfolio securities and
against increases in the U.S. dollar cost of securities to be acquired. The Fund
may use options on foreign currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of options, however,
the writing of an option on a foreign currency will constitute only a partial
hedge up to the amount of the premium received, and the Fund could be required
to purchase or sell a foreign currency at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may be
used to hedge against fluctuations in exchange rates although, in the event of
exchange rate movements adverse to the Fund's position it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Fund may
purchase call options on a foreign currency when the Adviser anticipates that
the currency will appreciate in value.
There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Fund is unable to effect a
closing purchase transaction with respect to covered options it has written, the
Fund will not be able to sell the underlying currency or dispose of assets held
in a segregated account until it closes out the options or the options expire or
are exercised. Similarly, if the Fund is unable to close out options it has
purchased, it would have to exercise the options in order to realize any profit
and will incur transaction costs. The Fund pays brokerage commissions or spreads
in connection with its options transactions.
OPTIONS ON STOCKS. The Fund may write and purchase options on stocks. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying stock at the exercise price at any time during
the option period. Similarly, a put option gives the purchaser of the option the
right to sell, and obligates the writer to buy the underlying stock at the
exercise price at any time during the option period. A covered call option with
respect to which the Fund owns the
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underlying stock sold by the Fund exposes the Fund during the term of the option
to possible loss of opportunity to realize appreciation in the market price of
the underlying stock or to possible continued holding of a stock which might
otherwise have been sold to protect against depreciation in the market price of
the stock. A covered put option sold by the Fund exposes the Fund during the
term of the option to a decline in price of the underlying stock.
OPTIONS ON STOCK INDICES. The Fund may purchase and write put and call options
on stock indices listed on domestic and foreign stock exchanges, in lieu of
direct investment in the underlying securities or for hedging purposes. The Fund
may also purchase and write over-the-counter options ("OTC Options") on domestic
or foreign stock indices. A stock index fluctuates with changes in the market
values of the stocks included in the index.
In some circumstances, the Fund's ability to terminate OTC Options may be more
limited than with exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are not covered by the Fund's 15%
limit on illiquid securities. Under the supervision of the Board of Trustees,
the Adviser determines the liquidity of restricted securities and, through
reports from the Adviser, the Board will monitor trading activity in restricted
securities. With respect to options written with primary dealers in U.S.
Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term exercise price,
premium, guaranties and security, are set by negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC Option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC Option
it has entered into with the Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction. Thus,
the Adviser must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC Option will be met.
Options on stock indices are generally similar to options on stocks except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of securities at a specified price, an option on a stock index
gives the holders the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier."
Successful use by the Fund of options on stock indices will be subject to the
Adviser's ability to predict correctly movement in the direction of the security
market generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual securities.
FUTURES CONTRACTS ON STOCK INDICES. The Fund may enter into contracts providing
for the making and acceptance of a cash settlement based upon changes in the
value of an index of domestic or foreign stocks ("Futures Contracts"). This
investment technique may be used as a low-cost method of gaining exposure to a
particular securities market without investing directly in those securities or
to hedge against anticipated future changes in general market prices which
otherwise might either adversely affect the value of securities held by the Fund
or adversely affect the prices of securities which are intended to be purchased
at a later date for the Fund. A Futures Contract may also be entered into to
close out or offset an existing futures position.
When used for hedging purposes, each transaction in Futures Contracts involves
the establishment of a position which will move in a direction opposite to that
of the investment being hedged. If these hedging transactions are successful,
the futures position taken for the Fund will rise in value by an amount which
approximately offsets the decline in value of the portion of the Fund's
investments that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized.
<PAGE>
The risks of Futures Contracts also include a potential lack of liquidity in the
secondary market and incorrect assessments of market.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good faith deposit against performance of obligations under
Futures Contracts written for the Fund. The Fund may not purchase or sell a
Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts, other than Futures Contracts used for hedging
purposes, would exceed 5% of the market value of the Fund's total assets.
OPTIONS ON FUTURES CONTRACTS. The Fund may invest in options on futures
contracts for similar purposes. There can be no assurance that the use of these
portfolio strategies will be successful.
ASSET COVERAGE. To assure that the Fund's use of futures and related options, as
well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, the Fund
will cover such transactions, as required under applicable interpretations of
the Securities and Exchange Commission and its staff, either by owning the
underlying securities, entering into an offsetting transaction, or by
segregating or "earmarking" with the Fund's custodian liquid securities in an
amount at all times equal to or exceeding the Fund's commitment with respect to
these instruments or contracts.
PORTFOLIO TURNOVER. The Fund does not intend to use short-term trading as a
primary means of achieving its investment objectives. However, the Fund's rate
of portfolio turnover will depend upon market and other conditions, and it will
not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. Although the annual portfolio turnover rate of the
Fund cannot be accurately predicted, it is not expected to exceed 100%, but may
be either higher or lower. A 100% turnover rate would occur, for example, if all
the securities of the Fund were replaced once in a one-year period. High
turnover involves correspondingly greater commission expenses and transaction
costs. High turnover may result in the Fund recognizing greater amounts of
income and capital gains, which would increase the amount of income and capital
gains which the Fund must distribute to shareholders in order to maintain its
status as a regulated investment company and to avoid the imposition of federal
income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
===============================================================================
The minimum initial investment in the Fund must ordinarily be at least $1,000
($250 for tax-deferred retirement plans). However, the minimum initial
investment in the Fund for employees, shareholders and customers of Countrywide
Credit Industries, Inc. or any affiliated company, including members of the
immediate family of such individuals, is $50. Investors may purchase additional
shares through the Open Account Program described below. Investors may open an
account and make an initial investment through securities dealers having a sales
agreement with the Trust's principal underwriter, Countrywide Investments, Inc.
(the "Manager"). Investors may also make a direct initial investment by sending
a check and a completed account application form to Countrywide Fund Services,
Inc. (the "Transfer Agent"), P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks
should be made payable to the "International Equity Fund". An account
application is included in this Prospectus.
Shares of the Fund are sold on a continuous basis at the public offering price
next determined after receipt of a purchase order by the Trust. Purchase orders
received by dealers prior to 4:00 p.m., Eastern time, on any business day and
transmitted to the Manager by 5:00 p.m., Eastern time, that day are confirmed at
the public offering price determined as of the close of the regular session of
trading on the New York Stock Exchange on that day. It is the responsibility of
dealers to transmit properly completed orders so that they will be received by
the Manager by 5:00 p.m., Eastern time. Dealers may charge a fee for effecting
purchase orders. Direct purchase orders received by the Transfer Agent by 4:00
p.m., Eastern time, are confirmed at that day's public offering price. Direct
investments received by the Transfer Agent after 4:00 p.m., Eastern time, and
orders received from dealers after 5:00 p.m., Eastern time, are confirmed at the
public offering price next determined on the following business day.
<PAGE>
The public offering price of shares is the next determined net asset value per
share plus a sales load as shown in the following table.
<TABLE>
<CAPTION>
Dealer
Sales Load as % of: Reallowance
Public Net as % of
Offering Amount Public
Amount of Investment Price Invested Offering Price
- --------------------------------- -------- -------- --------------
<S> <C> <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 Manager to a participating unaffiliated dealer and the shares are
redeemed within twelve months from the date of purchase.
</FN>
</TABLE>
Under certain circumstances, the Manager may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Manager retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For initial purchases of $1,000,000 or more and subsequent purchases further
increasing the size of the account, a dealer's commission of .75% of the
purchase amount may be paid by the Manager to participating unaffiliated dealers
through whom such purchases are effected. In determining a dealer's eligibility
for such commission, purchases of shares of the Fund may be aggregated with
concurrent purchases of shares of other funds of Countrywide Investments.
Dealers should contact the Manager concerning the applicability and calculation
of the dealer's commission in the case of combined purchases. An exchange from
other funds of Countrywide Investments will not qualify for payment of the
dealer's commission, unless such exchange is from a Countrywide fund with assets
as to which a dealer's commission or similar payment has not been previously
paid. Redemptions of shares may result in the imposition of a contingent
deferred sales load if the dealer's commission described in this paragraph was
paid in connection with the purchase of such shares. See "Contingent Deferred
Sales Load for Certain Purchases of Shares" below.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services described
in this section to the Transfer Agent at the address or numbers listed below.
After an initial investment, all investors are considered participants in the
Open Account Program. The Open Account Program helps investors make purchases of
shares of the Fund over a period of years and permits the automatic reinvestment
of dividends and distributions of the Fund in additional shares without a sales
load.
Under the Open Account Program, investors may purchase and add shares to their
account at any time either through a securities dealer or by sending a check to
the Transfer Agent, P.O. Box 5354, Cincinnati, Ohio 45201-5354. The check should
be made payable to the "International Equity Fund."
Under the Open Account Program, investors may also purchase shares of the Fund
by bank wire. Please telephone the Transfer Agent (Nationwide call toll-free
800-543-0407; in Cincinnati call 629-2050) for instructions. The investor's bank
may impose a charge for sending the wire. There is presently no fee for receipt
of wired funds, but the Transfer Agent reserves the right to charge shareholders
for this service upon thirty days' prior notice to shareholders.
Each additional purchase request must contain the name of the account and the
account number to permit proper crediting to the shareholder's account. While
there is no minimum amount required for subsequent investments, the Trust
reserves the right to impose such requirement. All purchases under the Open
Account Program are made at the public offering price next determined after
receipt of a purchase order by the Trust. If a broker-dealer received
concessions for selling shares of the Fund to a current shareholder, such
broker-dealer will receive the concessions described above with respect to
additional investments by the shareholder.
<PAGE>
REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing shares of the load funds distributed by the Manager with
the amount of his current purchases in order to take advantage of the reduced
sales loads set forth in the table above. Purchases made in any load fund
distributed by the Manager pursuant to a Letter of Intent may also be eligible
for the reduced sales loads. The minimum initial investment under a Letter of
Intent is $10,000. The load funds currently distributed by the Manager are
listed in the Exchange Privilege section of this Prospectus. Shareholders should
contact the Transfer Agent for information about the Right of Accumulation and
Letter of Intent.
PURCHASES AT NET ASSET VALUE. An investor may purchase shares of the Fund at net
asset value when the payment for the investment represents the proceeds from the
redemption of shares of any other mutual fund which has a front-end sales load
and is not distributed by the Manager. The investment will qualify for this
provision if the purchase price of the shares of the other fund included a sales
load and the redemption occurred within one year of the purchase of such shares
and no more than sixty days prior to the purchase of shares of the Fund. To make
a purchase at net asset value pursuant to this provision, the investor must
submit photocopies of the confirmations (or similar evidence) showing the
purchase and redemption of shares of the other fund. Payment may be made with
the redemption check representing the proceeds of the shares redeemed, endorsed
to the order of the Fund. The redemption of shares of the other fund is, for
federal income tax purposes, a sale on which the investor may realize a gain or
loss. These provisions may be modified or terminated at any time. Contact a
securities dealer or the Trust for further information.
Banks, bank trust departments and savings and loan associations, and employees
of such institutions, in their fiduciary capacity or for their own accounts, may
purchase shares of the Fund at net asset value. To the extent permitted by
regulatory authorities, a bank trust department may charge fees to clients for
whose account it purchases shares at net asset value. Federal and state credit
unions may also purchase shares at net asset value.
In addition, shares of the Fund may be purchased at net asset value by
broker-dealers who have a sales agreement with the Manager and their registered
personnel and employees, including members of the immediate families of such
registered personnel and employees.
Clients of investment advisers and financial planners may also purchase shares
of the Fund at net asset value if their investment adviser or financial planner
has made arrangements to permit them to do so with the Trust and the Manager.
The investment adviser or financial planner must notify the Transfer Agent that
an investment qualifies as a purchase at net asset value. Employees,
shareholders and customers of Countrywide Credit Industries, Inc. or any
affiliated company, including members of the immediate family of such
individuals and employee benefit plans established by such entities, may also
purchase shares of the Fund at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES. A contingent
deferred sales load is imposed upon certain redemptions of shares of the Fund
(or shares into which such shares were exchanged) purchased at net asset value
in amounts totaling $1 million or more, if the dealer's commission described
above was paid by the Manager and the shares are redeemed within twelve months
from the date of purchase. The contingent deferred sales load will be paid to
the Manager and will be equal to .75% of the lesser of (1) the net asset value
at the time of purchase of the shares being redeemed or (2) the net asset value
of such shares at the time of redemption. In determining whether the contingent
deferred sales load is payable, it is assumed that shares not subject to the
contingent deferred sales load are the first redeemed followed by other shares
held for the longest period of time. The contingent deferred sales load will not
be imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. If a purchase of
shares is subject to the contingent deferred sales load, the investor will be so
notified on the confirmation for such purchase. Redemptions of such shares of
the Fund held for at least 12 months will not be subject to the contingent
deferred sales load and an exchange of such shares into another fund of
Countrywide Investments is not treated as a redemption and will not trigger the
imposition of the contingent deferred sales load at the time of such exchange. A
fund will "tack" the period for which such shares being exchanged were held onto
the holding period of the acquired shares for purposes of determining if a
contingent deferred sales load is applicable in the event that the acquired
shares are redeemed following the exchange; however, the period of time that the
redemption proceeds of such shares are held in a money market fund will not
count toward the holding period for determining whether a contingent deferred
sales load is applicable. See "Exchange Privilege".
<PAGE>
The contingent deferred sales load is currently waived for any partial or
complete redemption following death or disability (as defined in the Internal
Revenue Code) of a shareholder (including one who owns the shares with his or
her spouse as a joint tenant with rights of survivorship) from an account in
which the deceased or disabled is named. The Manager may require documentation
prior to waiver of the charge, including death certificates, physicians'
certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the initial investment
requirements and the applicable sales load and for purposes of the Letter of
Intent and Right of Accumulation privileges, a purchaser includes an individual,
his spouse and their children under the age of 21, purchasing shares for his or
their own account; a trustee or other fiduciary purchasing shares for a single
fiduciary account although more than one beneficiary is involved; employees of a
common employer, provided that economies of scale are realized through
remittances from a single source and quarterly confirmation of such purchases;
or an organized group, provided that the purchases are made through a central
administration, or a single dealer, or by other means which result in economy of
sales effort or expense. Contact the Transfer Agent for additional information
concerning purchases at net asset value or at reduced sales loads.
The Trust mails confirmations of all purchases or redemptions of Fund shares.
Certificates representing shares of the Fund are not issued. The Trust and the
Manager reserve the right to limit the amount of investments and to refuse to
sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, the Transfer Agent and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.
Should an order to purchase shares be canceled because the check does not clear,
the investor will be responsible for any resulting losses or fees incurred by
the Trust or the Transfer Agent in the transaction.
SHAREHOLDER SERVICES
===============================================================================
Contact the Transfer Agent (Nationwide call toll-free 800-543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
AUTOMATIC WITHDRAWAL PLAN
If the shares in an account have a value of at least $5,000, a shareholder may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional shares of the Fund while the
plan is in effect are generally undesirable because a sales load is incurred
whenever purchases are made.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with the following
tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-- 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
<PAGE>
DIRECT DEPOSIT PLANS
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Fund.
AUTOMATIC INVESTMENT PLAN
Shareholders may make automatic monthly investments in the Fund from their bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. The Transfer Agent pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. The
depository institution may impose its own charge for debiting the account which
would reduce a shareholder's return from an investment in the Fund.
REINVESTMENT PRIVILEGE
If a shareholder has redeemed shares of the Fund, he or she may reinvest all or
part of the proceeds without any additional sales load. This reinvestment must
occur within ninety days of the redemption and the privilege may only be
exercised once per year.
HOW TO REDEEM SHARES
===============================================================================
Shareholders may redeem shares of the Fund on each day that the Trust is open
for business by sending a written request to the Transfer Agent. The request
must state the number of shares or the dollar amount to be redeemed and the
account number. The request must be signed exactly as the shareholder's name
appears on the Trust's account records. If the shares to be redeemed have a
value of $25,000 or more, the shareholder's signature must be guaranteed by any
eligible guarantor institution, including banks, brokers and dealers, municipal
securities brokers and dealers, government securities brokers and dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations.
Shareholders may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. The shareholder will receive the net asset
value per share next determined after receipt by the Trust or its agent of the
wire redemption request. It is the responsibility of broker-dealers to properly
transmit wire redemption orders.
If a shareholder's instructions request a redemption by wire, the shareholder
will be charged an $8 processing fee. The Trust reserves the right, upon thirty
days' written notice, to change the processing fee. All charges will be deducted
from the shareholder's account by redemption of shares in the account. The
shareholder's bank or brokerage firm may also impose a charge for processing the
wire. In the event that wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly in a
shareholder's account with a commercial bank or other depository institution via
an Automated Clearing House (ACH) transaction. There is currently no charge for
ACH transactions. Contact the Transfer Agent for more information about ACH
transactions.
A contingent deferred sales load may apply to a redemption of certain shares
purchased at net asset value. See "How to Purchase Shares."
Shares are redeemed at their net asset value per share next determined after
receipt by the Transfer Agent of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment is
normally made within three business days after tender in such form, provided
that payment in redemption of shares purchased by check will be effected only
after the check has been collected, which may take up to fifteen days from the
purchase date. To eliminate this delay, shareholders may purchase shares of the
Fund by certified check or wire.
<PAGE>
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require shareholders to close their account if at any time the value of
the shares is less than the minimum amount required by the Trust (based on
actual amounts invested including any sales load paid, unaffected by market
fluctuations) or such other minimum amount as the Trust may determine from time
to time. After notification to the affected shareholder of the Trust's intention
to close the account, the shareholder will be given thirty days to increase the
value of the account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
===============================================================================
Shares of the Fund and of any other fund of Countrywide Investments may be
exchanged for each other.
Shares of the Fund which are not subject to a contingent deferred sales load may
be exchanged for shares of any other fund and for shares of any other fund which
offers only one class of shares (provided such shares are not subject to a
contingent deferred sales load). A sales load will be imposed equal to the
excess, if any, of the sales load rate applicable to the shares being acquired
over the sales load rate, if any, previously paid on the shares being exchanged.
Shares of the Fund subject to a contingent deferred sales load may be exchanged,
on the basis of relative net asset value per share, for shares of any other fund
which imposes a contingent deferred sales load and for shares of any fund which
is a money market fund. A fund will "tack" the period for which the shares being
exchanged were held onto the holding period of the acquired shares for purposes
of determining if a contingent deferred sales load is applicable in the event
that the acquired shares are redeemed following the exchange. The period of time
that shares are held in a money market fund will not count toward the holding
period for determining whether a contingent deferred sales load is applicable.
The following are the funds of Countrywide Investments currently offered to the
public. Funds which may be subject to a front-end or contingent deferred sales
load are indicated by an asterisk.
<TABLE>
<CAPTION>
COUNTRYWIDE TAX-FREE TRUST COUNTRYWIDE STRATEGIC TRUST COUNTRYWIDE INVESTMENT TRUST
<S> <C> <C>
Tax-Free Money Fund *Government Mortgage Fund Short Term Government Income Fund
Ohio Tax-Free Money Fund *Equity Fund Institutional Government Income Fund
California Tax-Free Money Fund *Utility Fund Money Market Fund
Florida Tax-Free Money Fund *Growth/Value Fund *Intermediate Bond Fund
*Tax-Free Intermediate Term Fund *Aggressive Growth Fund *Intermediate Term Government
*Ohio Insured Tax-Free Fund *International Equity Fund Income Fund
*Kentucky Tax-Free Fund *Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
</TABLE>
Shareholders may request an exchange by sending a written request to the
Transfer Agent. The request must be signed exactly as the shareholder's name
appears on the Trust's account records. Exchanges may also be requested by
telephone. If
<PAGE>
shareholders are unable to execute their transaction by telephone (for example
during times of unusual market activity) they should consider requesting the
exchange by mail or by visiting the Trust's offices at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202. An exchange will be effected at the next
determined net asset value (or offering price, if sales load is applicable)
after receipt of a request by the Transfer Agent.
Exchanges may only be made for shares of funds then offered for sale in the
shareholder's state of residence and are subject to the applicable minimum
initial investment requirements. The exchange privilege may be modified or
terminated by the Board of Trustees upon 60 days' prior notice to shareholders.
An exchange results in a sale of fund shares, which may cause the shareholder to
recognize a capital gain or loss. Before making an exchange, contact the
Transfer Agent to obtain a current prospectus for any of the other funds of
Countrywide Investments and more information about exchanges among Countrywide
Investments.
DIVIDENDS AND DISTRIBUTIONS
===============================================================================
The Fund expects to distribute substantially all of its net investment income,
if any, annually. The Fund expects to distribute any net realized long-term
capital gains at least once each year. Management will determine the timing and
frequency of the distributions of any net realized short-term capital gains.
Distributions are paid according to one of the following options:
Share Option -- income distributions and capital gains
distributions reinvested in additional shares.
Income Option -- income distributions and short-term
capital gains distributions paid in cash;
long-term capital gains distributions reinvested
in additional shares.
Cash Option -- income distributions and capital gains
distributions paid in cash.
Shareholders should indicate their choice of option on the application. If no
option is specified, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If a shareholder selects the Income Option or the Cash Option and the U.S.
Postal Service cannot deliver the shareholder's checks or if the checks remain
uncashed for six months, the dividends may be reinvested in the shareholder's
account at the then-current net asset value and the account will be converted to
the Share Option. No interest will accrue on amounts represented by uncashed
distribution checks.
An investor who has received in cash any dividend or capital gains distribution
from the Fund may return the distribution within thirty days of the distribution
date to the Transfer Agent for reinvestment at the net asset value next
determined after its return. The investor or his dealer must notify the Transfer
Agent that a distribution is being reinvested pursuant to this provision.
TAXES
===============================================================================
The Fund intends to qualify for the special tax treatment afforded a "regulated
investment company" under Subchapter M of the Internal Revenue Code so that it
does not pay federal taxes on income and capital gains distributed to
shareholders. The Fund intends to distribute substantially all of its net
investment income and any net realized capital gains to its shareholders.
Distributions of net investment income as well as from net realized short-term
capital gains, if any, are taxable as ordinary income. Dividends distributed by
the Fund from net investment income may be eligible, in whole or in part, for
the dividends received deduction available to corporations. Distributions
resulting from the sale of foreign currencies and foreign obligations, to the
extent of foreign exchange gains, are taxed as ordinary income or loss. If these
transactions result in reducing the Fund's net income, a portion of the income
may be classified as a return of capital (which will lower your tax basis). If
the Fund pays nonrefundable taxes to foreign governments during the year, the
taxes will reduce the Fund's net investment income but still may be included in
your taxable income. However, shareholders may be able to claim an offsetting
tax credit or itemized deduction on their return for their portion of foreign
taxes paid by the Fund.
<PAGE>
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) by the Fund to its shareholders are
taxable to the recipient shareholders as capital gains, without regard to the
length of time a shareholder has held Fund shares. The maximum capital gains
rate for individuals is 28% with respect to assets held for more than 12 months,
but not more than 18 months, and 20% with respect to assets held more than 18
months. The maximum capital gains rate for corporate shareholders is the same as
the maximum tax rate for ordinary income. Redemptions of shares of the Fund are
taxable events on which a shareholder may realize a gain or loss.
Under applicable tax law, the Fund's use of hedging techniques in foreign
currency forwards, futures and options involves greater risk of unfavorable tax
consequences than funds not engaging in such techniques. Hedging may also result
in the application of the mark-to-market and straddle provisions of the Internal
Revenue Code. These provisions could result in an increase (or decrease) in the
amount of taxable dividends paid by the Fund as well as affect whether dividends
paid by the Fund are classified as capital gains or ordinary income.
The Fund will mail to each of its shareholders a statement indicating the amount
and federal income tax status of all distributions made during the year. In
addition to federal taxes, shareholders of the Fund may be subject to state and
local taxes on distributions. Shareholders should consult their tax advisors
about the tax effect of distributions and withdrawals from the Fund and the use
of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
OPERATION OF THE FUND
===============================================================================
The Fund is a diversified series of Countrywide Strategic Trust, an open-end
management investment company organized as a Massachusetts business trust on
November 18, 1982. The Board of Trustees supervises the business activities of
the Trust. Like other mutual funds, the Trust retains various organizations to
perform specialized services for the Fund.
The Trust retains Countrywide Investments, Inc. (the "Manager"), 312 Walnut
Street, Cincinnati, Ohio 45202, to provide general investment supervisory
services to the Fund and to manage the Fund's business affairs. The Manager was
organized in 1974 and is also the investment adviser to five other series of the
Trust, seven series of Countrywide Investment Trust and seven series of
Countrywide Tax-Free Trust. The Manager is an indirect wholly-owned subsidiary
of Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending. The Fund
pays the Manager a fee equal to the annual rate of 1% of the average value of
its daily net assets.
The Manager serves as principal underwriter for the Fund and, as such, is the
exclusive agent for the distribution of shares of the Fund. Angelo R. Mozilo,
Robert H. Leshner, Robert G. Dorsey and John F. Splain are officers of both the
Manager and the Trust.
Bankers Trust Company (the "Adviser"), 130 Liberty Street, New York, New York
10006, has been retained by the Manager to manage the Fund's investments. The
Adviser conducts a variety of general banking and trust activities and is a
major wholesale supplier of financial services to the international and domestic
institutional market. The Adviser is a wholly-owned subsidiary of Bankers Trust
New York Corporation, the seventh largest bank holding company in the United
States with total assets of approximately $120 billion. The Adviser is one of
the nation's largest and most experienced investment managers, with
approximately $227 billion is assets under management globally. The Manager (not
the Fund) pays the Adviser a fee equal to the rate of .50% of the average value
of the Fund's daily net assets.
Mr. Michael Levy, Manager Director of Bankers Trust Global Investment
Management, heads the Adviser's international equity team, which is responsible
for the day to day management of the Fund. Since joining the Adviser, Mr. Levy
has been the head of this team and International Equity Strategist. Prior to
joining the Adviser in March 1993, Mr. Levy was an investment banker and an
equity analyst with Oppenheimer & Company. He has twenty-six years of business
experience, of which fifteen years have been in the investment industry.
Mr. Robert Reiner, Vice President of Bankers Trust Global Investment Management,
is the co-manager of the Fund. Since joining the Adviser, he has been
responsible for managing global portfolios and developing analytical and
investment tools for the group's global equity team. His primary focus has been
on Japanese and European markets. Prior to joining the Adviser, he was an equity
analyst and also provided macroeconomic coverage for Scudder, Stevens & Clark.
He previously served as Senior Analyst at Stanford C.
<PAGE>
Bernstein & Co. and was instrumental in the development of Bernstein's
International Value Fund. Mr. Reiner spent more than nine years at Standard &
Poor's Corporation, where he was a member of its international ratings group.
His tenure included managing the day to day operations of Standard & Poor's
Corporation's Tokyo office for three years.
The Fund is responsible for the payment of all operating expenses, including
fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained Countrywide Fund Services, Inc. (the "Transfer Agent"),
P.O. Box 5354, Cincinnati, Ohio 45201-5354, to serve as the Fund's transfer
agent, dividend paying agent and shareholder service agent. The Transfer Agent
is an indirect wholly-owned subsidiary of Countrywide Credit Industries, Inc.
The Transfer Agent also provides accounting and pricing services to the Fund.
The Transfer Agent receives a monthly fee from the Fund for calculating daily
net asset value per share and maintaining such books and records as are
necessary to enable it to perform its duties.
In addition, the Transfer Agent has been retained by the Manager to assist the
Manager in providing administrative services to the Fund. In this capacity, the
Transfer Agent supplies executive, administrative and regulatory services,
supervises the preparation of tax returns, and coordinates the preparation of
reports to shareholders and reports to and filings with the Securities and
Exchange Commission and state securities authorities. The Manager (not the Fund)
pays the Transfer Agent a fee for these administrative services.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to its objective of seeking best execution of
portfolio transactions, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Fund. Subject to the requirements of the
Investment Company Act of 1940 (the "1940 Act") and procedures adopted by the
Board of Trustees, the Fund may execute portfolio transactions through any
broker or dealer and pay brokerage commissions to a broker (i) which is an
affiliated person of the Trust, the Manager or the Adviser, or (ii) which is an
affiliated person of such person, or (iii) an affiliated person of which is an
affiliated person of the Trust, the Manager or the Adviser.
Shares of the Fund have equal voting rights and liquidation rights. The Fund
shall vote separately on matters submitted to a vote of the shareholders except
in matters where a vote of all series of the Trust in the aggregate is required
by the 1940 Act or otherwise. When matters are submitted to shareholders for a
vote, each shareholder is entitled to one vote for each full share owned and
fractional votes for fractional shares owned. The Trust does not normally hold
annual meetings of shareholders. The Trustees shall promptly call and give
notice of a meeting of shareholders for the purpose of voting upon the removal
of any Trustee when requested to do so in writing by shareholders holding 10% or
more of the Trust's outstanding shares. The Trust will comply with the
provisions of Section 16(c) of the 1940 Act in order to facilitate
communications among shareholders.
DISTRIBUTION PLAN
===============================================================================
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan of
distribution (the "Plan") under which the Fund may directly incur or reimburse
the Manager for certain distribution-related expenses, including payments to
securities dealers and others who are engaged in the sale of shares of the Fund
and who may be advising investors regarding the purchase, sale or retention of
Fund shares; expenses of maintaining personnel who engage in or support
distribution of shares or who render shareholder support services not otherwise
provided by the Transfer Agent; expenses of formulating and implementing
marketing and promotional activities, including direct mail promotions and mass
media advertising; expenses of preparing, printing and distributing sales
literature and prospectuses and statements of additional information and reports
for recipients
<PAGE>
other than existing shareholders of the Fund; expenses of obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is .25% of
the Fund's average daily net assets. Unreimbursed expenditures will not be
carried over from year to year. In the event the Plan is terminated by the Fund
in accordance with its terms, the Fund will not be required to make any payments
for expenses incurred by the Manager after the date the Plan terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Fund, no preference will be shown for
such securities.
The National Association of Securities Dealers, in its Rules of Fair Practice,
places certain limitations on asset-based sales charges of mutual funds. These
Rules require fund-level accounting in which all sales charges -- front-end
load, 12b-1 fees or contingent deferred load -- terminate when a percentage of
gross sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
===============================================================================
On each day that the Trust is open for business, the public offering price (net
asset value plus applicable sales load) of the shares of the Fund is determined
as of the close of the regular session of trading on the New York Stock
Exchange, currently 4:00 p.m., Eastern time. The Trust is open for business on
each day the New York Stock Exchange is open for business. Securities held by
the Fund may be primarily listed on foreign exchanges or traded in foreign
markets which are open on days (such as Saturdays and U.S. holidays) when the
New York Stock Exchange is not open for business. As a result, the net asset
value per share of the Fund may be significantly affected by trading on days
when the Trust is not open for business. The net asset value per share of the
Fund is calculated by dividing the sum of the value of the securities held by
the Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund, rounded
to the nearest cent.
The Fund's portfolio securities are valued as follows: (i) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the closing bid price, (ii) securities traded in
the over-the-counter market, and which are not quoted by NASDAQ, are valued at
the last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (iv) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. Foreign securities are valued on the basis of quotations from the
primary market in which they are traded and are translated from the local
currency into U.S. dollars using currency exchange rates. The net asset value
per share of the Fund will fluctuate with the value of the securities it holds.
<PAGE>
PERFORMANCE INFORMATION
===============================================================================
From time to time, the Fund may advertise its "average annual total return." The
Fund may also advertise "yield." Both yield and average annual total return
figures are based on historical earnings and are not intended to indicate future
performance.
The "average annual total return" of the Fund refers to the average annual
compounded rates of return over the most recent 1, 5 and 10 year periods or,
where the Fund has not been in operation for such period, over the life of the
Fund (which periods will be stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions and the
deduction of the current maximum sales load from the initial investment. The
Fund may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. A nonstandardized quotation of total return may
also indicate average annual compounded rates of return over periods other than
those specified for "average annual total return." These nonstandardized returns
do not include the effect of the applicable sales load which, if included, would
reduce total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's "average annual total return" as described above.
The "yield" of the Fund is computed by dividing the net investment income per
share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period.
From time to time, the Fund may advertise its performance rankings as published
by recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc. ("Lipper"), or by publications of general interest
such as Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune
or Morningstar Mutual Fund Values. The Fund may also compare its performance to
that of other selected mutual funds, averages of the other mutual funds within
its category as determined by Lipper, or recognized indicators such as the
Europe, Australia and Far East ("EAFE") Index compiled by Morgan Stanley Capital
International, the Dow Jones Industrial Average and the Standard & Poor's 500
Stock Index. In connection with a ranking, the Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
BOARD OF TRUSTEES
Donald L. Bogdon, M.D.
John R. Delfino
H. Jerome Lerner
Robert H. Leshner
Angelo R. Mozilo
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
MANAGER/UNDERWRITER
Countrywide Investments, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
INVESTMENT ADVISER
Bankers Trust Company
130 Liberty Street
New York, New York 10006
TRANSFER AGENT
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-543-0407
Cincinnati: 513-629-2050
Countrywide Always Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
===============================================================================
TABLE OF CONTENTS
Expense Information........................... 2
Investment Objective and Policies............. 3
How to Purchase Shares ....................... 9
Shareholder Services.......................... 12
How to Redeem Shares.......................... 13
Exchange Privilege............................ 14
Dividends and Distributions................... 15
Taxes......................................... 15
Operation of the Fund......................... 16
Distribution Plan............................. 17
Calculation of Share Price and
Public Offering Price.................... 18
Performance Information....................... 19
===============================================================================
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>
ACCOUNT APPLICATION
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
INTERNATIONAL EQUITY FUND
ACCOUNT NO. 95 -___________________
(For Fund Use Only)
FOR BROKER/DEALER USE ONLY
Firm Name:_________________________________
Home Office Address: ___________________________________________
Branch Address: ___________________________________________
Rep Name & No.: ___________________________________________
Rep Signature: ___________________________________________
===============================================================================
Initial Investment of $______________________________________ o Check or draft
enclosed payable to the Fund.
o Bank Wire From: ___________________________________________________________
o Exchange From: ___________________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX
L.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 my 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.
===============================================================================
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.
o By Check o By ACH to my bank checking or savings account.
PLEASE ATTACH A VOIDED CHECK.
================================================================================
REDUCED SALES CHARGES RIGHT OF ACCUMULATION: I apply for Right of Accumulation
subject to the Agent's confirmation of the following holdings of eligible load
funds of Countrywide Investments.
ACCOUNT NUMBER/NAME ACCOUNT NUMBER/NAME
- ----------------------------------------- -------------------------------
- ----------------------------------------- -------------------------------
LETTER OF INTENT: (Complete the Right of Accumulation section if related
accounts are being applied to your Letter of Intent.)
o l 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
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions
for automatic reinvestment in additional shares of the Fund for credit to the
investor's account and to surrender for redemption shares held in the investor's
account in accordance with any of the procedures elected above or for payment of
service charges incurred by the investor. The investor further agrees that
Countrywide Fund Services, Inc. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this Application.
The investor hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release Countrywide
Fund Services, Inc., Countrywide Strategic Trust, Countrywide Investments, Inc.,
and their respective officers, employees, agents and affiliates from any and all
liability in the performance of the acts instructed herein provided that such
entities have exercised due care to determine that the instructions are genuine.
- ------------------------------------ --------------------------------------
Signature of Individual Owner, 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.
<PAGE>
UNLESS OTHERWISE SPECIFIED, EACH JOINT OWNER SHALL HAVE FULL AUTHORITY TO ACT
ON BEHALF OF THE ACCOUNT. AUTOMATIC INVESTMENT PLAN (COMPLETE FOR INVESTMENTS
INTO THE FUND)
The Automatic Investment Plan is available for all established accounts of
Countrywide Strategic Trust. There is no charge for this service, and it offers
the convenience of automatic investing on a regular basis. The minimum
investment is $50.00 per month. For an account that is opened by using this
Plan, the minimum initial and subsequent investments must be $50.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be
discontinued by the shareholder at any time.
Please invest $ _________________ per month
in the International Equity Fund. ABA Routing Number_____________
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_____________________________________________________________________
(Signature of Depositor EXACTLY as it appears on FI Records)
X___________________________________________________________
(Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign
exactly as signature appears on your FI's records.)
- -- PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.
INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. ("CFS") has put into effect, by which amounts, determined by your
depositor, payable to the Fund, for purchase of shares of the Fund, are
collected by CFS, CFS hereby agrees:
CFS will indemnify and hold you harmless from any liability to any person or
persons whatsoever arising out of the payment by you of any amount drawn by the
Fund to its own order on the account of your depositor or from any liability to
any person whatsoever arising out of the dishonor by you whether with or without
cause or intentionally or inadvertently, of any such 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 Fund if the claim for the amount of such erroneous payment is made by you
within six (6) months from the date of such erroneous payment; your
participation in this arrangement and that of the Fund may be terminated by
thirty (30) days written notice from either party to the
other.
===============================================================================
AUTOMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND)
This is an authorization for you to withdraw $_________ from my mutual fund
account beginning the last business day of the month of
___________________________________.
Please Indicate Withdrawal Schedule (Check One):
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
===============================================================================
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>
COUNTRYWIDE STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1997
International Equity Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the International Equity Fund of
Countrywide Strategic Trust dated December 31, 1997. A copy of the Fund's
Prospectus can be obtained by writing the Trust at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202-4094, or by calling the Trust nationwide toll-free
800-543-0407, or in Cincinnati 629-2050.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
PAGE
THE TRUST.................................................................. 3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS.............................. 4
INVESTMENT LIMITATIONS..................................................... 29
TRUSTEES AND OFFICERS...................................................... 31
THE INVESTMENT MANAGER AND UNDERWRITER..................................... 34
INVESTMENT ADVISER......................................................... 35
DISTRIBUTION PLAN.......................................................... 36
SECURITIES TRANSACTIONS.................................................... 37
PORTFOLIO TURNOVER......................................................... 39
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE....................... 39
OTHER PURCHASE INFORMATION................................................. 40
TAXES .................................................................. 41
REDEMPTION IN KIND......................................................... 44
HISTORICAL PERFORMANCE INFORMATION......................................... 44
CUSTODIAN.................................................................. 46
AUDITORS .................................................................. 46
TRANSFER AGENT............................................................. 46
- 2 -
<PAGE>
THE TRUST
Countrywide Strategic Trust (the "Trust"), formerly Midwest Strategic
Trust, was organized as a Massachusetts business trust on November 18, 1982. The
Trust currently offers six series of shares to investors: the Government
Mortgage Fund (formerly the U.S. Government Securities Fund), the Utility Fund,
the Equity Fund, the Growth/Value Fund, the Aggressive Growth Fund and the
International Equity Fund. This Statement of Additional Information provides
information relating to the International Equity Fund (referred to the "Fund").
Information relating to the Government Mortgage Fund, the Utility Fund, the
Equity Fund, the Growth/Value Fund and the Aggressive Growth Fund is contained
in a separate Statement of Additional Information. Each Fund has its own
investment objective(s) and policies.
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities belonging to the Fund with each other share of the
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
the Fund into a greater or lesser number of shares of the Fund so long as the
proportionate beneficial interest in the assets belonging to the Fund and the
rights of shares of any other Fund are in no way affected. In case of any
liquidation of the Fund, the holders of shares of the Fund will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to the Fund. Expenses attributable to the Fund are borne by the Fund.
Any general expenses of the Trust not readily identifiable as belonging to the
Fund are allocated by or under the direction of the Trustees in such manner as
the Trustees determine to be fair and equitable. Generally, the Trustees
allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of
- 3 -
<PAGE>
the Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Moreover, it provides that
the Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. As a result, and particularly because the Trust assets are readily
marketable and ordinarily substantially exceed liabilities, management believes
that the risk of shareholder liability is slight and limited to circumstances in
which the Trust itself would be unable to meet its obligations. Management
believes that, in view of the above, the risk of personal liability is remote.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objective and Policies")
appears below:
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
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agreements having a remaining maturity of longer than seven days. Securities
which have not been registered under the 1933 Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A under the 1933 Act, which allows a broader institutional trading market for
securities otherwise subject to restriction on their resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act of resales of certain securities to qualified institutional
buyers. The Manager anticipates that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
The Adviser will monitor the liquidity of Rule 144A securities in the
Fund's holdings under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers and other potential purchasers or sellers of the security;
(3) dealer undertakings to make a market in the security; and (4) the nature of
the security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
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WHEN-ISSUED SECURITIES. The Fund will only make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities. In addition, the Fund may purchase securities on a when-issued basis
only if delivery and payment for the securities takes place within 60 days after
the date of the transaction. In connection with these investments, the Fund will
direct its Custodian to place cash or liquid portfolio securities in a
segregated account in an amount sufficient to make payment for the securities to
be purchased. When a segregated account is maintained because the Fund purchases
securities on a when-issued basis, the assets deposited in the segregated
account will be valued daily at market for the purpose of determining the
adequacy of the securities in the account. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's commitments to purchase securities on a when-issued basis. To the
extent funds are in a segregated account, they will not be available for new
investment or to meet redemptions. Securities purchased on a when-issued basis
and the securities held in the Fund's portfolio are subject to changes in market
value. Therefore, if in order to achieve higher returns, the Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will experience greater fluctuation. The purchase of securities on
a when-issued basis may involve a risk of loss if the seller fails to deliver
after the value of the securities has risen.
When the time comes for the Fund to make payment for securities
purchased on a when-issued basis, the Fund will do so by using then available
cash flow, by sale of the securities held in the segregated account, by sale of
other securities or, although it would not normally expect to do so, by
directing the sale of the securities purchased on a when-issued basis themselves
(which may have a market value greater or less than the Fund's payment
obligation). Although the Fund will only make commitments to purchase securities
on a when-issued basis with the intention of actually acquiring the securities,
the Fund may sell these securities before the settlement date if it is deemed
advisable by the Adviser as a matter of investment strategy.
SHORT-TERM INSTRUMENTS. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may invest in short-term
instruments for a limited time pending availability of such portfolio
securities. Short-term instruments consist of foreign or domestic: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalites, authorities or political subdivisions; (ii) other short-term
debt securities rated AA or higher by Standard & Poor's Rating Group ("S&P") or
Aa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of
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comparable quality in the opinion of the Adviser; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and banker's acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated AA or higher by
S&P of Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of the
Adviser. These instruments may be denominated in U.S. dollars or in foreign
currencies.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
banks having assets in excess of $10 billion and with broker-dealers who are
recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer- only account of the Fund's Custodian at the Federal
Reserve Bank. The Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the Fund's investment criteria for portfolio
securities and will be held by the Custodian or in the Federal Reserve Book
Entry System.
For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the
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seller subject to the repurchase agreement and is therefore subject to the
Fund's investment restriction applicable to loans. It is not clear whether a
court would consider the securities purchased by the Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the securities before
repurchase of the security under a repurchase agreement, the Fund may encounter
delay and incur costs before being able to sell the security. Delays may involve
loss of interest or decline in price of the security. If a court characterized
the transaction as a loan and the Fund has not perfected a security interest in
the security, the Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in the transaction. As with any unsecured debt obligation
purchased for the Fund, the Adviser seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case, the seller. Apart from the risk of bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the security, in
which case the Fund may incur a loss if the proceeds to it of the sale of the
security to a third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Fund receives amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower, and that
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the fees are not used to compensate the Adviser or any affiliated person of the
Trust or an affiliated person of the Adviser or other affiliated person. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and permit the Fund to reacquire loaned securities on five days' notice or
in time to vote on any important matter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The successful use
of such instruments draws upon the Adviser's skill and experience with respect
to such instruments and usually depends on the Adviser's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
FUTURES CONTRACTS. The Fund may enter into contracts for the purchase
or sale for future delivery of foreign currencies or contracts based on stock
indices listed on domestic and foreign stock exchanges. U.S. futures contracts
have been designed by exchanges which have been designated "contracts markets"
by the Commodity Futures Trading Commission ("CFTC"), and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
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<PAGE>
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract is to
attempt to protect the Fund from fluctuations in securities prices or foreign
exchange rates without actually buying or selling the securities or foreign
currencies. Since the futures market is more liquid than the cash market, the
use of futures contracts as an investment technique allows the Fund to maintain
a defensive position without having to sell its portfolio securities.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast by the Adviser may still not result in a successful
transaction.
In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Fund, if the Adviser's
investment judgment about the general direction of securities prices or foreign
exchange rates is incorrect, the Fund's overall performance would be poorer than
if it had not entered into any such contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write options
on futures contracts for hedging purposes. The purchase of a call option on a
futures contact is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying securities, it may or may not be less risky than ownership of the
futures contract or underlying securities. As with the purchase of futures
contracts, when the Fund is not fully invested it may purchase a call option on
a futures contract to hedge against a market advance.
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<PAGE>
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of a market decline.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees has adopted a further restriction that the Fund
will not enter into any futures contracts or options on futures contracts if
immediately thereafter the amount of margin deposits on all the futures
contracts of the Fund and premiums paid on outstanding options on futures
contracts owned by the Fund (other than those entered into for bona fide hedging
purposes) would exceed 5% of the market value of the total assets of the Fund.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options
on foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency
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does decline, the Fund will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the adverse
effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options should offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option
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is also covered if the Fund has a call on the same foreign currency and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or (b)
is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or liquid portfolio securities in a segregated
account with its Custodian.
The Fund also intends to write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign currency
is for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, the Fund collateralizes the option by maintaining in a segregated
account with its Custodian, cash or liquid portfolio securities in an amount not
less than the value of the underlying foreign currency in U.S.
dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by the Fund in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in
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options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. The
Fund's ability to terminate over-the-counter options will be more limited than
the exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Fund will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin
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requirements than in the United States; and (v) lesser trading
volume.
OPTIONS ON SECURITIES. The Fund may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund.
When the Fund writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Fund will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price. By
writing a covered call option, the Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above the
exercise price.
When the Fund writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Fund will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision over
which the Fund has no control, the Fund must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option,
the Fund, in exchange for the net premium received, accepts the risk of a
decline in the market value of the underlying security below the exercise price.
The Fund will only write put options involving securities for which a
determination is made at the time the option is written that the Fund wishes to
acquire the securities at the exercise price.
The Fund may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." The Fund will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchase of an option, the Fund may make a "closing sale
transaction" which involves liquidating the Fund's position by selling the
option previously purchased. Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
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When the Fund writes an option, an amount equal to the net premium
received by the Fund is included in the liability section of the Fund's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction, the Fund will
realize a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold), and the deferred credit related
to such option will be eliminated. If a call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security and the proceeds
of the sale will be increased by the premium originally received. The writing of
covered call options may be deemed to involve the pledge of the securities
against which the option is being written. Securities against which call options
are written will be segregated or "earmarked" on the books of the Custodian for
the Fund.
The Fund may purchase call and put options on any securities in which
it may invest. The Fund would normally purchase a call option in anticipation of
an increase in the market value of such securities. The purchase of a call
option would entitle the Fund, in exchange for the premium paid, to purchase a
security at a specified price during the option period. The Fund would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Fund, in exchange for the premium paid, to sell a
security, which may or may not be held in the Fund's holdings, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Fund's
holdings. Put options also may be purchased by the Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which the
Fund does not own. The Fund would ordinarily recognize a gain if the value of
the securities decreased below the exercise price sufficiently to cover the
premium and would recognize a loss if the value of the securities remained at or
above the exercise price. Gains and losses on the purchase of protective put
options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Fund has adopted certain other nonfundamental policies concerning
option transactions which are discussed below.
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The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Fund will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of ) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with whom the Fund enters into such options
transactions under the general supervision of the Board of Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities,
the Fund may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and value of the index. Such options will be used for the purposes
described above under "Options on Securities."
The Fund may, to the extent allowed by Federal securities laws, invest
in securities indices instead of investing directly in individual foreign
securities.
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Fund generally will only purchase or write such an option if the Adviser
believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
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trading in such options is no greater than the risk of trading in
options on securities.
Price movement in the Fund's holdings may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because the Fund may buy
and sell securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Fund from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Fund maintains with its Custodian a
segregated account of liquid assets in an amount at least equal to it
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Adviser's long-term investment
decisions, the Fund will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Adviser
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Fund's best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time
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<PAGE>
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event
the Fund's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The use of foreign currency forward contracts may not eliminate fluctuation in
the underlying U.S. dollar equivalent value of the prices of or rates of return
on the Fund's foreign currency denominated portfolio securities and the use of
such techniques will subject the Fund to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Fund may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's ability to use
such contract to hedge or cross-hedge its assets. Also, with regard to the
Fund's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the Fund's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which the Fund's assets that are the subject of such cross-hedges are
denominated.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE.
The Fund may invest in foreign securities issued by Eastern European countries.
Investments in companies domiciled in Eastern European countries may be subject
to potentially greater risks than those of other foreign issuers. These risks
include: (i) potentially less social, political and economic stability; (ii) the
small current size of the markets for such securities and the low volume of
trading, which result in less liquidity and in greater price volatility; (iii)
certain national policies which may restrict the Fund's investment
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opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; (v) the absence
of developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries, or in the
Commonwealth of Independent States (consisting of the Republics of the former
Union of Soviet Socialist Republics).
The economic situation remains difficult for Eastern European countries
in transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free- market economies. But key aspects of the
reform and stabilization efforts have not yet been fully implemented, and there
remain risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.
In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the early
stages of the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal situation. A
reversal of these adverse factors is not anticipated in the near term, and
output is expected to decline further in most of these countries. In the Russian
Federation and most other countries of the former Soviet Union, economic
conditions are of particular concern because of economic instability due to
political unrest and armed conflicts in many regions. Further, no accounting
standards exist in Eastern European countries. Although certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the Fund's
shareholders.
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FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING LATIN AMERICA.
Investing in securities of Latin America issuers may entail risks relating to
the potential political and economic instability of certain Latin American
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
by any country, the Fund could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The economies of Latin American countries may be predominantly based in
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Securities of issuers located in Latin America may have limited
marketability and may be subject to more abrupt or erratic price movements.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the fee conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's securities are denominated may have a detrimental
impact on the Fund's net asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-
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sufficiency and balance of payments position. Certain Latin American countries
have experienced high levels of inflation which can have a debilitating effect
on an economy. Furthermore, certain Latin American countries may impose
withholding taxes on dividends payable to the Fund at a higher rate than those
imposed by other foreign countries. This may reduce the Fund's investment income
available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of the principal and/or interest on outstanding debt. Investment
in sovereign debt can involve a high degree of risk. The governmental entity
that controls the repayment of sovereign debt may not be able or willing to
repay the principal and/or interest when due in accordance with the terms of
such debt. A governmental entity's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the governmental entity's
policy towards the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the
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<PAGE>
denial of access to new foreign capital. Although a number of Latin American
countries are currently experiencing lower rates of inflation and higher rates
of real growth in gross domestic product ("GDP") than they have in the past,
other Latin American countries continue to experience significant problems,
including high inflation rates and high interest rates. Capital flight has
proven a persistent problem and external debt has been forcibly rescheduled.
Political turmoil, high inflation, capital repatriation restrictions and
nationalization have further exacerbated conditions.
Large budget deficits and a high level of state ownership in many
productive and service areas have given way to balanced budgets and
privatization in Mexico, Brazil, Chile and Argentina. Changes in political
leadership have encouraged the implementation of market oriented economic
policies such as balanced budgets. Privatization, trade reform and monetary
reform have been among the steps taken to modernize the Latin American economies
and to regenerate growth in the region. However, governments of many Latin
American countries have exercised and continue to exercise substantial influence
over many aspects of the private sector through the ownership or control of many
companies, including some of the largest in those countries. As a result,
government actions in the future could have a significant effect on economic
conditions which may adversely affect prices of certain portfolio securities.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments, such as military coups, have
occurred in the past and could also adversely affect the Fund's investments in
this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left the
home country) has begun to return. Inflation control efforts have also been
implemented. Free trade zones are being discussed in various areas around the
region, the most notable being a free trade zone between Mexico and the U.S.
Various trade agreements have also been formed within the region such as the
Andean Pact, Mercosur and North American Free Trade Agreement (NAFTA). The
largest of these is NAFTA, which was implemented on January 1, 1994. Latin
American equity markets can be extremely volatile and in the past have shown
little correlation with the U.S. market. Currencies are typically weak, but most
are now relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to changes in
the market.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING THE PACIFIC
BASIN. Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the
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case in the United States and European countries. Such instability may result
from (i) authoritarian governments or military involvement in political and
economic decision-making; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection.
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
Thailand has been transformed into one of the fastest growing stock
markets in the world. On February 23, 1991, the military staged its 17th coup
since the overthrow of the absolute monarchy in 1932. The newly appointed
government quickly focused on the economy and enacted major tax revisions,
slashing personal income tax and reducing taxes on imports. Most significantly,
it pushed through a 7% value added tax. Released from political consideration by
the coup, the Bank of Thailand was finally able to implement a monetary
tightening. As a result, interest rates rose and GDP declined to 7.7% from 10%
the previous year. The government continues to move ahead with new projects -
especially telecommunications, roads and port facilities - needed to refurbish
the country's overtaxed infrastructure. Nonetheless, political unrest coupled
with the shooting of anti-government demonstrators in May 1992 has caused many
international businesses to question Thailand's political stability.
Hong Kong's return to Chinese dominion in 1997 has not initially had a
positive effect on its economic growth which was vigorous in the 1980's.
However, authorities in Beijing have agreed to maintain a capitalist system for
50 years that, along with Hong Kong's economic growth, continued to further
strong stock market returns. Hong Kong has to develop trade with China, where it
was the largest foreign investor, while also maintaining its long-standing
export relationship with the United States. Spending on infrastructure
improvements is a significant priority of the colonial government while the
private sector continues to diversify abroad based on its position as an
established international trade center in the Far East.
In terms of GDP, industrial standards and level of education, South
Korea is second only to Japan in Asia. It enjoys the benefits of a diversified
economy with well developed sectors in electronics, automotive, textiles and
shoe manufacturing, steel and shipbuilding among others. The driving force
behind the economy's dynamic growth has been the planned
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development of an export-oriented economy in a vigorously entrepreneurial
society. Real GDP grew about 7.5% in 1991. Labor unrest was noticeably calmer,
unemployment averaged a low of 2.3%, and investment was strong. Inflation rates,
however, are beginning to challenge South Korea's strong economic performance.
In addition, the international situation between South and North Korea continues
to improve. Both Koreas joined the United Nations separately in late 1991,
creating another forum for negotiation and joint cooperation.
Indonesia is a mixed economy with many socialist institutions and
central planning, but has recently placed emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet with a
large and rapidly increasing population, it remains a poor country. Agriculture,
including forestry and fishing, is an important sector, accounting for 21% of
GDP and over 50% of the labor force. Once the world's largest rice importer,
Indonesia is now nearly self-sufficient.
The Malaysian economy continued to perform well, growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of the
fastest growing economies in the Asian- Pacific region. Malaysia has become the
world's third-largest producer of semiconductor devices (after the U.S. and
Japan) and the world's largest exporter of semiconductor devices. More
remarkable is the country's ability to achieve rapid economic growth with
relative price stability (2% inflation over the past five years) as the
government followed prudent fiscal/monetary policies. Malaysia's high export
dependence level leaves it vulnerable to a recession in the OECD countries or a
fall in world commodity prices.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
entrepot history. During the 1970's and early 1980's, the economy expanded
rapidly, achieving an average annual growth rate of 9%. Per capita GDP is among
the highest in Asia. Singapore holds a position as a major oil refining and
services center.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING CHINA AND CHINA
REGION. China's economic reform plan was designed to bring in foreign investment
capital and technological skills. The result has been a move towards a more
mixed economy away from the previous centrally planned economy. The process of
devolving responsibility for all aspects of enterprise to local management and
authorities continues, even though the system of socialism with Chinese
characteristics involves considerable influence by the central government on
production and marketing.
In order to attract foreign investment, China has since 1978 designated
certain areas of the country where overseas investors can receive special
investment incentives and tax concessions. There are five Special Economic Zones
(Shenzhen, Shantou and
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Zhuhai in Guangdong Province, Xiamen in Fujian Province and Hainan Island, which
itself is a province). Fourteen coastal cities have been designated as "open
cities" and certain Open Economic Zones have been established in coastal areas.
Shanghai has established the Pudong New Area. Twenty-seven High and New
Technology Industrial Development Zones have been approved where preferential
treatment is given to enterprises which are confirmed as technology intensive.
China has had for many centuries a well deserved reputation for being
closed to foreigners, with trade with the outside world being carried on under
terms of extreme restriction and under central control. Such conditions were
maintained in the first thirty years of the Communist regime which began in
1949; however, there have been several stages of evolution, from the institution
of an industrialization program in the 1950s to modernization policy commencing
in 1978 which combined economic development with the beginnings of opening the
country.
The securities markets in the China region are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. A high proportion of the shares of many Chinese issuers may be held by a
limited number of persons and financial institutions, which may limit the number
of shares available for investment by the Portfolio. Similarly, volume and
liquidity in the bond markets in China are less than in the United States and,
at times, price volatility can be greater than in the United States. A limited
number of issuers in Chinese securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in China may also affect the Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so. Accordingly, during periods of rising securities prices in the more
illiquid Chinese securities markets, the Fund's ability to participate fully in
such price increases may be limited by its investment policy of investing not
more than 15% of its net assets in illiquid securities. Conversely, the Fund's
inability to dispose fully and promptly of positions in declining markets will
cause the Fund's net asset value to decline as the value of the unsold positions
is marked to lower prices. In addition, the Chinese securities markets are
susceptible to being influenced by large investors trading significant blocks of
securities.
The Chinese, Hong Kong and Taiwan stock markets are undergoing a period
of growth and change which may result in trading volatility and difficulties in
the settlement and recording of transactions, and in interpreting and applying
the relevant law and regulations.
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<PAGE>
China governmental actions can have a significant effect on the
economic conditions in China, which could adversely affect the value and
liquidity of the Fund's investments. Although the Chinese government has
recently begun to institute economic reform policies, there can be no assurances
that it will continue to pursue such policies or, if it does, that such policies
will succeed.
The securities industry in China is not well developed. China has no
securities laws of nationwide applicability. The municipal securities
regulations adopted by Shanghai and Shenzhen municipalities are very new, as are
their respective securities exchanges and other self-regulatory organizations.
In addition, Chinese stockbrokers and other intermediaries may not perform as
well as their counterparts in the United States and other more developed
securities markets. The prices at which the Fund may acquire investments may be
affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the Fund
in particular securities.
China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The corporate
form of organization has only recently been permitted in China and national
regulations governing corporations were introduced only in May 1992. Prior to
the introduction of such regulations, Shanghai had adopted a set of corporate
regulations applicable to corporations located or listed in Shanghai, and the
relationship between the two sets of regulations is not clear. Consequently,
until a firmer legal basis is provided, even such fundamental corporate law
tenets as the limited liability status of Chinese issuers and their authority to
issue shares remain open to question. Laws regarding fiduciary duties of
officers and directors and the protection of shareholders are not well
developed. China's judiciary is relatively inexperienced in enforcing the laws
that exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in China, it may be
impossible to obtain swift and equitable enforcement of such law, or to obtain
enforcement of the judgment by a court of another jurisdiction. The bankruptcy
laws pertaining to state enterprises have rarely been used and are untried in
regard to an enterprise with foreign shareholders, and there can be no assurance
that such shareholders, including the Fund, would be able to realize the value
of the assets of the enterprise or receive payment in convertible currency. As
the Chinese legal system develops, the promulgation of new laws, changes to
existing laws and the preemption of local laws by national laws may adversely
affect foreign investors, including the Fund. The uncertainties faced by foreign
investors in China are exacerbated by the fact that many laws, regulations and
decrees of China are not publicly available, but merely circulated internally.
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Exports continue to rise strongly, although China remains vulnerable to
United States economic conditions and possible trade sanctions, unless it
liberalizes current import restrictions and improves its human rights record.
However, imports are also expected to rise and may outstrip exports in terms of
growth rates.
There are currently two officially recognized securities exchanges in
China -- The Shanghai Securities Exchange which opened in December 1990 and The
Shenzhen Stock Exchange which opened in July 1991. Shares traded on these
Exchanges are two types --"A" shares which can be traded only by Chinese
investors and "B" shares which can be traded only by individuals and
corporations not resident in China.
In Shanghai, all "B" shares are denominated in Chinese renminbi
("RMB"), but all transactions in "B" shares must be settled in U.S. dollars, and
all distributions made on "B" shares are payable in U.S. dollars, the exchange
rate being the weighted average exchange rate for the U.S. dollar as published
by the Shanghai Foreign Exchange Adjustment Centre.
In Shenzhen, the purchase and sale prices for "B" shares are quoted in
Hong Kong dollars. Dividends and other lawful revenue derived from "B" shares
are calculated in RMB but payable in Hong Kong dollars, the rate of exchange
being the average rate published by Shenzhen Foreign Exchange Adjustment Centre.
There are no foreign exchange restrictions on the repatriation of gains
made on or income derived from "B" shares, subject to the payment of taxes
imposed by China thereon.
Company law relating to companies limited by shares and regulations
regarding the issuing of shares by equity joint ventures have not yet been
developed on a national basis. The Shenzhen municipality issued regulations in
1992 relating to joint stock companies, and the Shanghai municipality has a
draft joint stock company law under review. Regulations governing the trading of
securities on both the Shenzhen and the Shanghai stock exchanges have been
issued by each municipality; there is no national securities legislation as yet.
Economies of countries in the China region may differ favorably or
unfavorably from the U.S. economy in such respects as rate of growth of gross
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As an export-driven economy,
the economy of China is affected by developments in the economies of its
principal trading partners. Revocation by the United States of China's "Most
Favored Nation" trading status, which the U.S. President and Congress reconsider
annually, would adversely affect the trade and economic development of China and
Hong Kong. Hong Kong and Taiwan have limited natural resources, resulting in
dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.
- 28 -
<PAGE>
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
the Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the Fund) present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust (or the Fund) are present or represented at such
meeting or (2) more than 50% of the outstanding shares of the Trust (or the
Fund).
INVESTMENT LIMITATIONS
The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Fund. These limitations may
not be changed with respect to the Fund without the affirmative vote of a
majority of its outstanding shares.
THE LIMITATIONS APPLICABLE TO THE FUND ARE:
1. BORROWING MONEY. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of a Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause outstanding borrowings to exceed one-third
of the value of its total assets.
2. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. OPTIONS. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in the
Prospectus and this Statement of Additional Information.
4. UNDERWRITING. The Fund will not act as underwriters of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of its portfolio securities, the Fund may be
deemed an underwriter under certain federal securities laws.
5. CONCENTRATION. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
- 29 -
<PAGE>
6. COMMODITIES. The Fund will not purchase, hold or deal in commodities
and will not invest in oil, gas or other mineral explorative or development
programs.
7. REAL ESTATE. The Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, except it may purchase (a) securities of
companies which deal in real estate, or (b) securities which are secured by
interests in real estate or by interests in mortgage loans including securities
secured by mortgage-backed securities.
8. LOANS. The Fund will not make loans to other persons if, as a
result, more than one-third of the value of its total assets would be subject to
such loans. This limitation does not apply to (a) the purchase of marketable
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness which are part of an issue for the public or (b) entry
into repurchase agreements.
9. INVESTING FOR CONTROL. The Fund will not invest in
companies for the purpose of exercising control.
10. SENIOR SECURITIES. The Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemptions of securities, or
to arrangements with respect to transactions involving options, futures
contracts and other similar permitted investments and techniques.
THE FOLLOWING INVESTMENT LIMITATIONS FOR THE FUND ARE NONFUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL:
1. ILLIQUID INVESTMENTS. The Fund will not purchase securities for
which there are legal or contractual restrictions on resale or for which no
readily available market exists if, as a result thereof, more than 15% of the
value of the Fund's net assets would be invested in such securities. This
restriction does not include (a) Rule 144A securities that have been determined
to be liquid by the Board of Trustees; and (b) commercial paper that is sold
under section 4(2) of the 1933 Act which: (i) is not traded flat or in default
as to interest or principal; and (ii) is rated in one of the two highest
categories by at least two nationally recognized statistical rating
organizations and the Board of Trustees has determined the commercial paper to
be liquid; or (iii) is rated in one of the two highest categories by one
nationally recognized statistical rating organization and the Board of Trustees
has determined that the commercial paper is of equivalent quality and is liquid.
2. MARGIN PURCHASES. The Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities or to the extent necessary to engage in transactions
described in the Prospectus and Statement of Additional Information which
involve margin purchases.
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<PAGE>
3. SHORT SALES. The Fund will not make short sales of securities.
4. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 5% of
its total assets in the securities of any investment company and will not invest
more than 10% of the value of its total assets in securities of other investment
companies.
With respect to the percentages adopted by the Trust as maximum limitations
on the Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money) will not be a violation of the policy or restriction unless the excess
results immediately and directly from the acquisition of any security or the
action taken.
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the
Trust and their compensation from the Trust and their aggregate compensation
from the Countrywide Investments complex of mutual funds (consisting of the
Trust, Countrywide Tax-Free Trust and Countrywide Investment Trust) for the
fiscal year ended March 31, 1997. Each Trustee who is an "interested person" of
the Trust, as defined by the Investment Company Act of 1940, is indicated by an
asterisk. Each of the Trustees is also a Trustee of Countrywide Tax-Free Trust
and Countrywide Investment Trust.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
COMPENSATION FROM
POSITION FROM COUNTRYWIDE
NAME AGE HELD TRUST COMPLEX
- ---- --- ---- ------------ ---------
<S> <C> <C> <C>
Donald L. Bodgon, MD 67 Trustee $ 0 $ 0
John R. Delfino 64 Trustee 0 0
+H. Jerome Lerner 59 Trustee 2,983 9,030
*Robert H. Leshner 58 President/Trustee 0 0
*Angelo R. Mozilo 59 Chairman/Trustee 0 0
+Oscar P. Robertson 59 Trustee 2,583 7,750
John F. Seymour, Jr. 60 Trustee 0 0
+Sebastiano Sterpa 68 Trustee 0 0
Robert G. Dorsey 40 Vice President 0 0
John F. Splain 41 Secretary 0 0
Mark J. Seger 35 Treasurer 0 0
* Mr. Leshner and Mr. Mozilo, as officers and directors of
Countrywide Investments, Inc., are each an "interested
person" of the Trust within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940.
+ Member of Audit Committee.
</TABLE>
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<PAGE>
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
DONALD L. BOGDON, M.D., 1505 Wilson Terrace, Glendale, California is a
physician with Hematology Oncology Consultants and a Director of Verdugo VNA (a
hospice facility). Until 1996 he was President of Western Hematology/Oncology
and until 1993 he was Chairman of the Board of Glendale Memorial Hospital.
JOHN R. DELFINO, 2029 Century Park East, Los Angeles,
California is President of Concorde Capital Corporation (an
investment firm). Until 1993 he was a director of Cypress
Financial and Chairman of Rancho Santa Margarita, mortgage
banking firms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc., a manufacturer of
electronic connectors.
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is President and
a director of Countrywide Investments, Inc. (the investment adviser and
principal underwriter of the Trust) and Countrywide Financial Services, Inc. (a
financial services company and parent of Countrywide Investments, Inc. and
Countrywide Fund Services, Inc.). He is Vice Chairman and a director of
Countrywide Fund Services, Inc. (a registered transfer agent) and President and
a Trustee of Countrywide Tax- Free Trust and Countrywide Investment Trust,
registered investment companies.
ANGELO R. MOZILO, 4500 Park Granada Boulevard, Calabasas, California is
Vice Chairman and Executive Vice President of Countrywide Credit Industries,
Inc. (a holding company). He is a director of Countrywide Home Loans, Inc. (a
residential mortgage lender), CTC Foreclosure Services Corporation (a
foreclosure trustee) and LandSafe, Inc. (the parent company of fifteen LandSafe
entities which provide property appraisals, credit reporting services, title
insurance and/or closing services for residential mortgages), each a subsidiary
of Countrywide Credit Industries, Inc. He is Chairman and a director of
Countrywide Financial Services, Inc., Countrywide Investments, Inc., Countrywide
Fund Services, Inc., Countrywide Servicing Exchange (a loan servicing broker),
Countrywide Capital Markets, Inc., (parent company of Countrywide Securities
Corporation and Countrywide Servicing Exchange) and various LandSafe
subsidiaries and is Chairman and Chief Executive Officer of Countrywide
Securities Corporation (a registered broker-dealer), each a subsidiary of
Countrywide Credit Industries, Inc. He is also Vice Chairman of CWM Mortgage
Holdings, Inc. (a publicly-held real estate investment trust).
- 32 -
<PAGE>
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is President
of Orchem Corp., a chemical specialties distributor, and Orpack Stone
Corporation, a corrugated box manufacturer.
JOHN F. SEYMOUR, JR., 46-393 Blackhawk Drive, Indian Wells, California
is Chief Executive Officer of the Southern California Housing Development Agency
and a consultant for Orange Coast Title Co. (a title insurance company). He is
also a director of Irvine Apartment Communities (a real estate investment trust)
and Inco Homes (a home builder). Until 1994 he was a director of the California
Housing Finance Agency.
SEBASTIANO STERPA, 200 West Glenoaks Boulevard, Glendale, California is
Chairman of Sterpa Realty, Inc. and Chairman and a director of the California
Housing Finance Agency. He is also a director of Real Estate Business Services
and a director of the SunAmerica Mutual Funds.
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio is President and
Treasurer of Countrywide Fund Services, Inc., Vice President - Finance and
Treasurer of Countrywide Financial Services, Inc. and Treasurer of Countrywide
Investments, Inc. He is also Vice President of Countrywide Investment Trust,
Countrywide Strategic Trust, Brundage, Story and Rose Investment Trust, Markman
MultiFund Trust, PRAGMA Investment Trust, Maplewood Investment Trust, a series
company, The Thermo Opportunity Fund, Inc., The Dean Family of Funds and The New
York State Opportunity Funds and Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust, The Tuscarora Investment Trust, The
Gannett Welsh & Kotler Funds and Interactive Investments, all of which are
registered investment companies.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio is Vice President,
Secretary and General Counsel of Countrywide Fund Services, Inc. and Secretary
and General Counsel of Countrywide Investments, Inc. and Countrywide Financial
Services, Inc. He is also Secretary of Countrywide Tax-Free Trust, Countrywide
Investment Trust, Brundage, Story and Rose Investment Trust, Williamsburg
Investment Trust, Markman MultiFund Trust, The Tuscarora Investment Trust,
PRAGMA Investment Trust, Maplewood Investment Trust, a series company, and The
Thermo Opportunity Fund, Inc. and Assistant Secretary of Schwartz Investment
Trust, The Gannett Welsh & Kotler Funds, Interactive Investments, the New York
State Opportunity Funds and the Dean Family of Funds.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio is Chief
Operating Officer of Countrywide Fund Services, Inc. He is also Treasurer of
Countrywide Tax-Free Trust, Countrywide Investment Trust, Brundage, Story and
Rose Investment Trust, Williamsburg Investment Trust, Markman MultiFund Trust,
PRAGMA Investment Trust, Maplewood Investment Trust, a series company, The
Thermo Opportunity Fund, Inc., the New York State Opportunity
- 33 -
<PAGE>
Funds and the Dean Family of Funds and Assistant Treasurer of Schwartz
Investment Trust, The Tuscarora Investment Trust, The Gannett Welsh & Kotler
Funds and Interactive Investments.
Each Trustee, except for Messrs. Leshner and Mozilo, receives a
quarterly retainer of $1,500 and a fee of $1,500 for each Board meeting
attended. Such fees are split equally among the Trust, Countrywide Tax-Free
Trust and Countrywide Investment
Trust.
THE INVESTMENT MANAGER AND UNDERWRITER
Countrywide Investments, Inc. (the "Manager") performs management,
statistical, portfolio adviser selection and other services for the Fund. The
Manager is responsible for placing orders for the purchase and sale of
securities of the Fund. The Manager is a subsidiary of Countrywide Financial
Services, Inc., which is a wholly-owned subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending. Messrs. Mozilo and Leshner are
deemed to be affiliates of the Manager by reason of their position as Chairman
and President, respectively, of the Manager. Messrs. Mozilo and Leshner, by
reason of such affiliation, may directly or indirectly receive benefits from the
management fees paid to the Manager.
Under the terms of the management agreement between the Trust and the
Manager, the Fund pays the Manager a fee computed and accrued daily and paid
monthly at an annual rate of 1% of its average daily net assets. The total fees
paid by the Fund during the first and second halves of each fiscal year of the
Trust may not exceed the semiannual total of the daily fee accruals requested by
the Manager during the applicable six month period.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the performance of their
duties. The Manager bears promotional expenses in connection with the
distribution of the Fund's shares to the extent that such expenses are not
assumed by the Fund under its plan of distribution (see below). The compensation
and expenses of any officer, Trustee or employee of the Trust who is an officer,
director, employee or stockholder of the Manager are paid by the Manager.
- 34 -
<PAGE>
By its terms, the Fund's management agreement will remain in force
until February 28, 1999 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval. The Fund's management agreement may be terminated at any
time, on sixty days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of the Fund's outstanding voting
securities, or by the Manager. The management agreement automatically terminates
in the event of its assignment, as defined by the Investment Company Act of 1940
and the rules thereunder.
The Manager is also the principal underwriter of the Fund and, as such,
the exclusive agent for distribution of shares of the Fund. The Manager is
obligated to sell the shares on a best efforts basis only against purchase
orders for the shares. Shares of the Fund are offered to the public on a
continuous basis.
The Manager currently allows concessions to dealers who sell shares of
the Fund. The Manager receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Fund. The Manager retains the
entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
The Fund may compensate dealers, including the Manager and its
affiliates, based on the average balance of all accounts in the Fund for which
the dealer is designated as the party responsible for the account. See
"Distribution Plan" below.
INVESTMENT ADVISER
Bankers Trust Company, (the "Adviser") has been retained by the Manager to
serve as the discretionary portfolio adviser of the Fund. The Adviser selects
the portfolio securities for investment by the Fund, purchases and sells
securities of the Fund and places orders for the execution of such portfolio
transactions, subject to the general supervision of the Board of Trustees and
the Manager. The Adviser receives a fee equal to the annual rate of .50% of the
Fund's average daily net assets. The services provided by the Adviser are paid
for wholly by the Manager. The compensation of any officer, director or employee
of the Adviser who is rendering services to the Fund is paid by the Adviser.
The employment of the Adviser will remain in force until February 28, 1999
and from year to year thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of the majority of the Fund's outstanding voting
securities; provided
- 35 -
<PAGE>
that in either event continuance is also approved by a majority of the Trustees
who are not interested persons of the Trust, by a vote cast in person at a
meeting called for the purpose of voting such approval. The employment of the
Adviser may be terminated at any time, on sixty days' written notice, without
the payment of any penalty, by the Board of Trustees, by a vote of a majority of
the Fund's outstanding voting securities, by the Manager, or by the Adviser. The
agreement with the Adviser automatically terminates in the event of its
assignment, as defined by the Investment Company Act of 1940 and the rules
thereunder.
DISTRIBUTION PLAN
As stated in the Prospectus, the Fund has adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940 which permits the Fund to pay for expenses incurred in the
distribution and promotion of the Fund's shares, including but not limited to,
the printing of prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing and sales expenses, and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Manager. The Plan expressly limits payment of the
distribution expenses listed above in any fiscal year to a maximum of .25% of
the Fund's average daily net assets. Unreimbursed expenses will not be carried
over from year to year.
Agreements implementing the Plan (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Fund's shares, are in writing and have been approved
by the Board of Trustees. All payments made pursuant to the Plan are made in
accordance with written agreements.
The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated at any
time by a vote of a majority of the Independent Trustees or by a vote of the
holders of a majority of the outstanding shares of the Fund. In the event the
Plan is terminated in accordance with its terms, the Fund will not be required
to make any payments for expenses incurred by the Manager after the termination
date. Each Implementation Agreement terminates automatically in the event of its
assignment and may be terminated at any time by a vote of a majority of the
Independent Trustees or by a vote of the holders of a majority of the
outstanding shares of the Fund on not more than 60 days'
- 36 -
<PAGE>
written notice to any other party to the Implementation Agreement. The Plan may
not be amended to increase materially the amount to be spent for distribution
without shareholder approval. All material amendments to the Plan must be
approved by a vote of the Trust's Board of Trustees and by a vote of the
Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Fund pursuant to
the Plan and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. The selection and nomination
of those Trustees who are not interested persons of the Trust are committed to
the discretion of the Independent Trustees during such period.
Angelo R. Mozilo and Robert H. Leshner, as interested persons of the
Trust, may be deemed to have a financial interest in the operation of the Plan
and the Implementation Agreements.
SECURITIES TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by the
Adviser. The placing of the Fund's securities transactions and negotiation of
commission rates where applicable are made by the Adviser and are subject to
review by the Board of Trustees of the Trust. In the purchase and sale of
portfolio securities, the Adviser seeks best execution for the Fund, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), the execution capability, financial responsibility and
responsiveness of the broker or dealer and the brokerage and research services
provided by the broker or dealer. The Adviser generally seeks favorable prices
and commission rates that are reasonable in relation to the benefits received.
Generally, the Fund attempts to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such
- 37 -
<PAGE>
dealers usually act as principals for their own account. On occasion, portfolio
securities for the Fund may be purchased directly from the issuer.
The Adviser is specifically authorized to select brokers who also
provide brokerage and research services to the Fund and/or other accounts over
which the Adviser exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Adviser determines in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided. The determination
may be viewed in terms of a particular transaction or the Adviser's overall
responsibilities with respect to the Fund and to accounts over which it
exercises investment discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effect securities transactions may be
used by the Adviser in servicing all of its accounts and not all such services
may be used by the Adviser in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Manager, the Adviser and
other affiliates of the Trust, the Adviser or the Manager may effect securities
transactions which are executed on a national securities exchange or
transactions in the over-the-counter market conducted on an agency basis. The
Fund will not effect any brokerage transactions in its portfolio securities with
the Adviser if such transactions would be unfair or unreasonable to its
shareholders. Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers. Although the Fund does not
anticipate any ongoing arrangements with other brokerage firms, brokerage
business may be transacted from time to time with other firms. Neither the
Adviser nor affiliates of the Trust, the Manager or the Adviser will receive
reciprocal brokerage business as a result of the brokerage business transacted
by the Fund with other brokers.
CODE OF ETHICS. The Trust and the Manager have each adopted a Code of Ethics
under Rule 17j-1 under the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Manager and, as described
- 38 -
<PAGE>
below, imposes additional, more onerous, restrictions on investment personnel of
the Manager. The Code requires that all employees of the Manager preclear any
personal securities investment (with limited exceptions, such as U.S. Government
obligations). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to the
proposed investment. In addition, no employee may purchase or sell any security
which at the time is being purchased or sold (as the case may be), or to the
knowledge of the employee is being considered for purchase or sale, by the Fund.
The substantive restrictions applicable to investment personnel of the Manager
include a ban on acquiring any securities in an initial public offering and a
prohibition from profiting on short-term trading in securities. Furthermore, the
Code provides for trading "blackout periods" which prohibit trading by
investment personnel of the Manager within periods of trading by the Fund in the
same (or equivalent) security.
PORTFOLIO TURNOVER
Because the Fund is actively managed by the Adviser in light of the
Adviser's investment outlook for common stocks, there may be a very substantial
turnover of the Fund's portfolio. The Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund. A 100% turnover rate would
occur if all of the Fund's portfolio securities were replaced once within a one
year period.
If warranted by market conditions, the Fund may engage in short-term
trading if the Adviser believes the transactions, net of costs, will result in
improving the income or the appreciation potential of the Fund's portfolio.
Because of the possibility of short-term trading, there may be a very
substantial turnover of the Fund's portfolio.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
The share price (net asset value) and the public offering price (net
asset value plus applicable sales load) of the shares of the Fund are determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also
- 39 -
<PAGE>
be open for business on other days in which there is sufficient trading in the
Fund's portfolio securities that its net asset value might be materially
affected. For a description of the methods used to determine the share price and
the public offering price, see "Calculation of Share Price and Public Offering
Price" in the Prospectus.
The value of non-dollar denominated portfolio instruments held by the
Fund will be determined by converting all assets and liabilities initially
expressed in foreign currency values into U.S. dollar values at the mean between
the bid and offered quotations of such currencies against U.S. dollars as last
quoted by any recognized dealer. If such quotations are not available, the rate
of exchange will be determined in accordance with policies established in good
faith by the Board of Trustees. Gains or losses between trade and settlement
dates resulting from changes in exchange rates between the U.S. dollar and a
foreign currency are borne by the Fund. To protect against such losses, the Fund
may enter into forward foreign currency exchange contracts, which will also have
the effect of limiting any such gains.
OTHER PURCHASE INFORMATION
The Prospectus describes generally how to purchase shares of the Fund.
Additional information with respect to certain types of purchases of shares of
the Fund is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
shares of the Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing shares of the load funds distributed by
the Manager with the amount of his current purchases in order to take advantage
of the reduced sales loads set forth in the tables in the Prospectus. The
purchaser or his dealer must notify the Transfer Agent that an investment
qualifies for a reduced sales load. The reduced load will be granted upon
confirmation of the purchaser's holdings by the Transfer Agent.
LETTER OF INTENT. The reduced sales loads set forth in the tables in
the Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of the Fund who submits a Letter of Intent to the Transfer
Agent The Letter must state an intention to invest within a thirteen month
period in any load fund distributed by the Manager a specified amount which, if
made at one time, would qualify for a reduced sales load. A Letter of Intent may
be submitted with a purchase at the beginning of the thirteen month period or
within ninety days of the first purchase under the Letter of Intent. Upon
acceptance of this Letter, the purchaser becomes eligible for the reduced sales
load applicable to the level of investment covered by such Letter of Intent as
if the entire amount were invested in a single transaction.
- 40 -
<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 the Fund
made under the reinvestment privilege or the purchases described in the "Reduced
Sales Load," "Purchases at Net Asset Value" or "Exchange Privilege" sections in
the Prospectus because such purchases require minimal sales effort by the
Manager. Purchases described in the "Purchases at Net Asset Value" section may
be made for investment only, and the shares may not be resold except through
redemption by or on behalf of the Trust.
TAXES
The Prospectus describes generally the tax treatment of distributions
by the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
The Fund intends to qualify annually for the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. To so qualify the Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currency, or certain other
income (including but not limited to gains from options, futures and forward
contracts) derived with respect to its business of investing in stock,
securities or currencies; and (ii) diversify
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its holdings so that at the end of each quarter of its taxable year the
following two conditions are met: (a) at least 50% of the value of the Fund's
total assets is represented by cash, U.S. Government securities, securities of
other regulated investment companies and other securities (for this purpose such
other securities will qualify only if the Fund's investment is limited in
respect to any issuer to an amount not greater than 5% of the Fund's assets and
10% of the outstanding voting securities of such issuer) and (b) not more than
25% of the value of the Fund's assets is invested in securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies).
The Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
Investments by the Fund in certain options, futures contracts and options
on futures contracts are "section 1256 contracts." Any gains or losses on
section 1256 contracts are generally considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Section 1256 contracts held by the Fund at
the end of each taxable year are treated for federal income tax purposes as
being sold on such date for their fair market value. The resultant paper gains
or losses are also treated as 60/40 gains or losses. When the section 1256
contract is subsequently disposed of, the actual gain or loss will be adjusted
by the amount of any preceding year-end gain or loss. The use of section 1256
contracts may force the Fund to distribute to shareholders paper gains that have
not yet been realized in order to avoid federal income tax liability.
Foreign currency gains or losses on non-U.S. dollar denominated
securities and on any non-U.S. dollar denominated futures contracts, options and
forward contracts that are not section 1256 contracts generally will be treated
as ordinary income or loss.
Certain hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred,
rather than being taken into account in calculating taxable income for the
taxable year in which such losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
hedging transactions to the Fund are not entirely clear. The hedging
transactions may
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increase the amount of short-term capital gain realized by the Fund which is
taxed as ordinary income when distributed to shareholders. The Fund may make one
or more of the elections available under the Internal Revenue Code of 1986, as
amended, which are applicable to straddles. If the Fund makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions. Because application of the straddle rules may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle positions, the amount
which must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain in any year, may be
increased or decreased substantially as compared to a fund that did not engage
in such hedging transactions.
The Fund may be subject to a tax on income received from securities of
a non-U.S. issuer withheld by a foreign country at the source. The United States
has entered into tax treaties with many foreign countries which entitle the Fund
to a reduced rate of tax or exemption from tax on such income. It is impossible
to determine the effective rate of foreign tax in advance since the amount of
the Fund's assets to be invested within various countries is not known.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Fund to
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redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund during any 90 day period for any one shareholder. Should
payment be made in securities, the redeeming shareholder will generally incur
brokerage costs in converting such securities to cash. Portfolio securities
which are issued in an in-kind redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and the deduction of the current maximum sales load
from the initial $1,000 payment. If the Fund has been in existence less than
one, five or ten years, the time period since the date of the initial public
offering of shares will be substituted for the periods stated.
The Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable sales load which, if included, would reduce total
return. A nonstandardized quotation may also indicate average annual compounded
rates of return without including the effect of the applicable sales load or
over periods other than those specified for average annual total return. A
nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
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From time to time, the Fund may advertise its yield. A yield quotation
is based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
Yield = 2[(a-b/cd +1)6 -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivables-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and
average current yield for the mutual fund industry and rank individual mutual
fund performance over specified time
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periods assuming reinvestment of all distributions, exclusive of sales loads. In
addition, the Fund may also use comparative performance information of relevant
indices, including the following:
S&P 500 Index is an unmanaged index of 500 stocks, the purpose of which
is to portray the pattern of common stock price movement.
The Europe, Australia and Far East Index (the "EAFE Index") is
generally considered to be representative of the performance of unmanaged common
stocks that are publicly traded in the securities markets located outside the
United States.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate their
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006,
has been retained to act as Custodian for the Fund's investments. Bankers Trust
Company acts as the Fund's depository, safekeeps its portfolio securities,
collects all income and other payments with respect thereto, disburses funds as
instructed and maintains records in connection with its duties.
AUDITORS
The firm of Arthur Andersen LLP has been selected as independent
auditors for the Trust for the fiscal year ending March 31, 1998. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Trust as to certain accounting
matters.
TRANSFER AGENT
The Trust's transfer agent, Countrywide Fund Services, Inc. ("CFS"),
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. CFS is an affiliate of the
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Adviser by reason of common ownership. CFS receives for its services as transfer
agent a fee payable monthly at an annual rate of $17 per account, provided,
however, that the minimum fee is $1,000 per month. In addition, the Fund pays
out-of-pocket expenses, including but not limited to, postage, envelopes,
checks, drafts, forms, reports, record storage and communication lines.
CFS also provides accounting and pricing services to the Fund. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable CFS to perform its duties, the Fund pays CFS
a fee in accordance with the following schedule:
ASSET SIZE OF FUND MONTHLY FEE
$ 0 - $ 50,000,000 $3,000
50,000,000 - 100,000,000 3,500
100,000,000 - 250,000,000 4,000
Over 250,000,000 5,000*
* Subject to an additional fee of .001% of average daily net
assets.
In addition, the Fund pays all costs of external pricing services.
CFS is retained by the Manager to assist the Manager in providing
administrative services to the Fund. In this capacity, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. CFS supervises
the preparation of tax returns, reports to shareholders of the Fund, reports to
and filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For the
performance of these administrative services, CFS receives a fee from the
Manager. The Manager is solely responsible for the payment of these
administrative fees to CFS, and CFS has agreed to seek payment of such fees
solely from the Manager.
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