SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. ----
Post-Effective Amendment No. 38
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 38
----
(Check appropriate box or boxes.)
COUNTRYWIDE STRATEGIC TRUST
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(Exact name of Registrant as Specified in Charter)
FILE NOS. 811-3651 and 2-80859
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312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 629-2000
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Robert H. Leshner, 312 Walnut Street, 21st Floor,
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Cincinnati, Ohio 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on August 1, 1999 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of securities under
Rule 24f-2 by filing Registrant's initial registration statement
effective April 14, 1983. Pursuant to paragraph (b)(1) of Rule
24f-2, Registrant filed a Rule 24f-2 Notice for the fiscal year
ended March 31, 1998 on June 29, 1998.
TOTAL NUMBER OF PAGES:
EXHIBIT INDEX ON PAGE:
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COUNTRYWIDE STRATEGIC TRUST
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FORM N-1A
CROSS REFERENCE SHEET
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ITEM SECTION IN PROSPECTUS
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1........................... Cover Page
2........................... Risk/Return Summary
Investment Strategies and Related Risks
3........................... Risk/Return Summary: Fee Table
4........................... Investment Objectives, Investment Strategies
and Related Risks
5........................... None
6........................... Operation of the Funds
7........................... Calculation of Share Price and Public Offering
Price, How to Purchase Shares, How to Redeem
Shares, Dividends and Distributions, Taxes
Application
8............................ How to Purchase Shares, How to Redeem Shares, How
to Exchange Shares, Distribution Plan(s)
9........................... Financial Highlights
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
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10.......................... Cover Page, Table of Contents
11.......................... The Trust
12.......................... Definitions, Policies and Risk
Considerations, Investment Limitations,
Portfolio Turnover
13.......................... Trustees and Officers
14.......................... Principal Security Holders
15.......................... The Investment Adviser and Underwriter,
Mastrapasqua & Associates, Distribution Plans,
Custodian, Auditors, Transfer Agent
16.......................... Securities Transactions
17.......................... The Trust
18.......................... Calculation of Share Price and Public
Offering Price, Other Purchase
Information, Redemption in Kind
19.......................... Taxes
20.......................... The Investment Adviser and Underwriter
21.......................... Historical Performance Information
22.......................... Annual Report
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-------- Income
-------- Countrywide Investments Capital Appreciation
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--------
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Prospectus
Equity Fund
Utility Fund
August 1, 1999
Countrywide
[logo] Investments
These securities have not been
approved or disapproved by the
Securities and Exchange Commission
nor has the Securities and Exchange
Commission passed upon the accuracy
or adequacy of this Prospectus. Any
representation to the contrary is a
criminal offense.
This Prospectus has information you
should know before you invest.
Please read it carefully and keep it
with your investment records.
<PAGE>
PROSPECTUS
August 1, 1999
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
800-543-0407
EQUITY FUND
UTILITY FUND
TABLE OF CONTENTS
RISK/RETURN SUMMARY ........................................................
RISK/RETURN SUMMARY: FEE TABLE..............................................
INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RELATED RISKS...............
HOW TO PURCHASE SHARES......................................................
HOW TO REDEEM SHARES...................................................... ..
HOW TO EXCHANGE SHARES......................................................
DIVIDENDS AND DISTRIBUTIONS..................................................
TAXES...................................................... .................
OPERATION OF THE FUNDS......................................................
DISTRIBUTION PLANS ..........................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE.........................
FINANCIAL HIGHLIGHTS...................................................... ..
For further information or assistance in opening an account, please contact your
broker or call us at the above number.
<PAGE>
RISK/RETURN SUMMARY
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WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The Equity Fund seeks long-term growth of capital, current income and growth of
income by investing primarily in dividend-paying common stocks.
The Utility Fund seeks current income and capital appreciation by investing
primarily in stocks of public utilities.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The Funds invest primarily in stocks that have attractive opportunities for
growth of principal and dividends, yet sell at reasonable valuations compared to
the Adviser's expected growth rates of revenues, cash flows and earnings.
The EQUITY FUND will invest in a diversified portfolio of dividend-paying common
stocks of mid and large capitalization domestic companies having at least three
years operating history. Under normal conditions, at least 65% of the Fund's
total assets will be invested in common stocks.
The UTILITY FUND will invest in a diversified portfolio of common, preferred and
convertible preferred stocks of domestic public utilities that currently pay
dividends and which have been operating for at least 3 years. Under normal
conditions, at least 65% of the Fund's total assets will be invested in the
securities of public utilities, which are those companies that are involved in
the production, supply or distribution of electricity, natural gas,
telecommunications and water.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
INVESTMENT RISKS COMMON TO BOTH FUNDS. The return on and value of an investment
in the Funds will fluctuate in response to stock market movements. Stocks and
other equity securities are subject to market risks and fluctuations in value
due to earnings, economic conditions and other factors beyond the control of the
Adviser. As a result, there is a risk that you could lose money by investing in
the Funds.
An investment in the Funds is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
SPECIAL RISKS OF INVESTING IN THE UTILITY FUND. The risks associated with an
investment in the Utility Fund include the risks associated with investments in
the public utility industry, such as rate regulation by government agencies,
fuel shortages and restrictions on operations due to licensing and environmental
considerations.
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<PAGE>
PERFORMANCE SUMMARY
The bar charts and performance tables shown below provide an indication of the
risks of investing in the Funds by showing the changes in the performance of the
Funds from year to year during the Funds' operations and by showing how the
average annual returns of the Funds compare to those of a broad-based securities
market index. The Funds' past performance is not necessarily an indication of
their future performance.
EQUITY FUND - CLASS C [bar chart]
- -2.43% 31.03% 13.42% 28.37% 20.70%
1994 1995 1996 1997 1998
The total returns shown above do not reflect the sales load on Class C shares
and, if included, returns would be less than those shown.
During the period shown in the bar chart, the highest return for a quarter was
19.92% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -10.57% during the quarter ended September 30, 1998.
The year-to-date return of the Fund's Class C shares as of June 30, 1999 is
8.09%.
UTILITY FUND - CLASS A [bar chart]
2.34% 22.70% 7.66% 8.03% -2.02% 26.46% 5.77% 27.90% 17.64%
1990 1991 1992 1993 1994 1995 1996 1997 1998
The total returns shown above do not reflect the sales load on Class A shares
and, if included, returns would be less than those shown.
During the period shown in the bar chart, the highest return for a quarter was
16.83% during the quarter ended December 31, 1997 and the lowest return for a
quarter was - 5.32% during the quarter ended June 30, 1998.
The year-to-date return of the Fund's Class A shares as of June 30, 1999 is
1.96%.
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED DECEMBER 31, 1998
One Year Five Years Since Inception(1)
-------- ---------- ------------------
Equity Fund Class A 17.03% 17.57% 16.13%
Standard & Poor's 500 Index(2) 28.58% 24.06% 23.10%
Equity Fund Class C 20.70% 17.57% 15.65%
Standard & Poor's 500 Index(2) 28.58% 24.06% 22.59%
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<PAGE>
Utility Fund Class A 12.94% 13.62% 12.32%
Standard & Poor's Utility Index(3) 14.77% 14.02% 12.48%
Utility Fund Class C 16.41% 13.64% 12.15%
Standard & Poor's Utility Index(3) 14.77% 14.02% 12.55%
(1) Inception date for Equity Fund Class A and Utility Fund Class C was August
2, 1993; inception date for Equity Fund Class C was June 7, 1993; inception date
for Utility Fund Class A was August 15, 1989.
(2) The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stock prices.
(3) The Standard & Poor's Utility Index is a widely recognized, unmanaged index
consisting of electric power, natural gas and telephone companies.
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<PAGE>
RISK/RETURN SUMMARY: FEE TABLE
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THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND HOLD
SHARES OF THE FUNDS.
SHAREHOLDER FEES (fees paid directly from your investment)
Class A Class C
Shares Shares
------ ------
Maximum Sales Load . . . . . . . . . . . . . . . . 5.75% 2.25%
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . 5.75% 1.25%
Maximum Deferred Sales Load
(as a percentage of original purchase price) . . . None* 1%
Sales Load Imposed on Reinvested Dividends . . . . None None
Redemption Fee . . . . . . . . . . . . . . . . . . None** None**
Exchange Fee . . . . . . . . . . . . . . . . . . . None None
* If you purchase $1 million or more shares and do not pay a front-end sales
load, you may be subject to a deferred sales load of 1% if the shares are
redeemed within one year of their purchase and a dealer's commission was
paid on the shares.
** You will be charged $8 for each wire redemption. This fee is subject to
change.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Equity Fund Utility Fund
Class A Class C Class A Class C
Shares Shares Shares Shares
------ ------ ------ ------
Management Fees .75% .75% .75% .75%
Distribution (12b-1) Fees .25% 1.00% .23% .92%
Other Expenses .31% .66% .35% .83%
----- ----- ----- -----
Total Annual Fund Operating Expenses 1.31% 2.41% 1.33% 2.50%
===== ===== ===== =====
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Equity Fund Utility Fund
Class A Class C Class A Class C
Shares Shares Shares Shares
------ ------ ------ ------
1 Year $ 701 $ 466 $ 703 $ 475
3 Years 966 867 972 894
5 Years 1,252 1,394 1,262 1,439
10 Years 2,063 2,837 2,084 2,925
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INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RELATED RISKS
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INVESTMENT OBJECTIVE
Each Fund has its own investment objectives. Each Fund's investment objective
may be changed by the Board of Trustees without the approval of shareholders.
You will be notified if there is a change in a Fund's investment objective and
you should then consider whether the Fund will continue to be an appropriate
investment under your circumstances.
The EQUITY FUND seeks long-term growth of capital, current income and
growth of income by investing primarily in dividend-paying common stocks.
The UTILITY FUND seeks current income and capital appreciation by investing
primarily in common stocks of public utilities.
INVESTMENT STRATEGIES
EQUITY FUND. Under normal conditions, the Equity Fund will invest at least
65% of its assets in common stocks. The Fund will invest in a diversified
portfolio of mid and large capitalization domestic common stocks of companies
which have been operating for at least 3 years.
UTILITY FUND. Under normal conditions, at least 65% of the Utility Fund's
assets will be invested in the securities of public utilities. The Utility Fund
will invest in a diversified portfolio of common, preferred and convertible
preferred stocks of public utilities that currently pay dividends and which have
been operating for at least 3 years. The public utilities industry includes
companies involved in the production, supply or distribution of electricity,
natural gas, telecommunications (but not radio or television broadcasters) and
water. The Fund may invest in any combination of public utility companies.
In selecting investments for the Utility Fund, the Adviser will consider
the effects of regulation within the industry. Although the utility industry is
undergoing deregulation, most states still influence pricing and profitability
of certain utilities. The Adviser analyzes local regulation and its influence on
pricing. The Adviser generally prefers those companies that provide services in
a geographic area where the regulatory environment is favorable. The Adviser
will also look for companies with a diversified customer base. The Adviser
favors investments in those companies that do not overly depend on one certain
customer segment (retail, industrial, commercial residential) for a vast
majority of their revenue.
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<PAGE>
The Adviser expects to hold the Utility Fund's securities for the
long-term, but will sell a security when a serious deterioration in the
fundamental competitive position of the company occurs or when there is a change
in the company's management which the Adviser believes is not in the best
interests of shareholders.
INVESTMENT STRATEGIES COMMON TO BOTH FUNDS. In selecting equity investments
for the Funds, the Adviser looks for stocks which have attractive opportunities
for growth of principal and dividends, yet sell at reasonable valuations
compared to the Adviser's expected growth rates of revenues, cash flows and
earnings. The Adviser screens securities from the Standard & Poor's Compustat
database and then performs a detailed fundamental analysis on the companies
which pass the initial screening. The intent of this analysis is to:
o Gain a thorough understanding of the company's products and/or services and
its position within the industry. This is accomplished primarily through
discussions with the company and street analysts and by analyzing news and
company reports.
o Assess the strength of competing products and services by researching
competitors, analyzing pricing and margin trends, technology and new
product introductions.
o Determine the actual financial condition of the company by thoroughly
reviewing its financial statements.
o Assess management's talent, succession plans and strategies. The Adviser
believes that the ability of management to successfully implement well
thought-out strategic plans is crucial to the success of any company.
o Determine competitive strengths and weaknesses, opportunities and threats
to both the company and the industry. The Adviser searches for companies
that have a unique product or niche within an industry which may give them
an advantage over their competitors.
For defensive purposes, each Fund may temporarily hold all or part of its
assets in short-term obligations such as bank debt instruments (certificates of
deposit, bankers' acceptances and time deposits), commercial paper, U.S.
Government obligations having a maturity of less than one year or repurchase
agreements collateralized by U.S. Government obligations. The Equity Fund may
also temporarily invest all or a portion of its assets in long-term U.S.
Treasury obligations. When taking such a temporary defensive position, a Fund
may not achieve its investment objective.
- 7 -
<PAGE>
RISK CONSIDERATIONS
EQUITY FUND. The Equity Fund is designed for investors who are investing for the
long term and is not intended for investors seeking assured income or
preservation of capital. Changes in market prices can occur at any time.
Accordingly, there is no assurance that the Fund will achieve its investment
objective. When you redeem your shares, they may be worth more or less than what
you paid for them.
Because the Equity Fund normally invests most, or a substantial portion, of
its assets in stocks, the value of the Fund's portfolio will be affected by
changes in the stock markets. Stock markets and stock prices can be volatile.
Market action will affect the Fund's net asset value per share, which fluctuates
as the values of the Fund's portfolio securities change. Not all stock prices
change uniformly or at the same time and not all stock markets move in the same
direction at the same time. Various factors can affect a stock's price (for
example, poor earnings reports by an issuer, loss of major customers, major
litigation against an issuer, or changes in general economic conditions or in
government regulations affecting an industry). Not all of these factors can be
predicted.
UTILITY FUND. Because the Utility Fund normally invests a substantial portion of
its assets in the securities of public utilities, the value of the Fund's
portfolio will be affected by changes in the public utility market. Stocks of
public utilities may be more sensitive to changes in interest rates than other
types of equity investments. Changes in market prices of public utilities can
occur at any time. Market action will affect the Fund's net asset value per
share, which fluctuates as the values of the Fund's portfolio securities change.
Accordingly, there is no assurance that the Fund will achieve its investment
objective. When you redeem your shares, they may be worth more or less than what
you paid for them.
Investments in securities in the public utility industry are subject to
special risks. These include the possibility of rate regulation by government
agencies, which may make it difficult to obtain an adequate return on invested
capital, pass on cost increases and finance large construction projects. There
are additional risks associated with public utilities which provide power or
other energy related services such as, difficulties in obtaining fuel at
reasonable prices, shortages of fuel, energy conservation measures, restrictions
on operations and increased costs and delays from licensing and environmental
considerations and the special risks of constructing and operating nuclear power
generating facilities or other specialized types of facilities.
- 8 -
<PAGE>
HOW TO PURCHASE SHARES
- ----------------------
You may open an account with the Funds by investing the minimum amount required
for the type of account you open. You may invest additional amounts in an
existing account at any time. For more information about how to purchase shares,
call Countrywide Fund Services, Inc. (the "Transfer Agent") (Nationwide
call toll-free 800-543-0407; in Cincinnati call 629-2050). The different account
options and minimum investment requirements are listed below.
ACCOUNT OPTIONS
Regular Accounts
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Accounts for Countrywide Affiliates
- -----------------------------------
If you (or anyone in your immediate family) are an employee, shareholder or
customer of Countrywide Credit Industries, Inc. or any of its affiliated
companies, you may open an account for less than the minimum amount required for
regular accounts.
Tax-Deferred Retirement Plans
- -----------------------------
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"). An IRA is a special type of account
that offers tax advantages. You should consult your financial professional to
help decide which type of IRA is right for you.
Traditional IRA - Assets grow tax-deferred and contributions may be
deductible. Distributions are taxable in the year made.
Spousal IRA - An IRA in the name of a non-working spouse by a working
spouse.
Roth IRA - An IRA with tax-free growth of assets and tax-free
distributions, if certain conditions are met. Contributions are not deductible.
Education IRA - An IRA with tax-free growth of assets and tax-free
withdrawals for qualified higher education expenses. Contributions are not
deductible.
KEOGH PLANS. A tax-deferred plan for self-employed individuals.
QUALIFIED PENSION AND PROFIT-SHARING PLANS FOR EMPLOYEES. These include
profit-sharing plans with a 401(k) provision.
403(B)(7) CUSTODIAL ACCOUNTS. A tax-deferred account for employees of public
school systems, hospitals, colleges and other non-profit organizations meeting
certain requirements of the Internal Revenue Code.
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<PAGE>
Automatic Investment Plan
- -------------------------
The automatic investment plan allows you to make automatic monthly investments
in either Fund from your bank, savings and loan or other depository institution
account. The minimum initial and subsequent investments must be $50 under the
plan. The Transfer Agent pays the costs of your transfers, but reserves the
right, upon 30 days' written notice, to make reasonable charges for this
service.
MINIMUM INVESTMENT REQUIREMENTS
Initial Additional
------- ----------
Regular Accounts $1,000 None
Accounts for Countrywide Affiliates $ 50 None
Tax-Deferred Retirement Plans $ 250 None
Automatic Investment Plans $ 50 $ 50
Direct Deposit Plans
- --------------------
Your employer may offer a direct deposit plan which will allow you to have all
or a portion of your paycheck transferred automatically to purchase shares of a
Fund. Social security recipients may have all or a portion of their social
security check transferred automatically to purchase shares of a Fund.
InvestPlus Plan
- ---------------
The InvestPlus Plan provides an easy way for Countrywide mortgage holders to
invest in the Funds by including their investment with their mortgage payment.
If you are a Countrywide mortgage holder, you may write one check for the total
amount.
OPENING A NEW ACCOUNT. You may open an account directly with a Fund or through
your broker-dealer.
To open an account directly with a Fund, please follow the steps outlined below.
1. Complete the Account Application included in this Prospectus. Be sure to
indicate the type of account you wish to open, the amount of money you wish
to invest and which class of shares you want to purchase. If you do not
indicate which class you want to purchase, we will invest your purchase in
Class A shares.
2. Write a check for your initial investment to either the "Equity Fund" or
the "Utility Fund." Mail your completed Account Application and your check
to the following address:
COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
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<PAGE>
You may also open an account through your broker-dealer. It is the
responsibility of broker-dealers to send properly completed orders. If you open
an account through your broker-dealer, you may be charged a fee by your
broker-dealer.
ADDING TO YOUR ACCOUNT. You may make additional purchases to your account at any
time. Additional purchases may be made by mail to the address listed above, by
wire or through your broker-dealer. For more information about purchases by
wire, please telephone the Transfer Agent (Nationwide call toll-free 800-543-
0407; in Cincinnati call 629-2050). Your bank may charge a fee for sending your
wire. Each additional purchase must contain the account name and number in order
to properly credit your account.
MISCELLANEOUS. In connection with all purchases of Fund shares,
we observe the following policies and procedures:
o We price direct purchases based upon the next public offering price
(net asset value plus any applicable sales load) after your order is
received. Direct purchase orders received by the Transfer Agent by
4:00 p.m., Eastern time, are processed at that day's public offering
price. Direct investments received by the Transfer Agent after 4:00
p.m., Eastern time, are processed at the public offering price next
determined on the following business day. Purchase orders received by
broker-dealers before 4:00 p.m., Eastern time, and transmitted to the
Adviser by 5:00 p.m., Eastern time, are processed at that day's public
offering price. Purchase orders received from broker-dealers after
5:00 p.m., Eastern time, are processed at the public offering price
next determined on the following business day.
o We mail you confirmations of all purchases or redemptions of Fund
shares.
o Certificates for shares are no longer issued.
o We reserve the right to limit the amount of investments and to refuse
to sell to any person.
o If an order to purchase shares is canceled because your check does not
clear, you will be responsible for any resulting losses or fees
incurred by the Fund or the Transfer Agent in the transaction.
o We may open accounts for less than the minimum investment or change
minimum investment requirements at any time.
o There is no fee for purchases made by wire, but we may charge you for
this service upon thirty days' prior notice.
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<PAGE>
The Funds' account application contains provisions in favor of the Funds,
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 redemptions and exchanges) made available to investors.
Choosing a Share Class
----------------------
Each Fund offers Class A and Class C shares. Each class represents an
interest in the same portfolio of investments and has the same rights, but
differs primarily in sales loads and distribution expense amounts. Shares of the
Utility Fund purchased before August 1, 1993 are Class A shares. Shares of the
Equity Fund purchased before August 1, 1993 are Class C shares. Before choosing
a class, you should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which class of shares is more beneficial to you depends
on the amount of your investment, the intended length of your investment and the
quality and scope of the value-added services provided by financial advisers who
may work with a particular sales load structure as compensation for their
services. If you qualify for reduced sales loads or, in the case of purchases of
$1 million or more, no initial sales load, you may find Class A shares
attractive because similar sales load reductions are not available for Class C
shares. Moreover, Class A shares are subject to lower ongoing expenses than
Class C shares over the term of the investment. As an alternative, Class C
shares are sold with a lower initial sales load so more of the purchase price is
immediately invested in the Fund. If you do not plan to hold your shares in a
Fund for a long time (less than five years), it may be better to purchase Class
C shares so that more of your purchase is invested directly in the Fund,
although you will pay higher distribution fees. If you plan to hold your shares
in a Fund for more than five years, it may be better to purchase Class A shares,
since after five years your accumulated distribution fees may be more than the
sales load paid on your purchase.
When determining which class of shares to purchase, you may want to
consider the services provided by your financial adviser and the compensation
provided to these financial advisers under each share class. Countrywide
Investments works with many experienced and very qualified financial advisers
throughout the country that may provide valuable assistance to you through
ongoing education, asset allocation programs, personalized financial planning
reviews or other services vital to your long-term success. Countrywide
Investments believes that these value-
- 12 -
<PAGE>
added services can greatly benefit you through market cycles and Countrywide
will work diligently with your chosen financial adviser. Countrywide Investments
has a financial adviser referral service available, at no cost, to help you
choose a financial adviser in your area, if you do not have one.
Set forth below is a chart comparing the sales loads and 12b-1 fees
applicable to each class of shares:
CLASS SALES LOAD 12b-1 FEE
- --------------------------------------------------------------------------------
A Maximum of 5.75% initial 0.25%
sales load reduced for purchases
of $50,000 and over; shares sold
without an initial sales load may
be subject to a 1.00% contingent
deferred sales load during first
year if a commission was paid to
a dealer
C 1.25% initial sales load; 1.00% 1.00%
contingent deferred sales load
during first year
- --------------------------------------------------------------------------------
If you are investing $1 million or more, it is generally more beneficial
for you to buy Class A shares because there is no front-end sales load and the
annual expenses are lower.
Class A Shares
--------------
Class A shares are sold at net asset value ("NAV") plus an initial sales
load. In some cases, reduced initial sales loads for the purchase of Class A
shares may be available, as described below. Investments of $1 million or more
are not subject to a sales load at the time of purchase but may be subject to a
contingent deferred sales load of 1.00% on redemptions made within one year
after purchase if a commission was paid by the Adviser to a participating
unaffiliated dealer. Class A shares are also subject to an annual 12b-1
distribution fee of up to .25% of a Fund's average daily assets allocable to
Class A shares.
The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares for accounts opened after July 31, 1999:
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<PAGE>
Which Dealer
Percentage Equals this Reallowance
Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment Price
- -------------------- ---- ---------- -----
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50 4.71 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.25 2.30 1.75
$1,000,000 or more None None
The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares for accounts opened before August 1, 1999:
Which Dealer
Percentage Equals this Reallowance
Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment Price
- -------------------- ---- ---------- -----
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None None
Under certain circumstances, the Adviser may increase or decrease the
reallowance to selected dealers. In addition to the compensation otherwise paid
to securities dealers, the Adviser may from time to time pay from its own
resources additional cash bonuses or other incentives to selected dealers in
connection with the sale of shares of the Funds. On some occasions, such bonuses
or incentives may be conditioned upon the sale of a specified minimum dollar
amount of the shares of a Fund and/or other funds in the Countrywide Family of
Funds during a specific period of time. Such bonuses or incentives may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and other dealer-sponsored programs or events.
For initial purchases of Class A shares of $1 million or more made after
October 1, 1995 and subsequent purchases further increasing the size of the
account, participating unaffiliated dealers will receive first year compensation
of up to 1.00% of such purchases from the Adviser. In determining a dealer's
eligibility for such commission, purchases of Class A shares of
- 14 -
<PAGE>
the Funds may be aggregated with concurrent purchases of Class A shares of other
funds in the Countrywide Family of Funds. Dealers should contact the Adviser for
more information on the calculation of the dealer's commission in the case of
combined purchases.
An exchange from other Countrywide Funds will not qualify for payment of
the dealer's commission unless the exchange is from a Countrywide Fund with
assets as to which a dealer's commission or similar payment has not been
previously paid. No commission will be paid if the purchase represents the
reinvestment of a redemption from a Fund made during the previous twelve months.
Redemptions of Class A shares may result in the imposition of a contingent
deferred sales load if the dealer's commission described in this paragraph was
paid in connection with the purchase of such shares. See "Contingent Deferred
Sales Load for Certain Purchases of Class A Shares" below.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the
cost or current NAV (whichever is higher) of your existing Class A shares of any
Countrywide Fund sold with a sales load with the amount of any current purchases
in order to take advantage of the reduced sales loads set forth in the tables
above. Purchases made in any Countrywide load fund under 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 Countrywide Funds which are sold with a
sales load are listed in the Exchange Privilege section of this Prospectus. You
should contact the Transfer Agent for information about the Right of
Accumulation and Letter of Intent.
PURCHASES AT NET ASSET VALUE. Class A shares of the Funds may be purchased
at NAV by pension and profit-sharing plans, pension funds and other
company-sponsored benefit plans that (1) have plan assets of $500,000 or more,
or (2) have, at the time of purchase, 100 or more eligible participants, or (3)
certify that they project to have annual plan purchases of $200,000 or more, or
(4) are provided administrative services by certain third-party administrators
that have entered into a special service arrangement with the Adviser relating
to such plan.
Banks, bank trust departments and savings and loan associations, in their
fiduciary capacity or for their own accounts, may purchase Class A shares of the
Funds at NAV. To the extent permitted by regulatory authorities, a bank trust
department may charge fees to clients for whose account it purchases shares at
NAV. Federal and state credit unions may also purchase shares at NAV.
- 15 -
<PAGE>
In addition, Class A shares of the Funds may be purchased at NAV by
broker-dealers who have a sales agreement with the Adviser and their registered
personnel and employees, including members of the immediate families of such
registered personnel and employees.
Clients of investment advisers may also purchase Class A shares of the
Funds at NAV if their investment adviser or broker-dealer has made arrangements
to permit them to do so with the Trust. The investment adviser must notify the
Transfer Agent that an investment qualifies as a purchase at NAV.
Associations and affinity groups and their members may purchase Class A
shares of the Funds at NAV provided that management of these groups or their
financial adviser has made arrangements with the Trust to permit them to do so.
Investors or their financial adviser must notify the Transfer Agent that an
investment qualifies as a purchase at NAV.
Employees, shareholders and customers of Countrywide Credit Industries,
Inc. or any affiliated company, including members of the immediate families of
such individuals and employee benefit plans established by such entities, may
also purchase Class A shares of the Funds at NAV.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES. A
contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Funds (or shares into which such Class A shares were exchanged)
purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Adviser and the shares are redeemed
within one year from the date of purchase. The contingent deferred sales load
will be paid to the Adviser and will be equal to the commission percentage paid
at the time of purchase as applied to the lesser of (1) the NAV at the time of
purchase of the Class A shares being redeemed, or (2) the NAV of such Class A
shares at the time of redemption. If a purchase of Class A shares is subject to
the contingent deferred sales load, you will be notified on the confirmation you
receive for your purchase. Redemptions of such Class A shares of the Funds held
for at least one year will not be subject to the contingent deferred sales load.
Class C Shares
--------------
Class C shares are sold with an initial sales load of 1.25% and are subject
to a contingent deferred sales load of 1.00% on redemptions of Class C shares
made within one year of their purchase. The contingent deferred sales load will
be a percentage of the dollar amount of shares redeemed and will be assessed on
an amount equal to the lesser of (1) the NAV at the time of purchase of the
Class C shares being redeemed, or (2) the
- 16 -
<PAGE>
NAV of such Class C shares being redeemed. A contingent deferred sales load will
not be imposed upon redemptions of Class C shares held for at least one year.
Class C shares are subject to an annual 12b-1 fee of up to 1.00% of a Fund's
average daily net assets allocable to Class C shares. The Adviser intends to pay
a commission of 2.00% of the purchase amount to your broker at the time you
purchase Class C shares.
Additional Information on the Contingent Deferred Sales Load
------------------------------------------------------------
The contingent deferred sales load is 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 Adviser may require documentation prior to
waiver of the load, including death certificates, physicians' certificates, etc.
All sales loads imposed on redemptions are paid to the Adviser. 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.
The following example will illustrate the operation of the contingent
deferred sales load. Assume that you open an account and purchase 1,000 shares
at $10 per share and that six months later the NAV per share is $12 and, during
such time, you have acquired 50 additional shares through reinvestment of
distributions. If at such time you should redeem 450 shares (proceeds of
$5,400), 50 shares will not be subject to the load because of dividend
reinvestment. With respect to the remaining 400 shares, the load is applied only
to the original cost of $10 per share and not to the increase in net asset value
of $2 per share. Therefore, $4,000 of the $5,400 redemption proceeds will be
charged the load. At the rate of 1.00%, the contingent deferred sales load would
be $40. In determining whether an amount is available for redemption without
incurring a deferred sales load, the purchase payments made for all Class C
shares in your account are aggregated.
HOW TO REDEEM SHARES
- --------------------
BY WRITTEN REQUEST. You may send a written request to the Transfer Agent with
your name, your account number and the amount to be redeemed. You must sign your
request exactly as your name appears on the Trust's account records. Mail your
written request to:
- 17 -
<PAGE>
COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
BY TELEPHONE. If the amount of your redemption is less than $25,000, you may
redeem your shares by telephone. To redeem shares by telephone, call the
Transfer Agent (Nationwide call toll-free 800-543-0407; in Cincinnati call
629-2050). Your redemption proceeds may be mailed to the address stated on your
Account Application, wired to your bank or brokerage account as stated on your
Account Application or deposited via an Automated Clearing House (ACH)
transaction. The telephone redemption privilege is automatically available to
you, unless you specifically notify the Transfer Agent not to honor telephone
redemptions for your account. IRA accounts may not be redeemed by telephone.
THROUGH YOUR BROKER-DEALER. You may also redeem shares by placing a wire
redemption request through your broker-dealer. Your broker-dealer is responsible
for ensuring that redemption requests are transmitted to us in proper form in a
timely manner.
PROCESSING OF REDEMPTIONS. If you request a redemption by wire, you will be
charged an $8 processing fee. We reserve the right to change the processing fee,
upon 30 days' notice. All charges will be deducted from your account by
redeeming shares in your account. Your bank or brokerage firm may also charge
you for processing the wire. Redemption proceeds will only be wired to a
commercial bank or brokerage firm in the United States. If it is impossible or
impractical to wire funds, the redemption proceeds will be sent by mail to the
designated account.
If you would like your redemption proceeds deposited free of charge
directly into your account with a commercial bank or other depository
institution via an ACH transaction, contact the Transfer Agent for more
information.
We redeem shares based on the current NAV on the day we receive a proper
request for redemption, less any contingent deferred sales load on the redeemed
shares. Be sure to review "How to Purchase Shares" above to determine whether
your redemption is subject to a contingent deferred sales load.
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public. For joint
accounts, each signature must be guaranteed. Please call us to ensure that your
signature guarantee will be submitted correctly.
- 18 -
<PAGE>
A SIGNATURE GUARANTEE is required for (1) any redemption which is $25,000
or more (2) any redemption when the name(s) or the address on the account has
been changed within 30 days of your redemption request.
ADDITIONAL INFORMATION ABOUT ACCOUNTS AND REDEMPTIONS
SMALL ACCOUNTS. Due to the high costs of maintaining small accounts, we may ask
that you increase your account balance if your account falls below the minimum
amount required for your account. If the account balance remains below our
minimum requirements for 30 days after we notify you, we may close your account
and send you the proceeds, less any applicable contingent deferred sales load.
AUTOMATIC WITHDRAWAL PLAN. If the shares in your account have a value of at
least $5,000, you (or another person you have designated) may receive monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional shares of the Funds while the
plan is in effect are generally undesirable because an initial sales load is
incurred whenever purchases are made.
REINVESTMENT PRIVILEGE. If you have redeemed shares of either Fund, you may
reinvest all or part of the proceeds without paying a sales load. You must make
your reinvestment within 90 days of your redemption and you may only use this
privilege once a year.
MISCELLANEOUS. In connection with all redemptions of Fund shares, we observe the
following policies and procedures:
o We may refuse any redemption request involving recently purchased
shares until your check for the recently purchased shares has cleared.
To eliminate this delay, you may purchase shares of the Funds by
certified check or wire.
o We may refuse any telephone redemption request if the name(s) or the
address on the account has been changed within 30 days of your
redemption request.
o We may delay mailing redemption proceeds for up to 7 days (redemption
proceeds are normally mailed within 3 days after receipt of a proper
request).
o We will consider all written and verbal instructions as authentic and
will not be responsible for processing instructions received by
telephone which are reasonably believed to be genuine or for
processing redemption proceeds by wire. We will use reasonable
procedures to determine that telephone instructions are genuine, such
as requiring forms of personal identification before acting upon
telephone instructions, providing written
- 19 -
<PAGE>
confirmation of the transactions and/or tape recording telephone
instructions. If we do not use such procedures, we may be liable for
losses due to unauthorized or fraudulent instructions.
HOW TO EXCHANGE SHARES
- ----------------------
Shares of either Fund and of any other fund in the Countrywide Family of
Funds may be exchanged for each other.
Class A shares of the Funds which do not have a contingent deferred sales
load may be exchanged for Class A shares of any other fund and for shares of a
fund which offers only one class of shares (provided these shares do not have a
contingent deferred sales load). If you paid a sales load on the shares being
exchanged, this amount will be credited towards the sales load (if any) on the
shares being acquired.
Class C shares of the Funds and Class A shares of the Funds which have a
contingent deferred sales load, may be exchanged, based on their per share NAV,
for shares of any other fund which has a contingent deferred sales load and for
shares of any fund which is a money market fund. You will receive credit for the
period of time you held the shares being exchanged when determining whether a
contingent deferred sales load will apply, unless your shares were held in a
money market fund.
The Countrywide Family of Funds consists of the following funds. Funds
which may have a front-end or a contingent deferred sales load are marked with
an asterisk.
GROWTH FUNDS GROWTH & INCOME FUNDS
- ------------ ---------------------
*Growth/Value Fund *Equity Fund
*Aggressive Growth Fund *Utility Fund
TAXABLE BOND FUNDS TAX-FREE BOND FUNDS
- ------------------ -------------------
Adjustable Rate U.S. Government *Tax-Free Intermediate Term
Securities Fund Fund
*Intermediate Bond Fund *Ohio Insured Tax-Free Fund
*Intermediate Term Government
Income Fund
TAXABLE MONEY MARKET FUNDS TAX-FREE MONEY MARKET FUNDS
- -------------------------- ---------------------------
Short Term Government Income Fund Tax-Free Money Fund
Institutional Government Income Fund Ohio Tax-Free Money Fund
Money Market Fund California Tax-Free Money
Fund
Florida Tax-Free Money
Fund
- 20 -
<PAGE>
You may exchange shares by written request or by telephone. You must sign
your written request exactly as your name appears on the Trust's account
records. If you are unable to exchange shares by telephone due to such
circumstances as unusually heavy market activity, you can exchange shares by
mail or in person. Your exchange will be processed at the next determined NAV
(or offering price, if there is a sales load) after the Transfer Agent receives
your request.
You may only exchange shares into a fund which is authorized for sale in
your state of residence and you must meet that fund's minimum initial investment
requirements. The Board of Trustees may change or discontinue the exchange
privilege after giving shareholders 60 days' prior notice. Any gain or loss on
an exchange of shares is a taxable event. Before making an exchange, contact the
Transfer Agent to request information about the other funds in the Countrywide
Family of Funds.
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
Each Fund expects to distribute substantially all of its net investment
income quarterly and any net realized long-term capital gains at least annually.
Management will determine when to distribute any net realized short-term capital
gains.
Your distributions will be paid under one of the following options:
Share Option - all distributions are reinvested in additional shares.
Income Option - income and short-term capital gains are paid in cash;
long-term capital gains are reinvested in additional
shares.
Cash Option - all distributions are paid in cash.
Please mark on your Account Application the option you have selected. If
you do not select an option, you will receive the Share Option. If you select
the Income Option or the Cash Option and the post office cannot deliver your
checks or if you do not cash your checks within six months, your dividends may
be reinvested in your account at the then-current NAV and your account will be
converted to the Share Option. You will not receive interest on the amount of
your uncashed checks until the checks have been reinvested in your account.
Distributions will be based on a Fund's NAV on the payable date. If you
have received a cash distribution from either Fund, you may reinvest it at NAV
(without paying a sales load) at the
- 21 -
<PAGE>
next determined NAV on the date of your reinvestment. You must make your
reinvestment within 30 days of the distribution date and you must notify the
Transfer Agent that your distribution is being reinvested under this provision.
TAXES
- -----
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), including requirements with respect to diversification of assets,
distribution of income and sources of income. Each Fund intends to distribute to
its shareholders substantially all of its investment income (net of expenses)
and any capital gains (net of capital losses) in accordance with the timing
requirements imposed by the Code, so that each Fund will satisfy the
distribution requirement of Subchapter M and will not be subject to federal
income tax or the 4% excise tax.
If a Fund fails to satisfy any of the Code requirements for qualification
as a regulated investment company, it will be taxed at regular corporate tax
rates on all its taxable income (including capital gains) without any deduction
for distributions to shareholders, and distributions to shareholders will be
taxable as ordinary dividends (even if derived from the Fund's net long-term
capital gains) to the extent of the Fund's current and accumulated earnings and
profits.
Distributions by a Fund of its taxable net investment income and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable to shareholders as ordinary income. Such distributions
are treated as dividends for federal income tax purposes but generally are
expected to qualify for the 70% dividends-received deduction for corporate
shareholders. Distributions by a Fund of the excess, if any, of its net
long-term capital gain over its net short-term capital loss are designated as
capital gains dividends and are taxable to shareholders as long-term capital
gains, regardless of the length of time shareholders have held their shares.
Distributions to shareholders will be treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of a Fund. In general, distributions by a Fund are taken into account by
the shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by a Fund
and received by the shareholders on December 31 of the preceding year.
- 22 -
<PAGE>
A shareholder will recognize gain or loss upon the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
Any loss realized upon a taxable disposition of shares within 6 months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any capital gain dividends received on such shares. All or a portion of any
loss realized upon a taxable disposition of shares of a Fund may be disallowed
if other shares of the Fund are purchased within 30 days before or after such
disposition. Any gain or loss on an exchange of shares is a taxable event.
If a shareholder is a non-resident alien or foreign entity shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at a rate of 30% (or lower applicable treaty
rate). Non-United States shareholders are urged to consult their own tax adviser
concerning the applicability of the United States withholding tax.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends
paid by a Fund. In order to avoid this backup withholding, a shareholder must
provide the Fund with a correct taxpayer identification number (which for most
individuals is his or her Social Security number) or certify that it is a
corporation or otherwise exempt from or not subject to backup withholding.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative, judicial or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder should
also review the more detailed discussion of federal income tax considerations
relevant to the Funds that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax adviser as to the tax consequences of investments in the Funds,
including the application of state and local taxes which may differ from the
federal income tax consequences described above.
OPERATION OF THE FUNDS
- ----------------------
The Funds are diversified series of Countrywide Strategic Trust, an
open-end management investment company organized as a Massachusetts business
trust. Like other mutual funds, the Trust retains various organizations to
perform specialized services for the Funds.
- 23 -
<PAGE>
The Trust retains Countrywide Investments, Inc. (the "Adviser"), 312 Walnut
Street, Cincinnati, Ohio 45202 to manage the Funds' investments and their
business affairs. The Adviser was organized in 1974 and is also the investment
adviser to twelve other funds in the Countrywide Family of Funds. The Adviser is
an indirect wholly-owned subsidiary of Countrywide Credit Industries, Inc., a
New York Stock Exchange listed company principally engaged in the business of
residential mortgage lending. Each Fund pays the Adviser a fee at the annual
rate of .75% of its average daily net assets up to $200 million;.7% of such
assets from $200 million to $500 million; and .5% of such assets in excess of
$500 million.
Susan Flischel, First Vice President and Chief Investment Officer -
Equities of the Adviser, is primarily responsible for managing the portfolio of
each Fund. Ms. Flischel has been employed by the Adviser and affiliated
companies in various capacities since 1986. She has been the portfolio manager
of the Utility Fund since July 1993 and the portfolio manager of the Equity Fund
since March 1995.
The Adviser is the principal underwriter for the Funds and the exclusive
agent for the distribution of shares of the Funds. The Adviser receives the
entire sales load on all direct initial investments in shares of the Funds and
on all investments which are not made through a broker.
YEAR 2000 READINESS. Computer users around the world are faced with the dilemma
of the Year 2000 issue, which stems from the use of two digits in most computer
systems to designate the year. When the year advances from 1999 to 2000, many
computers will not recognize "00" as the Year 2000. This issue could potentially
affect every aspect of computer-related activity, on an individual and corporate
level. The Funds could be adversely impacted if the computer systems used by the
Adviser and other service providers have not been converted to meet the
requirements of the new century. The Adviser has evaluated its internal systems
and expects them to handle the change of millennium. The Adviser is monitoring
on an ongoing basis the progress of the Funds' service providers to convert
their systems to comply with the requirements of the Year 2000. The Adviser
currently has no reason to believe that these service providers will not be
fully and timely compliant. However, you should be aware that there can be no
assurance that all systems will be successfully converted prior to January 1,
2000, in which case it would become necessary for the Funds to enter into
agreements with new service providers or to make other arrangements. In
addition, although the Adviser considers an issuer's Year 2000 compliance status
in the investment decision making process, companies in which the Funds invest
may experience Year 2000 difficulties and the Funds are unable to predict to
what extent the Year 2000 issue will impact the value of those securities.
- 24 -
<PAGE>
DISTRIBUTION PLANS
- ------------------
Pursuant to Rule 12b-1 under the 1940 Act, the Funds have adopted two
separate plans of distribution under which each Fund's two classes of shares may
directly incur or reimburse the Adviser for certain expenses related to the
distribution of its shares, including payments to securities dealers and other
persons, including the Adviser and its affiliates, who are engaged in the sale
of shares of a 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 or the Trust; expenses of
formulating and implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of preparing,
printing and distributing sales literature and prospectuses and statements of
additional information and reports for recipients other than existing
shareholders of a 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 each class of shares.
The annual limitation for payment of expenses pursuant to the Class A Plan
is .25% of each Fund's average daily net assets allocable to Class A shares. The
annual limitation for payment of expenses pursuant to the Class C Plan is 1.00%
of each Fund's average daily net assets allocable to Class C shares. The
payments permitted by the Class C Plan fall into two categories. First, the
Class C shares may directly incur or reimburse the Adviser in an amount not to
exceed .75% per year of each Fund's average daily net assets allocable to Class
C shares for certain distribution-related expenses as described above. The Class
C Plan also provides for the payment of an account maintenance fee of up to .25%
per year of each Fund's average daily net assets allocable to Class C shares,
which may be paid to dealers based on the average value of Fund shares owned by
clients of such dealers. Because these fees are paid out of the Funds' assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales loads. In the
event a Plan is terminated by the Trust in accordance with its terms, a Fund
will not be required to make any payments for expenses incurred after the date
the Plan terminates. The Adviser may make payments to dealers and other persons
in an amount up to .75% per annum of the average value of Class C shares owned
by their clients, in addition to the .25% account maintenance fee described
above.
- 25 -
<PAGE>
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
On each day that the Trust is open for business, the public offering price
(NAV plus applicable sales load) of the shares of each Fund is determined as of
the close of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time). The Trust is open for business on each day
the New York Stock Exchange is open for business and on any other day when there
is sufficient trading in a Fund's investments that its NAV might be materially
affected. The NAV per share of a 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 price at which a
purchase or redemption of Fund shares is effected is based on the next
calculation of NAV after the order is placed. Each Fund's NAV will fluctuate
with the value of the securities it holds.
The value of the securities held by a Fund is determined as follows: (1)
Securities traded on a stock exchange are priced at their last sale price after
trading on the New York Stock Exchange has closed. If the securities were not
traded on the exchange that day, they are valued at their last bid price; (2)
Securities traded in the over-the counter market are priced at their last sale
price after trading on the New York Stock Exchange has closed. If the last sale
price is not available, the security is valued at the last bid price quoted by
brokers that make markets in that security; (3) Securities that do not have
available market prices are priced at their fair value using consistent
procedures established in good faith by the Board of Trustees.
- 26 -
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights table is intended to help you understand the Funds'
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Funds (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along with
the Funds' financial statements, is included in the Statement of Additional
Information, which is available upon request.
<TABLE>
<CAPTION>
EQUITY FUND - CLASS A
Per Share Data for a Share Outstanding Throughout Each Year
==================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 19.38 $ 13.76 $ 12.45 $ 9.84 $ 9.26
---------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income........................ 0.04 0.09 0.12 0.13 0.15
Net realized and unrealized gains
on investments............................. 2.73 5.76 1.35 2.60 0.59
---------- --------- ---------- --------- ----------
Total from investment operations................ 2.77 5.85 1.47 2.73 0.74
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.03) (0.08) (0.12) (0.12) (0.16)
Distributions from net realized gains........ -- (0.15) (0.04) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.03) (0.23) (0.16) (0.12) (0.16)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 22.12 $ 19.38 $ 13.76 $ 12.45 $ 9.84
========== ========= ========== ========= ==========
Total return(A) ................................ 14.30% 42.74% 11.82% 27.90% 8.07%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 55,561 $ 38,336 $ 14,983 $ 8,502 $ 4,300
========== ========= ========== ========= ==========
Ratio of net expenses to average net
assets(B).................................... 1.31% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net asset.................................... 0.18% 0.53% 0.91% 1.06% 1.57%
Portfolio turnover rate......................... 10% 7% 38% 38% 159%
- --------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios of expenses to average net assets would
have been 1.43%, 2.02% and 1.94% for the years ended March 31, 1997, 1996 and 1995, respectively.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS C
Per Share Data for a Share Outstanding Throughout Each Year
======================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 19.34 $ 13.77 $ 12.46 $ 9.86 $ 9.26
---------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income (loss)................. (0.19) (0.03) 0.02 0.05 0.10
Net realized and unrealized gains
on investments............................ 2.71 5.75 1.35 2.60 0.57
---------- --------- ---------- --------- ----------
Total from investment operations................ 2.52 5.72 1.37 2.65 0.67
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... -- -- (0.02) (0.05) (0.07)
Distributions from net realized gains........ -- (0.15) (0.04) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. -- (0.15) (0.06) (0.05) (0.07)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 21.86 $ 19.34 $ 13.77 $ 12.46 $ 9.86
========== ========= ========== ========= ==========
Total return(A) ................................ 13.03% 41.63% 11.01% 26.90% 7.32%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 3,146 $ 3,862 $ 2,770 $ 2,436 $ 1,995
========== ========= ========== ========= ==========
Ratio of net expenses to average net
assets(B).................................... 2.41% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income (loss) to
average net assets........................... (0.92)% (0.18)% 0.15% 0.38% 0.68%
Portfolio turnover rate......................... 10% 7% 38% 38% 159%
- ---------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios of expenses to average net assets
would have been 2.14%, 2.70% and 2.50% for the years ended March 31, 1997, 1996 and 1995, respectively.
</TABLE>
<PAGE>
UTILITY FUND - CLASS A
<TABLE>
Per Share Data for a Share Outstanding Throughout Each Year
===============================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 16.76 $ 12.44 $ 12.24 $ 10.47 $ 10.52
---------- --------- ---------- --------- ----------
Income (loss) from investment operations:
Net investment income........................ 0.38 0.43 0.46 0.47 0.43
Net realized and unrealized gains (losses)
on investments............................ (1.16) 4.56 0.22 1.77 (0.05)
---------- --------- ---------- --------- ----------
Total from investment operations................ (0.78) 4.99 0.68 2.24 0.38
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.38) (0.43) (0.46) (0.47) (0.43)
Distributions from net realized gains........ (0.18) (0.24) (0.02) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.56) (0.67) (0.48) (0.47) (0.43)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 15.42 $ 16.76 $ 12.44 $ 12.24 $ 10.47
========== ========= ========== ========= ==========
Total return(A) ................................ (4.79) % 40.92% 5.61% 21.65% 3.68%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 38,391 $ 42,463 $ 36,087 $ 40,424 $40,012
========== ========= ========== ========= ==========
Ratio of expenses to average net assets......... 1.33% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net assets.................................. 2.30% 3.03% 3.65% 3.97% 4.06%
Portfolio turnover rate ........................ 4% 0% 3% 11% 17%
- --------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS C
Per Share Data for a Share Outstanding Throughout Each Year
=================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 16.74 $ 12.43 $ 12.23 $ 10.46 $ 10.51
---------- --------- ---------- --------- ----------
Income (loss) from investment operations:
Net investment income........................ 0.18 0.31 0.35 0.37 0.35
Net realized and unrealized gains (losses)
on investments............................. (1.16) 4.57 0.24 1.78 (0.04)
---------- --------- ---------- --------- ----------
Total from investment operations................ (0.98) 4.88 0.59 2.15 0.31
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.18) (0.33) (0.37) (0.38) (0.36)
Distributions from net realized gains........ (0.18) (0.24) (0.02) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.36) (0.57) (0.39) (0.38) (0.36)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 15.40 $ 16.74 $ 12.43 $ 12.23 $ 10.46
========== ========= ========== ========= ==========
Total return(A) ................................ (5.92)% 39.91% 4.82% 20.78% 3.00%
---------- --------- ---------- --------- ----------
Net assets at end of year (000's)............... $ 3,215 $ 3,597 $ 3,099 $ 3,686 $ 3,599
========== ========= ========== ========= ==========
Ratio of expenses to average net assets ........ 2.50% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income to average
net assets.................................. 1.13% 2.28% 2.89% 3.19% 3.41%
Portfolio turnover rate......................... 4% 0% 3% 11% 17%
- ------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ACCOUNT NO. ____________________
Account Application (Check appropriate Fund) (For Fund Use Only)
<S> <C> <C> <C>
[] Equity Fund Class A Shares (29) $_________________ FOR BROKER/DEALER USE ONLY
[] Equity Fund Class C Shares (28) Firm Name: ____________________________
[] Utility Fund Class A Shares (25) $_________________ Home Office Address: ___________________
[] Utility Fund Class C Shares (20) Branch Address: ________________________
Rep Name & No.: ________________________
Please mail account application to: Rep Signature: _________________________
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
___________________________________________________________________________________________________________________
Initial Investment of $_____________
[ ] Check or draft enclosed payable to the Fund(s) designated above.
[ ] Bank Wire From: _________________________________________________________________________________________________
[ ] Exchange From: _________________________________________________________________________________________________
(Fund Name) (Fund Account Number)
Account Name S.S. #/Tax I.D.#
_________________________________________________________________ _________________________________________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial account
please list minor's S.S.#)
_________________________________________________________________ Citizenship: [ ] U.S.
Name of Joint Tenant, Partner, Custodian [ ] Other ______________________
Address Phone
_________________________________________________________________ (_____)__________________________________________
Street or P.O. Box Business Phone
_________________________________________________________________ (_____)__________________________________________
City State Zip Home Phone
Check Appropriate Box: [ ] Individual [ ] Joint Tenant (Right of survivorship presumed) [ ] Partnership
[ ] Corporation [ ] Trust [ ] Custodial [ ] Non-Profit [ ] Other
Occupation and Employer Name/Address __________________________________________________________________________________
Are you an associated person of an NASD member? [ ] Yes [ ] No
___________________________________________________________________________________________________________________
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[ ] Share Option _ Income distributions and capital gains distributions automatically reinvested in additional shares.
[ ] Income Option _ Income distributions and short term capital gains distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
[ ] Cash Option _ Income distributions and capital gains distributions paid in cash
[ ] By Check [ ] By ACH to my bank checking or savings account. Please attach a voided check.
- --------------------------------------------------------------------------------------------------------------------------------
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's confirmation of the following holdings of eligible
load funds of Countrywide Investments.
Account Number/Name Account Number/Name
___________________________________________________________- ________________________________________________________
___________________________________________________________- ________________________________________________________
<PAGE>
Letter of Intent: (Complete the Right of Accumulation section if related accounts are being applied to your
Letter of Intent.)
[ ] I agree to the Letter of Intent in the current Prospectus of Countrywide 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):
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT SECURITY
For increased security, Countrywide Fund Services, Inc. requires that you establish a Personal Identification Number [ ][ ][ ][ ]
(PIN). You will need to use this PIN when requesting account information and placing transactions. For institutional
accounts, please use a four digit number. For retail accounts, please use the first four letters of your mother's
maiden name.
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AND TIN CERTIFICATION
I certify that I have full right and power, and legal capacity to purchase shares of the Funds and affirm that I have received a
current prospectus and understand the investment objectives and policies stated therein. 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. Neither the Trust, Countrywide Fund
Services, Inc., nor their respective affiliates will be liable for complying with telephone instructions they reasonably believe
to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The investor(s) will bear the
risk of any such loss. The Trust or Countrywide Fund Services, Inc., or both, will employ reasonable procedures to determine
that telephone instructions are genuine. If the Trust and/or Countrywide Fund Services, Inc. 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. I certify under the penalities of perjury that (1) the Social
Security Number or Tax Identification Number shown is correct and (2) I am not subject to backup withholding. The certifications
in this paragraph are required from all non-exempt persons to prevent backup withholding of 31% of all taxable distributions and
gross redemption proceeds under the federal income tax law. 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 here if you are subject to
backup withholding). [ ]
___________________________________ __________________________________
Applicant Date Joint Applicant Date
___________________________________ ___________________________________
Other Authorized Signatory Date Other Authorized Signatory Date
NOTE: Corporations, trusts and other organizations must provide a copy of the resolution form on the reverse side.
Unless otherwise specified, each joint owner shall have full authority to act on behalf of the account.
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AUTHORIZATION - FOR USE BY CORPORATIONS, TRUSTS, PARTNERSHIPS AND OTHER INSTITUTIONS
Please retain a copy of this document for your files. Any modification of the information contained in this section will
require an Amendment to this Application Form.
[ ] New Application [ ] Amendment to previous Application dated ________ Account No. _______________
Name of Registered Owner ________________________________________________________________________________
The following named person(s) are currently authorized signatories of the Registered Owner. Any ____ of them is/are authorized
under the applicable governing document to act with full power to sell, assign or transfer securities of Countrywide Strategic
Trust for the Registered Owner and to execute and deliver any instrument necessary to effectuate the authority hereby conferred:
Name Title Signature
___________________ ____________________ ___________________
___________________ ____________________ ___________________
___________________ ____________________ ___________________
COUNTRYWIDE STRATEGIC TRUST, or any agent of the Trust may, without inquiry, rely upon the instruction of any person(s)
purporting to be an authorized person named above, or in any Amendment received by the Trust or its agent. The Trust
and its Agent shall not be liable for any claims, expenses or losses resulting from having acted upon any instruction reasonably
believed to be genuine.
- --------------------------------------------------------------------------------------------------------------------------------
<PAGE>
SPECIAL INSTRUCTIONS
REDEMPTION INSTRUCTIONS
I understand that the telephone redemption privilege is automatically available to me unless I indicate otherwise below.
(See the prospectus for limitations on this option.)
[ ] I do not wish to have the telephone redemption privilege on my account.
REDEMPTION OPTIONS
[ ] Please mail redemption proceeds to the name and address of record.
[ ] Please wire redemptions to the commercial bank account indicated below (subject to a minimum wire transfer of $1,000 and an
$8.00 fee. For wire redemptions please attach a voided check from the account below).
[ ] Checkwriting - Call 1-800-543-0407 for checkwriting application and signature card.
AUTOMATIC INVESTMENT (For Automatic Investment please attach a voided check from the account below.)
Please purchase shares of the Fund by withdrawing from the commercial bank account below, per the instructions below:
Amount $_________(minimum $50)
______________________________ is hereby authorized to charge to my account the bank draft amount here indicated. I
understand the payment of this draft is subject to all provisions of the contract as stated on my
bank account signature card.
Please make my automatice investment on:
[ ] the last business day of each month [ ] the 15th day of each month [ ] both the 15th and last business day
_________________________________________________________________
(Signature as your name appears on the bank account to be drafted)
Name as it appears on the account __________________________________________________
Commerical bank account #___________________________________________________________
ABA Routing #_______________________________________________________________________
City, State and Zip in which bank is located _______________________________________
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund Services, Inc. ("CFS") has put into effect, by which
amounts, determined by your depositor, payable to the Fund, for purchase of shares of the Fund, are collected by CFS, CFS hereby
agrees:
CFS will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the payment by
you of any amount drawn by the Fund to its own order on the account of your depositor or from any liability to any person
whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any such
checks. CFS will defend, at its own cost and expense, any action which might be brought against you by any person or persons
whatsoever because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. CFS will refund to you any amount erroneously paid by you to the Fund on any such check if
the claim for the amount of such erroneous payment is made by you within six (6) months from the date of such erroneous payment;
your participation in this arrangement and that of the Fund may be terminated by thirty (30) days written notice from either
party to the other.
- ---------------------------------------------------------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $_________________ from my mutual fund account beginning the last business day of the
month of _____________________.
Please Indicate Withdrawal Schedule (Check One): Please indicate which Fund: [ ] Utility Fund
[ ] Equity Fund
[ ] Monthly - Withdrawals will be made on the last business day of each month.
[ ] Quarterly - Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
[ ] Annually - Please make withdrawals on the last business day of the month of:____________________
Please Select Payment Method (Check One):
[ ] Exchange: Please exchange the withdrawal proceeds into another Countrywide account number: ___ ___ _ ___ ___ ___ ___
[ ] Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
[ ] ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as indicated below.
I understand that the transfer will be completed in two to three business days and that there is no charge.
[ ] Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the wire
will be completed in one business day and that there is an $8.00 fee.
Please attach a voided _______________________________________________________________________________________
check for ACH or bank wire Bank Name Bank Address
_______________________________________________________________________________________
Bank ABA# Account # Account Name
[ ] Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing
address below:
Name of payee_____________________________________________________________________________________________________________
Please send to: __________________________________________________________________________________________________________
Street address City State Zip
____________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
Countrywide Family of Funds
- ---------------------------
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide (Toll-Free) 800-543-8721
Cincinnati 513-629-2000
www.countrywideinvestments.com
Board of Trustees
- -----------------
Donald L. Bogdon, M.D.
H. Jerome Lerner
Robert H. Leshner
Howard J. Levine
Angelo R. Mozilo
Fred A. Rappoport
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
Investment Adviser
- ------------------
Countrywide Investments, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Transfer Agent
- --------------
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
- -------------------
Nationwide: (Toll-Free) 800-543-0407
Cincinnati: 513-629-2050
Additional information about the Funds is included in the Statement of
Additional Information ("SAI") which is incorporated by reference in its
entirety. Additional information about the Funds' investments is available in
the Funds' annual and semiannual reports to shareholders. In the Funds' annual
report you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during their last
fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Funds, or to make inquiries about the Funds, please call
1-800-543-0407 (Nationwide) or 629-2050 (in Cincinnati).
- 31 -
<PAGE>
Information about the Funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's public reference room in Washington,
D.C. Information about the operation of the public reference room can be
obtained by calling the Commission at 1-800-SEC-0330. Reports and other
information about the Funds are available on the Commission's Internet site at
http://www.sec.gov. Copies of information on the Commission's Internet site can
be obtained for a fee by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-6009.
File No. 811-3651
Countrywide - 32 -
[logo] Investments
<PAGE>
--------
-------- Countrywide Investments Capital Appreciation
--------
--------
--------
Prospectus
Growth/Value Fund
Aggressive Growth Fund
August 1, 1999
Countrywide
logo Investments
These securities have not been
approved or disapproved by the
Securities and Exchange Commission
nor has the Securities and Exchange
Commission passed upon the accuracy
or adequacy of this Prospectus. Any
representation to the contrary is a
criminal offense.
This Prospectus has information you
should know before you invest.
Please read it carefully and keep it
with your investment records.
<PAGE>
PROSPECTUS
August 1, 1999
COUNTRYWIDE STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
800-543-0407
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
TABLE OF CONTENTS
RISK/RETURN SUMMARY ........................................................
RISK/RETURN SUMMARY: FEE TABLE..............................................
INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RELATED RISKS...............
HOW TO PURCHASE SHARES......................................................
HOW TO REDEEM SHARES...................................................... ..
HOW TO EXCHANGE SHARES......................................................
DIVIDENDS AND DISTRIBUTIONS..................................................
TAXES...................................................... .................
OPERATION OF THE FUNDS......................................................
DISTRIBUTION PLANS ..........................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE.........................
FINANCIAL HIGHLIGHTS...................................................... ..
For further information or assistance in opening an account, please contact your
broker or call us at the above number.
<PAGE>
RISK/RETURN SUMMARY
- -------------------
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The GROWTH/VALUE FUND seeks long-term capital appreciation primarily through
equity investments in companies whose valuation may not yet reflect the
prospects for accelerated earnings/cash flow growth.
The AGGRESSIVE GROWTH FUND seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes whose valuation may not yet reflect the prospects for
accelerated earnings/cash flow growth.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The GROWTH/VALUE FUND invests primarily in domestic stocks of large-cap growth
companies which the Adviser believes have a demonstrated record of achievement
with excellent prospects for earnings and/or cash flow growth over a 3 to 5
year period.
The AGGRESSIVE GROWTH FUND invests primarily in common stocks of domestic
companies which are likely to benefit from new or innovative products,
services or processes and have accelerated earnings and cash flow growth. The
Fund invests in stocks of various sized companies, even those with less than
$750 million in capitalization.
INVESTMENT STRATEGIES COMMON TO BOTH FUNDS
Each Fund seeks to achieve its investment objective by investing primarily in
common stocks of companies which, in the opinion of the Adviser, are expected to
achieve growth of investment principal over time. Each Fund's portfolio is
comprised of securities of (1) "core" companies which have above-average
earnings growth and excellent prospects for future growth and (2) "earnings/cash
flow acceleration" companies which have currently experienced a dramatic
increase in earnings or are projected to do so.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
RISKS COMMON TO BOTH FUNDS
The return on and value of an investment in the Funds will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Adviser. As a result, there is a risk
that you could lose money by investing in the Funds.
Each Fund is a non-diversified fund, which means that it may invest more than 5%
of its assets in the securities of one issuer. This may cause a Fund's net asset
value to be more
- 2 -
<PAGE>
sensitive to any single economic, business, political or regulatory occurrence
than the net asset value of a diversified fund.
An investment in the Funds is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
SPECIAL RISKS OF INVESTING IN THE AGGRESSIVE GROWTH FUND
Generally, the Aggressive Growth Fund will assume a more expanded risk
profile than the Growth/Value Fund. The Aggressive Growth Fund may invest in
stocks of small and medium-sized companies. These companies may have more
limited product lines and financial resources than larger, more established
companies. The share price of small and medium-sized companies may be more
volatile than the share price of larger companies and their securities may
be less actively traded. The Aggressive Growth Fund may also invest in
securities of companies which offer new or innovative products, which may
subject the Fund to greater risks and greater share price fluctuation than an
investment in other types of equity funds.
Performance Summary
The bar charts and performance tables shown below provide an indication of
the risks of investing in the Funds by showing the changes in the performance of
the Funds from year to year during the Funds' operations and by showing how the
average annual returns of the Funds compare to those of a broad-based securities
market index. The Funds' past performance is not necessarily an indication of
their future performance.
GROWTH/VALUE FUND - CLASS A (bar chart)
20.65% 23.78% 39.06%
1996 1997 1998
The total returns shown above do not reflect sales loads on Class A shares and,
if included, returns would be less than those shown.
During the period shown in the bar chart, the highest return for a quarter was
34.03% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -8.50% during the quarter ended September 30, 1998.
The year-to-date return for the Fund's Class A shares as of June 30, 1999 is
13.04%.
AGGRESSIVE GROWTH FUND (bar chart)
24.08% 17.05% 25.24%
1996 1997 1998
- 3 -
<PAGE>
The total returns shown above do not reflect sales loads on the Fund's shares
and, if included, returns would be less than those shown.
During the period shown in the bar chart, the highest return for a quarter was
34.58% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -17.13% during the quarter ended December 31, 1997.
The Fund's year-to-date return as of June 30, 1999 is 4.87%.
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED DECEMBER 31, 1998
Since Inception
One Year (September 29, 1995)
-------- --------------------
Growth/Value Fund - Class A 33.50% 25.62%
S&P 500 Index(1) 28.58% 27.91%
Aggressive Growth Fund 20.23% 18.55%
NASDAQ Composite Index(2) 40.20% 25.96%
(1) The Standard & Poor's 500 Index is a widely recognized, unmanaged index
of common stock prices.
(2) The NASDAQ Composite Index is an unmanaged index of common stocks of
companies traded over-the-counter and offered through the National
Association of Securities Dealers Automated Quotations system.
- 4 -
<PAGE>
RISK RETURN SUMMARY: FEE TABLE
- ------------------------------
This table describes the fees and expenses that you will pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
Growth/Value Fund
Class A Class C Aggressive
Shares Shares Growth Fund
----------------- -----------
Maximum Sales Load . . . . . . . . . . . . . 5.75% 2.25% 5.75%
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . 5.75% 1.25% 5.75%
Maximum Deferred Sales Load
(as a percentage of original purchase price) None* 1% None*
Sales Load Imposed on Reinvested Dividends . None None None
Redemption Fee . . . . . . . . . . . . . . . None** None** None**
Exchange Fee . . . . . . . . . . . . . . . . None None None
* If you purchase $1 million or more shares and do not pay a front-end
sales load, you may be subject to a deferred sales load of 1% if the
shares are redeemed within 1 year of their purchase and a dealer's
commission was paid on the shares.
** You will be charged $8 for each wire redemption. This fee is subject
to change.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Growth/Value Fund
Class A Class C Aggressive
Shares Shares Growth Fund
Management Fees 1.00% 1.00% 1.00%
Distribution (12b-1) Fees .23% .98% .16%
Other Expenses .43% .43%(A) .84%
----- ----- ----
Total Annual Fund Operating Expenses 1.66% 2.41% 2.00%(B)
===== ===== =====
(A) Based on estimated amounts for the current fiscal year.
(B) After reimbursement of operating expenses by the Manager, total Fund
operating expenses were 1.95% for the fiscal year ended March 31, 1999.
The Manager may discontinue this reimbursement at any time.
Example
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses remain
the same. The costs for Class C shares of the Growth/Value Fund are based on
estimated expenses for the current fiscal year. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
Growth/Value Growth/Value
Fund Fund Aggressive Growth
Class A Shares Class C Shares Fund
-------------- -------------- ----------------
1 Year $ 734 $ 366 $ 766
3 Years 1,068 867 1,166
5 Years 1,425 1,394 1,591
10 Years 2,427 2,837 2,768
- 5 -
<PAGE>
INVESTMENT OBJECTIVES, INVESTMENT STRATEGIES AND RELATED RISKS
- --------------------------------------------------------------
INVESTMENT OBJECTIVES
The GROWTH/VALUE FUND seeks long-term capital appreciation primarily
through equity investments in companies whose valuation may not yet reflect the
prospects for accelerated earnings/cash flow growth.
The AGGRESSIVE GROWTH FUND seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes whose valuations may not yet reflect the prospects
for accelerated earnings/cash flow growth.
INVESTMENT STRATEGIES
GROWTH/VALUE FUND
The Growth/Value Fund will focus on domestic growth companies which are believed
to have a demonstrated record of achievement with excellent prospects for
earnings and/or cash flow growth over a 3 to 5 year period. The Growth/Value
Fund will invest primarily in large-cap stocks and will not invest more than 10%
of its assets in companies with market capitalizations of less than $750
million at the time of purchase.
AGGRESSIVE GROWTH FUND
The Aggressive Growth Fund will focus on domestic growth companies that are
likely to benefit from new or innovative products, services or processes that
should enhance such companies' prospects for future growth in earnings and cash
flow. The Aggressive Growth Fund will invest in companies of various sizes. Many
of these companies are in the small to medium-sized category, meaning they have
market capitalizations of less than $750 million at the time of purchase. The
Aggressive Growth Fund may also invest up to 15% of its assets in common stocks
which are not actively traded on a national or regional stock exchange.
INVESTMENT STRATEGIES COMMON TO BOTH FUNDS
Each Fund seeks to achieve its investment objectives by investing primarily
in common stocks of companies which, in the opinion of the Adviser, are
expected to achieve growth of investment principal over time. In selecting
investments for the Funds, the Adviser looks for securities which it
believes are undervalued, that is, securities which are trading at prices
below their true worth.
Each Fund's portfolio is comprised of securities of two basic categories of
companies:
(1) "core" companies which the Adviser believes have
shown above-average and consistent long-term growth
in earnings and cash flow and have excellent
prospects for future growth. Core companies
generally have projected 3 to 5 year earnings and
cash flow growth rates that exceed the risk-adjusted
price-to-earnings ratio. Core companies consist of
approximately two-thirds of each Fund's portfolio.
(2) "earnings/cash flow acceleration" companies, which
- 6 -
<PAGE>
the Adviser believes are either currently enjoying or
are projected to enjoy a dramatic increase in
earnings and/or cash flow. These companies often
have been overlooked by the financial community and
are believed to have valuations which have not been
fully recognized by the market. The Adviser believes
that these companies may experience an
uncharacteristically rapid growth rate during the
immediate 18 to 36 months. These companies are
typically newer additions to the portfolio and may
become core holdings over time. Earnings/cash flow
acceleration companies may consist of up to one-third
of each Fund's portfolio.
The Adviser expects to hold investments in the Growth/Value Fund for an
average of 18 to 36 months. However, changes in the Adviser's outlook and market
conditions may significantly affect the amount of time the Growth/Value Fund
holds a security. The Aggressive Growth Fund may make short-term trades in order
to take advantage of changing market, industry or company conditions. Each
Fund's portfolio turnover may vary greatly from year to year and during a
particular year. The Adviser does not set a price target for its holdings in
order to determine when to sell an investment. Rather, the Adviser generally
will sell a security in a Fund if one or more of the following occurs:
(1) a change in the fundamentals of a company or an
industry;
(2) excessive valuation;
(3) better risk/reward opportunities may be found in
other stocks; or
(4) excessive overweighting.
When the Adviser believes that adverse market conditions exist, including
any period when it believes that the return on certain money market type
instruments would be higher than the return on a Fund's normal investments, a
Fund may temporarily hold, for defensive purposes, up to 100% of its total
assets in cash and/or short-term obligations. Each Fund may invest in short-term
obligations such as variable amount master demand notes, commercial paper,
certificates of deposit, bankers' acceptances, repurchase agreements which
mature in less than seven days and U.S. Government obligations. To the extent
that a Fund's assets are invested in short-term obligations, the Fund will not
be meeting its investment objective.
RISK CONSIDERATIONS
RISK CONSIDERATIONS COMMON TO BOTH FUNDS
INVESTMENT RISK. The Funds are designed for investors who are investing for
the long term and are not intended for investors seeking assured income or
preservation of capital. Changes in market prices can occur at any time.
Accordingly, there is no assurance that a Fund will achieve its investment
objective. When you redeem your shares, they may be worth more or less than
what you paid for them.
STOCK MARKET RISK. Because the Funds normally invest most, or a substantial
portion, of their assets in stocks, the value of a Fund's portfolio will be
affected by changes in the stock markets. Stock markets and stock prices can
be volatile. Market
- 7 -
<PAGE>
action will affect a Fund's net asset value per share, which fluctuates as the
values of the Fund's portfolio securities change. Not all stock prices change
uniformly or at the same time and not all stock markets move in the same
direction at the same time. Various factors can affect a stock's price (for
example, poor earnings reports by an issuer, loss of major customers, major
litigation against an issuer, or changes in general economic conditions or in
government regulations affecting an industry). Not all of these factors can be
predicted.
RISK OF NON-DIVERSIFICATION. Each Fund is a non-diversified fund and may invest
a significant percentage of its assets in a single issuer. This may cause its
net asset value to be more sensitive to any single economic, business, political
or regulatory occurrence than the net asset value of a diversified fund.
SPECIAL RISKS OF INVESTING IN THE AGGRESSIVE GROWTH FUND
It is intended that the Aggressive Growth Fund may assume a more expanded risk
profile than will be the case with the Growth/Value Fund. While this could
result in above-average appreciation, there is no assurance that this will in
fact be the case and the potential exists for above-average depreciation.
The Aggressive Growth Fund may invest in securities of small and medium-sized
companies, which may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market in general. Because small and
medium-sized companies normally have fewer shares outstanding than larger
companies, it may be more difficult for the Fund to buy or sell significant
amounts of these shares without an unfavorable impact on prevailing prices.
Small-sized companies may have limited product lines, markets or financial
resources and may lack management depth. In addition, small and medium-sized
companies are typically subject to a greater degree of changes in earnings and
business prospects than are larger, more established companies. There is
typically less publicly available information concerning small and medium-sized
companies than for larger, more established ones. Although investing in
securities of small and medium-sized companies offers potential for
above-average returns if the companies are successful, the risk exists that such
companies will not succeed and the prices of their shares could significantly
decline in value.
HOW TO PURCHASE SHARES
- ----------------------
You may open an account with the Funds by investing the minimum amount required
for the type of account you open. You may invest additional amounts in an
existing account at any time. For more information about how to purchase shares,
call Countrywide
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<PAGE>
Fund Services, Inc. (the "Transfer Agent") (Nationwide call toll-free
800-543-0407; in Cincinnati call 629-2050). The different account options
and minimum investment requirements are listed below.
ACCOUNT OPTIONS
Regular Accounts
- ----------------
Accounts for Countrywide Affiliates
- -----------------------------------
If you (or anyone in your immediate family) are an employee, shareholder or
customer of Countrywide Credit Industries, Inc. or any of its affiliated
companies, you may open an account for less than the minimum amount required for
regular accounts.
Tax-Deferred Retirement Plans
- -----------------------------
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"). An IRA is a special type of account
that offers tax advantages. You should consult your financial professional to
help decide which type of IRA is right for you.
Traditional IRA - Assets grow tax-deferred and contributions may be
deductible. Distributions are taxable in the year made.
Spousal IRA - An IRA in the name of a non-working spouse by a working spouse.
Roth IRA - An IRA with tax-free growth of assets and tax-free distributions,
if certain conditions are met. Contributions are not deductible.
Education IRA - An IRA with tax-free growth of assets and tax-free
withdrawals for qualified higher education expenses.
Contributions are not deductible.
KEOGH PLANS. A tax-deferred plan for self-employed individuals.
QUALIFIED PENSION AND PROFIT-SHARING PLANS FOR EMPLOYEES. These
include profit-sharing plans with a 401(k) provision.
403(B)(7) CUSTODIAL ACCOUNTS. A tax-deferred account for employees of public
school systems, hospitals, colleges and other non-profit organizations meeting
certain requirements of the Internal Revenue Code.
Automatic Investment Plan
- -------------------------
The automatic investment plan allows you to make automatic monthly investments
in either Fund from your bank, savings and loan or other depository institution
account. The minimum initial and subsequent investments must be $50 under the
plan.
- 9 -
<PAGE>
The Transfer Agent pays the costs of your transfers, but reserves the right,
upon 30 days' written notice, to make reasonable charges for this service.
MINIMUM INVESTMENT REQUIREMENTS
Initial Additional
------- ----------
Regular Accounts $1,000 None
Accounts for Countrywide Affiliates $ 50 None
Tax-Deferred Retirement Plans $ 250 None
Automatic Investment Plans $ 50 $ 50
Direct Deposit Plans
- --------------------
Your employer may offer a direct deposit plan which will allow you to have all
or a portion of your paycheck transferred automatically to purchase shares of a
Fund. Social security recipients may have all or a portion of their social
security check transferred automatically to purchase shares of a Fund.
InvestPlus Plan
- ----------------
The InvestPlus Plan provides an easy way for Countrywide mortgage holders to
invest in the Funds by including their investment with their mortgage payment.
If you are a Countrywide mortgage holder, you may write one check for the total
amount.
OPENING A NEW ACCOUNT. You may open an account directly with a Fund or through
your broker-dealer.
To open an account directly with a Fund, please follow the steps outlined below.
1. Complete the Account Application included in this Prospectus. Be sure to
indicate the type of account you wish to open, the amount of money you wish to
invest and, for the Growth/Value Fund, the class of shares you wish to purchase.
2. Write a check for your initial investment to either the "Growth/Value Fund"
or the "Aggressive Growth Fund." Mail your completed Account Application and
your check to the following
address:
COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
You may also open an account through your broker-dealer. It is the
responsibility of broker-dealers to send properly completed orders. If you open
an account through your broker-dealer, you may be charged a fee by your
broker-dealer.
- 10 -
<PAGE>
ADDING TO YOUR ACCOUNT. You may make additional purchases to your account at any
time. Additional purchases may be made by mail to the address listed above, by
wire or through your broker-dealer. For more information about purchases by
wire, please telephone the Transfer Agent (Nationwide call toll-free
800-543-0407; in Cincinnati call 629-2050). Your bank may charge a fee for
sending your wire. Each additional purchase must contain the account name and
number in order to properly credit your account.
MISCELLANEOUS. In connection with all purchases of Fund shares, we observe the
following policies and procedures:
o We price direct purchases based upon the next public
offering price (net asset value plus any applicable sales
load) after your order is received. Direct purchase
orders received by the Transfer Agent by 4:00 p.m.,
Eastern time, are processed at that day's public offering
price. Direct investments received by the Transfer Agent
after 4:00 p.m., Eastern time, are processed at the
public offering price next determined on the following
business day. Purchase orders received by broker-dealers
before 4:00 p.m., Eastern time, and transmitted to the
Manager by 5:00 p.m., Eastern time, are processed at that
day's public offering price. Purchase orders received
from broker-dealers after 5:00 p.m., Eastern time, are
processed at the public offering price next determined on
the following business day.
o We mail you confirmations of all purchases or redemptions
of Fund shares.
o Certificates for shares are not issued.
o We reserve the right to limit the amount of investments
and to refuse to sell to any person.
o If an order to purchase shares is canceled because your check does
not clear, you will be responsible for any resulting losses or
fees incurred by the Fund or the Transfer Agent in the
transaction.
o We may open accounts for less than the minimum investment or
change minimum investment requirements at any time.
o There is no fee for purchases made by wire, but we may charge you
for this service upon 30 days' prior notice.
The Funds' account application contains provisions in favor of the
Funds, the Transfer Agent and certain of their affiliates, excluding such
entities from certain liabilities (including, among others, losses resulting
from unauthorized shareholder
- 11 -
<PAGE>
transactions) relating to the various services (for example, telephone
redemptions and exchanges) made available to investors.
Choosing a Share Class (Growth/Value Fund Only)
- -----------------------------------------------
The Growth/Value Fund offers Class A and Class C shares. Each class
represents an interest in the same portfolio of investments and has the same
rights, but differs primarily in sales loads and distribution expense amounts.
Shares of the Growth/Value Fund purchased before August 1, 1999 are Class A
shares. Before choosing a class, you should consider the following factors, as
well as any other relevant facts and circumstances:
The decision as to which class of shares is more beneficial to you
depends on the amount of your investment, the intended length of your investment
and the quality and scope of the value-added services provided by financial
advisers who may work with a particular sales load structure as compensation for
their services. If you qualify for reduced sales loads or, in the case of
purchases of $1 million or more, no initial sales load, you may find Class A
shares attractive because similar sales load reductions are not available for
Class C shares. Moreover, Class A shares are subject to lower ongoing expenses
than Class C shares over the term of the investment. As an alternative, Class C
shares are sold with a lower initial sales load so more of the purchase price is
immediately invested in the Fund. If you do not plan to hold your shares in the
Fund for a long time (less than 5 years), it may be better to purchase Class C
shares so that more of your purchase is invested directly in the Fund, although
you will pay higher distribution fees. If you plan to hold your shares in the
Fund for more than 5 years, it may be better to purchase Class A shares, since
after 5 years your accumulated distribution fees may be more than the sales load
paid on your purchase.
When determining which class of shares to purchase, you may want to
consider the services provided by your financial adviser and the compensation
provided to these financial advisers under each share class. Countrywide
Investments works with many experienced and very qualified financial advisers
throughout the country that may provide valuable assistance to you through
ongoing education, asset allocation programs, personalized financial planning
reviews or other services vital to your long-term success. Countrywide
Investments believes that these value-added services can greatly benefit you
through market cycles and Countrywide will work diligently with your chosen
financial adviser. Countrywide Investments has a financial adviser referral
service available, at no cost, to help you choose a financial adviser in your
area, if you do not have one.
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<PAGE>
Set forth below is a chart comparing the sales loads and 12b-1 fees
applicable to each class of shares:
CLASS SALES LOAD 12b-1 FEE
- -------------------------------------------------------------------------------
A Maximum of 5.75% initial 0.25%
sales load reduced for purchases
of $50,000 and over; shares sold
without an initial sales load may
be subject to a 1.00% contingent
deferred sales load during first
year if a commission was paid to
a dealer
C 1.25% initial sales load; 1.00% 1.00%
contingent deferred sales load
during first year
- -------------------------------------------------------------------------------
If you are investing $1 million or more, it is generally more beneficial
for you to buy Class A shares because there is no front-end sales load and the
annual expenses are lower.
Shares of the Aggressive Growth Fund and Class A Shares of the Growth/Value Fund
- --------------------------------------------------------------------------------
Shares of the Aggressive Growth Fund and Class A shares of the
Growth/Value Fund are sold at net asset value ("NAV") plus an initial sales
load. In some cases, reduced initial sales loads may be available, as described
below. Investments of $1 million or more are not subject to a sales load at the
time of purchase but may be subject to a contingent deferred sales load of 1.00%
on redemptions made within 1 year after purchase if a commission was paid by the
Manager to a participating unaffiliated dealer. Class A shares of the
Growth/Value Fund are subject to an annual 12b-1 distribution fee of up to .25%
of the Fund's average daily net assets allocable to Class A shares. Shares of
the Aggressive Growth Fund are subject to an annual 12b-1 distribution fee of up
to .25% of the Fund's average daily net assets.
The following table illustrates the initial sales load breakpoints for
the purchase of shares of the Aggressive Growth Fund and Class A shares of the
Growth/Value Fund for accounts opened after July 31, 1999:
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<PAGE>
Which Dealer
Percentage Equals this Reallowance
Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment Price
- -------------------- --------- ----------- -------------
Less than $ 50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50 4.71 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.25 2.30 1.75
$1,000,000 or more None None
The following table illustrates the initial sales load breakpoints for the
purchase of shares of the Aggressive Growth Fund and Class A shares of the
Growth/Value Fund for accounts opened before August 1, 1999:
Which Dealer
Percentage Equals this Reallowance
Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment Price
- -------------------- --------- ----------- -------------
Less than $ 100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None None
Under certain circumstances, the Manager may increase or decrease the
reallowance to selected dealers. In addition to the compensation otherwise paid
to securities dealers, the Manager may from time to time pay from its own
resources additional cash bonuses or other incentives to selected dealers in
connection with the sale of shares of the Funds. On some occasions, such bonuses
or incentives may be conditioned upon the sale of a specified minimum dollar
amount of the shares of a Fund and/or other funds in the Countrywide Family of
Funds during a specific period of time. Such bonuses or incentives may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and other dealer- sponsored programs or events.
For initial purchases of shares of the Aggressive Growth Fund or Class A
shares of the Growth/Value Fund of $1 million or more and subsequent purchases
further increasing the size of the account, participating unaffiliated dealers
will receive first year compensation of up to 1.00% of such purchases from the
Manager. In determining a dealer's eligibility for such commission, purchases of
shares of the Funds may be aggregated with concurrent purchases of shares of
other load funds in the Countrywide Family of Funds. Dealers should contact the
Manager for more information on the calculation of the dealer's commission in
the case of combined purchases.
- 14 -
<PAGE>
An exchange from other Countrywide Funds will not qualify for payment of
the dealer's commission unless the exchange is from a Countrywide Fund with
assets as to which a dealer's commission or similar payment has not been
previously paid. No commission will be paid if the purchase represents the
reinvestment of a redemption from a Fund made during the previous 12 months.
Redemptions 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" below.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine
the cost or current NAV (whichever is higher) of your existing shares of any
Countrywide Fund sold with a sales load with the amount of any current purchases
in order to take advantage of the reduced sales loads set forth in the tables
above. Purchases made in any Countrywide load fund under 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 Countrywide Funds which are sold with a
sales load are listed in the Exchange Privilege section of this Prospectus. You
should contact the Transfer Agent for information about the Right of
Accumulation and Letter of Intent.
PURCHASES AT NET ASSET VALUE. Shares of the Aggressive Growth
Fund or Class A shares of the Growth/Value Fund may be
purchased at NAV by pension and profit-sharing plans, pension funds and other
company-sponsored benefit plans that (1) have plan assets of $500,000 or more,
or (2) have, at the time of purchase, 100 or more eligible participants, or (3)
certify that they project to have annual plan purchases of $200,000 or more, or
(4) are provided administrative services by certain third-party administrators
that have entered into a special service arrangement with the Manager relating
to such plan.
Banks, bank trust departments and savings and loan associations, in their
fiduciary capacity or for their own accounts, may purchase shares of the
Aggressive Growth Fund or Class A shares of the Growth/Value Fund at
NAV. To the extent permitted by regulatory authorities, a bank trust
department may charge fees to clients for whose account it purchases shares at
NAV. Federal and state credit unions may also purchase shares at NAV.
In addition, shares of the Aggressive Growth Fund or Class A shares
of the Growth/Value Fund may be purchased at NAV 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 may also purchase shares of the
Aggressive Growth Fund or Class A shares of the Growth/Value Fund at NAV if
their investment adviser or broker-dealer has made arrangements to permit them
to do so with the Trust. The investment adviser must notify the Transfer Agent
that an investment qualifies as a purchase at NAV.
Associations and affinity groups and their members may purchase
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<PAGE>
shares of the Aggressive Growth Fund or Class A shares of the Growth/Value Fund
at NAV provided that management of these groups or their financial adviser has
made arrangements with the Trust to permit them to do so. Investors or their
financial adviser must notify the Transfer Agent that an investment qualifies
as a purchase at NAV.
Employees, shareholders and customers of Countrywide Credit Industries,
Inc. or any affiliated company, including members of the immediate families of
such individuals and employee benefit plans established by such entities, may
also purchase shares of the Aggressove Growth Fund or Class A shares of the
Growth/Value Fund at NAV.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES. A contingent deferred
sales load is imposed upon certain redemptions of shares of the Aggressive
Growth Fund and Class A shares of the Growth/Value Fund (or shares into which
such shares were exchanged) purchased at NAV 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 1 year from the date of purchase. The contingent
deferred sales load will be paid to the Manager and will be equal to the
commission percentage paid at the time of purchase as applied to the lesser of
(1) the NAV at the time of purchase of the shares being redeemed, or (2) the NAV
of such shares at the time of redemption. If a purchase is subject to the
contingent deferred sales load, you will be notified on the confirmation you
receive for your purchase. Redemptions of shares held for at least 1 year will
not be subject to the contingent deferred sales load.
Class C Shares of the Growth/Value Fund
- ----------------------------------------
Class C shares of the Growth/Value Fund are sold with an initial sales
load of 1.25% and are subject to a contingent deferred sales load of 1.00% on
redemptions of Class C shares made within 1 year of their purchase. The
contingent deferred sales load will be a percentage of the dollar amount of
shares redeemed and will be assessed on an amount equal to the lesser of (1) the
NAV at the time of purchase of the Class C shares being redeemed, or (2) the NAV
of such Class C shares being redeemed. A contingent deferred sales load will not
be imposed upon redemptions of Class C shares held for at least 1 year. Class C
shares are subject to an annual 12b-1 fee of up to 1.00% of the Fund's average
daily net assets allocable to Class C shares. The Manager intends to pay a
commission of 2.00% of the purchase amount to your broker at the time you
purchase Class C shares.
Additional Information on the Contingent Deferred Sales Load
- ------------------------------------------------------------
The contingent deferred sales load is 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
- 16 -
<PAGE>
named. The Manager may require documentation prior to waiver of the load,
including death certificates, physicians' certificates, etc.
All sales loads imposed on redemptions are paid to the Manager. 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.
The following example will illustrate the operation of the contingent
deferred sales load. Assume that you open an account and purchase 1,000 shares
at $10 per share and that 6 months later the NAV per share is $12 and, during
such time, you have acquired 50 additional shares through reinvestment of
distributions. If at such time you should redeem 450 shares (proceeds of
$5,400), 50 shares will not be subject to the load because of dividend
reinvestment. With respect to the remaining 400 shares, the load is applied only
to the original cost of $10 per share and not to the increase in net asset value
of $2 per share. Therefore, $4,000 of the $5,400 redemption proceeds will be
charged the load. At the rate of 1.00%, the contingent deferred sales load would
be $40. In determining whether an amount is available for redemption without
incurring a deferred sales load, the purchase payments made for all Class C
shares in your account are aggregated.
HOW TO REDEEM SHARES
- ---------------------
BY WRITTEN REQUEST. You may send a written request to the Transfer Agent with
your name, your account number and the amount to be redeemed. You must sign your
request exactly as your name appears on the Trust's account records. Mail your
written request to:
COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
BY TELEPHONE. If the amount of your redemption is less than $25,000, you may
redeem your shares by telephone. To redeem shares by telephone, call the
Transfer Agent (Nationwide call toll-free 800-543- 0407; in Cincinnati call
629-2050). Your redemption proceeds may be mailed to the address stated on your
Account Application, wired to your bank or brokerage account as stated on your
Account Application or deposited via an Automated Clearing House (ACH)
transaction. The telephone redemption privilege is automatically available to
you, unless you specifically notify the Transfer Agent not to honor telephone
redemptions for your account. IRA accounts may not be redeemed by telephone.
THROUGH YOUR BROKER-DEALER. You may also redeem shares by placing a wire
redemption request through your broker-dealer. Your broker-dealer is responsible
for ensuring that redemption requests are transmitted to us in proper form in a
timely manner.
- 17 -
<PAGE>
PROCESSING OF REDEMPTIONS. If you request a redemption by wire, you will be
charged an $8 processing fee. We reserve the right to change the processing fee,
upon 30 days' notice. All charges will be deducted from your account by
redeeming shares in your account. Your bank or brokerage firm may also charge
you for processing the wire. Redemption proceeds will only be wired to a
commercial bank or brokerage firm in the United States. If it is impossible or
impractical to wire funds, the redemption proceeds will be sent by mail to the
designated account.
If you would like your redemption proceeds deposited free of charge
directly into your account with a commercial bank or other depository
institution via an ACH transaction, contact the Transfer Agent for more
information.
We redeem shares based on the current NAV on the day we receive a proper
request for redemption, less any contingent deferred sales load on the redeemed
shares. Be sure to review "How to Purchase Shares" above to determine whether
your redemption is subject to a contingent deferred sales load.
A SIGNATURE GUARANTEE helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public. For joint
accounts, each signature must be guaranteed. Please call us to ensure that your
signature guarantee will be submitted correctly.
A SIGNATURE GUARANTEE is required for (1) any redemption which is $25,000
or more (2) any redemption when the name(s) or the address on the account has
been changed within 30 days of your redemption request.
ADDITIONAL INFORMATION ABOUT ACCOUNTS AND REDEMPTIONS
SMALL ACCOUNTS. Due to the high costs of maintaining small accounts, we may ask
that you increase your account balance if your account falls below the minimum
amount required for your account. If the account balance remains below our
minimum requirements for 30 days after we notify you, we may close your account
and send you the proceeds, less any applicable contingent deferred sales load.
AUTOMATIC WITHDRAWAL PLAN. If the shares in your account have a value of at
least $5,000, you (or another person you have designated) may receive monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional shares of the Funds while the
plan is in effect are generally undesirable because an initial sales load is
incurred whenever purchases are made.
REINVESTMENT PRIVILEGE. If you have redeemed shares of either Fund, you may
reinvest all or part of the proceeds without paying a sales
- 18 -
<PAGE>
load. You must make your reinvestment within 90 days of your redemption and you
may only use this privilege once a year.
MISCELLANEOUS. In connection with all redemptions of Fund shares, we
observe the following policies and procedures:
o We may refuse any redemption request involving recently purchased
shares until your check for the recently purchased shares has
cleared. To eliminate this delay, you may purchase shares of the
Funds by certified check or wire.
o We may refuse any telephone redemption request if the name(s) or
the address on the account has been changed within 30 days of your
redemption request.
o We may delay mailing redemption proceeds for up to 7 days
(redemption proceeds are normally mailed within 3 days after
receipt of a proper request).
o We will consider all written and verbal instructions as
authentic and will not be responsible for processing
instructions received by telephone which are reasonably
believed to be genuine or for processing redemption proceeds
by wire. We will use reasonable procedures to determine that
telephone instructions are genuine, such as requiring forms of
personal identification before acting upon telephone
instructions, providing written confirmation of the
transactions and/or tape recording telephone instructions. If
we do not use such procedures, we may be liable for losses due
to unauthorized or fraudulent instructions.
HOW TO EXCHANGE SHARES
- ----------------------
Shares of either Fund and of any other fund in the Countrywide Family
of Funds may be exchanged for each other.
Shares of the Aggressive Growth Fund and Class A shares of the
Growth/Value Fund which do not have a contingent deferred sales load may be
exchanged for Class A shares of any other fund and for shares of any fund which
offers only one class of shares (provided these shares do not have a contingent
deferred sales load). If you paid a sales load on the shares being exchanged,
this amount will be credited towards the sales load (if any) on the shares being
acquired.
Class C shares of a Fund and Class A shares of the Growth/Value Fund
which have a contingent deferred sales load, may be exchanged, based on their
per share NAV, for shares of any other fund which has a contingent deferred
sales load and for shares of any fund which is a money market fund. You will
receive credit for the period of time you held the shares being exchanged when
determining whether a contingent deferred sales load will apply, unless your
shares were held in a money market fund.
- 19 -
<PAGE>
The Countrywide Family of Funds consists of the following funds. Funds
which may have a front-end or a contingent deferred sales load are marked with
an asterisk.
GROWTH FUNDS GROWTH & INCOME FUNDS
*Growth/Value Fund *Equity Fund
*Aggressive Growth Fund *Utility Fund
TAXABLE BOND FUNDS TAX-FREE BOND FUNDS
Adjustable Rate U.S. Government *Tax-Free Intermediate Term
Securities Fund Fund
*Intermediate Bond Fund *Ohio Insured Tax-Free Fund
*Intermediate Term Government Income
Fund
TAXABLE MONEY MARKET FUNDS TAX-FREE MONEY MARKET FUNDS
Short Term Government Income Fund Tax-Free Money Fund
Institutional Government Income Fund Ohio Tax-Free Money Fund
Money Market Fund California Tax-Free Money
Fund
Florida Tax-Free Money
Fund
You may exchange shares by written request or by telephone. You must
sign your written request exactly as your name appears on the Trust's account
records. If you are unable to exchange shares by telephone due to such
circumstances as unusually heavy market activity, you can exchange shares by
mail or in person. Your exchange will be processed at the next determined NAV
(or offering price, if there is a sales load) after the Transfer Agent receives
your request.
You may only exchange shares into a fund which is authorized for sale
in your state of residence and you must meet that fund's minimum initial
investment requirements. The Board of Trustees may change or discontinue the
exchange privilege after giving shareholders 60 days' prior notice. Any gain or
loss on an exchange of shares is a taxable event. Before making an exchange,
contact the Transfer Agent to request information about the other funds in the
Countrywide Family of Funds.
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
Each Fund expects to distribute substantially all of its net investment
income and any net realized long-term capital gains at least annually.
Management will determine when to distribute any net realized short-term capital
gains.
Your distributions will be paid under one of the following options:
- 20 -
<PAGE>
Share Option - all distributions are reinvested
in additional shares.
Income Option - income and short-term capital gains are
paid in cash; long-term capital gains are
reinvested in additional shares.
Cash Option - all distributions are paid in cash.
Please mark on your Account Application the option you have selected. If
you do not select an option, you will receive the Share Option. If you select
the Income Option or the Cash Option and the post office cannot deliver your
checks or if you do not cash your checks within six months, your dividends may
be reinvested in your account at the then-current NAV and your account will be
converted to the Share Option. You will not receive interest on the amount of
your uncashed checks until the checks have been reinvested in your account.
Distributions will be based on a Fund's NAV on the payable date. If you
have received a cash distribution from either Fund, you may reinvest it at NAV
(without paying a sales load) at the next determined NAV on the date of your
reinvestment. You must make your reinvestment within 30 days of the distribution
date and you must notify the Transfer Agent that your distribution is being
reinvested under this provision.
TAXES
- ------
Each Fund is treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including requirements with respect to
diversification of assets, distribution of income and sources of income. Each
Fund intends to distribute to its shareholders substantially all of its
investment income (net of expenses) and any capital gains (net of capital
losses) in accordance with the timing requirements imposed by the Code, so that
each Fund will satisfy the distribution requirement of Subchapter M and
will not be subject to federal income tax or the 4% excise tax.
If a Fund fails to satisfy any of the Code requirements for
qualification as a regulated investment company, it will be taxed at regular
corporate tax rates on all its taxable income (including capital gains) without
any deduction for distributions to shareholders, and distributions to
shareholders will be taxable as ordinary dividends (even if derived from the
Fund's net long-term capital gains) to the extent of the Fund's current and
accumulated earnings and profits.
Distributions by a Fund of its taxable net investment income and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable to shareholders as
- 21 -
<PAGE>
ordinary income. Such distributions are treated as dividends for federal income
tax purposes but generally are expected to qualify for the 70%
dividends-received deduction for corporate shareholders. Distributions by a Fund
of the excess, if any, of its net long-term capital gain over its net short-term
capital loss are designated as capital gains dividends and are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have held their shares.
Distributions to shareholders will be treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of a Fund. In general, distributions by a Fund are taken into account by
the shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by a Fund
and received by the shareholders on December 31 of the preceding year.
A shareholder will recognize gain or loss upon the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
Any loss realized upon a taxable disposition of shares within 6 months from the
date of their purchase will be treated as a long-term capital loss to the extent
of any capital gain dividends received on such shares. All or a portion of any
loss realized upon a taxable disposition of shares of a Fund may be disallowed
if other shares of the Fund are purchased within 30 days before or after such
disposition. Any gain or loss on an exchange of shares is a taxable event.
If a shareholder is a non-resident alien or foreign entity shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at a rate of 30% (or lower applicable treaty
rate). Non-United States shareholders are urged to consult their own tax adviser
concerning the applicability of the United States withholding tax.
Under the backup withholding rules of the Code, certain shareholders
may be subject to 31% withholding of federal income tax on ordinary income
dividends paid by a Fund. In order to avoid this backup withholding, a
shareholder must provide the Fund with a correct taxpayer identification number
(which for most individuals is his or her Social Security number) or certify
that it is a corporation or otherwise exempt from or not subject to backup
withholding.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative, judicial or administrative action. As the
foregoing discussion
- 22 -
<PAGE>
is for general information only, a prospective shareholder should also review
the more detailed discussion of federal income tax considerations relevant to
the Funds that is contained in the Statement of Additional Information. In
addition, each prospective shareholder should consult with his own tax adviser
as to the tax consequences of investments in the Funds, including the
application of state and local taxes which may differ from the federal income
tax consequences described above.
OPERATION OF THE FUNDS
- ----------------------
The Funds are diversified series of Countrywide Strategic Trust, an
open-end management investment company organized as a Massachusetts business
trust. Like other mutual funds, the Trust retains various organizations to
perform specialized services for the Funds.
The Trust retains Countrywide Investments, Inc. (the "Manager"), 312 Walnut
Street, Cincinnati, Ohio 45202 to provide general investment supervisory
services and to manage the Funds' business affairs. The Manager was organized in
1974 and is also the investment adviser to twelve other funds in the Countrywide
Family of Funds. The Manager is an indirect wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending. Each Fund
pays the Manager a fee at the annual rate of 1.00% of its average daily net
assets up to $50 million;.90% of such assets from $50 million to $100 million;
.80% of such assets from $100 million to $200 million; and .75% of such assets
in excess of $200 million.
The Manager is the principal underwriter for the Funds and the exclusive
agent for the distribution of shares of the Funds. The Manager receives the
entire sales load on all direct initial investments in shares of the Funds and
on all investments which are not made through a broker.
Mastrapasqua & Associates, Inc. (the "Adviser"), 814 Church Street,
Nashville, Tennessee, manages the Funds' investments. The Adviser was organized
in 1993 and provides investment advisory services to institutions and individual
investors. The Manager (not the Funds) pays the Adviser a fee for managing the
Funds' portfolios.
Frank Mastrapasqua, Ph.D, Chairman and Chief Executive Officer of the
Adviser, and Thomas A. Trantum, President of the Adviser, are primarily
responsible for the day-to-day management of the Funds. Mr. Mastrapasqua
founded the Adviser in 1993. Before 1993, he was Director of Research and Chief
Investment Strategist and a partner at J.C. Bradford & Co. Mr. Trantum was
a Senior Security Analyst and a partner at J.C. Bradford & Co.
- 23 -
<PAGE>
until 1993.
YEAR 2000 READINESS. Computer users around the world are faced with the dilemma
of the Year 2000 issue, which stems from the use of two digits in most computer
systems to designate the year. When the year advances from 1999 to 2000, many
computers will not recognize "00" as the Year 2000. This issue could potentially
affect every aspect of computer-related activity, on an individual and corporate
level. The Funds could be adversely impacted if the computer systems used by the
Adviser and other service providers have not been converted to meet the
requirements of the new century. The Adviser has evaluated its internal systems
and expects them to handle the change of millennium. The Adviser is monitoring
on an ongoing basis the progress of the Funds' service providers to convert
their systems to comply with the requirements of the Year 2000. The Adviser
currently has no reason to believe that these service providers will not be
fully and timely compliant. However, you should be aware that there can be no
assurance that all systems will be successfully converted prior to January 1,
2000, in which case it would become necessary for the Funds to enter into
agreements with new service providers or to make other arrangements. In
addition, although the Adviser considers an issuer's Year 2000 compliance status
in the investment decision making process, companies in which the Funds invest
may experience Year 2000 difficulties and the Funds are unable to predict to
what extent the Year 2000 issue will impact the value of those securities.
DISTRIBUTION PLANS
- ------------------
Pursuant to Rule 12b-1 under the 1940 Act, the Aggressive Growth Fund
has adopted a plan of distribution (the "Aggressive Growth Plan") and the
Growth/Value Fund has adopted two plans of distribution (the "Class A Plan" and
the "Class C Plan") which permit the Funds to directly incur or reimburse the
Manager for certain expenses related to the distribution of Fund shares,
including payments to securities dealers and other persons, including the
Manager and its affiliates, who are engaged in the sale of shares of a 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 or the Trust; expenses of formulating and implementing
marketing and promotional activities, including direct mail promotions and mass
media advertising; expenses of preparing, printing and distributing sales
literature and prospectuses and statements of additional information and reports
for recipients other than existing shareholders of the Funds; expenses of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may, from time to time, deem
- 24 -
<PAGE>
advisable; and any other expenses related to the distribution of
Fund shares.
The annual limitation for payment of expenses pursuant to the Class A
Plan is .25% of the Growth/Value Fund's average daily net assets allocable to
Class A shares. The annual limitation for payment of expenses pursuant to the
Aggressive Growth Plan is .25% of the Fund's average daily net assets.
The Class C Plan allows Class C shares to pay two categories of fees
for the sale and distribution of its shares. First, the Class C Plan allows for
the payment of an account maintenance fee to the Manager in an amount equal to
an annual rate of .25% of the Growth/Value Fund's average daily net assets
allocable to Class C shares. The account maintenance fee may be paid to other
brokers based on the average value of Class C shares owned by a broker's
clients. In addition, Class C shares may pay an annual fee of up to .75% of the
average daily net assets of Class C shares for sales and distribution expenses.
These expenses include payments to brokers who sell Class C shares, advertising
and marketing expenses, printing expenses and other distribution- related
expenses.
GENERAL. Because distribution fees are paid out of a Fund's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales loads. In the
event a plan of distribution is terminated by a Fund in accordance with its
terms, the Fund will not be required to make any payments for expenses incurred
by the Manager after the date the plan terminates. Distribution expenses paid
by the Manager which are not reimbursed by the Funds cannot be carried over from
year to year.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
On each day that the Trust is open for business, the public offering
price (NAV plus applicable sales load) of the shares of each Fund is determined
as of the close of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time). The Trust is open for business on each day
the New York Stock Exchange is open for business and on any other day when there
is sufficient trading in a Fund's investments that its NAV might be materially
affected. The NAV per share of a 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 price at which a
purchase or redemption of Fund shares is effected is based on the next
calculation of NAV after the order is placed. Each Fund's NAV will fluctuate
with the value of the securities it holds.
- 25 -
<PAGE>
The value of the securities held by a Fund is determined as follows: (1)
Securities traded on a stock exchange are priced at their last sale price after
trading on the New York Stock Exchange has closed. If the securities were not
traded on the exchange that day, they are valued at their last bid price; (2)
Securities traded in the over-the counter market are priced at their last sale
price after trading on the New York Stock Exchange has closed. If the last sale
price is not available, the security is valued at the last bid price quoted by
brokers that make markets in that security; (3) Securities that do not have
available market prices are priced at their fair value using consistent
procedures established in good faith by the Board of Trustees.
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------
The financial highlights table is intended to help you understand the Funds'
financial performance. The table shows the financial performance of each Fund
during its operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Funds (assuming
reinvestment of all dividends and distributions). The information for periods
ending after August 31, 1996 has been audited by Arthur Andersen LLP, whose
report, along with the Funds' financial statements, is included in the Statement
of Additional Information and Annual Report, which is available upon request.
Information for the period ending August 31, 1996 was audited by other
independent accountants. The following information for the Growth/Value Fund is
for Class A shares only. Information is not available for Class C shares since
their public offering did not begin until August 1, 1999.
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
Per Share Data for a Share Outstanding Throughout Each Period
======================================================================================================================
Year Seven Months Year Period
Ended Ended Ended Ended
March 31, March 31, August 31, August 31,
1999 1998(A) 1997 1996(B)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 16.30 $ 15.90 $ 11.18 $ 10.00
------------ -------------- ------------- -------------
Income from investment operations:
Net investment loss......................... (0.17) (0.08) (0.13) (0.06)(C)
Net realized and unrealized gains
on investments............................ 4.84 1.05 5.39 1.24
------------ -------------- ------------- -------------
Total from investment operations............... 4.67 0.97 5.26 1.18
------------ -------------- ------------- -------------
Less distributions:
Distributions from net realized gains....... (3.47) (0.57) (0.54) --
------------ -------------- ------------- -------------
Net asset value at end of period............... $ 17.50 $ 16.30 $ 15.90 $ 11.18
============ ============== ============= =============
Total return(D) ............................... 29.89% 6.43% 47.11% 11.80%
============ ============== ============= =============
Net assets at end of period (000's)............ $ 24,664 $ 28,649 $ 26,778 $ 15,108
============ ============== ============= =============
Ratio of net expenses to average net
assets(E)................................... 1.66% 1.66%(F) 1.95% 1.95%(F)
Ratio of net investment loss to average
net assets (F).............................. (0.93)% (0.91)%(F) (1.03)% (0.62)%
Portfolio turnover rate........................ 59% 62%(F) 52% 21%
- ---------------------------------------------------------------------------------------------------------------------
(A) Effective as of the close of business on August 29, 1997, the Fund was reorganized and its fiscal year-end,
subsequent to August 31, 1997, was changed to March 31.
(B) Represents the period from the commencement of operations (September 29, 1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratio of expenses to average net assets would have been 2.83%(F)
for the period ended August 31, 1996.
(F) Annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
Per Share Data for a Share Outstanding Throughout Each Period
=====================================================================================================================
Year Seven Months Year Period
Ended Ended Ended Ended
March 31, March 31, August 31, August 31,
1999 1998(A) 1997 1996(B)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 15.81 $ 16.29 $ 10.95 $ 10.00
------------ -------------- ------------- -------------
Income (loss) from investment operations:
Net investment loss......................... (0.27) (0.15) (0.17) (0.11)(C)
Net realized and unrealized gains (losses)
on investments................................ 2.67 (0.33) 5.54 1.06
------------ -------------- ------------- -------------
Total from investment operations............... 2.40 (0.48) 5.37 0.95
------------ -------------- ------------- -------------
Less distributions:
Distributions from net realized gains....... (2.48) -- (0.03) --
------------ -------------- ------------- -------------
Net asset value at end of period............... $ 15.73 $ 15.81 $ 16.29 $ 10.95
============ ============== ============= =============
Total return(D) ............................... 15.46% (2.95)% 49.09% 9.50%
============ ============== ============= =============
Net assets at end of period (000's)............ $ 11,402 $ 15,495 $ 13,984 $ 6,550
============ ============== ============= =============
Ratio of net expenses to average net
assets(E)................................... 1.95% 1.95%(F) 1.94% 1.95%(F)
Ratio of net investment loss to average
net assets(F)............................... (1.52)% (1.66)%(F) (1.57)% (1.26)%
Portfolio turnover rate........................ 93% 40%(F) 51% 16%
Amount of debt outstanding at end of period.... $ -- n/a n/a n/a
Average daily amount of debt outstanding during
the period (000's).......................... $ 80 n/a n/a n/a
Average daily number of capital shares outstanding
during the period (000's)................... 818 n/a n/a n/a
Average amount of debt per share during
the period.................................. $ 0.10 n/a n/a n/a
- -----------------------------------------------------------------------------------------------------------------
(A) Effective as of the close of business on August 29, 1997, the Fund was reorganized and its fiscal year-end,
subsequent to August 31, 1997, was changed to March 31.
(B) Represents the period from the commencement of operations (September 29, 1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratios of expenses to average net assets would have
been 2.00%, 2.62% and 5.05%(F) for the periods ended March 31, 1999, August 31, 1997 and August 31, 1996,
respectively.
(F) Annualized.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Account Application (check appropriate Fund) ACCOUNT NO. ____________________________
(For Fund Use Only)
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354 FOR BROKER/DEALER USE ONLY
Cincinnati, Ohio 45201-5354 Firm Name:______________________________________
[ ] Aggressive Growth Fund (92) $________________ Home Office Address:____________________________
[ ] Growth/Value Fund-A Shares (91) $________________ Branch Address:
[ ] Growth/Value Fund - C Shares (90) $________________ Rep Name & No.:_________________________________
Rep Signature:__________________________________
___________________________________________________________________________________________________________________
Initial Investment of $_____________
[ ] Check or draft enclosed payable to the Fund(s) designated above.
[ ] Bank Wire From: _________________________________________________________________________________________________
[ ] Exchange From: _________________________________________________________________________________________________
(Fund Name) (Fund Account Number)
Account Name S.S. #/Tax I.D.#
_________________________________________________________________ _________________________________________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial account
please list minor's S.S.#)
_________________________________________________________________ Citizenship: [ ] U.S.
Name of Joint Tenant, Partner, Custodian [ ] Other ______________________
Address Phone
_________________________________________________________________ (_____)__________________________________________
Street or P.O. Box Business Phone
_________________________________________________________________ (_____)__________________________________________
City State Zip Home Phone
Check Appropriate Box: [ ] Individual [ ] Joint Tenant (Right of survivorship presumed) [ ] Partnership
[ ] Corporation [ ] Trust [ ] Custodial [ ] Non-Profit [ ] Other
Occupation and Employer Name/Address __________________________________________________________________________________
Are you an associated person of an NASD member? [ ] Yes [ ] No
___________________________________________________________________________________________________________________
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[ ] Share Option _ Income distributions and capital gains distributions automatically reinvested in additional shares.
[ ] Income Option _ Income distributions and short term capital gains distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
[ ] Cash Option _ Income distributions and capital gains distributions paid in cash
[ ] By Check [ ] By ACH to my bank checking or savings account. Please attach a voided check.
- --------------------------------------------------------------------------------------------------------------------------------
REDUCED SALES CHARGES (AGGRESSIVE GROWTH FUND AND GROWTH/VALUE FUND CLASS A SHARES ONLY)
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's confirmation of the following holdings of eligible
load funds of Countrywide Investments.
Account Number/Name Account Number/Name
___________________________________________________________- ________________________________________________________
___________________________________________________________- ________________________________________________________
<PAGE>
Letter of Intent: (Complete the Right of Accumulation section if related accounts are being applied to your
Letter of Intent.)
[ ] I agree to the Letter of Intent in the current Prospectus of Countrywide 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):
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT SECURITY
For increased security, Countrywide Fund Services, Inc. requires that you establish a Personal Identification Number [ ][ ][ ][ ]
(PIN). You will need to use this PIN when requesting account information and placing transactions. For institutional
accounts, please use a four digit number. For retail accounts, please use the first four letters of your mother's
maiden name.
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AND TIN CERTIFICATION
I certify that I have full right and power, and legal capacity to purchase shares of the Funds and affirm that I have received a
current prospectus and understand the investment objectives and policies stated therein. 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. Neither the Trust, Countrywide Fund
Services, Inc., nor their respective affiliates will be liable for complying with telephone instructions they reasonably believe
to be genuine or for any loss, damage, cost or expense in acting on such telephone instructions. The investor(s) will bear the
risk of any such loss. The Trust or Countrywide Fund Services, Inc., or both, will employ reasonable procedures to determine
that telephone instructions are genuine. If the Trust and/or Countrywide Fund Services, Inc. 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. I certify under the penalities of perjury that (1) the Social
Security Number or Tax Identification Number shown is correct and (2) I am not subject to backup withholding. The certifications
in this paragraph are required from all non-exempt persons to prevent backup withholding of 31% of all taxable distributions and
gross redemption proceeds under the federal income tax law. 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 here if you are subject to
backup withholding). [ ]
___________________________________ __________________________________
Applicant Date Joint Applicant Date
___________________________________ ___________________________________
Other Authorized Signatory Date Other Authorized Signatory Date
NOTE: Corporations, trusts and other organizations must provide a copy of the resolution form on the reverse side.
Unless otherwise specified, each joint owner shall have full authority to act on behalf of the account.
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AUTHORIZATION - FOR USE BY CORPORATIONS, TRUSTS, PARTNERSHIPS AND OTHER INSTITUTIONS
Please retain a copy of this document for your files. Any modification of the information contained in this section will
require an Amendment to this Application Form.
[ ] New Application [ ] Amendment to previous Application dated ________ Account No. _______________
Name of Registered Owner ________________________________________________________________________________
The following named person(s) are currently authorized signatories of the Registered Owner. Any ____ of them is/are authorized
under the applicable governing document to act with full power to sell, assign or transfer securities of Countrywide Strategic
Trust for the Registered Owner and to execute and deliver any instrument necessary to effectuate the authority hereby conferred:
Name Title Signature
___________________ ____________________ ___________________
___________________ ____________________ ___________________
___________________ ____________________ ___________________
COUNTRYWIDE STRATEGIC TRUST, or any agent of the Trust may, without inquiry, rely upon the instruction of any person(s)
purporting to be an authorized person named above, or in any Amendment received by the Trust or its agent. The Trust
and its Agent shall not be liable for any claims, expenses or losses resulting from having acted upon any instruction reasonably
believed to be genuine.
- --------------------------------------------------------------------------------------------------------------------------------
<PAGE>
SPECIAL INSTRUCTIONS
REDEMPTION INSTRUCTIONS
I understand that the telephone redemption privilege is automatically available to me unless I indicate otherwise below.
(See the prospectus for limitations on this option.)
[ ] I do not wish to have the telephone redemption privilege on my account.
REDEMPTION OPTIONS
[ ] Please mail redemption proceeds to the name and address of record.
[ ] Please wire redemptions to the commercial bank account indicated below (subject to a minimum wire transfer of $1,000 and an
$8.00 fee. For wire redemptions please attach a voided check from the account below).
[ ] Checkwriting - Call 1-800-543-0407 for checkwriting application and signature card.
AUTOMATIC INVESTMENT (For Automatic Investment please attach a voided check from the account below.)
Please purchase shares of the Fund by withdrawing from the commercial bank account below, per the instructions below:
Amount $_________(minimum $50)
______________________________ is hereby authorized to charge to my account the bank draft amount here indicated. I
understand the payment of this draft is subject to all provisions of the contract as stated on my
bank account signature card.
Please make my automatice investment on:
[ ] the last business day of each month [ ] the 15th day of each month [ ] both the 15th and last business day
_________________________________________________________________
(Signature as your name appears on the bank account to be drafted)
Name as it appears on the account __________________________________________________
Commerical bank account #___________________________________________________________
ABA Routing #_______________________________________________________________________
City, State and Zip in which bank is located _______________________________________
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund Services, Inc. ("CFS") has put into effect, by which
amounts, determined by your depositor, payable to the Fund, for purchase of shares of the Fund, are collected by CFS, CFS hereby
agrees:
CFS will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the payment by
you of any amount drawn by the Fund to its own order on the account of your depositor or from any liability to any person
whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any such
checks. CFS will defend, at its own cost and expense, any action which might be brought against you by any person or persons
whatsoever because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. CFS will refund to you any amount erroneously paid by you to the Fund on any such check if
the claim for the amount of such erroneous payment is made by you within six (6) months from the date of such erroneous payment;
your participation in this arrangement and that of the Fund may be terminated by thirty (30) days written notice from either
party to the other.
- ---------------------------------------------------------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $_________________ from my mutual fund account beginning the last business day of the
month of _____________________.
Please Indicate Withdrawal Schedule (Check One): Please indicate which Fund: [ ] Aggressive Growth Fund
[ ] Growth/Value Fund
[ ] Monthly - Withdrawals will be made on the last business day of each month.
[ ] Quarterly - Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
[ ] Annually - Please make withdrawals on the last business day of the month of:____________________
Please Select Payment Method (Check One):
[ ] Exchange: Please exchange the withdrawal proceeds into another Countrywide account number: ___ ___ _ ___ ___ ___ ___
[ ] Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
[ ] ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as indicated below.
I understand that the transfer will be completed in two to three business days and that there is no charge.
[ ] Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the wire
will be completed in one business day and that there is an $8.00 fee.
Please attach a voided _______________________________________________________________________________________
check for ACH or bank wire Bank Name Bank Address
_______________________________________________________________________________________
Bank ABA# Account # Account Name
[ ] Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing
address below:
Name of payee_____________________________________________________________________________________________________________
Please send to: __________________________________________________________________________________________________________
Street address City State Zip
____________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide (Toll-Free) 800-543-8721
Cincinnati 513-629-2000
www.countrywideinvestments.com
Board of Trustees
Donald L. Bogdon, M.D.
H. Jerome Lerner
Robert H. Leshner
Howard J. Levine
Angelo R. Mozilo
Fred A. Rappoport
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
Mastrapasqua & Associates, Inc.
814 Church Street, Suite 600
Nashville, Tennessee 37203
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
Additional information about the Funds is included in the Statement of
Additional Information ("SAI") which is incorporated by reference in its
entirety. Additional information about the Funds' investments is available in
the Funds' annual and semiannual reports to shareholders. In the Funds' annual
report you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during their last
fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Funds, or to make inquiries about the Funds, please call
1-800-543-0407 (Nationwide) or 629-2050 (in Cincinnati).
Information about the Funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's public reference room in Washington,
D.C. Information about the operation of the public reference room can be
obtained by calling the Commission at 1-800-SEC-0330. Reports and other
information about the Funds are available on the Commission's Internet site at
http://www.sec.gov. Copies of information on the Commission's Internet site can
be obtained for a fee by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-6009.
File No. 811-3651
Countrywide
[logo] Investments
<PAGE>
COUNTRYWIDE STRATEGIC TRUST
---------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
August 1, 1999
Utility Fund
Equity Fund
Growth/Value Fund
Aggressive Growth Fund
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of the applicable Fund of Countrywide
Strategic Trust dated August 1, 1999. A copy of a Fund's Prospectus can be
obtained by writing the Trust at 312 Walnut Street, 21st Floor, Cincinnati, Ohio
45202-4094, or by calling the Trust nationwide toll-free 800-543-0407, or in
Cincinnati 629-2050.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Countrywide Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
-----------------
PAGE
----
THE TRUST......................................................................3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..................................5
QUALITY RATINGS OF FIXED-INCOME OBLIGATIONS...................................22
INVESTMENT LIMITATIONS........................................................25
TRUSTEES AND OFFICERS.........................................................31
THE INVESTMENT ADVISER AND UNDERWRITER........................................34
MASTRAPASQUA AND ASSOCIATES...................................................37
DISTRIBUTION PLANS............................................................37
SECURITIES TRANSACTIONS.......................................................40
PORTFOLIO TURNOVER............................................................42
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE..........................43
OTHER PURCHASE INFORMATION....................................................43
TAXES.........................................................................45
REDEMPTION IN KIND............................................................54
HISTORICAL PERFORMANCE INFORMATION............................................54
PRINCIPAL SECURITY HOLDERS....................................................58
CUSTODIAN.....................................................................59
AUDITORS......................................................................60
TRANSFER AGENT................................................................60
ANNUAL REPORT.................................................................61
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<PAGE>
THE TRUST
- ---------
Countrywide Strategic Trust (the "Trust"), formerly Midwest Strategic
Trust, an open-end, diversified management investment company, was organized as
a Massachusetts business trust on November 18, 1982. The Trust currently offers
four series of shares to investors: the Utility Fund, the Equity Fund, the
Growth/Value Fund and the Aggressive Growth Fund (referred to individually as a
"Fund" and collectively as the "Funds"). Each Fund has its own investment
objective(s) and policies.
Pursuant to an Agreement and Plan of Reorganization dated May 31, 1997, the
Growth/Value Fund and the Aggressive Growth Fund, on August 29, 1997, succeeded
to the assets and liabilities of another mutual fund of the same name (the
"Predecessor Fund"), which was an investment series of Trans Adviser Funds, Inc.
The investment objective, policies and restrictions of each Fund and its
Predecessor Fund are substantially identical and the financial data and
information in this Statement of Additional Information with respect to the
Growth/Value Fund and the Aggressive Growth Fund for periods ended prior to
September 1, 1997 relate to the Predecessor Funds.
Shares of each Fund have equal voting rights and liquidation rights. Each
Fund shall vote separately on matters submitted to a vote of the shareholders
except in matters where a vote of all series of the Trust in the aggregate is
required by the Investment Company Act of 1940 or otherwise. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon the removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being
- 3 -
<PAGE>
liquidated will be entitled to receive as a class a distribution out of the
assets, net of the liabilities, belonging to that Fund. Expenses attributable to
any Fund are borne by that Fund. Any general expenses of the Trust not readily
identifiable as belonging to a particular Fund are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. Generally, the Trustees allocate such expenses on the basis of
relative net assets or number of shareholders. No shareholder is liable to
further calls or to assessment by the Trust without his express consent.
Both Class A shares and Class C shares of the Utility Fund, the Equity Fund
and the Growth/Value Fund represent an interest in the same assets of such Fund,
have the same rights and are identical in all material respects except that (i)
Class C shares bear the expenses of higher distribution fees; (ii) certain other
class specific expenses will be borne solely by the class to which such expenses
are attributable, including transfer agent fees attributable to a specific class
of shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expenses of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and expenses relating to a specific class of shares;
and (iii) each class has exclusive voting rights with respect to matters
relating to its own distribution arrangements. The Board of Trustees may
classify and reclassify the shares of a Fund into additional classes of shares
at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily
- 4 -
<PAGE>
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
- ---------------------------------------------
Each Fund has its own investment objective, strategies and related risks.
There can be no assurance that the investment objective of a Fund will be met.
The investment objectives of the Utility Fund and the Equity Fund may be changed
by the Board of Trustees without shareholder approval, but only after
notification has been given to shareholders and a Fund's Prospectus has been
revised accordingly. The investment objectives of the Growth/Value Fund and the
Aggressive Growth Fund are fundamental and can only be changed by vote of the
majority of the outstanding shares of the applicable Fund. If there is a change
in a Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. The investment practices and limitations of the Funds are
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval, except in those instances where shareholder approval is
expressly required.
A more detailed discussion of some of the terms used and investment
policies described in the Prospectuses (see "Investment Objectives, Investment
Strategies and Related Risks") appears below:
WHEN-ISSUED SECURITIES AND SECURITIES PURCHASED ON A TO-BE-ANNOUNCED BASIS.
The Funds will only make commitments to purchase securities on a when-issued or
to-be-announced ("TBA") basis with the intention of actually acquiring the
securities. In addition, the Funds may purchase securities on a when-issued or
TBA basis only if delivery and payment for the securities takes place within 120
days after the date of the transaction. In connection with these investments,
each Fund will direct the Custodian to place cash or liquid securities in a
segregated account in an amount sufficient to make payment for the securities to
be purchased. When a segregated account is maintained because a Fund purchases
securities on a when-issued or TBA basis, the assets deposited in the segregated
account will be valued daily at market for the purpose of determining the
adequacy of the securities in the account. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of a Fund's commitments to purchase securities on a when-issued or TBA basis.
- 5 -
<PAGE>
To the extent funds are in a segregated account, they will not be available for
new investment or to meet redemptions. Securities purchased on a when-issued or
TBA basis and the securities held in a Fund's portfolio are subject to changes
in market value based upon changes in the level of interest rates (which will
generally result in all of those securities changing in value in the same way,
i.e., all those securities experiencing appreciation when interest rates decline
and depreciation when interest rates rise). Therefore, if in order to achieve
higher returns, a Fund remains substantially fully invested at the same time
that it has purchased securities on a when-issued or TBA basis, there will be a
possibility that the market value of the Fund's assets will have greater
fluctuation. The purchase of securities on a when-issued or TBA basis may
involve a risk of loss if the broker-dealer selling the securities fails to
deliver after the value of the securities has risen.
When the time comes for a Fund to make payment for securities purchased on
a when-issued or TBA basis, the Fund will do so by using then available cash
flow, by sale of the securities held in the segregated account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued or TBA basis themselves (which
may have a market value greater or less than the Fund's payment obligation).
Although a Fund will only make commitments to purchase securities on a
when-issued or TBA basis with the intention of actually acquiring the
securities, the Funds may sell these securities before the settlement date if it
is deemed advisable by the Adviser as a matter of investment strategy.
RECEIPTS. The Growth/Value Fund may purchase separately traded interest and
principal component parts of such obligations that are transferable through the
federal book entry system, known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES"). These instruments are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds into a special account
at a custodian bank. The Custodian holds the interest and principal payments for
the benefit of the registered owner of the certificates or receipts. The
Custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include Treasury Receipts
("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasury Securities ("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities,
which means that they are sold at a substantial discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. This
- 6 -
<PAGE>
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, these securities may be subject to greater
interest rate volatility than interest-paying U.S. Treasury obligations. The
Growth/Value Fund will limit its investment in such instruments to 20% of its
total assets.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend its portfolio securities
to banks, broker-dealers or institutional borrowers of securities. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Funds may also pay fees to placing brokers as well as custodian
and administrative fees in connection with loans. Fees may only be paid to a
placing broker provided that the Trustees determine that the fee paid to the
placing broker is reasonable and based solely upon services rendered, that the
Trustees separately consider the propriety of any fee shared by the placing
broker with the borrower, and that the fees are not used to compensate the
Fund's investment adviser (or manager) or any affiliated person of the Trust or
an affiliated person of the adviser or manager or other affiliated person. The
terms of the Funds' loans must meet applicable tests under the Internal Revenue
Code and permit the Funds to reacquire loaned securities on five days' notice or
in time to vote on any important matter. It is the present intention of the
Equity Fund and the Utility Fund to limit the amount of loans of portfolio
securities to no more than 25% of a Fund's net assets.
BORROWING. The Funds may borrow money from banks (including their custodian
bank) or from other lenders to the extent permitted under applicable law, for
temporary or emergency purposes and to meet redemptions and may pledge their
assets to secure such borrowings. The Investment Company Act of 1940 requires
the Funds to maintain asset coverage of at least 300% for all such borrowings,
and should such asset coverage at any time fall below 300%, the Funds would be
required to reduce their borrowings within three days to the extent necessary to
meet the requirements of the 1940 Act. To reduce their borrowings, the Funds
might be required to sell securities at a time when it would be disadvantageous
to do so. In addition, because interest
- 7 -
<PAGE>
on money borrowed is a Fund expense that it would not otherwise incur, the Funds
may have less net investment income during periods when its borrowings are
substantial. The interest paid by the Funds on borrowings may be more or less
than the yield on the securities purchased with borrowed funds, depending on
prevailing market conditions.
The Utility Fund may borrow money from banks (provided there is 300% asset
coverage) or from banks or other persons for temporary purposes (in an amount
not exceeding 5% of its total assets). The Fund will not make any borrowing
which would cause its outstanding borrowings to exceed one-third of the value of
its total assets. The Fund may pledge assets in connection with borrowings but
will not pledge more than one-third of its total assets. The Fund will not make
any additional purchases of portfolio securities if outstanding borrowings
exceed 5% of the value of its total assets.
The Equity Fund may borrow money in an amount not exceeding 10% of its
total assets as a temporary measure for extraordinary or emergency purposes and
may pledge assets in connection with borrowings, but will not pledge more than
10% of its total assets. The Fund will not make any additional purchases of
portfolio securities if outstanding borrowings exceed 5% of the value of its
total assets.
The Growth/Value Fund may borrow money from banks (provided there is 300%
asset coverage) or from banks or other persons for temporary purposes (in an
amount not exceeding 5% of its total assets). The Fund will not make any
borrowing which would cause its outstanding borrowings to exceed one-third of
the value of its total assets.
The Aggressive Growth Fund may borrow for purposes of leveraging. Borrowing
for investment increases both investment opportunity and investment risk. Such
borrowings in no way affect the federal tax status of the Fund or its dividends.
If the investment income on securities purchased with borrowed money exceeds the
interest paid on the borrowing, the net asset value of the Aggressive Growth
Fund's shares will rise faster than would otherwise be the case. On the other
hand, if the investment income fails to cover the Aggressive Growth Fund's
costs, including the interest on borrowings or if there are losses, the net
asset value of such Fund's shares will decrease faster than would otherwise be
the case. This is the speculative factor known as leverage.
FOREIGN SECURITIES. Each Fund may invest in the securities (payable in U.S.
dollars) of foreign issuers. The Utility Fund may also invest in non-U.S.
dollar-denominated securities principally traded in financial markets outside
the United States. Because the Funds may invest in foreign securities, an
investment in the Funds involves risks that are different in some
- 8 -
<PAGE>
respects from an investment in a fund which invests only in securities of U.S.
domestic issuers. Foreign investments may be affected favorably or unfavorably
by changes in currency rates and exchange control regulations. There may be less
publicly available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those applicable to
U.S. companies. There may be less governmental supervision of securities
markets, brokers and issuers of securities. Securities of some foreign companies
are less liquid or more volatile than securities of U.S. companies, and foreign
brokerage commissions and custodian fees are generally higher than in the United
States. Settlement practices may include delays and may differ from those
customary in United States markets. Investments in foreign securities may also
be subject to other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation or
nationalization of assets, restrictions on foreign investment and repatriation
of capital, imposition of withholding taxes on dividend or interest payments,
currency blockage (which would prevent cash from being brought back to the
United States), and difficulty in enforcing legal rights outside the United
States. Each of the Utility Fund, the Growth/Value Fund and the Aggressive
Growth Fund may invest up to 10% of its total assets at the time of purchase in
securities of foreign issuers.
TRANSACTIONS IN OPTIONS AND FUTURES. The Trustees have approved the use of
the options and futures strategies for the Utility Fund and the Aggressive
Growth Fund described below.
1. FUTURES CONTRACTS AND RELATED OPTIONS: The Aggressive Growth Fund may
enter into contracts for the future delivery of securities commonly referred to
as "futures contracts." A futures contract is a contract by the Fund to buy or
sell securities at a specified date and price. No payment is made for securities
when the Fund buys a futures contract and no securities are delivered when the
Fund sells a futures contract. Instead, the Fund makes a deposit called an
"initial margin" equal to a percentage of the contract's value. Payment or
delivery is made when the contract expires. Futures contracts will be used only
as a hedge against anticipated interest rate changes and for other transactions
permitted to entities exempt from the definition of the term commodity pool
operator. The Fund will not enter into a futures contract if immediately
thereafter the sum of the then aggregate futures market prices of financial or
other instruments required to be delivered under open futures contract sales and
the aggregate futures market prices of financial instruments required to be
delivered under open futures contract purchases would exceed one-third of the
value of its total assets. The Fund will not enter into a futures contract if
immediately thereafter more than 5% of its net assets would be committed to
initial margins.
- 9 -
<PAGE>
Options on futures contracts are similar to options on stocks except that
an option on a future gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put), rather than to purchase
or sell a security, at a specified exercise price at any time during the period
of the option. As with options on stocks, the holder of an option on a futures
contract may terminate his position by selling an option of the same series.
There is no guarantee that such closing transactions can be effected. In
addition to the risks which apply to all options transactions, there are several
special risks relating to options on futures contracts. The ability to establish
and close out positions on such options is subject to the maintenance of a
liquid secondary market. Compared to the use of futures contracts, the purchase
of options on futures involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options, plus transaction
costs.
2. WRITING COVERED CALL OPTIONS ON EQUITY SECURITIES. The Utility Fund and
the Aggressive Growth Fund may write covered call options on equity securities
to earn premium income, to assure a definite price for a security it has
considered selling, or to close out options previously purchased. A call option
gives the holder (buyer) the right to purchase a security at a specified price
(the exercise price) at any time until a certain date (the expiration date). A
call option is "covered" if the Fund owns the underlying security subject to the
call option at all times during the option period. A covered call writer is
required to deposit in escrow the underlying security in accordance with the
rules of the exchanges on which the option is traded and the appropriate
clearing agency.
The writing of covered call options is a conservative investment technique
which is believed to involve relatively little risk. However, there is no
assurance that a closing transaction can be effected at a favorable price.
During the option period, the covered call writer has, in return for the premium
received, given up the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security decline.
The Utility Fund may write covered call options if, immediately thereafter,
not more than 30% of its net assets would be committed to such transactions. The
Aggressive Growth Fund may write covered call options if, immediately
thereafter, not more than 25% of its net assets would be committed to such
transactions. As long as the Securities and Exchange Commission continues to
take the position that unlisted options are illiquid securities, the Utility
Fund will not commit more than 10% of its net assets and the Aggressive Growth
Fund will not commit more than 15% of its net assets to unlisted covered call
transactions and other illiquid securities.
- 10 -
<PAGE>
3. WRITING COVERED PUT OPTIONS ON EQUITY SECURITIES: The Aggressive Growth
Fund may write covered put options on securities and on futures contracts to
assure a definite price for a security if it is considering acquiring the
security at a lower price than the current market price or to close out options
previously purchased. A put option gives the holder of the option the right to
sell, and the writer has the obligation to buy, the underlying security at the
exercise price at any time during the option period. The operation of put
options in other respects is substantially identical to that of call options.
When the Fund writes a covered put option, it maintains in a segregated account
with its Custodian cash or liquid securities in an amount not less than the
exercise price at all times while the put option is outstanding.
The risks involved in writing put options include the risk that a closing
transaction cannot be effected at a favorable price and the possibility that the
price of the underlying security may fall below the exercise price, in which
case the Fund may be required to purchase the underlying security at a higher
price than the market price of the security at the time the option is exercised.
The Fund may not write a put option if, immediately thereafter, more than 25% of
its net assets would be committed to such transactions.
4. PURCHASING OPTIONS ON U.S. GOVERNMENT SECURITIES. The Utility Fund may
purchase put options on U.S. Government securities to protect against a risk
that an anticipated rise in interest rates would result in a decline in the
value of the Fund's portfolio securities. The Fund may purchase call options on
U.S. Government securities as a means of obtaining temporary exposure to market
appreciation when the Fund is not fully invested.
A put option is a short-term contract (having a duration of nine months or
less) which gives the purchaser of the option, in return for a premium, the
right to sell the underlying security at a specified price during the term of
the option. A call option is a short-term contract which gives the purchaser of
the call option, in return for a premium, the right to buy the underlying
security at a specified price during the term of the option. The purchase of put
and call options on U.S. Government securities is analogous to the purchase of
puts and calls on stocks. The Fund will purchase options on U.S. Treasury Bonds,
Notes and Bills only.
There are special considerations applicable to options on U.S. Treasury
Bonds and Notes. Because trading interest in options written on U.S. Treasury
Bonds and Notes tends to center on the most recently auctioned issues, the
Exchanges will not continue indefinitely to introduce options with new
expirations
- 11 -
<PAGE>
to replace expiring options on particular issues. Instead, the expirations
introduced at the commencement of options trading on a particular issue will be
allowed to run their course with the possible addition of a limited number of
new expirations as the original ones expire. Options trading on each issue of
U.S. Treasury Bonds and Notes will thus be phased out as new options are listed
on more recent issues, and options representing a full range of expirations will
not ordinarily be available for every issue on which options are traded.
To terminate its rights with respect to put and call options which it has
purchased, the Fund may sell an option of the same series in a "closing sale
transaction." A profit or loss will be realized depending on whether the sale
price of the option plus transaction costs is more or less than the cost to the
Fund of establishing the position. If an option purchased by the Fund is not
exercised or sold, it will become worthless after its expiration date and the
Fund will experience a loss in the form of the premium and transaction costs
paid in establishing the option position.
The option positions may be closed out only on an exchange which provides a
secondary market for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The option
activities of the Fund may affect its turnover rate and the amount of brokerage
commissions paid by the Fund. The Fund pays a brokerage commission each time it
buys or sells a security in connection with the exercise of an option. Such
commissions may be higher than those which would apply to direct purchases or
sales of portfolio securities.
5. PURCHASING OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Utility Fund
may purchase put and call options on interest rate futures contracts. The
purchase of put options on interest rate futures contracts hedges the Fund's
portfolio against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of obtaining temporary exposure to
market appreciation at limited risk and is a hedge against a market advance when
the Fund is not fully invested. Assuming that any decline in the securities
being hedged is accompanied by a rise in interest rates, the purchase of options
on the futures contracts may generate gains which can partially offset any
decline in the value of the Fund's portfolio securities which have been hedged.
However, if after the Fund purchases an option on a futures contract, the value
of the securities being hedged moves in the opposite direction from that
contemplated, the Fund will tend to experience losses in the form of premiums on
such options which would partially offset gains the Fund would have.
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<PAGE>
An interest rate futures contract is a contract to buy or sell specified
debt securities at a future time for a fixed price. The Fund may purchase put
and call options on interest rate futures which are traded on a national
exchange or board of trade and sell such options to terminate an existing
position. The Fund may not enter into interest rate futures contracts. Options
on interest rate futures are similar to options on stocks except that an option
on an interest rate future gives the purchaser the right, in return for the
premium paid, to assume a position in an interest rate futures contract (a long
position if the option is a call and a short position if the option is a put),
rather than to purchase or sell stock, at a specified exercise price at any time
during the period of the option.
As with options on stocks, the holder of an option on an interest rate
futures contract may terminate his position by selling an option of the same
series. There is no guarantee that such closing transactions can be effected. In
addition to the risks which apply to all options transactions, there are several
special risks relating to options on interest rate futures contracts. The
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Compared to the use of interest rate
futures, the purchase of options on interest rate futures involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options, plus transaction costs.
6. OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the Utility
Fund and the Aggressive Growth Fund may engage involve the specific risks
described above as well as the following risks: the writer of an option may be
assigned an exercise at any time during the option period; disruptions in the
markets for underlying instruments could result in losses for options investors;
imperfect or no correlation between the option and the securities being hedged;
the insolvency of a broker could present risks for the broker's customers; and
market imposed restrictions may prohibit the exercise of certain options. In
addition, the option activities of a Fund may affect its portfolio turnover rate
and the amount of brokerage commissions paid by a Fund. The success of a Fund in
using the option strategies described above depends, among other things, on the
investment adviser's ability to predict the direction and volatility of price
movements in the options, futures contracts and securities markets and its
ability to select the proper time, type and duration of the options.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at
a specified price and are valid for a specific time period. Rights are similar
to warrants, but normally have a short duration and are distributed by the
issuer to its shareholders. Each Fund may purchase warrants and rights,
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<PAGE>
provided that no Fund presently intends to invest more than 5% of its net assets
at the time of purchase in warrants and rights other than those that have been
acquired in units or attached to other securities.
REPURCHASE AGREEMENTS. Each Fund may invest all or a portion of its assets
in repurchase agreements for temporary defensive purposes. Repurchase agreements
are transactions by which a Fund purchases a security and simultaneously commits
to resell that security to the seller at an agreed upon time and price, thereby
determining the yield during the term of the agreement. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, a Fund
could experience both delays in liquidating the underlying security and losses.
To minimize these possibilities, each Fund intends to enter into repurchase
agreements only with its Custodian, with banks having assets in excess of $10
billion and with broker-dealers who are recognized as primary dealers in U.S.
Government obligations by the Federal Reserve Bank of New York. Collateral for
repurchase agreements is held in safekeeping in the customer-only account of the
Funds' Custodian at the Federal Reserve Bank. A Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 10% (with respect to the Utility Fund) or 15% (with respect to the
Equity Fund, the Growth/Value Fund and the Aggressive Growth Fund) of the value
of its net assets would be invested in such securities and other illiquid
securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, including
accrued interest, will equal or exceed the value of the repurchase agreement,
and in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed the value of the repurchase agreement. The
collateral securing the seller's obligation must be of a credit quality at least
equal to a Fund's investment criteria for portfolio securities and will be held
by the Custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from a Fund to the seller subject to the repurchase
agreement and is therefore
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<PAGE>
subject to that Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the securities purchased by a Fund subject
to a repurchase agreement as being owned by that Fund or as being collateral for
a loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the securities before
repurchase of the security under a repurchase agreement, a Fund may encounter
delay and incur costs before being able to sell the security. Delays may involve
loss of interest or decline in price of the security. If a court characterized
the transaction as a loan and a Fund has not perfected a security interest in
the security, that Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, a Fund would be at the risk of losing some or all of the principal and
income involved in the transaction. As with any unsecured debt obligation
purchased for a Fund, the Fund's investment adviser seeks to minimize the risk
of loss through repurchase agreements by analyzing the creditworthiness of the
obligor, in this case, the seller. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security, in which case a Fund may incur a loss if the proceeds
to that Fund of the sale of the security to a third party are less than the
repurchase price. However, if the market value of the securities subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund involved will direct the seller of the security to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
BANK DEBT INSTRUMENTS. Each Fund may invest all or a portion of its assets
in bank debt instruments for temporary defensive purposes. Bank debt instruments
in which the Funds may invest consist of certificates of deposit, bankers'
acceptances and time deposits issued by national banks and state banks, trust
companies and mutual savings banks, or of banks or institutions the accounts of
which are insured by the Federal Deposit Insurance Corporation or the Federal
Savings and Loan Insurance Corporation. Certificates of deposit are negotiable
certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually from fourteen days to
one year) at a stated or variable interest rate. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer, which instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument upon maturity.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Investments in time
deposits
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<PAGE>
maturing in more than seven days will be subject to each Fund's restrictions on
illiquid investments (see "Investment Limitations").
The Growth/Value Fund and the Aggressive Growth Fund may also invest in
certificates of deposit, bankers' acceptances and time deposits issued by
foreign branches of national banks. Eurodollar certificates of deposit are
negotiable U.S. dollar denominated certificates of deposit issued by foreign
branches of major U.S. commercial banks. Eurodollar bankers' acceptances are
U.S. dollar denominated bankers' acceptances "accepted" by foreign branches of
major U.S. commercial banks. Investments in the obligations of foreign branches
of U.S. commercial banks may be subject to special risks, including future
political and economic developments, imposition of withholding taxes on income,
establishment of exchange controls or other restrictions, less governmental
supervision and the lack of uniform accounting, auditing and financial reporting
standards that might affect an investment adversely.
COMMERCIAL PAPER. Each Fund may invest all or a portion of its assets in
commercial paper for temporary defensive purposes. Commercial paper consists of
short-term (usually from one to two hundred seventy days) unsecured promissory
notes issued by corporations in order to finance their current operations.
Certain notes may have floating or variable rates. Variable and floating rate
notes with a demand notice period exceeding seven days will be subject to each
Fund's restrictions on illiquid investments (see "Investment Limitations")
unless, in the judgment of the investment adviser, subject to the direction of
the Board of Trustees, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial strength of the parent company and the relationships which
exist with the issuer; and recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations. These factors are all considered in
determining whether the commercial paper is rated Prime-1. Commercial paper
rated A (highest quality) by Standard & Poor's Ratings Group has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer
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<PAGE>
has access to at least two additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances;
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest all or a portion of its
assets in U.S. Government obligations for temporary defensive purposes. "U.S.
Government obligations" include securities which are issued or guaranteed by the
United States Treasury, by various agencies of the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government. U.S. Treasury obligations are backed by the "full
faith and credit" of the United States Government. U.S. Treasury obligations
include Treasury bills, Treasury notes, and Treasury bonds. U.S. Treasury
obligations also include the separate principal and interest components of U.S.
Treasury obligations which are traded under the Separate Trading of Registered
Interest and Principal of Securities ("STRIPS") program. Agencies or
instrumentalities established by the United States Government include the
Federal Home Loan Banks, the Federal Land Bank, the Government National Mortgage
Association, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, the Student Loan Marketing Association, the Small Business
Administration, the Bank for Cooperatives, the Federal Intermediate Credit Bank,
the Federal Financing Bank, the Federal Farm Credit Banks, the Federal
Agricultural Mortgage Corporation, the Resolution Funding Corporation, the
Financing Corporation of America and the Tennessee Valley Authority. Some of
these securities are supported by the full faith and credit of the United States
Government while others are supported only by the credit of the agency or
instrumentality, which may include the right of the issuer to borrow from the
United States Treasury. In the case of securities not backed by the full faith
and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment, and may
not be able to assert a claim against the United States in the event the agency
or instrumentality does not meet its commitments. Shares of the Funds are not
guaranteed or backed by the United States Government.
SHORT-TERM TRADING. The Aggressive Growth Fund may engage in the technique
of short-term trading. Such trading involves the selling of securities held for
a short time, ranging from several months to less than a day. The object of such
short-term trading is to increase the potential for capital appreciation and/or
income of the Aggressive Growth Fund in order to take
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<PAGE>
advantage of what the Adviser believes are changes in market, industry or
individual company conditions or outlook. Any such trading would increase the
turnover rate of the Aggressive Growth Fund and its transaction costs.
VARIABLE AND FLOATING RATE SECURITIES. The Growth/Value Fund and the
Aggressive Growth Fund may acquire variable and floating rate securities,
subject to each Fund's investment objective, policies and restrictions. A
variable rate security is one whose terms provide for the readjustment of its
interest rate on set dates and which, upon such readjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
security is one whose terms provide for the readjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
REVERSE REPURCHASE AGREEMENTS. The Aggressive Growth Fund may borrow funds
for temporary purposes by entering into reverse repurchase agreements. Pursuant
to such agreements, the Fund sells portfolio securities to financial
institutions such as banks and broker-dealers, and agrees to repurchase them at
a mutually agreed upon date and price. At the time the Fund enters into a
reverse repurchase agreement, it must place in a segregated custodial account
cash or liquid portfolio securities having a value equal to the repurchase price
(including accrued interest); the collateral will be marked-to-market on a daily
basis, and will be continuously monitored to ensure that such equivalent value
is maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Fund may decline below the price at which
the Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the Investment Company Act of
1940.
CONVERTIBLE SECURITIES. The Growth/Value Fund and the Aggressive Growth
Fund may invest in all types of common stocks and equivalents (such as
convertible debt securities and warrants) and preferred stocks. The Funds may
invest in convertible securities which may offer higher income than the common
stocks into which they are convertible. The convertible securities in which the
Funds may invest consist of bonds, notes, debentures and preferred stocks which
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The Funds may be required to permit the
issuer of a convertible security to redeem the security, convert it into the
underlying common stock or sell it to a third party. Thus, the Funds may not be
able to control whether the issuer of a convertible security chooses to convert
that security. If the issuer chooses to do so, this action could have an adverse
effect on a Fund's ability to achieve its investment objective.
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<PAGE>
Convertible securities are bonds, debentures, notes, preferred stock or
other securities which may be converted or exchanged by the holder into shares
of the underlying common stock at a stated exchange ratio. A convertible
security may also be subject to redemption by the issuer, but only after a date
and under certain circumstances (including a specified price) established on
issue. Adjustable rate preferred stocks are preferred stocks which adjust their
dividend rates quarterly based on specified relationships to certain indices of
U.S. Treasury securities. A Fund may continue to hold securities obtained as a
result of the conversion of convertible securities held by the Fund when the
investment adviser believes retaining such securities is consistent with the
Fund's investment objective.
LOWER-RATED SECURITIES. The Aggressive Growth Fund may invest up to 20% of
its assets, and the Growth/Value Fund may invest up to 10% of its assets in
higher yielding (and, therefore, higher risk), lower rated fixed-income
securities, including debt securities, convertible securities and preferred
stocks and unrated fixed-income securities. Lower rated fixed-income securities,
commonly referred to as "junk bonds," are considered speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness than higher rated fixed-income securities. There is no minimum
rating standard for a Fund's investments in the high yield market; therefore, a
Fund may at times invest in fixed-income securities not currently paying
interest or in default. The Funds will invest in such fixed-income securities
where the Adviser perceives a substantial opportunity to realize a Fund's
objective based on its analysis of the underlying financial condition of the
issuer. It is not, however, the current intention of either Fund to make such
investments.
Differing yields on fixed-income securities of the same maturity are a
function of several factors, including the relative financial strength of the
issuers. Higher yields are generally available from securities in the lower
categories of recognized rating agencies, i.e., Ba or lower by Moody's or BB or
lower by S&P. The Funds may invest in any security which is rated by Moody's or
by S&P, or in any unrated security which the investment adviser determines is of
suitable quality. Securities in the rating categories below Baa as determined by
Moody's and BBB as determined by S&P are considered to be of poor standing and
predominantly speculative. The rating services descriptions of these rating
categories, including the speculative characteristics of the lower categories,
are set forth in the section "Quality Ratings of Fixed-Income Obligations."
Lower rated fixed-income securities are typically traded among a smaller
number of broker-dealers rather than in a broad secondary market. Purchasers of
lower rated fixed-income
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<PAGE>
securities tend to be institutions, rather than individuals, a factor that
further limits the secondary market. To the extent that no established retail
secondary market exists, many lower rated fixed-income securities may not be as
liquid as Treasury and investment grade bonds. The ability of a Fund to sell
lower rated fixed-income securities will be adversely affected to the extent
that such securities are thinly traded or illiquid. Moreover, the ability of a
Fund to value lower rated fixed-income securities becomes more difficult, and
judgment plays a greater role in valuation, as there is less reliable, objective
data available with respect to such securities that are thinly traded or
illiquid.
Securities ratings are based largely on the issuer's historical financial
information and the rating agencies' investment analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. Although the investment adviser will
consider security ratings when making investment decisions in the high yield
market, it will perform its own investment analysis and will not rely
principally on the ratings assigned by the rating services. The investment
adviser's analysis generally may include, among other things, consideration of
the issuer's experience and managerial strength, changing financial conditions,
borrowing requirements or debt maturity schedules, and its responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects.
ZERO COUPON BONDS. The Growth/Value Fund is permitted to purchase zero
coupon securities ("zero coupon bonds"). Zero coupon bonds are purchased at a
discount from the face amount because the buyer receives only the right to
receive a fixed payment on a certain date in the future and does not receive any
periodic interest payments. The effect of owning instruments which do not make
current interest payments is that a fixed yield is earned not only on the
original investment but also, in effect, on all discount accretion during the
life of the obligations. This implicit reinvestment of earnings at the same rate
eliminates the risk of being unable to reinvest distributions at a rate as high
as the implicit yields on the zero coupon bond, but at the same time eliminates
the holder's ability to reinvest at higher rates in the future. For this reason,
zero coupon bonds are subject to substantially greater price fluctuations during
periods of changing market interest rates than are comparable securities which
pay interest currently, which fluctuation increases the longer the period to
maturity. Although zero coupon bonds do not pay interest to holders prior to
maturity, federal income tax law requires the Fund to recognize as interest
income a portion of the bond's
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<PAGE>
discount each year and this income must then be distributed to shareholders
along with other income earned by the Fund. To the extent that any shareholders
in the Fund elect to receive their dividends in cash rather than reinvest such
dividends in additional shares, cash to make these distributions will have to be
provided from the assets of the Fund or other sources such as proceeds of sales
of Fund shares and/or sales of portfolio securities. In such cases, the Fund
will not be able to purchase additional income-producing securities with cash
used to make such distributions and its current income may ultimately be reduced
as a result.
PRIVATE PLACEMENT INVESTMENTS. The Aggressive Growth Fund may invest in
commercial paper issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities laws and is generally sold
to institutional investors who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors through or with the assistance
of the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The investment adviser believes that Section
4(2) commercial paper and possibly certain other restricted securities which
meet the criteria for liquidity established by the Trustees are quite liquid.
The Fund intends therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Trustees, including Section 4(2)
commercial paper, as determined by the investment adviser, as liquid and not
subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the Fund does not
intend to subject such paper to the limitation applicable to restricted
securities.
The ability of the Board of Trustees to determine the liquidity of certain
restricted securities is permitted under a position of the staff of the
Securities and Exchange Commission set forth in the adopting release for Rule
144A under the Securities Act of 1933 (the "Rule"). The Rule is a nonexclusive
safe-harbor for certain secondary market transactions involving securities
subject to restrictions on resale under federal securities laws. The Rule
provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under the Rule. The staff of the Securities and Exchange Commission has left the
question of determining the liquidity of all restricted securities to the
Trustees. The Trustees consider the following criteria in determining the
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<PAGE>
liquidity of certain restricted securities (including Section 4(2) commercial
paper): the frequency of trades and quotes for the security; the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; dealer undertakings to make a market in the security; and the
nature of the security and the nature of the marketplace trades. The Trustees
have delegated to the investment adviser the daily function of determining and
monitoring the liquidity of restricted securities pursuant to the above criteria
and guidelines adopted by the Board of Trustees. The Trustees will continue to
monitor and periodically review the investment adviser's selection of Rule 144A
and Section 4(2) commercial paper as well as any determinations as to their
liquidity.
MAJORITY. As used in the Prospectuses and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the applicable Fund) present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust (or the applicable Fund) are present
or represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or the applicable Fund).
QUALITY RATINGS OF FIXED-INCOME OBLIGATIONS
- -------------------------------------------
Moody's Investors Service, Inc. provides the following descriptions of its
- --------------------------------------------------------------------------------
corporate bond ratings:
- -----------------------
Aaa - "Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues."
Aa - "Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities."
A - "Bonds which are rated A possess many favorable investment attributes
and are considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
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<PAGE>
Baa - "Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well."
Ba - "Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterize bonds in this class."
B - "Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small."
Caa - "Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest."
Ca - "Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings."
C - "Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing."
Standard & Poor's Ratings Group provides the following descriptions of its
- --------------------------------------------------------------------------------
corporate bond ratings:
- -----------------------
AAA - "Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong."
AA - "Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree."
A - "Debt rated A has strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
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<PAGE>
BBB - "Debt rated BBB is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
BB - "Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating."
B - "Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating."
CCC - "Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial or economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest or repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating."
CC - "The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating."
C - "The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy has been filed but debt service
payments are continued."
CI - "The rating CI is reserved for income bonds on which no interest is
being paid."
D - "Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition and debt service payments are jeopardized."
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<PAGE>
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Funds. These limitations may not be
changed with respect to any Fund without the affirmative vote of a majority of
the outstanding shares of that Fund.
THE LIMITATIONS APPLICABLE TO THE UTILITY FUND ARE:
1. BORROWING MONEY. The Fund will not borrow money, except (a) from a bank,
provided that immediately after such borrowing there is asset coverage of 300%
for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets.
2. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. MARGIN PURCHASES. The Fund will not purchase any securities on "margin"
(except such short-term credits as are necessary for the clearance of
transactions or to the extent necessary to engage in transactions described in
the Statement of Additional Information which involve margin purchases).
4. SHORT SALES. The Fund will not make short sales of securities.
5. OPTIONS. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in the
Statement of Additional Information.
6. MINERAL LEASES. The Fund will not purchase oil, gas or other mineral
leases, rights or royalty contracts.
7. UNDERWRITING. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities, a Fund may be deemed an
underwriter under certain federal securities laws.
- 25 -
<PAGE>
8. ILLIQUID INVESTMENTS. The Fund will not purchase securities which cannot
be readily resold to the public because of legal or contractual restrictions on
resale or for which no readily available market exists or engage in a repurchase
agreement maturing in more than seven days if, as a result thereof, more than
10% of the value of the net assets of the Fund would be invested in such
securities.
9. REAL ESTATE. The Fund will not purchase, hold or deal in real estate or
real estate mortgage loans, except that the Fund may purchase (a) securities of
companies (other than limited partnerships) which deal in real estate or (b)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
10. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
marketable bonds, debentures, commercial paper or corporate notes, and similar
marketable evidences of indebtedness which are part of an issue for the public.
11. INVESTING FOR CONTROL. The Fund will not invest in companies for the
purpose of exercising control.
12. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 10% of
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company.
13. AMOUNT INVESTED IN ONE ISSUER. The Fund will not invest more than 5% of
its total assets in the securities of any issuer; provided, however, that there
is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
14. VOTING SECURITIES OF ANY ISSUER. The Fund will not purchase 5% or more
of the outstanding voting securities of any electric or gas utility company (as
defined in the Public Utility Holding Company Act of 1935), or purchase more
than 10% of the outstanding voting securities of any other issuer.
15. SECURITIES OWNED BY AFFILIATES. The Fund will not purchase or retain
the securities of any issuers if those officers and Trustees of the Trust or
officers, directors, or partners of its Adviser, owning individually more than
one-half of 1% of the securities of such issuer, own in the aggregate more than
5% of the securities of such issuer.
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<PAGE>
16. INDUSTRY CONCENTRATION. Under normal market conditions, the Fund will
invest more than 25% of its total assets in the public utilities industry. The
Fund will not invest more than 25% of its total assets in any particular
industry except the public utilities industry. For purposes of this limitation,
the public utilities industry includes companies that produce or supply electric
power, natural gas, water, sanitary services, telecommunications and other
communications services (but not radio or television broadcasters) for public
use or consumption.
17. SENIOR SECURITIES. The Fund will not issue or sell any senior security
as defined by the Investment Company Act of 1940 except insofar as any borrowing
that the Fund may engage in may be deemed to be an issuance of a senior
security.
THE LIMITATIONS APPLICABLE TO THE EQUITY FUND ARE:
1. BORROWING MONEY. The Fund will not borrow money, except (a) as a
temporary measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets. While the Fund's
borrowings are in excess of 5% of its total assets, the Fund will not purchase
any additional portfolio securities. The Fund will not pledge, mortgage or
hypothecate its assets except in connection with borrowings described in this
investment limitation.
2. MARGIN PURCHASES. The Fund will not purchase any securities on "margin"
(except such short-term credit as are necessary for the clearance of
transactions).
3. SHORT SALES. The Fund will not make short sales of securities.
4. OPTIONS. The Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures.
5. MINERAL LEASES. The Fund will not purchase oil, gas or other mineral
leases or exploration or development programs.
6. UNDERWRITING. The Fund will not act as underwriter of securities issued
by other persons, either directly or through a majority owned subsidiary. This
limitation is not applicable to the extent that, in connection with the
disposition of its portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal securities laws.
7. ILLIQUID INVESTMENTS. The Fund will not purchase securities which cannot
be readily resold to the public because of legal or contractual restrictions on
resale or for which no
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<PAGE>
readily available market exists or engage in a repurchase agreement maturing in
more than seven days if, as a result thereof, more than 15% of the value of the
Fund's net assets would be invested in such securities.
8. CONCENTRATION. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
9. REAL ESTATE. The Fund will not purchase, hold or deal in real estate,
including real estate limited partnerships.
10. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities if the borrower agrees to maintain collateral
marked to market daily in an amount at least equal to the market value of the
loaned securities, or (b) by engaging in repurchase agreements. For purposes of
this limitation, the term "loans" shall not include the purchase of marketable
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness which are part of an issue for the public.
11. INVESTING FOR CONTROL. The Fund will not invest in companies for the
purpose of exercising control.
12. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 10% of
its total assets in securities of other investment companies. The Fund will not
invest more than 5% of its total assets in the securities of any single
investment company.
13. SECURITIES OF ONE ISSUER. The Fund will not purchase the securities of
any issuer if such purchase at the time thereof would cause more than 5% of the
value of its total assets to be invested in the securities of such issuer (the
foregoing limitation does not apply to investments in government securities as
defined in the Investment Company Act of 1940).
14. SECURITIES OF ONE CLASS. The Fund will not purchase the securities of
any issuer if such purchase at the time thereof would cause 10% of any class of
securities of such issuer to be held by the Fund, or acquire more than 10% of
the outstanding voting securities of such issuer. (All outstanding bonds and
other evidences of indebtedness shall be deemed to be a single class of
securities of the issuer).
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<PAGE>
15. SECURITIES OWNED BY AFFILIATES. The Fund will not purchase or retain
the securities of any issuers if those officers and Trustees of the Trust or
officers, directors, or partners of its Adviser, owning individually more than
one-half of 1% of the securities of such issuer, own in the aggregate more than
5% of the securities of such issuer.
16. SENIOR SECURITIES. The Fund will not issue or sell any senior security.
This limitation is not applicable to short-term credit obtained by the Fund for
the clearance of purchases and sales or redemptions of securities, or to
arrangements with respect to transactions involving forward foreign currency
exchange contracts, options, futures contracts, short sales and other similar
permitted investments and techniques.
THE LIMITATIONS APPLICABLE TO THE GROWTH/VALUE FUND AND THE AGGRESSIVE
GROWTH FUND ARE:
1. BORROWING MONEY. Each Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of a Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Growth/Value Fund's total assets. Each Fund
also will not make any borrowing which would cause outstanding borrowings to
exceed one-third of the value of its total assets.
2. PLEDGING. Each Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. Each Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. OPTIONS. Each Fund will not purchase or sell puts, calls, options,
straddles, commodities or commodities futures except as described in this
Statement of Additional Information.
4. MINERAL LEASES. Each Fund will not purchase oil, gas or other mineral
leases, rights or royalty contracts.
5. UNDERWRITING. Each Fund will not act as underwriters of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of its portfolio securities, a Fund may be
deemed an underwriter under certain federal securities laws.
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<PAGE>
6. CONCENTRATION. Each Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
7. COMMODITIES. Each Fund will not purchase, hold or deal in commodities
and will not invest in oil, gas or other mineral explorative or development
programs.
8. REAL ESTATE. Each Fund will not purchase, hold or deal in real estate or
real estate mortgage loans, except it may purchase (a) U.S. Government
obligations, (b) securities of companies which deal in real estate, or (c)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
9. LOANS. Each Fund will not make loans to other persons if, as a result,
more than one-third of the value of its total assets would be subject to such
loans. This limitation does not apply to (a) the purchase of marketable bonds,
debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness which are part of an issue for the public or (b) entry
into repurchase agreements.
10. INVESTING FOR CONTROL. Each Fund will not invest in companies for the
purpose of exercising control.
11. SENIOR SECURITIES. Each Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by a
Fund for the clearance of purchases and sales or redemptions of securities, or
to arrangements with respect to transactions involving options, futures
contracts and other similar permitted investments and techniques.
THE FOLLOWING INVESTMENT LIMITATIONS FOR THE GROWTH/VALUE FUND AND THE
AGGRESSIVE GROWTH FUND ARE NONFUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER
APPROVAL:
1. ILLIQUID INVESTMENTS. Each Fund will not purchase securities for which
there are legal or contractual restrictions on resale or for which no readily
available market exists (or engage in a repurchase agreement maturing in more
than seven days) if, as a result thereof, more than 15% of the value of a Fund's
net assets would be invested in such securities.
2. MARGIN PURCHASES. Each Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by a Fund for the clearance of purchases and sales or redemption
of securities or to the extent necessary to engage in transactions described in
the Prospectus and Statement of Additional Information which involve margin
purchases.
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<PAGE>
3. SHORT SALES. Each Fund will not make short sales of securities.
4. OTHER INVESTMENT COMPANIES. Each Fund will not invest more than 5% of
its total assets in the securities of any investment company and will not invest
more than 10% of the value of its total assets in securities of other investment
companies.
With respect to the percentages adopted by the Trust as maximum limitations
on the Funds' investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money or investing in illiquid securities) will not be a violation of the policy
or restriction unless the excess results immediately and directly from the
acquisition of any security or the action taken.
The Utility Fund will limit its investments so that it will not be a public
utility holding company or acquire public utility company securities in
violation of the Public Utility Holding Company Act of 1935.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the
Trust, their compensation from the Trust and their aggregate compensation from
the Countrywide complex of mutual funds (consisting of the Trust, Countrywide
Tax-Free Trust and Countrywide Investment Trust) for the fiscal year ended March
31, 1999. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk. Each Trustee is
also a Trustee of Countrywide Tax-Free Trust and Countrywide Investment Trust.
AGGREGATE
COMPENSATION
COMPENSATION FROM
POSITION FROM COUNTRYWIDE
NAME AGE HELD TRUST COMPLEX
- ---- --- ---- ----- -------
Donald L. Bodgon, MD 68 Trustee $4,000 $12,000
+H. Jerome Lerner 60 Trustee 4,000 12,000
*Robert H. Leshner 59 President/Trustee 0 0
Howard J. Levine 63 Trustee 3,000 9,000
*Angelo R. Mozilo 60 Chairman/Trustee 0 0
Fred A. Rappoport 52 Trustee 4,000 12,000
+Oscar P. Robertson 60 Trustee 4,000 12,000
John F. Seymour, Jr. 61 Trustee 4,000 12,000
+Sebastiano Sterpa 70 Trustee 4,000 12,000
Maryellen Peretzky 46 Vice President 0 0
William E. Hortz 41 Vice President 0 0
Tina D. Hosking 30 Secretary 0 0
Theresa M. Samocki 29 Treasurer 0 0
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<PAGE>
* Mr. Leshner and Mr. Mozilo, as officers and directors of Countrywide
Investments, Inc., are each an "interested person" of the Trust within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
DONALD L. BOGDON, M.D., 1551 Hillcrest Avenue, Glendale, California is a
physician with Hematology Oncology Consultants and a Director of Verdugo VNA (a
hospice facility). Until 1996 he was President of Western Hematology/Oncology.
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. He is also a director of Slush Puppy Inc., a manufacturer
of frozen beverages, and Peerless Manufacturing, a manufacturer of bakery
equipment.
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), Countrywide Financial Services, Inc. (a financial
services company and parent of Countrywide Investments, Inc., Countrywide Fund
Services, Inc. and CW Fund Distributors, Inc.), Countrywide Fund Services, Inc.
(a registered transfer agent) and CW Fund Distributors, Inc. (a registered
broker-dealer). He is also President and a Trustee of Countrywide Tax-Free Trust
and Countrywide Investment Trust, registered investment companies.
HOWARD J. LEVINE, 26901 Agoura Road, Calabasas Hills, California is
President of ARCS Commercial Mortgage Co., L.P.
ANGELO R. MOZILO, 4500 Park Granada Boulevard, Calabasas, California is
Chairman, Director and Chief Executive Officer of Countrywide Credit Industries,
Inc. (a holding company). He is Chairman and a director of Countrywide Home
Loans, Inc. (a residential mortgage lender), Countrywide Financial Services,
Inc., Countrywide Investments, Inc., Countrywide Fund Services, Inc., CW Fund
Distributors, Inc., Countrywide Servicing Exchange (a loan servicing broker),
Countrywide Lending Corporation and Countrywide Capital Markets, Inc. (parent
company). He is also a director of CCM Municipal Services, Inc. (a tax lien
purchaser), CTC Real Estate Services Corporation (a foreclosure trustee),
LandSafe, Inc. (parent company) and various LandSafe, Inc. subsidiaries which
provide property appraisals, credit reporting services, home inspection
services, flood zone determination services, title insurance and/or closing
services for residential mortgages.
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<PAGE>
FRED A. RAPPOPORT, 830 Birchwood Drive, Los Angeles, California is Chairman
of The Fred Rappoport Company, a broadcasting and entertainment company.
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
Corporation (a non-profit affordable housing company). He is a director and a
consultant for Orange Coast Title Insurance Co. and is also a director of Irvine
Apartment Communities (a REIT) and Inco Homes (a home builder). Until January 1,
1995, he was the Executive Director of the California Housing Finance Agency. He
is a former U.S. Senator, State Senator, California State Legislator and Mayor
of Anaheim, California.
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.
MARYELLEN PERETZKY, 312 Walnut Street, Cincinnati, Ohio is Senior Vice
President, Chief Operating Officer and Secretary of Countrywide Investments,
Inc. and Senior Vice President and Secretary of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc. and CW Fund Distributors, Inc. She is also
Vice President of Countrywide Investment Trust and Countrywide Tax-Free Trust.
WILLIAM E. HORTZ, 312 Walnut Street, Cincinnati, Ohio is Executive Vice
President and Director of Sales of Countrywide Investments, Inc. and Countrywide
Financial Services, Inc. He is also Vice President of Countrywide Investment
Trust and Countrywide Tax-Free Trust. From 1996 until 1998, he was President of
Peregrine Asset Management (an investment adviser). From 1991 until 1996, he was
Regional Director of Neuberger & Berman Management (an investment adviser).
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio is Associate
General Counsel and Assistant Vice President of Countrywide Fund Services, Inc.
and CW Fund Distributors, Inc. She is also Secretary of Countrywide Investment
Trust and Countrywide Tax-Free Trust.
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<PAGE>
THERESA M. SAMOCKI, 312 Walnut Street, Cincinnati, Ohio is Assistant Vice
President - Fund Accounting Manager of Countrywide Fund Services, Inc. and CW
Fund Distributors, Inc. She is also Treasurer of Countrywide Investment Trust
and Countrywide Tax-Free Trust.
Each Trustee, except for Messrs. Leshner and Mozilo, receives a quarterly
retainer of $1,500 and a fee of $1,500 for each Board meeting attended. Such
fees are split equally among the Trust, Countrywide Tax-Free Trust and
Countrywide Investment Trust.
THE INVESTMENT ADVISER AND UNDERWRITER
- --------------------------------------
Countrywide Investments, Inc. (the "Adviser"), is the Funds' investment
manager. The Adviser is a subsidiary of Countrywide Financial Services, Inc.,
which is a wholly-owned subsidiary of Countrywide Credit Industries, Inc., a New
York Stock Exchange listed company principally engaged in the business of
residential mortgage lending. Messrs. Mozilo and Leshner may be deemed to be
affiliates of the Adviser by reason of their position as Chairman and President,
respectively, of the Adviser. Messrs. Mozilo and Leshner, by reason of such
affiliation, may directly or indirectly receive benefits from the advisory fees
paid to the Adviser.
Under the terms of the investment advisory agreements between the Trust and
the Adviser, the Adviser manages the Funds' investments. The Equity Fund and the
Utility Fund each pay the Adviser a fee computed and accrued daily and paid
monthly at an annual rate of .75% of its average daily net assets up to
$200,000,000, .70% of such assets from $200,000,000 to $500,000,000 and .50% of
such assets in excess of $500,000,000. The Growth/Value Fund and the Aggressive
Growth Fund each pay the Adviser a fee computed and accrued daily and paid
monthly at an annual rate of 1.00% of its average daily net assets up to
$50,000,000, .90% of such assets from $50,000,000 to $100,000,000, .80% of such
assets from $100,000,000 to $200,000,000 and .75% of such assets in excess of
$200,000,000. The total fees paid by a Fund during the first and second halves
of each fiscal year of the Trust may not exceed the semiannual total of the
daily fee accruals requested by the Adviser during the applicable six month
period.
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<PAGE>
For the fiscal years ended March 31, 1999, 1998 and 1997, the Utility Fund
paid advisory fees of $326,576, $303,151 and $319,201, respectively. For the
fiscal years ended March 31, 1999, 1998 and 1997, the Equity Fund paid advisory
fees of $375,212, $221,798 and $91,182 (net of voluntary fee waivers of
$21,000), respectively; however, in order to further reduce the operating
expenses of the Equity Fund, the Adviser voluntarily reimbursed the Fund for
$5,834 of Class A expenses during the fiscal year ended March 31, 1997. For the
fiscal periods ended March 31, 1999 and 1998, the Growth/Value Fund paid
advisory fees of $254,571 and $160,090, respectively. For the fiscal periods
ended March 31, 1999 and 1998, the Aggressive Growth Fund paid advisory fees of
$125,575 (net of voluntary fee waivers of $6,473) and $85,703, respectively.
Prior to August 29, 1997, the investment manager of the Predecessor Funds was
Trans Financial Bank, N.A. (the "Predecessor Manager"). For the fiscal year
ended August 31, 1997, the Predecessor Growth/Value Fund paid advisory fees of
$206,612 and the Predecessor Aggressive Growth Fund paid advisory fees of
$30,082 (net of voluntary fee waivers of $64,077).
The Adviser has agreed that, until at least August 31, 1999, it will waive
fees and reimburse expenses in order to limit the total operating expenses of
the Growth/Value Fund and the Aggressive Growth Fund to 1.95% of each Fund's
average daily net assets.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds may have an
obligation to indemnify the Trust's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The Adviser bears promotional expenses in
connection with the distribution of the Funds' shares to the extent that such
expenses are not assumed by the Funds under their plans of distribution (see
below). The compensation and expenses of any officer, Trustee or employee of the
Trust who is an officer, director, employee or stockholder of the Adviser are
paid by the Adviser.
By their terms, the Funds' investment advisory agreements will remain in
force until February 28, 2000 and from year to year thereafter, subject to
annual approval by (a) the Board of Trustees or (b) a vote of the majority of a
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval. The
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<PAGE>
Funds' investment advisory agreements may be terminated at any time, on sixty
days' written notice, without the payment of any penalty, by the Board of
Trustees, by a vote of the majority of a Fund's outstanding voting securities,
or by the Adviser. The investment advisory agreements automatically terminate in
the event of their assignment, as defined by the Investment Company Act of 1940
and the rules thereunder.
The Adviser is also the principal underwriter of the Funds and, as such,
the exclusive agent for distribution of shares of the Funds. The Adviser is
obligated to sell the shares on a best efforts basis only against purchase
orders for the shares. Shares of each Fund are offered to the public on a
continuous basis.
The Adviser currently allows concessions to dealers who sell shares of the
Funds. The Adviser receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Funds. The Adviser retains the
entire sales load on all direct initial investments in the Funds and on all
investments in accounts with no designated dealer of record. For the fiscal year
ended March 31, 1999, the aggregate underwriting commissions on sales of the
Trust's shares were $90,474 of which the Adviser paid $69,549 to unaffiliated
broker-dealers in the selling network, earned $12,602 as a broker-dealer in the
selling network and retained $8,323 in underwriting commissions. For the fiscal
year ended March 31, 1998, the aggregate underwriting commissions on sales of
the Trust's shares were $70,717 of which the Adviser paid $51,599 to
unaffiliated broker-dealers in the selling network, earned $12,478 as a
broker-dealer in the selling network and retained $6,640 in underwriting
commissions. For the fiscal year ended March 31, 1997, the aggregate
underwriting commissions on sales of the Trust's shares were $70,478 of which
the Adviser paid $60,141 to unaffiliated broker-dealers in the selling network,
earned $3,617 as a broker-dealer in the selling network and retained $6,720 in
underwriting commissions.
The Adviser retains the contingent deferred sales load on redemptions of
shares of the Utility Fund and the Equity Fund which are subject to a contingent
deferred sales load. For the fiscal year ended March 31, 1999, the Adviser
collected $457 and $693 of contingent deferred sales loads on redemptions of
Class C shares of the Utility Fund and the Equity Fund, respectively. For the
fiscal year ended March 31, 1998, the Adviser collected $1,756 and $957 of
contingent deferred sales loads on redemptions of Class C shares of the Utility
Fund and the Equity Fund, respectively. For the fiscal year ended March 31,
1997, the Adviser collected $1,141 and $505 of contingent deferred sales loads
on redemptions of Class C shares of the Utility Fund and the Equity Fund,
respectively.
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<PAGE>
The Funds may compensate dealers, including the Adviser and its affiliates,
based on the average balance of all accounts in the Funds for which the dealer
is designated as the party responsible for the account. See "Distribution Plans"
below.
MASTRAPASQUA & ASSOCIATES
- -------------------------
Mastrapasqua & Associates, Inc. ("Mastrapasqua") has been retained by the
Adviser to serve as the discretionary portfolio manager of the Growth/Value Fund
and the Aggressive Growth Fund. Mastrapasqua also served as investment adviser
to the Predecessor Funds. Mastrapasqua selects the portfolio securities for
investment by the Funds, purchases and sells securities of the Funds and places
orders for the execution of such portfolio transactions, subject to the general
supervision of the Board of Trustees and the Adviser. Mastrapasqua receives a
fee equal to the annual rate of .60% of each Fund's average daily net assets up
to $50,000,000, .50% of such assets from $50,000,000 to $100,000,000, .40% of
such assets from $100,000,000 to $200,000,000 and .35% of such assets in excess
of $200,000,000. The services provided by Mastrapasqua are paid for wholly by
the Adviser. The compensation of any officer, director or employee of
Mastrapasqua who is rendering services to the Fund is paid by Mastrapasqua. For
the fiscal year ended March 31, 1999, the Adviser paid fees of $232,545 to
Mastrapasqua for serving as discretionary portfolio manager to the Growth/Value
Fund and the Aggressive Growth Fund.
The employment of Mastrapasqua will remain in force until February 28, 2000
and from year to year thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of the majority of a Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting such approval. The
employment of Mastrapasqua may be terminated at any time, on sixty days' written
notice, without the payment of any penalty, by the Board of Trustees, by a vote
of a majority of a Fund's outstanding voting securities, by the Adviser, or by
Mastrapasqua. The agreement with Mastrapasqua automatically terminates in the
event of its assignment, as defined by the Investment Company Act of 1940 and
the rules thereunder.
DISTRIBUTION PLANS
- ------------------
CLASS A SHARES -- As stated in the Prospectus, the Funds have adopted a
plan of distribution (the "Class A Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 which permits each Fund to pay for expenses
incurred in the distribution and promotion of the Funds' shares, including but
not limited to, the printing of prospectuses, statements of
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<PAGE>
additional information and reports used for sales purposes, advertisements,
expenses of preparation and printing of sales literature, promotion, marketing
and sales expenses, and other distribution-related expenses, including any
distribution fees paid to securities dealers or other firms who have executed a
distribution or service agreement with the Adviser. The Class A Plan expressly
limits payment of the distribution expenses listed above in any fiscal year to a
maximum of .25% of the average daily net assets of Class A shares of the Utility
Fund and the Equity Fund and .25% of the average daily net assets of the
Growth/Value Fund and the Aggressive Growth Fund. Unreimbursed expenses will not
be carried over from year to year.
For the fiscal year ended March 31, 1999, the aggregate
distribution-related expenditures of the Utility Fund, the Equity Fund, the
Growth/Value Fund and the Aggressive Growth Fund under the Class A Plan were
$92,716, $117,348, $57,474 and $19,824, respectively. Amounts were spent as
follows:
Growth/ Aggressive
Utility Equity Value Growth
Fund Fund Fund Fund
------- -------- ------- -------
Printing and mailing of
prospectuses and reports
to prospective shareholders.. $ 5,546 $ 6,175 $ 5,719 $ 2,878
Payments to broker-dealers
and others for the sale or
retention of assets........ 87,170 111,173 51,755 16,946
------- -------- ------- -------
$92,716 $117,348 $57,474 $19,824
======= ======== ======= =======
CLASS C SHARES (UTILITY FUND, EQUITY FUND AND GROWTH/VALUE FUND) -- The
Utility Fund, the Equity Fund and the Growth/Value Fund have also adopted a plan
of distribution (the "Class C Plan") with respect to the Class C shares of such
Funds. The Class C Plan provides for two categories of payments. First, the
Class C Plan provides for the payment to the Adviser of an account maintenance
fee, in an amount equal to an annual rate of .25% of the average daily net
assets of the Class C shares, which may be paid to other dealers based on the
average value of Class C shares owned by clients of such dealers. In addition, a
Fund may pay up to an additional .75% per annum of the daily net assets of the
Class C shares for expenses incurred in the distribution and promotion of the
shares, including prospectus costs for prospective shareholders, costs of
responding to prospective shareholder inquiries, payments to brokers and dealers
for selling and assisting in the distribution of Class C shares, costs of
advertising and promotion and any other expenses related to the distribution of
the Class C shares. Unreimbursed expenditures will not be carried over from year
to year. The Funds may make payments to dealers and other persons in an amount
up to .75% per annum of the average value of Class C shares owned by their
clients, in addition to the .25% account maintenance fee described above.
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<PAGE>
For the fiscal year ended March 31, 1999, the aggregate distribution-
related expenditures of the Utility Fund and the Equity Fund under the Class C
Plan were $31,159 and $30,890, respectively. Of these amounts, the Utility Fund
spent $30,870 on payments to broker-dealers and $289 on printing and mailing of
prospectuses and reports to prospective shareholders; and the Equity Fund spent
$30,606 on payments to broker-dealers and $284 on printing and mailing of
prospectuses and reports to prospective shareholders.
GENERAL INFORMATION -- Agreements implementing the Plans (the
"Implementation Agreements"), including agreements with dealers wherein such
dealers agree for a fee to act as agents for the sale of the Funds' shares, are
in writing and have been approved by the Board of Trustees. All payments made
pursuant to the Plans are made in accordance with written agreements.
The continuance of the Plans and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plans or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. A Plan may be terminated at any time
by a vote of a majority of the Independent Trustees or by a vote of the holders
of a majority of the outstanding shares of a Fund or the applicable class of a
Fund. In the event a Plan is terminated in accordance with its terms, the
affected Fund (or class) will not be required to make any payments for expenses
incurred by the Adviser after the termination date. Each Implementation
Agreement terminates automatically in the event of its assignment and may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of a Fund (or the
applicable class) on not more than 60 days' written notice to any other party to
the Implementation Agreement. The Plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval.
All material amendments to the Plans must be approved by a vote of the Trust's
Board of Trustees and by a vote of the Independent Trustees.
In approving the Plans, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
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<PAGE>
diversification and less chance of disruption of planned investment strategies.
The Plans will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plans. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Funds pursuant
to the Plans and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each class of shares bears to the sales of all the shares
of such Fund. In addition, the selection and nomination of those Trustees who
are not interested persons of the Trust are committed to the discretion of the
Independent Trustees during such period.
Angelo R. Mozilo and Robert H. Leshner, as interested persons of the Trust,
may be deemed to have a financial interest in the operation of the Plans and the
Implementation Agreements.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Funds and the placing of the
Funds' securities transactions and negotiation of commission rates where
applicable are made by the Adviser (or Mastrapasqua, with respect to the
Growth/Value Fund and the Aggressive Growth Fund) and are subject to review by
the Board of Trustees of the Trust. In the purchase and sale of portfolio
securities, the Adviser (or Mastrapasqua, with respect to the Growth/Value Fund
and the Aggressive Growth Fund) seeks best execution for the Funds, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), the execution capability, financial responsibility and
responsiveness of the broker or dealer and the brokerage and research services
provided by the broker or dealer. The Adviser (or Mastrapasqua) generally seeks
favorable prices and commission rates that are reasonable in relation to the
benefits received. For the fiscal years ended March 31, 1999, 1998 and 1997, the
Utility Fund paid brokerage commissions of $10,031, $10,445 and $25,345,
respectively. For the fiscal years ended March 31, 1999, 1998 and 1997, the
Equity Fund paid brokerage commissions of $34,209, $36,486 and $34,257,
respectively. For the fiscal periods ended March 31, 1999 and 1998, the
Growth/Value Fund paid brokerage commissions of $51,665 and $20,459,
respectively. For the fiscal periods ended March 31, 1999 and 1998, the
Aggressive Growth Fund paid brokerage commissions of $36,619 and $8,388,
respectively. The higher commissions paid by the Aggressive Growth Fund during
the fiscal year ended March 31, 1999 are due to the Fund's higher portfolio
turnover rate.
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<PAGE>
The Adviser (or Mastrapasqua, with respect to the Growth/Value Fund and the
Aggressive Growth Fund) is specifically authorized to select brokers who also
provide brokerage and research services to the Funds and/or other accounts over
which the Adviser (or Mastrapasqua) exercises investment discretion and to pay
such brokers a commission in excess of the commission another broker would
charge if the Adviser (or Mastrapasqua) 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 (or Mastrapasqua's) overall responsibilities with
respect to the Funds and to accounts over which it exercises investment
discretion. During the fiscal year ended March 31, 1999, the amount of brokerage
transactions and related commissions for the Utility Fund directed to brokers
due to research services provided were $5,133,620 and $10,031, respectively.
During the fiscal year ended March 31, 1999, the amount of brokerage
transactions and related commissions for the Equity Fund directed to brokers due
to research services provided were $17,970,437 and $34,209, respectively. During
the fiscal year ended March 31, 1999, the amount of brokerage transactions and
related commissions for the Growth/Value Fund directed to brokers due to
research services provided were $19,690,373 and $30,666, respectively. During
the fiscal year ended March 31, 1999, the amount of brokerage transactions and
related commissions for the Aggressive Growth Fund directed to brokers due to
research services provided were $15,052,360 and $25,294, respectively.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Funds and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Funds, the
Adviser and Mastrapasqua, it is not possible to place a dollar value on it.
Research services furnished by brokers through whom the Funds effect securities
transactions may be used by the Adviser and Mastrapasqua in servicing all of its
accounts and not all such services may be used by the Adviser and Mastrapasqua
in connection with the Funds.
The Funds have no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Adviser and other affiliates
of the Trust, the Adviser or Mastrapasqua may effect securities transactions
which are executed on a national securities exchange or transactions in the
over-the-counter market conducted on an agency basis. No Fund will effect any
brokerage transactions in its portfolio securities with the Adviser if such
transactions would be unfair or unreasonable to its shareholders.
Over-the-counter
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<PAGE>
transactions will be placed either directly with principal market makers or with
broker-dealers. Although the Funds do not anticipate any ongoing arrangements
with other brokerage firms, brokerage business may be transacted from time to
time with other firms. Neither the Adviser nor affiliates of the Trust, the
Adviser or Mastrapasqua will receive reciprocal brokerage business as a result
of the brokerage business transacted by the Funds with other brokers.
During the fiscal year ended March 31, 1999, the Funds entered into
repurchase transactions with the following of the Trust's regular broker-dealers
as defined under the Investment Company Act of 1940: Banc One Capital Markets,
Inc., Bankers Trust Company, Fifth Third Securities, Inc., Goldman, Sachs & Co.,
Lehman Brothers Inc., Morgan Stanley Dean Witter, Inc. and Nesbitt-Burns
Securities, Inc.
CODE OF ETHICS. The Trust, the Adviser and Mastrapasqua have each adopted a Code
of Ethics under Rule 17j-1 of the Investment Company Act of 1940. The Code
significantly restricts the personal investing activities of all employees of
the Adviser and Mastrapasqua and, as described below, imposes additional, more
onerous, restrictions on investment personnel of the Adviser and Mastrapasqua.
The Code requires that all employees of the Adviser and Mastrapasqua preclear
any personal securities investment (with limited exceptions, such as U.S.
Government obligations). The preclearance requirement and associated procedures
are designed to identify any substantive prohibition or limitation applicable to
the proposed investment. In addition, no employee may purchase or sell any
security which at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or sale, by
any Fund. The substantive restrictions applicable to investment personnel of the
Adviser and Mastrapasqua include a ban on acquiring any securities in an initial
public offering. Furthermore, the Code provides for trading "blackout periods"
which prohibit trading by investment personnel of the Adviser and Mastrapasqua
within periods of trading by the Funds in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. A 100% turnover rate would occur if all of a Fund's portfolio securities
were replaced once within a one year period.
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<PAGE>
Generally the Utility Fund and the Equity Fund intend to invest for
long-term purposes. However, the rate of portfolio turnover will depend upon
market and other conditions, and it will not be a limiting factor when the
Adviser believes that portfolio changes are appropriate. For the fiscal years
ended March 31, 1999, 1998 and 1997, the Utility Fund experienced portfolio
turnover of 4%, 0% and 3%, respectively. For the fiscal years ended March 31,
1999, 1998 and 1997, the Equity Fund experienced portfolio turnover of 10%, 7%
and 38%, respectively.
The Growth/Value Fund expects that the average holding period of its equity
securities will be between eighteen and thirty-six months. Because the Fund is
actively managed in light of Mastrapasqua's investment outlook for common
stocks, there may be a very substantial turnover of the Fund's portfolio. For
the fiscal periods ended March 31, 1999, 1998 and August 31, 1997, the
Growth/Value Fund experienced annualized portfolio turnover of 59%, 62% and 52%,
respectively.
If warranted by market conditions, the Aggressive Growth Fund may engage in
short-term trading if Mastrapasqua believes the transactions, net of costs, will
result in improving the income or the appreciation potential of the Fund's
portfolio. Because of the possibility of short-term trading, there may be a very
substantial turnover of the Fund's portfolio. For the fiscal periods ended March
31, 1999, 1998 and August 31, 1997, the Aggressive Growth Fund experienced
annualized portfolio turnover of 93%, 40% and 51%, respectively.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
The share price (net asset value) and the public offering price (net asset
value plus applicable sales load) of the shares of each Fund are determined as
of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be open for business on other days in which there
is sufficient trading in a Fund's portfolio securities that its net asset value
might be materially affected. For a description of the methods used to determine
the share price and the public offering price, see "Calculation of Share Price
and Public Offering Price" in the Prospectus.
OTHER PURCHASE INFORMATION
- --------------------------
The Prospectus describes generally how to purchase shares of the Funds.
Additional information with respect to certain types of purchases of Class A
shares of the Utility Fund, the Equity Fund and the Growth/Value Fund and shares
of the Aggressive Growth Fund is set forth below.
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<PAGE>
RIGHT OF ACCUMULATION. A "purchaser" (as defined below) of shares of a Fund
has the right to combine the cost or current net asset value (whichever is
higher) of his existing shares of the load funds distributed by the Adviser with
the amount of his current purchases in order to take advantage of the reduced
sales loads set forth in the tables in the Prospectus. The purchaser or his
dealer must notify the Transfer Agent that an investment qualifies for a reduced
sales load. The reduced load will be granted upon confirmation of the
purchaser's holdings by the Transfer Agent.
LETTER OF INTENT. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any "purchaser" (as defined below) of shares
of a Fund who submits a Letter of Intent to the Transfer Agent. The Letter must
state an intention to invest within a thirteen month period in any load fund
distributed by the Adviser a specified amount which, if made at one time, would
qualify for a reduced sales load. A Letter of Intent may be submitted with a
purchase at the beginning of the thirteen month period or within ninety days of
the first purchase under the Letter of Intent. Upon acceptance of this Letter,
the purchaser becomes eligible for the reduced sales load applicable to the
level of investment covered by such Letter of Intent as if the entire amount
were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Trust to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases at
the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
PURCHASER. A purchaser includes an individual, his spouse and their
children under the age of 21, purchasing shares for his or their own account; or
a trustee or other fiduciary purchasing shares for a single fiduciary account
although more than one beneficiary is involved; or employees of a common
employer,
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<PAGE>
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.
OTHER INFORMATION. The Trust does not impose a front-end sales load or
imposes a reduced sales load in connection with purchases of shares of a Fund
made under the reinvestment privilege or the purchases described in the "Reduced
Sales Load," "Purchases at Net Asset Value" or "How to Exchange Shares" sections
in the Prospectus because such purchases require minimal sales effort by the
Adviser. Purchases described in the "Purchases at Net Asset Value" section may
be made for investment only, and the shares may not be resold except through
redemption by or on behalf of the Trust.
TAXES
- -----
Information set forth in the Prospectuses and this Statement of Additional
Information is only a summary of certain key tax considerations generally
affecting purchasers of shares of the Funds. The following is only a summary of
certain additional tax considerations generally affecting each Fund and its
shareholders that are not described in the Prospectuses. No attempt has been
made to present a complete explanation of the federal, state and local tax
treatment of the Funds or the implications to shareholders, and the discussions
here and in the Funds' Prospectuses are not intended as substitutes for careful
tax planning. Accordingly, potential purchasers of shares of the Funds are urged
to consult their tax advisers with specific reference to their own tax
circumstances. In addition, the tax discussion in the Prospectuses and this
Statement of Additional Information is based on tax law in effect on the date of
the Prospectuses and this Statement of Additional Information; such laws and
regulations may be changed by legislative, judicial or administrative action,
sometimes with retroactive effect.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected to be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated investment
company, a Fund is not subject to federal income tax on the portion of its net
investment income (i.e., taxable interest, dividends, and other taxable ordinary
income, net of expenses) and capital gain net income (i.e., the excess of
capital gains over capital losses) that it distributes to shareholders, provided
that it distributes at least 90% of its investment company taxable income (i.e.,
net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year (the "Distribution Requirement"),
and satisfies certain other
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<PAGE>
requirements of the Code that are described below. Distributions by a Fund made
during the taxable year or, under specified circumstances, within twelve months
after the close of the taxable year, will be considered distributions of income
and gains for the taxable year and will therefore count toward satisfaction of
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies (the "Income Requirement").
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued while the Fund held the debt obligation. In addition, under the rules of
Code Section 988, gain or loss recognized on the disposition of a debt
obligation denominated in a foreign currency or an option with respect thereto
(but only to the extent attributable to changes in foreign currency exchange
rates), and gain or loss recognized on the disposition of a foreign currency
forward contract, futures contract, option or similar financial instrument, or
of foreign currency itself, except for regulated futures contracts or non-equity
options subject to Code Section 1256 (unless a Fund elects otherwise), generally
will be treated as ordinary income or loss.
Further, the Code also treats as ordinary income a portion of the capital
gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of Section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of such gain that is treated as ordinary income generally will not exceed the
amount
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<PAGE>
of the interest that would have accrued on the net investment for the relevant
period at a yield equal to 120% of the applicable federal rate, reduced by the
sum of: (1) prior inclusions of ordinary income items from the conversion
transaction and (2) the capitalized interest on acquisition indebtedness under
Code Section 263(g). However, if a Fund has a built-in loss with respect to a
position that becomes a part of a conversion transaction, the character of such
loss will be preserved upon a subsequent disposition or termination of the
position. No authority exists that indicates that the character of the income
treated as ordinary under this rule will not pass through to the Funds'
shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected (as applicable, depending on the
type of the Fund involved) if (1) the asset is used to close a "short sale"
(which includes for certain purposes the acquisition of a put option) or is
substantially identical to another asset so used, (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the money) with respect
thereto), or (3) the asset is stock and the Fund grants an in-the-money
qualified covered call option with respect thereto. In addition, a Fund may be
required to defer the recognition of a loss on the disposition of an asset held
as part of a straddle to the extent of any unrecognized gain on the offsetting
position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss.
Transactions that may be engaged in by a Fund (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes and
futures contracts) will be subject to special tax treatment as "Section 1256
Contracts." Section 1256 Contracts are treated as if they are sold for their
fair market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under Section 1256 Contracts have not
terminated (by delivery, exercise, entering into a closing transaction, or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 Contracts is taken into account for
the taxable year together with any other gain or loss that was recognized
previously upon the termination of Section 1256 Contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
Contracts (including any capital gain or loss arising as a consequence of
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<PAGE>
the year-end deemed sale of such Section 1256 Contracts) generally is treated as
60% long-term capital gain or loss and 40% short-term capital gain or loss. A
Fund, however, may elect not to have this special tax treatment apply to Section
1256 Contracts that are part of a "mixed straddle" with other investments of the
Fund that are not Section 1256 Contracts.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, a Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (provided that, with
respect to each issuer, the Fund has not invested more than 5% of the value of
the Fund's total assets in securities of each such issuer and the Fund does not
hold more than 10% of the outstanding voting securities of each such issuer),
and no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses. Generally, an option (call or put) with respect to a security is
treated as issued by the issuer of the security, not the issuer of the option.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions may be eligible for the
dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise tax is
imposed on a regulated investment company that fails to distribute in each
calendar year an amount equal to 98% of its ordinary taxable income for the
calendar year
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<PAGE>
and 98% of its capital gain net income for the one-year period ended on October
31 of such calendar year (or, at the election of a regulated investment company
having a taxable year ending November 30 or December 31, for its taxable year (a
"taxable year election")). The balance of such income must be distributed during
the next calendar year. For the foregoing purposes, a regulated investment
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year.
For purposes of calculating the excise tax, a regulated investment company:
(1) reduces its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) excludes
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining the company's
ordinary taxable income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes. Ordinary income dividends paid by a Fund with
respect to a taxable year will qualify for the 70% dividends-received deduction
generally available to corporations (other than corporations such as S
corporations, which are not eligible for the deduction because of their special
characteristics, and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Fund from domestic
corporations for the taxable year. A dividend received by a Fund will not be
treated as a qualifying dividend (1) if it has been received with respect to any
share of stock that the Fund has held for less than 46 days (91 days in the case
of certain preferred stock), excluding for this purpose under the rules of Code
Section 246(c)(3) and (4); (i) any day more than 45 days (or 90 days in the case
of certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Fund has an option to sell, is
under a contractual obligation to sell, has made and
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<PAGE>
not closed a short sale of, is the grantor of a deep-in-the-money or otherwise
nonqualified option to buy, or has otherwise diminished its risk of loss by
holding other positions with respect to, such (or substantially identical)
stock; (2) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (3) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced (1) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund or
(2) by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain other
items).
A Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his or her shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his shares. The Code provides, however, that under certain
conditions only 50% of the capital gain recognized upon a Fund's disposition of
domestic qualified "small business" stock will be subject to tax.
Conversely, if a Fund elects to retain its net capital gain, the Fund will
be subject to tax thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Alternative Minimum Tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. For purposes of the corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is
- 50 -
<PAGE>
otherwise disallowed in determining a corporation's AMTI. However, corporate
shareholders generally will be required to take the full amount of any dividend
received from a Fund into account (without a dividends-received deduction) in
determining their adjusted current earnings.
Investment income that may be received by a Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle a Fund to a reduced rate of, or exemption from, taxes on such income. It
is impossible to determine the effective rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income, recognized net capital gain, or unrealized appreciation in
the value of the assets of the Fund, distributions of such amounts will be
taxable to the shareholder in the manner described above, although such
distributions economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has failed
to provide a correct
- 51 -
<PAGE>
taxpayer identification number, (2) who is subject to backup withholding for
failure to report the receipt of interest or dividend income properly, or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or is an "exempt recipient" (such as a corporation).
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss on the
sale or redemption of shares of a Fund in an amount equal to the difference
between the proceeds of the sale or redemption and the shareholder's adjusted
tax basis in the shares. All or a portion of any loss so recognized may be
disallowed if the shareholder purchases other shares of a Fund within 30 days
before or after the sale or redemption. In general, any gain or loss arising
from (or treated as arising from) the sale or redemption of shares of a Fund
will be considered capital gain or loss and will be long-term capital gain or
loss if the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be disallowed to the extent of the amount of exempt-interest dividends received
on such shares and (to the extent not disallowed) will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-received
deduction for corporations) generally will apply in determining the holding
period of shares. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of a Fund, (2)
disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right acquired in connection with the acquisition of the shares
disposed of, then the sales load on the shares disposed of (to the extent of the
reduction in the sales load on the shares subsequently acquired) shall not be
taken into account in determining gain or loss on such shares but shall be
treated as incurred on the acquisition of the subsequently acquired shares.
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United States, is
a nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
such foreign shareholder will
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<PAGE>
be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign
shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross income resulting from the Fund's election
to treat any foreign taxes paid by it as paid by its shareholders, but may not
be allowed a deduction against such gross income or a credit against the U.S.
withholding tax for the foreign shareholder's pro rata share of such foreign
taxes which it is treated as having paid. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of a Fund, capital gain dividends and exempt-interest dividends, and
amounts retained by the Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION, LOCAL TAX CONSIDERATIONS. The foregoing general
discussion of U.S. federal income tax consequences is based on the Code and
Treasury Regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect.
Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in a Fund.
- 53 -
<PAGE>
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. 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. The Trust has filed an irrevocable election with the Securities and
Exchange Commission under Rule 18f-1 of the Investment Company Act of 1940
wherein the Funds are committed to pay redemptions in cash, rather than in kind,
to any shareholder of record of a Fund who redeems during any ninety day period,
the lesser of $250,000 or 1% of a Fund's net assets at the beginning of such
period.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, each Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and the deduction of the current maximum sales load
from the initial $1,000 payment. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. The average annual total
returns of the Funds for the periods ended March 31, 1999 are as follows:
Utility Fund (Class A)
- ----------------------
1 Year -8.60%
5 Years 11.40%
Since inception (August 15, 1989) 10.46%
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<PAGE>
Utility Fund (Class C)
- ----------------------
1 Year -5.92%
5 Years 11.41%
Since inception (August 2, 1993) 8.98%
Equity Fund (Class A)
- ---------------------
1 Year 9.73%
5 Years 19.34%
Since inception (August 2, 1993) 16.35%
Equity Fund (Class C)
- ---------------------
1 Year 13.03%
5 Years 19.34%
Since inception (June 7, 1993) 15.82%
Growth/Value Fund (Class A)
- ---------------------------
1 Year 24.69%
Since inception (September 29, 1995) 25.00%
Aggressive Growth Fund
- ----------------------
1 Year 10.85%
Since inception (September 29, 1995) 17.46%
Each Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable sales load which, if included, would reduce total
return. The total returns of the Funds as calculated in this manner for each of
the last ten fiscal years (or since inception) are as follows:
<TABLE>
<CAPTION>
Growth/
Utility Utility Equity Equity Value Aggressive
Fund Fund Fund Fund Fund Growth
Class A Class C Class A Class C Class A Fund
------- ------- ------- ------- ------- ----------
Period Ended
- ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1990 + 5.37%(1)
March 31, 1991 + 9.23%
March 31, 1992 +11.84%
March 31, 1993 +20.64%
March 31, 1994 - 2.11% - 5.21%(2) - 2.63%(2) - 2.91%(3)
March 31, 1995 + 3.68% + 3.00% + 8.07% + 7.32%
March 31, 1996 +21.65% +20.78% +27.90% +26.90% +14.50%(4) + 8.40%(4)
March 31, 1997 + 5.61% + 4.82% +11.82% +11.01% +12.77% + 9.46%
March 31, 1998 +40.92% +39.91% +42.74% +41.63% +36.73% +33.53%
March 31, 1999 -4.79% -5.92% +14.30% +13.03% +29.89% +15.46%
</TABLE>
- 55 -
<PAGE>
(1)From date of initial public offering on August 15, 1989
(2)From date of initial public offering on August 2, 1993
(3)From date of initial public offering on June 7, 1993
(4)From date of initial public offering on September 29, 1995
A nonstandardized quotation may also indicate average annual compounded rates of
return without including the effect of the applicable sales load or over periods
other than those specified for average annual total return. The average annual
compounded rates of return for the Funds (excluding sales loads) for the periods
ended March 31, 1999 are as follows:
Utility Fund (Class A)
- ----------------------
1 Year -4.79%
3 Years +12.32%
5 Years +12.32%
Since inception (August 15, 1989) +10.93%
Utility Fund (Class C)
- ----------------------
1 Year -5.92%
3 Years +11.33%
5 Years +11.41%
Since inception (August 2, 1993) +8.98%
Equity Fund (Class A)
- ---------------------
1 Year +14.30%
3 Years +22.19%
5 Years +20.32%
Since inception (August 2, 1993) +17.19%
Equity Fund (Class C)
- ---------------------
1 Year +13.03%
3 Years +21.13%
5 Years +19.34%
Since inception (June 7, 1993) +15.82%
Growth/Value Fund (Class A)
- ---------------------------
1 Year +29.89%
3 Years +25.69%
Since inception (September 29, 1995) +26.46%
Aggressive Growth Fund
- ----------------------
1 Year +15.46%
3 Years +19.06%
Since inception (September 29, 1995) +18.84%
A nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
- 56 -
<PAGE>
From time to time, each Fund may advertise its yield. A yield quotation is
based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
6
Yield = 2[(a-b/cd +1) -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance. Average annual total return
and yield are computed separately for Class A and Class C shares of the Utility
Fund, the Equity Fund and the Growth/Value Fund. The yield of Class A shares is
expected to be higher than the yield of Class C shares due to the higher
distribution fees imposed on Class C shares.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding each Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
which track mutual fund performance. Advertisements may also compare Fund
performance to performance as reported by other investments, indices and
averages. When advertising current ratings or rankings, the Funds may use the
following publications or indices to discuss or compare Fund performance:
- 57 -
<PAGE>
Lipper Mutual Fund Performance Analysis measures total return and average
current yield for the mutual fund industry and ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Utility Funds may provide
comparative performance information appearing in the Utility Funds category and
the Equity Fund may provide comparative performance information appearing in the
Growth & Income Funds category. The Growth/Value Fund may provide comparative
performance information appearing in the Growth Funds category and the
Aggressive Growth Fund may provide comparative performance information appearing
in the Capital Appreciation Funds category. In addition, the Funds may also use
comparative performance information of relevant indices, including the
following:
S&P 500 Index is an unmanaged index of 500 stocks, the purpose of which is
to portray the pattern of common stock price movement.
Dow Jones Industrial Average is a measurement of general market price
movement for 30 widely held stocks listed on the New York Stock Exchange.
S&P Utility Index is an unmanaged index consisting of three utility groups
totaling 40 companies -- 21 electric power companies, 11 natural gas
distributors and pipelines and 8 telephone companies.
NASDAQ Composite Index is an unmanaged index of common stocks of companies
traded over-the-counter and offered through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Funds' portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of July 9, 1999, Citizens Business Bank, Trustee FBO Countrywide Credit
Industries, Inc., P.O. Box 671, Pasadena, California owned of record 25.3% of
the outstanding Class A shares of the Equity Fund. Citizens Business Bank,
Trustee FBO Countrywide Credit Industries, Inc. may be deemed to control the
Class A shares of the Equity Fund by virtue of the fact that it
- 58 -
<PAGE>
owned of record more than 25% of the outstanding shares of the class as of such
date. As of July 9, 1999, Charles Schwab & Co., Inc. Mutual Funds Special
Custody Account for the Exclusive Benefit of Its Customers, 101 Montgomery
Street, San Francisco, California owned of record 41.3% of the outstanding
shares of the Growth/Value Fund and 36.6% of the outstanding shares of the
Aggressive Growth Fund. Charles Schwab & Co., Inc. may be deemed to control the
Growth/Value Fund and the Aggressive Growth Fund by virtue of the fact that it
owned of record more than 25% of the outstanding shares of each Fund as of such
date.
As of July 9, 1999, FirstCinco, Attn: Trust Department, 425 Walnut Street,
Cincinnati, Ohio owned of record 24.9% of the outstanding shares of the
Growth/Value Fund and 15.9% of the outstanding shares of the Aggressive Growth
Fund; Scudder Trust Company FBO Countrywide Credit Industries, Inc. Tax Deferred
Savings and Supplemental Investment Plan-Attention Asset Reconciliation, P.O.
Box 910208, San Diego, California owned of record 7.4% of the outstanding shares
of the Growth/Value Fund and 16.8% of the outstanding shares of the Aggressive
Growth Fund; Merrill Lynch, Pierce, Fenner & Smith Incorporated, For the Sole
Benefit of its Customers, 4800 Deer Lake Drive East, Jacksonville, Florida owned
of record 20.9% of the outstanding Class C shares of the Utility Fund; Martin S.
Goldfarb, M.D., 919 N. Crescent, Beverly Hills, California owned of record 9.3%
of the outstanding Class A shares of the Equity Fund; and Clifford G. Neill
Trust/Clifford G. Neill, DDS P.C. Profit Sharing Plan, 307 S. University,
Carbondale, Illinois owned of record 9.7 of the outstanding Class C shares of
the Equity Fund.
As of July 9, 1999, the Trustees and officers of the Trust as a group owned
of record or beneficially 2.2% of the outstanding Class A shares of the Equity
Fund and less than 1% of the outstanding shares of the Trust and of each other
Fund (or class thereof).
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, is the
Custodian for the Utility Fund and the Equity Fund and Firstar Bank, N.A., 425
Walnut Street, Cincinnati, Ohio is the Custodian for the Growth/Value and the
Aggressive Growth Fund. The Custodians act as the Funds' depository, safekeep
their portfolio securities, collect all income and other payments with respect
thereto, disburse funds as instructed and maintain records in connection with
their duties. As compensation, each Custodian receives from a Fund a base fee
equal to a percentage of that Fund's net assets plus a charge for each security
transaction, subject to a minimum annual fee.
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<PAGE>
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent auditors
for the Trust for the fiscal year ending March 31, 2000. Arthur Andersen LLP,
425 Walnut Street, Cincinnati, Ohio, performs an annual audit of the Trust's
financial statements and advises the Trust as to certain accounting matters.
TRANSFER AGENT
- --------------
The Trust's transfer agent, Countrywide Fund Services, Inc. ("CFS"),
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Funds' shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. CFS is an affiliate of the Adviser by
reason of common ownership. CFS receives a fee for its services as transfer
agent payable monthly at an annual rate of $17 per account from each of the
Funds; provided, however, that the minimum fee is $1,000 per month for each
class of shares of a Fund. In addition, the Funds pay out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts, forms,
reports, record storage and communication lines.
CFS also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable CFS to perform its duties, the Utility Fund,
the Equity Fund and the Growth/Value Fund each pay 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 - 200,000,000 4,000
200,000,000 - 300,000,000 4,500
Over 300,000,000 5,500*
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<PAGE>
The Aggressive Growth Fund pays CFS a fee in accordance with the following
schedule:
Asset Size of Fund Monthly Fee
------------------ -----------
$ 0 - $ 50,000,000 $2,000
50,000,000 - 100,000,000 2,500
100,000,000 - 200,000,000 3,000
200,000,000 - 300,000,000 3,500
Over 300,000,000 4,500*
*Subject to an additional fee of .001% of average daily net assets in
excess of $300 million.
In addition, each Fund pays all costs of external pricing services.
CFS is retained by the Adviser to assist the Adviser in providing
administrative services to the Funds. In this capacity, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. CFS supervises
the preparation of tax returns, reports to shareholders of the Funds, reports to
and filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For the
performance of these administrative services, CFS receives a fee from the
Adviser. The Adviser is solely responsible for the payment of these
administrative fees to CFS, and CFS has agreed to seek payment of such fees
solely from the Adviser.
ANNUAL REPORT
- -------------
The Funds' financial statements as of March 31, 1999 appear in the Trust's
annual report which is attached to this Statement of Additional Information.
- 61 -
<PAGE>
ANNUAL REPORT
MARCH 31, 1999
UTILITY
FUND
EQUITY
FUND
GROWTH/VALUE
FUND
AGGRESSIVE GROWTH
FUND
<PAGE>
UTILITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
The Utility Fund seeks a high level of total return by investing primarily
in securities of public utilities. Capital appreciation is a secondary
objective. The Fund's total returns for the fiscal year ended March 31, 1999
(excluding the impact of applicable sales loads) were -4.79% and -5.92% for
Class A and Class C shares, respectively.
During fiscal 1999, the markets again enjoyed strong domestic growth with
minimal inflationary threats. Record low unemployment, high consumer confidence
and gains in real wages contributed to higher levels of consumer spending,
providing a boost to Gross Domestic Product (GDP). Despite the favorable
domestic economic conditions, stock market gains were very narrow, with
investors preferring higher growth industries such as technology,
pharmaceuticals and communications. The movement toward higher growth names came
largely at the expense of the utility, basic materials and energy sectors, which
are deemed to be more value-oriented areas. The rotation from value to growth
was magnified by rising interest rates during the second half of the fiscal
year. After bottoming out at 4.71% in early October, the yield on the 30-year
U.S. Treasury bond rose to 5.60% at the end of March. Since many investors
consider utility stocks to be an alternative to bonds, utilities fell along with
the bond market. As a result, the S&P Utility Index returned -1.51% for the
fiscal year, compared to the 13.19% return of the Dow Jones Industrial Average
and the 18.47% return of the S&P 500 Index.
Once again, the best performing sector within the Fund was telecommunications.
Our holdings in Bell Atlantic, AT&T and Lucent Technologies performed very well
as the power of data and Internet communications became available to a record
number of individuals and businesses. Almost all of the traditional electric
utilities in the Fund performed below expectations due to the overall industry
sell-off. As has been the case over the last few years, utility funds again did
not participate in the record amounts of new money flowing into the equity
markets. As a result, very few new names were added to the portfolio and
portfolio turnover again was minimal.
Our outlook for the utility sector remains optimistic. We expect the backup in
interest rates to be temporary, thus providing a more positive environment for
utility stocks. Deregulation and consolidation should continue to be positive
for the industry. The demand for telecommunications should continue to boom as
the Internet grows and high speed access to the world wide web becomes more
commonplace and affordable. The Fund will continue to concentrate on owning
those companies that can provide attractive total returns, and are well
positioned to increase their revenues and earnings in the upcoming period of
deregulation.
Chart:
Comparison of the Change in Value of a $10,000 Investment in the
Utility Fund - Class A* and the Standard & Poor's Utility Index
Utility Fund
Average Annual Total Returns
1 Year 5 Years Since Inception*
Class A (8.60%) 11.40% 10.47%
Class C (5.92%) 11.41% 8.98%
Standard & Poor's Utility Index Utility Fund - Class A
10000 9600
10243 9671
11412 10320
3/90 10562 10115
10618 10144
10140 9854
11120 10562
3/91 11367 11049
10889 11115
11749 12144
12746 12960
3/92 11556 12356
12457 12905
13438 13398
13777 13953
3/93 15264 14906
15548 15130
16589 15556
15634 15073
3/94 14305 14591
14304 14469
14369 14660
14355 14769
3/95 15349 15128
16491 15890
18350 16986
20409 18677
3/96 19434 18404
20408 19283
19732 18651
21038 19755
3/97 20326 19437
21524 20784
22573 21626
26248 25266
3/98 27729 27390
28066 25933
29371 26862
30128 29724
3/99 27297 26079
Past performance is not predictive of future performance.
*The chart above represents performance of Class A shares only, which will
vary from the performance of Class C shares based on the difference in loads and
fees paid by shareholders in the different classes. The initial public offering
of Class A shares commenced on August 15, 1989, and the initial public offering
of Class C shares commenced on August 2, 1993.
3
<PAGE>
EQUITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
The Equity Fund seeks long-term capital appreciation by investing primarily in
common stocks of companies that offer attractive total returns through potential
growth of both share price and dividends. The Fund's total returns for the
fiscal year ended March 31, 1999 (excluding the impact of applicable sales
loads) were 14.30% and 13.03% for Class A and Class C shares, respectively.
During the fiscal year, the continued strength in the U.S. economy combined with
low inflation to push the major large-cap stock indices to new highs. Record low
unemployment, high consumer confidence and gains in real wages contributed to
higher levels of consumer spending, providing a larger than expected boost to
Gross Domestic Product (GDP). Stability in much of Asia toward the end of the
fiscal year allowed corporate profits to post their largest gains in almost two
years.
Market gains were very narrow in the latest fiscal year, with investors
preferring to own those very few large-cap growth-oriented names that were
responsible for most of the gains in the market. Toward the end of the fiscal
year, value and cyclical stocks began to rally on the expectations of continued
strong U.S. economic growth, low inflation and recoveries in the economies of
many emerging markets. Although returns were down from the unsustainable levels
seen in fiscal year 1998, most indices still managed to post double-digit
increases as evidenced by the 18.47% return of the S&P 500 Index, the 13.19%
gain in the Dow Jones Industrial Average and the 34.09% rise in the NASDAQ
Composite Index. Mid-cap stocks managed to post a gain of only 0.46% and
small-cap stocks lost 17.28% during the same time period.
The Fund remained well-diversified throughout the fiscal year. Holdings in the
technology, healthcare and communications sectors enjoyed very strong
performance. Technology stocks benefited from the growth of the Internet, the
demand for personal computers and the continued move to networking of computer
systems. Healthcare stocks enjoyed the positive fundamentals brought on by an
aging population, advances in drug therapies and the introduction of new
treatments that showed success in battling some of the most widespread diseases.
Communications stocks were the beneficiaries of increased need for high speed
Internet access and the boom in data communications.
Management continues to focus on those companies that are leaders in their
industries and can offer growth in revenues, cash flows and earnings. We remain
optimistic on the longer term fundamentals facing the market -- low inflation,
an expectation for lower interest rates and continued economic growth. We will
continue to seek to own companies that have a competitive advantage and have the
capability to expand their profit margins.
Chart:
Comparison of the Change in Value of a $10,000 Investment in the
Equity Fund - Class C* and the Standard & Poor's 500 Index
Equity Fund
Average Annual Total Returns
1 Year 5 Years Since Inception*
Class A 9.73% 19.34% 16.36%
Class C 13.03% 19.34% 15.83%
Standard & Poor's 500 Index Equity Fund - Class C
10000 10000
10078 10010
10338 10130
10578 9994
3/94 10177 9709
10220 9317
10718 9787
10716 9751
3/95 11760 10419
12883 11095
13907 11893
14744 12776
3/96 15535 13222
16232 13797
16734 14105
18129 14491
3/97 18615 14678
21865 16746
23503 17801
24178 18603
3/98 27550 20788
28460 20938
25629 18724
31087 22454
3/99 32636 23497
Past performance is not predictive of future performance.
*The chart above represents performance of Class C shares only, which will
vary from the performance of Class A shares based on the differences in loads
and fees paid by shareholders in the different classes. The initial public
offering of Class C shares commenced on June 7, 1993, and the initial public
offering of Class A shares commenced on August 2, 1993.
4
<PAGE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not yet reflect the
prospects for accelerated earnings/cash flow growth. For the fiscal year ended
March 31, 1999, the Fund's total return (excluding the impact of applicable
sales loads) was 29.89%, as compared to 18.47% for the S&P 500 Index.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments in companies of various sizes. For the fiscal year
ended March 31, 1999, the Fund's total return (excluding the impact of
applicable sales loads) was 15.46%, as compared to the 34.09% return for the
NASDAQ Composite Index.
Volatility has once again intensified within the equity market over the past
year. Growth stocks, after having dominated the bull market since the October
lows of last year, have recently retreated somewhat as lagging cyclical sectors
regained some investor interest. Although a "corrective phase" can be
unsettling, as evidenced most vividly in the Internet stocks, the broadening of
market participation is a positive development for the longevity of the bull
market.
Maintaining a focus on long-term secular developments that are impacting the
investment landscape should provide investor comfort that an exciting period of
innovation, technological creativity and revolutionary healthcare products and
therapies lie before us.
Despite Wall Street's preoccupation with short-term trading strategies, sector
rotation and rearview analysis, strong secular dynamics are still unfolding that
should provide a thrust to equity prices for some time. For example,
preoccupation with Y2K's potential short-term effect on PC demand can cause
investors to lose sight of the explosive demand for productivity enhancing
software and hardware in the year 2000 as new technologies enter the scene.
As corporate earnings of the market leading technology stocks are reported, the
robust condition of their industry and the overall economy have significantly
increased investor comfort with the earnings prospects of these companies.
Corporate earnings growth has not been limited to the technology sector. Based
on the companies in the S&P 500 Index that have reported earnings for the
quarter ended March 31, 1999, operating earnings per share are up substantially
versus last year's decline of 1.6% and are above most analysts' expectations.
The fundamentals of the U.S. economy continue to support a positive
long-term outlook for the equity market and continue to benefit from low
inflation, low unemployment and a favorable interest rate environment. As a
result, U.S. consumers, the main drivers behind the demand for U.S. goods and
services, are participating in the rewards of a healthy and growing U.S.
economy. Going on the ninth consecutive year of an economic expansion, we remain
positive on 1999 Gross Domestic Product (GDP) growth.
In addition to the continuing strong domestic consumer spending trends, the
international economy appears to be improving. Based on many U.S. companies'
observations, demand is increasing in Asia for U.S. goods and services. This
incremental factor, which is helping to drive the U.S. economy, has eased
investor fears of moderating U.S. GDP growth. The recent recovery of cyclical
stocks is evidence of the improving outlook for international economies,
especially in Asia. In addition to creating an impetus for higher demand and
profitability for the large U.S. multinational conglomerates, it should also
lead to additional cash flow available for technology spending.
With early signs of recovery emerging in Asia and a need to encourage growth in
Europe, the balance of economic policy worldwide cannot risk undoing the
delicate recovery underway. Consequently, we remain encouraged that the policy
background should be supportive to growth and liquidity, the foundation of
higher market valuations.
Our concentrated sectors each have distinct characteristics supporting long-term
growth. Health care is bolstered by the aging population and productivity gains
stemming from enlightened government reforms. Technology continues to alter
fundamental production and service delivery systems that increase productivity
significantly.
5
<PAGE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
================================================================================
We attempt to position the Growth/Value Fund to participate in bull markets and
simultaneously limit the risk profile in such a way as to minimize relative
market losses during downturns. The Aggressive Growth Fund also emphasizes
buying growth at value, but the average capitalization size is much smaller than
that of the Growth/Value Fund. The smaller, and usually younger, aggressive
growth companies add somewhat to the risk/return profile of the Aggressive
Growth Fund.
Chart:
Comparison of the Change in Value of a $10,000 Investment in the
Growth/Value Fund and the Standard & Poor's 500 Index
Growth/Value Fund
Average Annual Total Returns
1 Year Since Inception*
24.69% 25.02%
Standard & Poor's 500 Index Growth/Value Fund
10000 9600
10576 10099
3/96 11143 10992
11643 11098
12003 11290
13004 12185
3/97 13352 12291
15684 14437
16858 16335
17342 15083
3/98 19762 16805
20414 17104
18383 15650
22299 20975
3/99 23410 21828
Past performance is not predictive of future performance.
*Fund inception was September 29, 1995.
Comparison of the Change in Value of a $10,000 Investment in the
Aggressive Growth Fund and the NASDAQ Composite Index*
Aggressive Growth Fund
Average Annual Total Returns
1 Year Since Inception*
10.85% 17.48%
NASDAQ Composite Index Aggressive Growth Fund
10000 9600
10064 9552
3/96 10545 10406
11353 10762
11761 10982
12382 11853
3/97 11723 11391
13860 13440
16216 16740
15125 13873
3/98 17700 15210
18287 14373
16365 12911
21206 17375
3/99 23823 17562
Past performance is not predictive of future performance.
Fund inception was September 29, 1995.
6
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1999
=============================================================================================================
Utility Equity
Fund Fund
- -------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost................................................... $ 27,869,108 $ 34,520,209
============== ===============
At amortized cost..................................................... $ 27,852,815 $ 34,520,209
============== ===============
At market value (Note 2).............................................. $ 41,623,274 $ 53,815,963
Repurchase agreements (Note 2)........................................... -- 5,420,000
Cash..................................................................... 2,991 78
Dividends and interest receivable........................................ 122,963 27,875
Receivable for capital shares sold ...................................... 17,314 39,210
Other assets............................................................. 13,098 27,036
-------------- ---------------
TOTAL ASSETS.......................................................... 41,779,640 59,330,162
-------------- ---------------
LIABILITIES
Dividends payable........................................................ 24,844 --
Payable for capital shares redeemed...................................... 87,747 533,072
Payable to affiliates (Note 4)........................................... 34,333 57,193
Other accrued expenses and liabilities .................................. 26,890 33,658
-------------- ---------------
TOTAL LIABILITIES..................................................... 173,814 623,923
-------------- ---------------
NET ASSETS .............................................................. $ 41,605,826 $ 58,706,239
-------------- ---------------
Net assets consist of:
Paid-in capital.......................................................... $ 26,304,587 $ 39,337,704
Accumulated net realized gains from security transactions................ 1,530,780 72,781
Net unrealized appreciation on investments .............................. 13,770,459 19,295,754
-------------- ---------------
Net assets .............................................................. $ 41,605,826 $ 58,706,239
============== ===============
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ............................... $ 38,390,936 $ 55,560,703
============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5).......................... 2,488,896 2,511,439
============== ===============
Net asset value and redemption price per share (Note 2).................. $ 15.42 $ 22.12
============== ===============
Maximum offering price per share (Note 2)................................ $ 16.06 $ 23.04
============== ===============
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ............................... $ 3,214,890 $ 3,145,536
============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5).......................... 208,694 143,890
============== ===============
Net asset value, offering price and redemption price per share (Note 2).. $ 15.40 $ 21.86
============== ===============
See accompanying notes to financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1999
=============================================================================================================
Growth/ Aggressive
Value Growth
Fund Fund
- -------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost................................................... $ 15,111,560 $ 8,087,571
============== ===============
At amortized cost..................................................... $ 15,111,808 $ 8,087,609
============== ===============
At market value (Note 2).............................................. $ 24,662,044 $ 11,406,341
Cash..................................................................... 20,191 6,509
Dividends receivable..................................................... 6,641 800
Receivable for capital shares sold....................................... 9,087 6,708
Organization costs, net (Note 2)......................................... 9,521 9,521
Other assets............................................................. 9,571 8,361
-------------- ---------------
TOTAL ASSETS.......................................................... 24,717,055 11,438,240
-------------- --------------
LIABILITIES
Payable for capital shares redeemed...................................... 5,564 14,166
Payable to affiliates (Note 4)........................................... 29,120 8,470
Other accrued expenses and liabilities................................... 18,644 13,494
-------------- ---------------
TOTAL LIABILITIES..................................................... 53,328 36,130
-------------- ---------------
NET ASSETS .............................................................. $ 24,663,727 $ 11,402,110
============== ===============
Net assets consist of:
Paid-in capital.......................................................... $ 15,113,491 $ 8,083,378
Net unrealized appreciation on investments............................... 9,550,236 3,318,732
-------------- ---------------
Net assets............................................................... $ 24,663,727 $ 11,402,110
============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5).......................... 1,409,641 724,665
============== ===============
Net asset value and redemption price per share (Note 2).................. $ 17.50 $ 15.73
============== ===============
Maximum offering price per share (Note 2)................................ $ 18.23 $ 16.39
============== ===============
See accompanying notes to financial statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1999
=============================================================================================================
Utility Equity
Fund Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends ............................................................ $ 1,364,429 $ 455,841
Interest ............................................................. 215,761 290,044
-------------- ---------------
TOTAL INVESTMENT INCOME ............................................ 1,580,190 745,885
-------------- ---------------
EXPENSES
Investment advisory fees (Note 4) .................................... 326,576 375,212
Distribution expenses, Class A (Note 4)............................... 92,716 117,348
Distribution expenses, Class C (Note 4) .............................. 31,159 30,890
Transfer agent fees, Class A (Note 4)................................. 33,695 24,679
Transfer agent fees, Class C (Note 4)................................. 12,000 12,000
Accounting services fees (Note 4) .................................... 36,000 39,000
Postage and supplies.................................................. 24,800 20,140
Professional fees .................................................... 17,721 22,721
Registration fees, Common ............................................ 2,174 2,064
Registration fees, Class A ........................................... 6,023 6,213
Registration fees, Class C ........................................... 5,611 5,336
Trustees' fees and expenses .......................................... 10,309 10,309
Custodian fees ....................................................... 6,671 7,679
Reports to shareholders .............................................. 5,253 4,159
Insurance expense .................................................... 3,995 3,295
Other expenses ....................................................... 3,945 8,244
-------------- ---------------
TOTAL EXPENSES ..................................................... 618,648 689,289
-------------- ---------------
NET INVESTMENT INCOME ................................................... 961,542 56,596
-------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions ........................ 2,008,632 72,685
Net change in unrealized appreciation/depreciation on investments..... (5,229,709) 6,891,335
-------------- ---------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ............... (3,221,077) 6,964,020
-------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .................. $ (2,259,535) $ 7,020,616
============== ===============
See accompanying notes to financial statements.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1999
=============================================================================================================
Growth/ Aggressive
Value Growth
Fund Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends............................................................. $ 163,717 $ 41,149
Interest.............................................................. 23,256 13,153
-------------- ---------------
TOTAL INVESTMENT INCOME............................................. 186,973 54,302
-------------- ---------------
EXPENSES
Investment advisory fees (Note 4)..................................... 254,571 125,575
Distribution expenses (Note 4)........................................ 57,474 19,824
Accounting services fees (Note 4)..................................... 24,000 24,000
Professional fees..................................................... 16,540 12,940
Transfer agent fees (Note 4).......................................... 12,491 12,250
Trustees' fees and expenses........................................... 11,241 11,241
Postage and supplies.................................................. 11,098 10,405
Registration fees..................................................... 8,889 8,678
Custodian fees........................................................ 8,923 5,926
Amortization of organization costs (Note 2)........................... 6,355 6,355
Insurance expense..................................................... 3,135 2,085
Reports to shareholders............................................... 2,347 2,293
Other expenses........................................................ 5,674 9,769
-------------- ---------------
TOTAL EXPENSES...................................................... 422,738 251,341
Expenses reimbursed by the Adviser (Note 6)........................... -- (6,473)
-------------- ---------------
NET EXPENSES ....................................................... 422,738 244,868
-------------- ---------------
NET INVESTMENT LOSS ..................................................... (235,765) (190,566)
-------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions ........................ 3,987,680 1,735,380
Net change in unrealized appreciation/depreciation on investments .... 1,438,007 (936,684)
-------------- ---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........................ 5,425,687 798,696
-------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................. $ 5,189,922 $ 608,130
-------------- ---------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended March 31, 1999 and 1998
=============================================================================================================
Utility Equity
Fund Fund
Year Year Year Year
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income....................... $ 961,542 $ 1,203,757 $ 56,596 $ 134,298
Net realized gains from
security transactions..................... 2,008,632 396,431 72,685 131,522
Net change in unrealized appreciation/depreciation
on investments............................ (5,229,709) 12,365,467 6,891,335 9,717,678
------------ -------------- ------------- -------------
Net increase (decrease) in net
assets from operations...................... (2,259,535) 13,965,655 7,020,616 9,983,498
------------ -------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A......... (923,626) (1,131,462) (56,596) (134,305)
From net investment income, Class C......... (37,916) (72,537) -- --
Return of capital, Class A.................. -- -- (7,701) --
From net realized gains on security
transactions, Class A..................... (441,346) (598,344) -- (266,654)
From net realized gains on security
transactions, Class C..................... (36,559) (49,575) -- (29,203)
------------ -------------- ------------- -------------
Decrease in net assets from distributions
to shareholders............................. (1,439,447) (1,851,918) (64,297) (430,162)
------------ -------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold................... 4,525,134 6,395,680 16,146,962 27,157,778
Net asset value of shares issued in
reinvestment of distributions
to shareholders........................... 1,225,189 1,560,076 63,426 393,608
Payments for shares redeemed................ (6,425,371) (12,764,160) (5,648,244) (12,645,062)
------------ -------------- ------------- -------------
Net increase (decrease) in net assets from
Class A share transactions.................. (675,048) (4,808,404) 10,562,144 14,906,324
------------ -------------- ------------- -------------
CLASS C
Proceeds from shares sold................... 424,245 343,251 566,536 386,194
Net asset value of shares issued in
reinvestment of distributions
to shareholders........................... 69,533 112,220 -- 29,105
Payments for shares redeemed................ (573,313) (887,840) (1,576,756) (429,754)
------------ -------------- ------------- -------------
Net decrease in net assets from Class C
share transactions.......................... (79,535) (432,369) (1,010,220) (14,455)
------------ -------------- ------------- -------------
Net increase (decrease) in net assets from
capital share transaction................... (754,583) (5,240,773) 9,551,924 14,891,869
------------ -------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... (4,453,565) 6,872,964 16,508,243 24,445,205
NET ASSETS:
Beginning of year........................... 46,059,391 39,186,427 42,197,996 17,752,791
------------ -------------- ------------- -------------
End of year................................. $ 41,605,826 $ 46,059,391 $58,706,239 $42,197,996
============ ============== ============= =============
See accompanying notes to financial statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended March 31,1999 and 1998
and August 31, 1997
====================================================================================================================
Growth/Value Fund Aggressive Growth Fund
Year Seven Months Year Year Seven Months Year
Ended Ended Ended Ended Ended Ended
March 31, March 31, August 31, March 31, March 31, August 31,
1999 1998(A) 1997 1999 1998(A) 1997
- --------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment loss..................... $(235,765) $(146,022) $(214,624) $(190,566) $(142,331) $(148,879)
Net realized gains (losses) from
security transactions................. 3,987,680 1,566,803 894,909 1,735,380 241,580 (356,478)
Net change in unrealized
appreciation/depreciation
on investments........................ 1,438,007 437,753 7,431,395 (936,684) (458,321) 4,653,168
---------- ---------- --------- --------- --------- ---------
Net increase (decrease) in net assets
from operations.......................... 5,189,922 1,858,534 8,111,680 608,130 (359,072) 4,147,811
---------- ---------- --------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains on
security transactions................ (4,390,836) (1,021,333) (888,542) (1,620,482) -- (16,180)
---------- ---------- --------- --------- --------- ---------
FROM CAPITAL SHARE TRANSACTIONS (Note 5):
Proceeds from shares sold .............. 4,555,639 6,013,814 9,367,824 3,396,790 4,724,918 5,211,479
Net asset value of shares issued in
reinvestment of distributions to
shareholders.......................... 2,552,347 348,462 260,810 978,542 -- 4,532
Payments for shares redeemed............ (11,892,598) (5,328,293) (5,181,368) (7,456,234) (2,854,217) (1,913,821)
---------- ---------- --------- --------- --------- ---------
Net increase (decrease) in net assets from
capital share transactions.............. (4,784,612) 1,033,983 4,447,266 (3,080,902) 1,870,701 3,302,190
---------- ---------- --------- --------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. (3,985,526) 1,871,184 11,670,404 (4,093,254) 1,511,629 7,433,821
NET ASSETS:
Beginning of period..................... 28,649,253 26,778,069 15,107,665 15,495,364 13,983,735 6,549,914
---------- ---------- --------- --------- --------- ---------
End of period........................... $24,663,727 $28,649,253 $26,778,069 $11,402,110 $15,495,364 $13,983,735
=========== =========== =========== =========== =========== ===========
(A) Effective as of the close of business on August 29, 1997, the Growth/Value Fund and Aggressive Growth Fund were
reorganized and the fiscal year-end of each Fund, subsequent to August 31, 1997, was changed to March 31 (Note 6).
See accompanying notes to financial statements.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
FINANCIAL HIGHLIGHTS - CLASS A
===============================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
===============================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 16.76 $ 12.44 $ 12.24 $ 10.47 $ 10.52
---------- --------- ---------- --------- ----------
Income (loss) from investment operations:
Net investment income........................ 0.38 0.43 0.46 0.47 0.43
Net realized and unrealized gains (losses)
on investments............................ (1.16) 4.56 0.22 1.77 (0.05)
---------- --------- ---------- --------- ----------
Total from investment operations................ (0.78) 4.99 0.68 2.24 0.38
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.38) (0.43) (0.46) (0.47) (0.43)
Distributions from net realized gains........ (0.18) (0.24) (0.02) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.56) (0.67) (0.48) (0.47) (0.43)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 15.42 $ 16.76 $ 12.44 $ 12.24 $ 10.47
========== ========= ========== ========= ==========
Total return(A) ................................ (4.79) % 40.92% 5.61% 21.65% 3.68%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 38,391 $ 42,463 $ 36,087 $ 40,424 $40,012
========== ========= ========== ========= ==========
Ratio of expenses to average net assets......... 1.33% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net assets.................................. 2.30% 3.03% 3.65% 3.97% 4.06%
Portfolio turnover rate ........................ 4% 0% 3% 11% 17%
- --------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
FINANCIAL HIGHLIGHTS - CLASS C
=================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
=================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 16.74 $ 12.43 $ 12.23 $ 10.46 $ 10.51
---------- --------- ---------- --------- ----------
Income (loss) from investment operations:
Net investment income........................ 0.18 0.31 0.35 0.37 0.35
Net realized and unrealized gains (losses)
on investments............................. (1.16) 4.57 0.24 1.78 (0.04)
---------- --------- ---------- --------- ----------
Total from investment operations................ (0.98) 4.88 0.59 2.15 0.31
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.18) (0.33) (0.37) (0.38) (0.36)
Distributions from net realized gains........ (0.18) (0.24) (0.02) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.36) (0.57) (0.39) (0.38) (0.36)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 15.40 $ 16.74 $ 12.43 $ 12.23 $ 10.46
========== ========= ========== ========= ==========
Total return(A) ................................ (5.92)% 39.91% 4.82% 20.78% 3.00%
---------- --------- ---------- --------- ----------
Net assets at end of year (000's)............... $ 3,215 $ 3,597 $ 3,099 $ 3,686 $ 3,599
========== ========= ========== ========= ==========
Ratio of expenses to average net assets ........ 2.50% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income to average
net assets.................................. 1.13% 2.28% 2.89% 3.19% 3.41%
Portfolio turnover rate......................... 4% 0% 3% 11% 17%
- ------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS A
==================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
==================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 19.38 $ 13.76 $ 12.45 $ 9.84 $ 9.26
---------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income........................ 0.04 0.09 0.12 0.13 0.15
Net realized and unrealized gains
on investments............................. 2.73 5.76 1.35 2.60 0.59
---------- --------- ---------- --------- ----------
Total from investment operations................ 2.77 5.85 1.47 2.73 0.74
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... (0.03) (0.08) (0.12) (0.12) (0.16)
Distributions from net realized gains........ -- (0.15) (0.04) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. (0.03) (0.23) (0.16) (0.12) (0.16)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 22.12 $ 19.38 $ 13.76 $ 12.45 $ 9.84
========== ========= ========== ========= ==========
Total return(A) ................................ 14.30% 42.74% 11.82% 27.90% 8.07%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 55,561 $ 38,336 $ 14,983 $ 8,502 $ 4,300
========== ========= ========== ========= ==========
Ratio of net expenses to average net
assets(B).................................... 1.31% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net asset.................................... 0.18% 0.53% 0.91% 1.06% 1.57%
Portfolio turnover rate......................... 10% 7% 38% 38% 159%
- --------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios of expenses to average net assets
would have been 1.43%, 2.02% and 1.94% for the years ended March 31, 1997, 1996 and 1995, respectively.
See accompanying notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
FINANCIAL HIGHLIGHTS - CLASS C
======================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Year
======================================================================================================================
Years Ended March 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 19.34 $ 13.77 $ 12.46 $ 9.86 $ 9.26
---------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income (loss)................. (0.19) (0.03) 0.02 0.05 0.10
Net realized and unrealized gains
on investments............................ 2.71 5.75 1.35 2.60 0.57
---------- --------- ---------- --------- ----------
Total from investment operations................ 2.52 5.72 1.37 2.65 0.67
---------- --------- ---------- --------- ----------
Less distributions:
Dividends from net investment income......... -- -- (0.02) (0.05) (0.07)
Distributions from net realized gains........ -- (0.15) (0.04) -- --
---------- --------- ---------- --------- ----------
Total distributions............................. -- (0.15) (0.06) (0.05) (0.07)
---------- --------- ---------- --------- ----------
Net asset value at end of year.................. $ 21.86 $ 19.34 $ 13.77 $ 12.46 $ 9.86
========== ========= ========== ========= ==========
Total return(A) ................................ 13.03% 41.63% 11.01% 26.90% 7.32%
========== ========= ========== ========= ==========
Net assets at end of year (000's)............... $ 3,146 $ 3,862 $ 2,770 $ 2,436 $ 1,995
========== ========= ========== ========= ==========
Ratio of net expenses to average net
assets(B).................................... 2.41% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income (loss) to
average net assets........................... (0.92)% (0.18)% 0.15% 0.38% 0.68%
Portfolio turnover rate......................... 10% 7% 38% 38% 159%
- ---------------------------------------------------------------------------------------------------------------------
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios of expenses to average net assets
would have been 2.14%, 2.70% and 2.50% for the years ended March 31, 1997, 1996 and 1995, respectively.
See accompanying notes to financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
FINANCIAL HIGHLIGHTS
======================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
======================================================================================================================
Year Seven Months Year Period
Ended Ended Ended Ended
March 31, March 31, August 31, August 31,
1999 1998(A) 1997 1996(B)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 16.30 $ 15.90 $ 11.18 $ 10.00
------------ -------------- ------------- -------------
Income from investment operations:
Net investment loss......................... (0.17) (0.08) (0.13) (0.06)(C)
Net realized and unrealized gains
on investments............................ 4.84 1.05 5.39 1.24
------------ -------------- ------------- -------------
Total from investment operations............... 4.67 0.97 5.26 1.18
------------ -------------- ------------- -------------
Less distributions:
Distributions from net realized gains....... (3.47) (0.57) (0.54) --
------------ -------------- ------------- -------------
Net asset value at end of period............... $ 17.50 $ 16.30 $ 15.90 $ 11.18
============ ============== ============= =============
Total return(D) ............................... 29.89% 6.43% 47.11% 11.80%
============ ============== ============= =============
Net assets at end of period (000's)............ $ 24,664 $ 28,649 $ 26,778 $ 15,108
============ ============== ============= =============
Ratio of net expenses to average net
assets(E)................................... 1.66% 1.66%(F) 1.95% 1.95%(F)
Ratio of net investment loss to average
net assets(F)............................... (0.93)% (0.91)%(F) (1.03)% (0.62)%
Portfolio turnover rate........................ 59% 62%(F) 52% 21%
- ---------------------------------------------------------------------------------------------------------------------
(A) Effective as of the close of business on August 29, 1997, the Fund was reorganized and its fiscal year-end,
subsequent to August 31, 1997, was changed to March 31 (Note 7).
(B) Represents the period from the commencement of operations (September 29, 1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratio of expenses to average net assets would have been
2.83%(F) for the period ended August 31, 1996.
(F) Annualized.
See accompanying notes to financial statements.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
=====================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
=====================================================================================================================
Year Seven Months Year Period
Ended Ended Ended Ended
March 31, March 31, August 31, August 31,
1999 1998(A) 1997 1996(B)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 15.81 $ 16.29 $ 10.95 $ 10.00
------------ -------------- ------------- -------------
Income (loss) from investment operations:
Net investment loss......................... (0.27) (0.15) (0.17) (0.11)(C)
Net realized and unrealized gains (losses)
on investments................................ 2.67 (0.33) 5.54 1.06
------------ -------------- ------------- -------------
Total from investment operations............... 2.40 (0.48) 5.37 0.95
------------ -------------- ------------- -------------
Less distributions:
Distributions from net realized gains....... (2.48) -- (0.03) --
------------ -------------- ------------- -------------
Net asset value at end of period............... $ 15.73 $ 15.81 $ 16.29 $ 10.95
============ ============== ============= =============
Total return(D) ............................... 15.46% (2.95)% 49.09% 9.50%
============ ============== ============= =============
Net assets at end of period (000's)............ $ 11,402 $ 15,495 $ 13,984 $ 6,550
============ ============== ============= =============
Ratio of net expenses to average net
assets(E)................................... 1.95% 1.95%(F) 1.94% 1.95%(F)
Ratio of net investment loss to average
net assets(F)............................... (1.52)% (1.66)%(F) (1.57)% (1.26)%
Portfolio turnover rate........................ 93% 40%(F) 51% 16%
Amount of debt outstanding at end of period.... $ -- n/a n/a n/a
Average daily amount of debt outstanding during
the period (000's).......................... $ 80 n/a n/a n/a
Average daily number of capital shares outstanding
during the period (000's)................... 818 n/a n/a n/a
Average amount of debt per share during
the period.................................. $ 0.10 n/a n/a n/a
- -----------------------------------------------------------------------------------------------------------------
(A) Effective as of the close of business on August 29, 1997, the Fund was reorganized and its fiscal year-end,
subsequent to August 31, 1997, was changed to March 31 (Note 7).
(B) Represents the period from the commencement of operations (September 29, 1995) through August 31, 1996.
(C) Calculated using weighted average shares outstanding during the period.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Absent fee waivers and/or expense reimbursements, the ratios of expenses to average net assets would have
been 2.00%, 2.62% and 5.05%(F) for the periods ended March 31, 1999, August 31, 1997 and August 31, 1996,
respectively (Note 6).
(F) Annualized.
See accompanying notes to financial statements.
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================
1. ORGANIZATION
The Utility Fund, Equity Fund, Growth/Value Fund and Aggressive Growth Fund
(collectively, the Funds) are each a series of Countrywide Strategic Trust (the
Trust). The Trust is registered under the Investment Company Act of 1940 as an
open-end management investment company. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November 18,
1982. The Declaration of Trust, as amended, permits the Trustees to issue an
unlimited number of shares of each Fund. The Growth/Value Fund and Aggressive
Growth Fund were originally organized as series of Trans Adviser Funds, Inc.
(Note 7).
The Utility Fund seeks a high level of current income. Capital appreciation is a
secondary objective. The Fund invests primarily in common, preferred and
convertible preferred stocks of public utilities that currently pay dividends.
The Fund also invests in investment grade bonds of public utilities. The public
utilities industry includes companies that produce or supply electric power,
natural gas, water, sanitary services, telecommunications and other
communications services (but not radio or television broadcasters) for public
use or consumption.
The Equity Fund seeks long-term growth of capital, current income and growth of
income by investing primarily in dividend-paying common stocks. The Fund's
investment adviser, in selecting securities for purchase, employs a quantitative
screening strategy, searching for securities believed to offer above market
growth at below market pricing.
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not reflect the prospect
for accelerating earnings/cash flow growth. The Fund seeks to achieve its
objective by investing primarily in common stocks but also in preferred stocks,
convertible bonds and warrants of companies which, in the opinion of the Fund's
investment adviser, are expected to achieve growth of investment principal over
time. Investments are largely made in companies of greater than $750 million
capitalization.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund seeks growth opportunities among companies
of various sizes. The Fund seeks to achieve its objective by investing primarily
in common stocks, but also in preferred stocks, convertible bonds, options and
warrants of companies which, in the opinion of the Fund's investment adviser,
are expected to achieve growth of investment principal over time. Many of these
companies are in the small to medium-sized category (companies with market
capitalizations of less than $750 million at the time of purchase).
The Utility Fund and Equity Fund each offer two classes of shares: Class A
shares (sold subject to a maximum front-end sales load of 4% and a distribution
fee of up to 0.25% of average daily net assets) and Class C shares (sold subject
to a maximum contingent deferred sales load of 1% if redeemed within a one-year
period from purchase and a distribution fee of up to 1% of average daily net
assets). Each Class A and Class C share of a Fund represents identical interests
in the investment portfolio of such Fund and has the same rights, except that
(i) Class C shares bear the expenses of higher distribution fees, which is
expected to cause Class C shares to have a higher expense ratio and to pay lower
dividends than Class A shares; (ii) certain other class specific expenses will
be borne solely by the class to which such expenses are attributable; and (iii)
each class has exclusive voting rights with respect to matters relating to its
own distribution arrangements.
19
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). Portfolio securities traded on stock exchanges and
securities traded in the over-the-counter market are valued at their last sales
price as of the close of the regular session of trading on the day the
securities are being valued. Securities not traded on a particular day, or for
which the last sale price is not readily available, are valued at their last
broker-quoted bid prices as obtained from one or more of the major market makers
for such securities by an independent pricing service. Securities for which
market quotations are not readily available are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' custodian, at the Federal
Reserve Bank of Cleveland. At the time each Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement.
Share valuation -- The net asset value per share of each class of shares of the
Utility Fund and Equity Fund is calculated daily by dividing the total value of
the Fund's assets attributable to that class, less liabilities attributable to
that class, by the number of shares of that class outstanding. The maximum
offering price per share of Class A shares of each Fund is equal to the net
asset value per share plus a sales load equal to 4.17% of the net asset value
(or 4% of the offering price). The offering price of Class C shares of each Fund
is equal to the net asset value per share. The net asset value per share of the
Growth/Value Fund and Aggressive Growth Fund is calculated daily by dividing the
total value of each Fund's assets, less liabilities, by the number of shares
outstanding. The maximum offering price per share of the Growth/Value Fund and
Aggressive Growth Fund is equal to the net asset value per share plus a sales
load equal to 4.17% of the net asset value (or 4% of the offering price).
The redemption price per share of each Fund, including each class of shares with
respect to the Utility Fund and Equity Fund, is equal to the net asset value per
share. However, Class C shares of the Utility Fund and Equity Fund are subject
to a contingent deferred sales load of 1% of the original purchase price if
redeemed within a one-year period from the date of purchase.
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are amortized in accordance with income tax regulations which approximate
generally accepted accounting principles.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid quarterly to shareholders of the Utility Fund and
Equity Fund and annually to shareholders of the Growth/Value Fund and Aggressive
Growth Fund. With respect to each Fund, net realized short-term capital gains,
if any, may be distributed throughout the year and net realized long-term
capital gains, if any, are distributed at least once each year. Income dividends
and capital gain distributions are determined in accordance with income tax
regulations.
Allocations between classes -- Investment income earned, realized capital gains
and losses, and unrealized appreciation and depreciation for the Utility Fund
and Equity Fund are allocated daily to each class of shares based upon its
proportionate share of total net assets of the Fund. Class specific expenses are
charged directly to the class incurring the expense. Common expenses which are
not attributable to a specific class are allocated daily to each class of shares
based upon its proportionate share of total net assets of the Fund.
20
<PAGE>
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Organization costs -- Costs incurred by the Growth/Value Fund and Aggressive
Growth Fund in connection with their organization and registration of shares,
net of certain expenses, have been capitalized and are being amortized on a
straight-line basis over a five year period beginning with each Fund's
commencement of operations.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ending October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments (excluding repurchase agreements) as of March 31, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Growth/ Aggressive
Utility Equity Value Growth
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation.................. $ 14,044,227 $ 21,522,301 $ 9,754,046 $ 3,705,151
Gross unrealized depreciation.................. (273,768) (2,226,547) (203,810) (386,419)
------------ -------------- ------------- -------------
Net unrealized appreciation.................... $ 13,770,459 $ 19,295,754 $ 9,550,236 $ 3,318,732
------------ -------------- ------------- -------------
Federal income tax cost........................ $ 27,852,815 $ 34,520,209 $15,111,808 $ 8,087,608
------------ -------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Reclassification of capital accounts -- For the year ended March 31, 1999, the
Growth/Value Fund and Aggressive Growth Fund reclassified net investment losses
of $235,765 and $190,566, respectively, against paid-in capital on the
Statements of Assets and Liabilities. The Equity Fund reclassified $7,701 of
overdistributed net investment income against paid-in capital. Such
reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements, have no effect on each Fund's
net assets or net asset value per share.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the year ended March 31, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive
Utility Equity Value Growth
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of investment securities............. $ 1,721,320 $ 14,471,647 $14,983,235 $11,641,423
============ ============== ============= =============
Proceeds from sales and maturities of
investment securities....................... $ 3,409,806 $ 4,355,481 $26,159,764 $16,642,244
============ ============== ============= =============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
4. TRANSACTIONS WITH AFFILIATES
The Chairman, President and certain other officers of the Trust are also
officers of Countrywide Financial Services, Inc., or its subsidiaries which
include Countrywide Investments, Inc. (the Adviser), the Trust's investment
adviser and principal underwriter, and Countrywide Fund Services, Inc. (CFS),
the Trust's transfer agent, shareholder service agent and accounting services
agent. Countrywide Financial Services, Inc. is a wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending.
MANAGEMENT AGREEMENTS
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. Under the Management Agreement, the Utility Fund and
Equity Fund each pay the Adviser a fee, which is computed and accrued daily and
paid monthly, at an annual rate of 0.75% of its respective average daily net
assets up to $200 million; 0.70% of such net assets from $200 million to $500
million; and 0.50% of such net assets in excess of $500 million. The
Growth/Value Fund and Aggressive Growth Fund each pay the Adviser a fee, which
is computed and accrued daily and paid monthly, at an annual rate of 1.00% of
its respective average daily net assets up to $50 million; 0.90% of such net
assets from $50 million to $100 million; 0.80% of such net assets from $100
million to $200 million; and 0.75% of such net assets in excess of $200 million.
Mastrapasqua and Associates, Inc. (Mastrapasqua) has been retained by the
Adviser to manage the investments of the Growth/Value Fund and Aggressive Growth
Fund. The Adviser (not the Funds) pays Mastrapasqua a fee, which is computed and
accrued daily and paid monthly, at an annual rate of 0.60% of each Fund's
respective average daily net assets up to $50 million; 0.50% of such net assets
from $50 million to $100 million; 0.40% of such net assets from $100 million to
$200 million; and 0.35% of such net assets in excess of $200 million.
The Adviser has agreed, until at least August 31, 1999, to waive fees and
reimburse expenses to the extent necessary to limit total operating expenses of
the Growth/Value Fund and Aggressive Growth Fund to 1.95% of each Fund's average
daily net assets.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and CFS, CFS maintains the records of
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee at an annual
rate of $17 per shareholder account from each Fund, subject to a $1,000 minimum
monthly fee for each Fund, or for each class of shares of a Fund, as applicable.
In addition, each Fund pays CFS out-of-pocket expenses including, but not
limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, CFS receives a monthly fee,
based on current asset levels, of $3,000 from each of the Utility Fund and
Equity Fund and $2,000 from each of the Growth/Value Fund and Aggressive Growth
Fund. In addition, each Fund pays certain out-of-pocket expenses incurred by CFS
in obtaining valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as the
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Adviser, the Adviser earned
$5,789, $4,158, $3,390 and $7,588 from underwriting and broker commissions on
the sale of shares of the Utility Fund, Equity Fund, Growth/Value Fund and
Aggressive Growth Fund, respectively, for the year ended March 31, 1999. In
addition, the Adviser collected $457 and $693 of contingent deferred sales loads
on the redemption of Class C shares of the Utility Fund and Equity Fund,
respectively.
22
<PAGE>
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is 0.25% of average daily net
assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of each Fund having two classes of shares may directly incur or reimburse
the Adviser for expenses related to the distribution and promotion of shares.
The annual limitation for payment of such expenses under the Class C Plan is 1%
of average daily net assets attributable to Class C shares.
CUSTODIAN AGREEMENTS
Firstar Bank, N.A., which serves as the custodian for the Growth/Value Fund and
Aggressive Growth Fund, was a significant shareholder of record of each Fund as
of March 31, 1999. Under the terms of its Custodian Agreements, Firstar Bank
receives from each Fund an asset-based fee plus certain transaction charges.
5. Capital Share Transactions
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Utility Equity
Fund Fund
Year Year Year Year
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold.................................... 275,492 441,718 818,011 1,675,833
Shares issued in reinvestment of distributions
to shareholders............................. 75,229 105,777 3,351 22,496
Shares redeemed................................ (395,304) (914,263) (287,992) (808,858)
------------ -------------- ------------- -------------
Net increase (decrease) in shares outstanding.. (44,583) (366,768) 533,370 889,471
Shares outstanding, beginning of year.......... 2,533,479 2,900,247 1,978,069 1,088,598
------------ -------------- ------------- -------------
Shares outstanding, end of year................ 2,488,896 2,533,479 2,511,439 1,978,069
============ ============== ============= =============
CLASS C
Shares sold.................................... 25,825 23,316 28,644 23,254
Shares issued in reinvestment of distributions
to shareholders............................. 4,271 7,595 -- 1,642
Shares redeemed................................ (36,290) (65,381) (84,439) (26,402)
------------ -------------- ------------- -------------
Net decrease in shares outstanding............. (6,194) (34,470) (55,795) (1,506)
Shares outstanding, beginning of year.......... 214,888 249,358 199,685 201,191
------------ -------------- ------------- -------------
Shares outstanding, end of year................ 208,694 214,888 143,890 199,685
============ ============== ============= =============
- ----------------------------------------------------------------------------------------------------------------
23
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Growth/Value Aggressive Growth
Fund Fund
Year Seven Months Year Year Seven Months Year
Ended Ended Ended Ended Ended Ended
March 31, March 31, Aug. 31, March 31, March 31, Aug. 31,
1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................ 263,603 392,494 751,684 216,290 304,821 418,585
Shares issued in reinvestment of distributions
to shareholders......................... 150,161 23,529 16,584 63,418 -- 376
Shares redeemed............................ (761,516) (343,315) (434,401) (535,148) (183,404) (158,580)
---------- ---------- --------- --------- --------- ---------
Net increase (decrease) in shares
outstanding............................. (347,752) 72,708 333,867 (255,440) 121,417 260,381
Shares outstanding, beginning of period.... 1,757,393 1,684,685 1,350,818 980,105 858,688 598,307
---------- ---------- --------- --------- --------- ---------
Shares outstanding, end of period.......... 1,409,641 1,757,393 1,684,685 724,665 980,105 858,688
---------- ---------- --------- --------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
6. BORROWINGS
The Growth/Value Fund and Aggressive Growth Fund each have a Loan Agreement with
Firstar Bank, N.A., to be used for temporary or emergency purposes, including
the financing of capital share redemption requests that might otherwise require
the untimely disposition of securities. The Loan Agreements permit borrowings up
to a maximum principal amount outstanding not to exceed the lesser of $1,500,000
for the Growth/Value Fund and $3,000,000 for the Aggressive Growth Fund or
certain other amounts which are calculated based upon the amounts and
composition of assets in each Fund as defined in the Loan Agreement. Each Fund
agrees to pay interest on any unpaid principal balance at prevailing market
rates as defined in the Loan Agreement.
As of March 31, 1999, neither Fund had outstanding borrowings under the Loan
Agreement. The maximum amount outstanding during the year for the Aggressive
Growth Fund was $1,400,000 at a weighted average interest rate of 7.75%. For the
year ended March 31, 1999, the Aggressive Growth Fund incurred, and the Adviser
reimbursed, $6,473 of interest expense on such borrowings.
7. AGREEMENT AND PLAN OF REORGANIZATION
The Growth/Value Fund and Aggressive Growth Fund were originally organized as
series of Trans Adviser Funds, Inc. (Trans Adviser), an open-end management
investment company incorporated under the laws of the State of Maryland.
Pursuant to an Agreement and Plan of Reorganization dated May 31, 1997, each
Fund, on August 29, 1997, succeeded to the assets and liabilities of a series of
Trans Adviser with the same name (the Predecessor Fund). The investment
objective, policies and restrictions of each Fund and its Predecessor Fund are
substantially identical.
For federal income tax purposes, the reorganization of the Growth/Value Fund and
Aggressive Growth Fund qualified as a tax-free reorganization with no tax
consequences to either Fund, its Predecessor Fund or their shareholders. In
connection with the reorganization, the fiscal year-end of each Fund, subsequent
to August 31, 1997, has been changed from August 31 to March 31.
8. FEDERAL TAX INFORMATION (UNAUDITED)
In accordance with federal tax requirements, the following provides shareholders
with information concerning distributions from net realized gains, if any, made
by the Funds during the year ended March 31, 1999. On October 30, 1998, the
Utility Fund declared and paid a long-term capital gain distribution of $0.1820
per share. On November 16, 1998 and March 19, 1999, the Growth/Value Fund
declared and paid long-term capital gain distributions of $0.5450 and $2.9234
per share, respectively. On March 19, 1999, the Aggressive Growth Fund declared
and paid a long-term capital gain distribution of $2.4768 per share. As required
by federal regulations, shareholders will receive notification of their portion
of a Fund's taxable capital gain distribution, if any, paid during the 1999
calendar year early in 2000.
24
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
============================================================================================================
Market
COMMON STOCKS -- 91.2% Shares Value
- ------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 42.0%
<S> <C> <C>
AES Corp.*............................................................... 45,000 $ 1,676,250
Baltimore Gas & Electric Co.............................................. 50,050 1,270,019
Cinergy Corp............................................................. 50,000 1,375,000
Cleco Corp............................................................... 30,000 885,000
CMS Energy Corp.......................................................... 60,000 2,403,750
DPL, Inc................................................................. 75,000 1,237,500
Duke Power Co............................................................ 42,000 2,294,250
FPL Group, Inc........................................................... 45,000 2,396,250
Kansas City Power & Light Co............................................. 50,000 1,231,250
Northern States Power Co................................................. 60,000 1,391,250
Scana Corp............................................................... 60,000 1,301,250
---------------
$ 17,461,769
---------------
TELECOMMUNICATIONS -- 37.7%
Ameritech Corp........................................................... 50,000 $ 2,893,750
AT&T Corp................................................................ 30,000 2,394,375
Bell Atlantic Corp....................................................... 50,000 2,584,375
BellSouth Corp........................................................... 75,000 3,004,687
GTE Corp................................................................. 45,000 2,722,500
Lucent Technologies, Inc................................................. 19,444 2,095,091
---------------
$ 15,694,778
---------------
GAS COMPANIES -- 6.6%
MCN Corp................................................................. 70,000 $ 1,124,375
Oneok, Inc............................................................... 25,000 618,750
Wicor, Inc............................................................... 50,000 1,012,500
---------------
$ 2,755,625
---------------
WATER COMPANIES -- 4.9%
American Water Works, Inc................................................ 70,000 $ 2,034,375
---------------
TOTAL COMMON STOCKS (Cost $24,267,526)................................... $ 37,946,547
---------------
<CAPTION>
=============================================================================================================
Par Market
CORPORATE BONDS -- 5.2% Value Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dayton Power & Light Co., 8.40%, 12/01/22................................ $ 1,000,000 $ 1,056,165
New York Telephone Co., 9.375%, 7/15/31.................................. 1,000,000 1,120,562
-------------- ---------------
TOTAL CORPORATE BONDS (Amortized Cost $2,085,289)........................ $ 2,000,000 $ 2,176,727
============== ---------------
25
<PAGE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
=============================================================================================================
Par Market
COMMERCIAL PAPER -- 3.6% Value Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BP America, 4/01/99 (Amortized Cost $1,500,000).......................... $ 1,500,000 $ 1,500,000
============== ---------------
TOTAL INVESTMENT SECURITIES-- 100.0% (Amortized Cost $27,852,815)........ $ 41,623,274
LIABILITIES IN EXCESS OF OTHER ASSETS-- 0.0% ............................ (17,448)
---------------
NET ASSETS-- 100.0% ..................................................... $ 41,605,826
===============
* Non-income producing security.
See accompanying notes to financial statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
=============================================================================================================
Market
COMMON STOCKS -- 91.7% Shares Value
- -------------------------------------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL -- 28.5%
<S> <C> <C>
Abbott Laboratories...................................................... 30,000 $ 1,404,375
Albertson's, Inc......................................................... 15,000 814,687
American Home Products Corp.............................................. 20,000 1,305,000
Johnson & Johnson........................................................ 22,000 2,061,125
Merck & Co., Inc......................................................... 20,000 1,603,750
Newell Rubbermaid, Inc................................................... 30,000 1,425,000
PepsiCo, Inc............................................................. 35,000 1,371,563
Pfizer, Inc.............................................................. 20,000 2,775,000
Procter & Gamble Co...................................................... 25,000 2,448,438
Sara Lee Corp............................................................ 34,000 841,500
Schering-Plough Corp..................................................... 12,000 663,750
---------------
$ 16,714,188
---------------
TECHNOLOGY -- 20.3%
Compaq Computer Corp. ................................................... 40,000 $ 1,267,500
Hewlett-Packard Co....................................................... 17,500 1,186,719
Intel Corp............................................................... 20,000 2,382,500
Lucent Technologies, Inc................................................. 3,888 418,932
MCI Worldcom*............................................................ 22,000 1,948,375
Motorola, Inc............................................................ 9,000 659,250
Northern Telecom Limited................................................. 15,000 931,875
Sun Microsystems, Inc.*.................................................. 25,000 3,123,437
---------------
$ 11,918,588
---------------
FINANCIAL SERVICES -- 17.1%
AFLAC, Inc............................................................... 40,000 $ 2,177,500
American International Group............................................. 16,500 1,990,312
Bank of New York Co., Inc................................................ 60,000 2,156,250
Freddie Mac.............................................................. 30,000 1,713,750
Horace Mann Educators Corp............................................... 40,000 927,500
Wells Fargo Co........................................................... 30,000 1,051,875
---------------
$ 10,017,187
---------------
CONSUMER, CYCLICAL -- 13.1%
Gap, Inc................................................................. 45,000 $ 3,029,063
Mattel, Inc.............................................................. 55,000 1,368,125
McDonald's Corp.......................................................... 46,000 2,084,375
The Walt Disney Co....................................................... 39,000 1,213,875
---------------
$ 7,695,438
---------------
ENERGY -- 4.3%
Apache Corp.............................................................. 35,000 $ 912,187
Enron Corp............................................................... 25,000 1,606,250
---------------
$ 2,518,437
---------------
CONGLOMERATES -- 3.2%
General Electric Co...................................................... 17,000 $ 1,880,625
---------------
INDUSTRIAL -- 2.7%
Diebold, Inc............................................................. 30,000 $ 720,000
Emerson Electric Co...................................................... 17,000 899,937
---------------
$ 1,619,937
---------------
27
<PAGE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
================================================================================================================
Market
COMMON STOCKS -- 91.7% Shares Value
- ----------------------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 2.5%
<S> <C> <C>
duPont (E.I.) de Nemours & Co............................................ 25,000 $ 1,451,563
---------------
TOTAL COMMON STOCKS (Cost $34,520,209)................................... $ 53,815,963
---------------
================================================================================================================
Face Market
REPURCHASE AGREEMENTS (1)-- 9.2% Value Value
- ----------------------------------------------------------------------------------------------------------------
Bank One, N.A., 4.95%, dated 3/31/99, due 4/01/99,
repurchase proceeds $5,420,745......................................... $ 5,420,000 $ 5,420,000
-------------- ---------------
TOTAL COMMON STOCKS AND REPURCHASE AGREEMENTS-- 100.9% .................. $ 59,235,963
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.9%) ......................... (529,724)
---------------
NET ASSETS-- 100.0% ..................................................... $ 58,706,239
===============
* Non-income producing security.
(1)Repurchase agreements are fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
================================================================================================================
Market
COMMON STOCKS -- 92.4% Shares Value
- ----------------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 52.9%
<S> <C> <C>
Applied Materials, Inc.*................................................. 21,000 $ 1,295,438
Compuware Corp.*......................................................... 20,000 477,500
EMC Corp.*............................................................... 11,000 1,405,250
Intel Corp............................................................... 11,000 1,310,375
International Business Machines Corp..................................... 7,000 1,240,750
Lexmark International Group, Inc. - Class A*............................. 9,500 1,061,625
Novell, Inc.*............................................................ 89,000 2,241,688
Oracle Corp.*............................................................ 57,750 1,523,156
Sun Microsystems, Inc.*.................................................. 20,000 2,498,750
---------------
$ 13,054,532
---------------
HEALTH CARE -- 20.2%
Amgen, Inc.*............................................................. 10,000 $ 748,750
Baxter International, Inc................................................ 11,000 726,000
Becton, Dickinson and Co................................................. 10,000 383,125
Bristol-Myers Squibb Co.................................................. 16,000 1,029,000
Pharmacia & Upjohn, Inc.................................................. 16,000 998,000
Schering-Plough Corp..................................................... 20,000 1,106,250
---------------
$ 4,991,125
---------------
ENTERTAINMENT -- 6.3%
Carnival Corp. - Class A................................................. 25,000 $ 1,214,062
Marriott International, Inc. - Class A................................... 10,000 336,250
---------------
$ 1,550,312
---------------
RETAIL -- 4.0%
CVS Corp................................................................. 15,000 $ 712,500
Walgreen Co.............................................................. 9,200 259,900
---------------
$ 972,400
---------------
FINANCIAL SERVICES -- 3.3%
Concord EFS, Inc.*....................................................... 29,700 $ 818,606
---------------
AEROSPACE/DEFENSE -- 2.9%
General Dynamics Corp.................................................... 11,200 $ 719,600
---------------
TRANSPORTATION -- 2.8%
AMR Corp.*............................................................... 7,500 $ 439,219
MotivePower Industries, Inc.*............................................ 10,000 251,250
---------------
$ 690,469
---------------
TOTAL COMMON STOCKS (Cost $13,246,808)................................... $ 22,797,044
---------------
29
<PAGE>
<CAPTION>
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
===================================================================================================================
Par Market
U. S. GOVERNMENT AGENCY ISSUES-- 7.6% Value Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Agricultural Mortgage Corp. Discount Note, 4/01/99
(Amortized Cost $1,865,000)........................................... $ 1,865,000 $ 1,865,000
-------------- ---------------
TOTAL INVESTMENT SECURITIES-- 100.0% (Amortized Cost $15,111,808) ....... $ 24,662,044
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.0% ............................ 1,683
---------------
NET ASSETS-- 100.0% ..................................................... $ 24,663,727
---------------
* Non-income producing security.
See accompanying notes to financial statements.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
================================================================================================================
Market
COMMON STOCKS -- 97.6% Shares Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 52.3%
Compuware Corp.*......................................................... 25,000 $ 596,875
EMC Corp.*............................................................... 5,000 638,750
Intel Corp............................................................... 4,500 536,063
Lexmark International Group, Inc. - Class A*............................. 4,500 502,875
Novell, Inc.*............................................................ 50,000 1,259,375
Oracle Corp.*............................................................ 16,875 445,078
Seagate Technology, Inc.*................................................ 18,000 532,125
SMART Modular Technologies, Inc.*........................................ 30,000 448,125
Sun Microsystems, Inc.*.................................................. 5,000 624,688
Teradyne, Inc.*.......................................................... 7,000 381,937
---------------
$ 5,965,891
---------------
HEALTH CARE -- 24.0%
Alternative Living Services, Inc.*....................................... 10,000 $ 200,000
Amgen, Inc.*............................................................. 6,000 449,250
Biogen, Inc.*............................................................ 4,000 457,250
Capital Senior Living Corp.*............................................. 14,800 104,525
Chiron Corp.*............................................................ 13,000 285,188
Elan Corp. plc - ADR*.................................................... 3,000 209,250
Pharmacia & Upjohn, Inc.................................................. 9,000 561,375
Sunrise Assisted Living, Inc.*........................................... 6,000 273,375
Watson Pharmaceuticals, Inc.*............................................ 4,400 194,150
---------------
$ 2,734,363
---------------
RETAIL -- 8.2%
CVS Corp................................................................. 5,500 $ 261,250
Shop At Home, Inc.*...................................................... 20,000 251,250
Walgreen Co.............................................................. 14,800 418,100
---------------
$ 930,600
---------------
ENTERTAINMENT -- 4.3%
Carnival Corp. - Class A................................................. 10,000 $ 485,625
---------------
TRANSPORTATION -- 3.5%
MotivePower Industries, Inc.*............................................ 5,000 $ 125,625
Southwest Airlines Co.................................................... 9,000 272,250
---------------
$ 397,875
---------------
TELECOMMUNICATIONS -- 2.9%
Uniphase Corp.*.......................................................... 2,900 $ 333,862
---------------
FINANCIAL SERVICES -- 2.4%
Viad Corp................................................................ 10,000 $ 278,125
---------------
TOTAL COMMON STOCKS (Cost $7,807,609) ................................... $ 11,126,341
---------------
31
<PAGE>
<CAPTION>
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999 (continued)
================================================================================================================
Par Market
U.S. GOVERNMENT AGENCY ISSUES-- 2.4% Value Value
- ----------------------------------------------------------------------------------------------------------------
<S> <S> <S>
Federal Agricultural Mortgage Corp. Discount Note, 4/01/99
(Amortized Cost $280,000)............................................. $ 280,000 $ 280,000
-------------- ---------------
TOTAL INVESTMENT SECURITIES-- 100.0% (Amortized Cost $8,087,609) ........ $ 11,406,341
LIABILITIES IN EXCESS OF OTHER ASSETS-- (0.0%) .......................... (4,231)
---------------
NET ASSETS-- 100.0% ..................................................... $ 11,402,110
---------------
* Non-income producing security.
ADR - American depositary receipt.
See accompanying notes to financial statements.
</TABLE>
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
Logo ARTHUR ANDERSEN LLP
To the Shareholders and Board of Trustees of Countrywide Strategic Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of Countrywide Strategic Trust (comprising,
respectively, the Utility Fund, Equity Fund, Growth/Value Fund and Aggressive
Growth Fund) as of March 31, 1999, and (i) for the Utility Fund and Equity Fund
the related statements of operations, statements of changes in net assets and
the financial highlights for the periods indicated thereon and (ii) for the
Growth/Value Fund and Aggressive Growth Fund the related statements of
operations, statements of changes in net assets and the financial highlights for
the year ended March 31, 1999, the seven-month period ended March 31, 1998 and
the year ended August 31, 1997. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of the Growth/Value Fund and
Aggressive Growth Fund for the period ended August 31, 1996 were audited by
other auditors whose report dated October 18, 1996, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights audited by us
and referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Countrywide Strategic
Trust as of March 31, 1999, the results of their operations for the year then
ended, the changes in their net assets, and their financial highlights for the
periods referred to above, in conformity with generally accepted accounting
principles.
/s/ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
April 30, 1999
<PAGE>
PART C. OTHER INFORMATION
- ------ -----------------
Item 23. Exhibits
- ------- --------
(a) ARTICLES OF INCORPORATION
Registrant's Restated Agreement and
Declaration of Trust with Amendment No. 1,
dated May 24, 1994, Amendment No. 2, dated
February 28, 1997 and Amendment No. 3, dated
August 11, 1997, which were filed as Exhibits
to Registrant's Post-Effective Amendment No. 36,
are hereby incorporated by reference.
(b) BYLAWS
Registrant's Bylaws with Amendments
adopted July 17, 1984 and April 5, 1989, which were
filed as Exhibits to Registrant's Post-Effective
Amendment No. 36, are hereby incorporated by
reference.
(c) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Article IV Of Registrant's Restated Agreement and
Declaration of Trust provides the following rights for
security holders:
LIQUIDATION. In event of the liquidation or
dissolution of the Trust, the Shareholders of each
Series that has been established and designated shall
be entitled to receive, as a Series, when and as
declared by the Trustees, the excess of the assets
belonging to that Series over the liabilities belonging
to that Series. The assets so distributable to the
Shareholders of any particular Series shall be
distributed among such Shareholders in proportion to
the number of Shares of that Series held by them and
recorded on the books of the Trust.
VOTING. All shares of all Series shall have "equal
voting rights" as such term is defined in the Investment
Company Act of 1940 and except as otherwise provided by
that Act or rules, regulations or orders promulgated
thereunder. On each matter submitted to a vote of the
Shareholders, all shares of each Series shall vote as a
single class except as to any matter with respect to
which a vote of all Series voting as a single series is
required by the 1940 Act or rules and regulations
promulgated thereunder, or would be required under the
Massachusetts Business Corporation Law if the Trust were
a Massachusetts business corporation. As to any matter
which does not affect the interest of a particular Series,
only the holders of Shares of the one or more affected
Series shall be entitled to vote.
<PAGE>
REDEMPTION BY SHAREHOLDER. Each holder of Shares of a
particular Series shall have the right at such times as
may be permitted by the Trust, but no less frequently
than once each week, to require the Trust to redeem all
or any part of his Shares of that Series at a
redemption price equal to the net asset value per Share
of that Series next determined in accordance with
subsection (h) of this Section 4.2 after the Shares are
properly tendered for redemption.
Notwithstanding the foregoing, the Trust may postpone
payment of the redemption price and may suspend the right
of the holders of Shares of any Series to require the Trust
to redeem Shares of that Series during any period or at any
time when and to the extent permissible under the 1940 Act,
and such redemption is conditioned upon the Trust having
funds or property legally available therefor.
TRANSFER. All Shares of each particular Series shall
be transferable, but transfers of Shares of a
particular Series will be recorded on the Share
transfer records of the Trust applicable to that Series
only at such times as Shareholders shall have the right
to require the Trust to redeem Shares of that Series
and at such other times as may be permitted by the
Trustees.
Article V of Registrant's Restated Agreement and
Declaration of Trust provides the following rights
for security holders:
VOTING POWERS. The Shareholders shall have power
to vote only (i) for the election or removal of
Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as
provided in Section 3.3 as to which Shareholder approval is
required by the 1940 Act, (iii) with respect to any
termination or reorganization of the Trust or any Series
to the extent and as provided in Sections 7.1 and 7.2,
(iv) with respect to any amendment of this Declaration
of Trust to the extent and as provided in Section 7.3,
(v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not
be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders, and
(vi) with respect to such additional matters relating to
the Trust as may be required by the 1940 Act, this
Declaration of Trust, the Bylaws or any registration of
the Trust with the Commission (or any successor agency)
in any state, or as the Trustees may consider necessary
or desirable. There shall be no cumulative voting in the
election of any Trustee or Trustees. Shares may be voted
in person or by proxy.
<PAGE>
(d) INVESTMENT ADVISORY CONTRACTS
(i) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Utility Fund, which was filed as
an Exhibit to Registrant's Post-Effective Amendment No.
32, is hereby incorporated by reference.
(ii) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Equity Fund, which was filed as
an Exhibit to Registrant's Post-Effective Amendment
No. 32, is hereby incorporated by reference.
(iii) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Growth/Value Fund, which was filed
as an Exhibit to Registrant's Post-Effective Amendment No.
34, is hereby incorporated by reference.
(iv) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Aggressive Growth Fund, which was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 34, is hereby incorporated by reference.
(v) Subadvisory Agreement between Countrywide Investments, Inc.
and Mastrapasqua & Associates, Inc. for the Growth/Value
Fund, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 34, is hereby incorporated by
reference.
(vi) Subadvisory Agreement between Countrywide Investments, Inc.
and Mastrapasqua & Associates, Inc. for the Aggressive Growth
Fund, which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 34, is hereby incorporated by
reference.
(e) UNDERWRITING CONTRACTS
(i) Registrant's Underwriting Agreement with Countrywide
Investments, Inc., which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 32, is
hereby incorporated by reference.
(ii) Form of Underwriter's Dealer Agreement is filed herewith.
(f) BONUS OR PROFIT SHARING CONTRACTS
None.
(g) CUSTODIAN AGREEMENTS
(i) Custody Agreement with The Fifth Third Bank, the Custodian
for the Utility Fund and the Equity Fund, which was filed as
an Exhibit to Registrant's Post-Effective Amendment No.
31, is hereby incorporated by reference.
(ii) Custody Agreement with Firstar Bank (formerly Star Bank), the
Custodian for the Growth/Value Fund and the Aggressive Growth
Fund, which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 35, is hereby incorporated by
reference.
<PAGE>
(h) OTHER MATERIAL CONTRACTS
(i) Registrant's Accounting and Pricing Services Agreement with
Countrywide Fund Services, Inc. is filed herewith.
(ii) Registrant's Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement with Countrywide Fund
Services, Inc., which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 34, is hereby
incorporated by reference.
(iii) Administration Agreement between Countrywide Investments,
Inc. and Countrywide Fund Services, Inc., which was filed
as an Exhibit to Registrant's Post-Effective Amendment No.
35, is hereby incorporated by reference.
(iv) License Agreement with Countrywide Credit Industries, Inc.,
which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 32, is hereby incorporated by reference.
(i) LEGAL OPINION
Opinion and Consent of Counsel, which was filed as an Exhibit
to Registrant's Pre-Effective Amendment No. 1, is hereby
incorporated by reference.
(j) OTHER OPINIONS
Consent of Independent Auditors is filed herewith.
(k) OMITTED FINANCIAL STATEMENTS
None.
(l) INITIAL CAPITAL AGREEMENTS
Copy of Letter of Initial Stockholder, which was filed as an
Exhibit to Registrant's Pre-Effective Amendment No. 1, is
hereby incorporated by reference.
(m) RULE 12B-1 PLAN
(i) Registrant's Plans of Distribution Pursuant to Rule 12b-1,
which were filed as Exhibits to Registrant's Post-Effective
Amendment No. 32, are hereby incorporated by reference.
(ii) Form of Administration Agreement which was filed as an Exhibit
to Registrant's Post-Effective Amendment No. 35, is hereby
incorporated by reference.
(n) FINANCIAL DATA SCHEDULE
Financial Data Schedules for the Utility Fund (Class A and
Class C), the Equity Fund (Class A and Class C), the
Growth/Value Fund and the Aggressive Growth Fund, which were
filed as Exhibits to Registrant's Form N-SAR are hereby
incorporated by reference.
(o) RULE 18f-3 PLAN
Amended Rule 18f-3 Plan Adopted with Respect to the Multiple
Class Distribution System, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 33, is hereby
incorporated by reference.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the
- ------- Registrant
-------------------------------------------------------
None
Item 25. INDEMNIFICATION
- ------- ---------------
(a) Article VI of the Registrant's Restated Agreement and
Declaration of Trust provides for indemnification of officers
and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers, etc.
----------- ------------------------------------------
The Trust shall indemnify each of its Trustees and officers,
including persons who serve at the Trust's request as
directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise (hereinafter referred to as a "Covered Person")
against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants'
and counsel fees, incurred by any Covered Person in connection
with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being
or having been such a Trustee or officer, director or trustee,
and except that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to which such
Covered Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's
office ("disabling conduct"). Anything herein contained to the
contrary notwithstanding, no Covered Person shall be
indemnified for any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject unless
(1) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of disabling
conduct or, (2) in the absence of such a decision, a
reasonable determination is made, based upon a review of the
facts, that the Covered Person was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum
of Trustees who are neither "interested persons" of the
Company as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a written
opinion.
<PAGE>
Section 6.5 Advances of Expenses.
----------- --------------------
The Trust shall advance attorneys' fees or other expenses
incurred by a Covered Person in defending a proceeding, upon
the undertaking by or on behalf of the Covered Person to repay
the advance unless it is ultimately determined that such
Covered Person is entitled to indemnification, so long as one
of the following conditions is met: (i) the Covered Person
shall provide security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of any
lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found
entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
----------- -----------------------------------
The right of indemnification provided by this Article VI shall
not be exclusive of or affect any other rights to which any
such Covered Person may be entitled. As used in this Article
VI, "Covered Person" shall include such person's heirs,
executors and administrators, an "interested Covered Person"
is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the
same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against
whom none of such actions, suits or other proceedings or
another action, suit or other proceeding on the same or
similar grounds is then or has been pending or threatened.
Nothing contained in this article shall affect any
rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be
entitled by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on
behalf of any such person.
(b) The Registrant maintains a mutual fund and investment
advisory professional and directors and officers liability
policy. The policy provides coverage to the Registrant, its
trustees and officers and Countrywide Investments, Inc.
(the "Adviser") in its capacity as investment adviser and
principal underwriter, among others. Coverage under the policy
includes losses by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
The Registrant may not pay for insurance which protects the
Trustees and officers against liabilities rising from action
involving willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
their offices.
<PAGE>
The Advisory Agreements and the Subadvisory Agreements provide
that the Adviser (or Subadvisor) shall not be liable for any
error of judgment or mistake of law or for any loss suffered
by the Registrant in connection with the matters to which the
Agreements relate, except a loss resulting from willful
misfeasance, bad faith or gross negligence of the Adviser (or
Subadvisor) in the performance of its duties or from the
reckless disregard by the Adviser (or Subadvisor) of its
obligations under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by the Adviser (or
Subadvisor) in defending a proceeding, upon the undertaking by
or on behalf of the Adviser (or Subadvisor) to repay the
advance unless it is ultimately determined that the Adviser is
entitled to indemnification.
The Underwriting Agreement with the Adviser provides that the
Adviser, its directors, officers, employees, shareholders and
control persons shall not be liable for any error of judgment
or mistake of law or for any loss suffered by Registrant in
connection with the matters to which the Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of any of such persons in the
performance of the Adviser's duties or from the reckless
disregard by any of such persons of the Adviser's obligations
and duties under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by any such person
in defending a proceeding, upon the undertaking by or on
behalf of such person to repay the advance if it is ultimately
determined that such person is not entitled to
indemnification.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT
ADVISERS
------------------------------------------------
A. Countrywide Investments, Inc. (the "Adviser") is a
registered investment adviser providing investment
advisory services to the Registrant. The Adviser
acts as the investment adviser to six series of
Countrywide Tax-Free Trust and six series of
Countrywide Investment Trust, both of which are
registered investment companies. The Adviser
acts as the subadviser to the Huntington Florida Tax-Free
Money Fund series of The Huntington Funds. The Adviser
provides investment advisory services to individual
and institutional accounts and is a registered
broker-dealer.
<PAGE>
The following list sets forth the business and other
connections of the directors and executive officers of the
Adviser. Unless otherwise noted with an asterisk(*), the
address of the corporations listed below is 312 Walnut
Street, Cincinnati, Ohio 45202.
*The address of each corporation is 4500 Park Granada
Road, Calabasas, California 91302.
(1) Angelo R. Mozilo - Chairman and a Director of the
Adviser.
(a) Chairman and a Trustee of Countrywide
Strategic Trust, Countrywide Investment Trust
and Countrywide Tax-Free Trust, registered
investment companies.
(b) Chairman and a Director of Countrywide Home
Loans, Inc.,* a residential mortgage lender,
Countrywide Financial Services, Inc., a financial
services company, Countrywide Fund Services,
Inc., a registered transfer agent, CW Fund
Distributors, Inc., a registered broker-
dealer, Countrywide Servicing Exchange,* a loan
servicing broker and Countrywide Capital
Markets, Inc.,* a holding company.
(c) Chairman, Director and Chief Executive
Officer of Countrywide Credit Industries,
Inc.,* a holding company which provides
residential mortgages and ancillary
financial products and services.
(d) A Director of CTC Real Estate Services
Corporation,* a foreclosure trustee and
CCM Municipal Services, Inc.,* a tax lien
purchaser.
(e) A Director of LandSafe, Inc.* and Chairman
and a director of various subsidiaries of
LandSafe, Inc. which provide residential
mortgage title and closing services.
(2) Robert H. Leshner - President and a Director of the
Adviser.
(a) President and a Trustee of Countrywide
Strategic Trust, Countrywide Investment Trust
and Countrywide Tax-Free Trust.
(b) President and a Director of Countrywide
Financial Services, Inc., Countrywide Fund
Services, Inc. and CW Fund Distributors, Inc.
<PAGE>
(3) Andrew S. Bielanski - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc., CW Fund
Distributors, Inc., Directnet Insurance Agency,
Inc.,* an insurance agency, Countrywide Insurance
Services, Inc.,* an insurance agency and
Countrywide Insurance Group,* an insurance
services holding company.
(b) Managing Director - Marketing of Countrywide
Credit Industries, Inc. and Countrywide Home
Loans, Inc.
(4) Thomas H. Boone - A Director of the Adviser.
(a) A Director of Countrywide Financial
Services, Inc., Countrywide Fund Services, Inc.,
CW Fund Distributors, Inc., Directnet Insurance
Agency, Inc., Countrywide Tax Services
Corporation,* a residential mortgage tax service
provider, Countrywide Lending Corporation,* a
lending institution, Countrywide Insurance
Services, Inc. and Countrywide Insurance Group,
Inc.
(b) Managing Director - Portfolio Services of
Countrywide Credit Industries,
Inc. and Managing Director - Chief Loan
Administration Officer of Countrywide Home
Loans, Inc.
(c) A Director and Executive Vice President of
CWABS, Inc.,* an asset-backed securities
issuer and CWMBS, Inc.,* a mortgage-backed
securities issuer.
(d) CEO and a Director of CTC Real Estate
Services Corporation.
(e) Chairman and Chief Executive Officer of
Countrywide Field Services Corporation,* a
foreclosure property maintenance provider.
(f) Chairman and Director of Countrywide Realty
Partners, Inc.,* a real estate marketing firm.
(g) President and Director of Countrywide
International Holdings, Inc.,* a holding company.
<PAGE>
(5) Marshall M. Gates - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc., CW Fund
Distributors, Inc., Directnet Insurance Agency,
Inc., Countrywide Insurance Services, Inc. and
Countrywide Insurance Group, Inc.
(b) Managing Director - Developing Markets of
Countrywide Credit Industries, Inc. and
Countrywide Home Loans, Inc.
(c) President and a Director of Second Charter
Reinsurance Corporation,* a mortgage,
property and casualty reinsurance agency and
Charter Reinsurance Corporation,* a mortgage
reinsurance agency.
(d) Chief Operating Officer and Director of Landsafe,
Inc. and various LandSafe subsidiaries.
(6) William E. Hortz - Executive Vice President and Director
of Sales of the Adviser.
(a) Vice President of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide
Tax-Free Trust
(b) Executive Vice President of Countrywide Financial
Services, Inc.
(c) President of Peregrine Asset Management (USA),
4 Embarcadero Center, San Francisco, California,
94111, an investment adviser, until 1998.
(7) Maryellen Peretzky - Senior Vice President, Chief
Operating Officer and Secretary of the Adviser.
(a) Vice President of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide
Tax-Free Trust
(b) Senior Vice President and Secretary of Countrywide
Financial Services, Inc., Countrywide Fund
Services, Inc. and CW Fund Distributors, Inc.
(c) Assistant Secretary of The Gannett Welsh & Kotler
Funds, Firsthand Funds and the Dean Family of
Funds.
<PAGE>
(8) John J. Goetz - First Vice President and Chief
Investment Officer- Tax-Free Fixed Income of the Adviser.
(9) Susan F. Flischel - First Vice President and Chief
Investment Officer - Equity of the Adviser
(10) Margaret D. Weinblatt - First Vice President and Chief
Investment Officer-Taxable Fixed Income of the Adviser.
(a) President and Chief Investment Officer of
Copernicus Asset Management, Ltd., 730
Fifth Avenue, New York, New York until 1998.
(11) Sharon L. Karp - First Vice President-Marketing of
the Adviser.
(12) Terrie A. Wiedenheft - First Vice President, Chief
Financial Officer and Treasurer of the Adviser.
(a) First Vice President, Chief Financial Officer
and Treasurer of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc. and CW
Fund Distributors, Inc.
(13) Scott Weston - Assistant Vice President-Investments of
the Adviser.
B. Mastrapasqua & Associates, Inc. ("Mastrapasqua")
is a registered investment adviser providing
investment advisory services to institutions and
individuals as well as the Growth/Value Fund and
the Aggressive Growth Fund. The address of
Mastrapasqua and its officers and directors is 814
Church Street, Suite 600, Nashville, Tennessee.
The following are officers and directors of
Mastrapasqua:
(1) Frank Mastrapasqua - Chairman and Chief Executive
Officer
(a) Chairman of Management Plus Associates, Inc., a
sports agency.
(2) Thomas A. Trantum - President
<PAGE>
Item 27 Principal Underwriters
- ------- ----------------------
(a) Countrywide Investments, Inc. also acts as
underwriter for Countrywide Tax-Free Trust and
Countrywide Investment Trust. Unless otherwise
noted with an asterisk(*), the address of the
persons named below is 312 Walnut Street,
Cincinnati, Ohio 45202.
*The address is 4500 Park Granada Road, Calabasas,
California 91302.
POSITION POSITION
WITH WITH
(b) NAME UNDERWRITER REGISTRANT
----- ----------- ----------
* Angelo R. Mozilo Chairman and Chairman/
Director Trustee
Robert H. Leshner President President/
and Director Trustee
* Andrew S. Bielanski Director None
* Thomas H. Boone Director None
* Marshall M. Gates Director None
Maryellen Peretzky Senior Vice Vice
President & President
Secretary
William E. Hortz Executive Vice Vice
President & President
Director of Sales
John J. Goetz First Vice None
President and
Chief
Investment
Officer - Tax-Free
Fixed Income
Susan F. Flischel First Vice None
President &
Chief Investment
Officer - Equity
Margaret D. Weinblatt First Vice None
President &
Chief Investment
Officer - Taxable
Fixed Income
<PAGE>
Sharon L. Karp First Vice None
President-
Marketing
Terrie A. Wiedenheft First Vice None
President
& Treasurer
Scott Weston Assistant Vice None
President-
Investments
(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
- ------- --------------------------------
Accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder will
be maintained by the Registrant.
Item 29. MANAGEMENT SERVICES NOT DISCUSSED IN PART A OR PART B
- ------- -----------------------------------------------------
None.
<PAGE>
Item 30. UNDERTAKINGS
- ------- ------------
(a) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant pursuant to the provisions of Massachusetts
law and the Agreement and Declaration of Trust of the
Registrant or the Bylaws of the Registrant, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant
of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(b) Within five business days after receipt of a written
application by shareholders holding in the aggregate at
least 1% of the shares then outstanding or shares then
having a net asset value of $25,000, whichever is less,
each of whom shall have been a shareholder for at least
six months prior to the date of application
(hereinafter the "Petitioning Shareholders"),
requesting to communicate with other shareholders with
a view to obtaining signatures to a request for a
meeting for the purpose of voting upon removal of any
Trustee of the Registrant, which application shall be
accompanied by a form of communication and request
which such Petitioning Shareholders wish to transmit,
Registrant will:
(i) provide such Petitioning Shareholders with
access to a list of the names and addresses of all
shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the
approximate number of shareholders and the estimated
costs of mailing such communication, and to undertake
such mailing promptly after tender by such
Petitioning Shareholders to the Registrant of the
material to be mailed and the reasonable expenses of
such mailing.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) and has
duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Cincinnati, State of Ohio, on the
30th day of July, 1999.
COUNTRYWIDE STRATEGIC TRUST
/s/ Tina D. Hosking
By:---------------------------
Tina D. Hosking,
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the 30th day of July, 1999.
*ANGELO R. MOZILO Chairman
and Trustee
/s/ Robert H. Leshner
- --------------------- President
ROBERT H. LESHNER and Trustee
/s/ Theresa M. Samocki
- ---------------------- Treasurer
THERESA M. SAMOCKI
*DONALD L. BOGDON, M.D. Trustee
*HOWARD J. LEVINE Trustee
*H. JEROME LERNER Trustee
*FRED A. RAPPOPORT Trustee
*OSCAR P. ROBERTSON Trustee
*JOHN F. SEYMOUR, JR. Trustee
*SEBASTIANO STERPA Trustee
By: /s/ Tina D. Hosking
-----------------
TINA D. HOSKING
Attorney-in-Fact*
July 30, 1999
EXHIBIT INDEX
- -------------
1. Form of Dealer's Agreement
2. Accounting and Pricing Services Agreement
3. Consent of Independent Auditors
Dealer #________
COUNTRYWIDE INVESTMENTS, INC.
312 WALNUT STREET
CINCINNATI, OHIO 45202
800-543-8721
513-629-2000
DEALER'S AGREEMENT
Countrywide Investments, Inc. ("Underwriter") invites you, as a
selected dealer, to participate as principal in the distribution of shares (the
"Shares") of the mutual funds set forth on Schedule A to this Agreement (the
"Funds"), of which it is the exclusive underwriter. Underwriter agrees to sell
to you, subject to any limitations imposed by the Funds, Shares issued by the
Funds and to promptly confirm each sale to you. All sales will be made according
to the following terms:
1. All offerings of any of the Shares by you must be made at the public
offering prices, and shall be subject to the conditions of offering, set forth
in the then current Prospectus of the Funds and to the terms and conditions
herein set forth, and you agree to comply with all requirements applicable to
you of all applicable laws, including federal and state securities laws, the
rules and regulations of the Securities and Exchange Commission, and the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"), including Section 24 of the Rules of Fair Practice of the NASD. You
will not offer the Shares for sale in any state or other jurisdiction where they
are not qualified for sale under the Blue Sky Laws and regulations of such state
or jurisdiction, or where you are not qualified to act as a dealer. Upon
application to Underwriter, Underwriter will inform you as to the states or
other jurisdictions in which Underwriter believes the Shares may legally be
sold.
2. (a) You will receive a discount from the public offering
price ("concession") on all Shares purchased by you from Underwriter as
indicated on Schedule A, as it may be amended by Underwriter from time to time.
(b) In all transactions in open accounts in which you are
designated as Dealer of Record, you will receive the concessions as set forth on
Schedule A. You hereby authorize Underwriter to act as your agent in connection
with all transactions in open accounts in which you are designated as Dealer of
Record. All designations as Dealer of Record, and all authorizations of
Underwriter to act as your Agent pursuant thereto, shall cease upon the
termination of this Agreement or upon the investor's instructions to transfer
his open account to another Dealer of Record. No dealer concessions will be
allowed on purchases generating less than $1.00 in dealer concessions.
(c) As the exclusive underwriter of the Shares, Underwriter
reserves the privilege of revising the discounts specified on Schedule A at any
time by written notice.
3. Concessions will be paid to you at the address of your
principal office, as indicated below in your acceptance of this Agreement.
<PAGE>
4. Underwriter reserves the right to cancel this Agreement at any time
without notice if any Shares shall be offered for sale by you at less than the
then current public offering prices determined by, or for, the Funds.
5. All orders are subject to acceptance or rejection by Underwriter in
its sole discretion. The Underwriter reserves the right, in its discretion,
without notice, to suspend sales or withdraw the offering of Shares entirely.
6. Payment shall be made to the Funds and shall be received by its
Transfer Agent within three (3) business days after the acceptance of your order
or such shorter time as may be required by law. With respect to all Shares
ordered by you for which payment has not been received, you hereby assign and
pledge to Underwriter all of your right, title and interest in such Shares to
secure payment therefor. You appoint Underwriter as your agent to execute and
deliver all documents necessary to effectuate any of the transactions described
in this paragraph. If such payment is not received within the required time
period, Underwriter reserves the right, without notice, and at its option,
forthwith (a) to cancel the sale, (b) to sell the Shares ordered by you back to
the Funds, or (c) to assign your payment obligation, accompanied by all pledged
Shares, to any person. You agree that Underwriter may hold you responsible for
any loss, including loss of profit, suffered by the Funds, its Transfer Agent or
Underwriter, resulting from your failure to make payment within the required
time period.
7. No person is authorized to make any representations concerning
Shares of the Funds except those contained in the current applicable Prospectus
and Statement of Additional Information and in sales literature issued and
furnished by Underwriter supplemental to such Prospectus. Underwriter will
furnish additional copies of the current Prospectus and Statement of Additional
Information and such sales literature and other releases and information issued
by Underwriter in reasonable quantities upon request.
8. Under this Agreement, you act as principal and are not employed by
Underwriter as broker, agent or employee. You are not authorized to act for
Underwriter nor to make any representation on its behalf; and in purchasing or
selling Shares hereunder, you rely only upon the current Prospectus and
Statement of Additional Information furnished to you by Underwriter from time to
time and upon such written representations as may hereafter be made by
Underwriter to you over its signature.
9. You appoint the transfer agent for the Funds as your agent to
execute the purchase transactions of Shares in accordance with the terms and
provisions of any account, program, plan or service established or used by your
customers and to confirm each purchase to your customers on your behalf, and you
guarantee the legal capacity of your customers purchasing such Shares and any
co-owners of such Shares.
<PAGE>
10. You will (a) maintain all records required by law relating to
transactions in the Shares, and upon the request of Underwriter, or the request
of the Funds, promptly make such records available to Underwriter or to the
Funds as are requested, and (b) promptly notify Underwriter if you experience
any difficulty in maintaining the records required in the foregoing clause in an
accurate and complete manner. In addition, you will establish appropriate
procedures and reporting forms and schedules, approved by Underwriter and by the
Funds, to enable the parties hereto and the Funds to identify all accounts
opened and maintained by your customers.
11. Underwriter has adopted compliance standards, attached hereto as
Schedule B, as to when Class A and Class C Shares of the Dual Pricing Funds may
appropriately be sold to particular investors. You agree that all persons
associated with you will conform to such standards when selling Shares.
12. Each party hereto represents that it is presently, and, at all
times during the term of this Agreement, will be, a member in good standing of
the NASD and agrees to abide by all its Rules of Fair Practice including, but
not limited to, the following provisions:
(a) You shall not withhold placing customers' orders for any Shares so
as to profit yourself as a result of such withholding. You shall not purchase
any Shares from Underwriter other than for investment, except for the purpose of
covering purchase orders already received.
(b) All conditional orders received by Underwriter must be at a
specified definite price.
(c) If any Shares purchased by you are repurchased by the Funds (or by
Underwriter for the account of the Funds) or are tendered for redemption within
seven business days after confirmation of the original sale of such Shares (1)
you agree to forthwith refund to Underwriter the full concession allowed to you
on the original sale, such refund to be paid by Underwriter to the Funds, and
(2) Underwriter shall forthwith pay to the Funds that part of the discount
retained by Underwriter on the original sale. Notice will be given to you of any
such repurchase or redemption within ten days of the date on which the
repurchase or redemption request is made.
<PAGE>
(d) Neither Underwriter, as exclusive underwriter for the Funds, nor
you as principal, shall purchase any Shares from a record holder at a price
lower than the net asset value then quoted by, or for, the Funds. Nothing in
this sub-paragraph shall prevent you from selling Shares for the account of a
record holder to Underwriter or the Funds at the net asset value currently
quoted by, or for, the Funds and charging the investor a fair commission for
handling the transaction.
(e) You warrant on behalf of yourself and your registered
representatives and employees that any purchase of Shares at net asset value by
the same pursuant to the terms of the Prospectus of the applicable Fund is for
investment purposes only and not for purposes of resale. Shares so purchased may
be resold only to the Fund which issued them.
13. You agree that you will indemnify Underwriter, the Funds, the
Funds' transfer agent and the Funds' custodians and hold such persons harmless
from any claims or assertions relating to the lawfulness of your company's
participation in this Agreement and the transactions contemplated hereby or
relating to any activities of any persons or entities affiliated with your
company which are performed in connection with the discharge of your
responsibilities under this Agreement. If any such claims are asserted, the
indemnified parties shall have the right to engage in their own defense,
including the selection and engagement of legal counsel of their choosing, and
all costs of such defense shall be borne by you.
<PAGE>
14. This Agreement will automatically terminate in the event of its
assignment. Either party hereto may cancel this Agreement without penalty upon
ten days' written notice. This Agreement may also be terminated as to any Fund
at any time without penalty by the vote of a majority of the members of the
Board of Trustees of the terminating Fund who are not "interested persons" (as
such term is defined in the Investment Company Act of 1940) and who have no
direct or indirect financial interest in the applicable Fund's Distribution
Expense Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 or
any agreement relating to such Plan, including this Agreement, or by a vote of a
majority of the outstanding voting securities of the terminating Fund on ten
days' written notice.
15. All communications to Underwriter should be sent to Countrywide
Investments, Inc., 312 Walnut Street, Cincinnati, Ohio 45202, or at such other
address as Underwriter may designate in writing. Any notice to you shall be duly
given if mailed or telegraphed to you at the address of your principal office,
as indicated below in your acceptance of this Agreement.
16. This Agreement supersedes any other agreement with you relating
to the offer and sale of the Shares, and relating to any other matter discussed
herein.
17. This Agreement shall be binding (i) upon placing your first order
with Underwriter for the purchase of Shares, or (ii) upon receipt by Underwriter
in Cincinnati, Ohio of a counterpart of this Agreement duly accepted and signed
by you, whichever shall occur first. This Agreement shall be construed in
accordance with the laws of the State of Ohio.
18. The undersigned, executing this Agreement on behalf of Dealer,
hereby warrants and represents that he is duly authorized to so execute this
Agreement on behalf of Dealer.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return all copies of this Agreement to the
Underwriter.
ACCEPTED BY DEALER
By:________________________________________
Authorized Signature
___________________________________________
Type or Print Name, Position
___________________________________________
Dealer Name
___________________________________________
Address
____________________________________________
Address
____________________________________________
Phone
_____________________________________________
Date
COUNTRYWIDE INVESTMENTS, INC.
By: __________________________________________________
_______________________________________________________
Date
<PAGE>
Schedule A
COUNTRYWIDE INVESTMENTS
COMMISSION SCHEDULE
Intermediate Bond Fund - Class A
Tax-Free Intermediate Term Fund - Class A
Intermediate Term Government Income Fund
Ohio Insured Tax-Free Fund - Class A
- -----------------------------------------------------------------
Total
Dollar Amount of Purchase Sales Dealer
(At Offering Price) Charge* Concession
Less than $50,000 4.75% 4.00%
from $ 50,000 but under $100,000 4.50% 3.75%
from $100,000 but under $250,000 3.50% 2.75%
from $250,000 but under $500,000 2.95% 2.25%
from $500,000 but under $1,000,000 2.25% 1.75%
$1,000,000 and over** None None
25 basis points annual trailing commission effective immediately, paid
quarterly.
Equity Fund - Class A
Utility Fund - Class A
Growth/Value Fund - Class A
Aggressive Growth Fund
---------------------------------------------------------------
Total
Dollar Amount of Purchase Sales Dealer
(At Offering Price) Charge* Concession
Less than $ 50,000 5.75% 5.00%
from $ 50,000 but under $100,000 4.50% 3.75%
from $100,000 but under $250,000 3.50% 2.75%
from $250,000 but under $500,000 2.95% 2.25%
from $500,000 but under $1,000,000 2.25% 1.75%
$1,000,000 and over** None None
25 basis points annual trailing commission effective immediately, paid
quarterly.
*As a percentage of offering price.
** Broker/Dealers are entitled to total compensation of up to 1% at the time
the investor purchases Class A shares at NAV in amounts totaling $1 million or
more which includes up to 75 basis points and 25 basis points annual trailing
commission, paid quarterly. However, the investor is subject to a contingent
deferred sales load of 1% if a redemption occurs within one year of purchase.
See specific Fund prospectus for details.
<PAGE>
Growth/Value Fund - Class C
Equity Fund - Class C
Utility Fund - Class C
Intermediate Bond Fund - Class C
Tax-Free Intermediate Term Fund - Class C
The Funds will be offered to clients with a 1.25% sales load. A commission of
2% of the purchase amount of Class C shares will be paid to participating
brokers at the time of purchase. Purchases of Class C shares are subject to a
contingent deferred sales load, according to the following schedule:
Year Since Purchase Contingent Deferred
Payment Was Made Sales Load
-------------------- --------------------
First Year 1%
Thereafter None
100 basis points annual trailing commission will be paid quarterly beginning in
the thirteenth month.
Brokers may invest for their own account at NAV
FOR BROKER/DEALER USE ONLY
<PAGE>
Schedule B
POLICIES AND PROCEDURES
WITH RESPECT TO SALES
OF DUAL PRICING FUND
As certain Funds within Countrywide Investments (the "Dual Pricing
Funds") offer two classes of Shares subject to different levels of front-end
sales charges, it is important for an investor not only to choose the Fund that
best suits his investment objectives, but also to choose the sales financing
method which best suits his particular situation. To assist investors in these
decisions, we are instituting the following policy:
1. Any purchase order for $1 million or more must be for Class A
Shares.
2. Any purchase order for $100,000 but less than $1 million is
subject to approval by a registered principal of the
Underwriter, who must approve the purchase order for either
Class A Shares or Class C Shares in light of the relevant
facts and circumstances, including:
(a) the specific purchase order dollar amount;
(b) the length of time the investor expects to hold the
Shares; and
(c) any other relevant circumstances, such as the
availability of purchases under a Letter of Intent.
3. Any order to exchange Class A Shares of a Dual Pricing Fund
(or Shares of another Fund having a maximum sales load equal
to or greater than Class A Shares of the Dual Pricing Funds)
for Shares of another Dual Pricing Fund will be for Class A
Shares only. Class C Shares of a Dual Pricing Fund may be
exchanged for either Class A or Class C Shares of another Dual
Pricing Fund, provided that an exchange of Class C Shares for
Class A Shares is subject to approval by a registered
principal of Underwriter, who must approve the exchange in
light of the relevant facts and circumstances.
There are instances when one financing method may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales charge on Class A Shares may determine that
payment of such a reduced front-end sales charge is superior to payment of the
higher ongoing distribution fee applicable to Class C Shares. On the other hand,
an investor whose order would not qualify for such a discount may wish to pay a
lower sales charge and have more of his funds invested in Class C Shares. If
such an investor anticipates that he will redeem his Shares within a short
period of time, the investor may, depending on the amount of his purchase,
choose to bear higher distribution expenses than if he had purchased Class A
Shares.
<PAGE>
In addition, investors who intend to hold their Shares for a
significantly long time may wish to purchase Class A Shares in order to avoid
the higher ongoing distribution expenses of Class C Shares.
The appropriate supervisor must ensure that all employees receiving
investor inquiries about the purchase of Shares of Dual Pricing Funds advise the
investor of the available financing methods offered by mutual funds, and the
impact of choosing one method over another. It may be appropriate for the
supervisor to discuss the purchase with the investor.
This policy is effective immediately with respect to any order for the
purchase of Shares of all Dual Pricing Funds. Questions relating to this policy
should be directed to Sharon Karp, Vice President of the Underwriter, at
513/629-2000.
ACCOUNTING AND PRICING SERVICES AGREEMENT
THIS AGREEMENT effective as of February 28, 1997 by and between
COUNTRYWIDE STRATEGIC TRUST, a Massachusetts business trust (the "Trust") and
COUNTRYWIDE FUND SERVICES, INC., an Ohio corporation ("Countrywide").
WITNESSETH THAT:
WHEREAS, the Trust desires to hire Countrywide to provide the Trust
with certain accounting and pricing services, and Countrywide is willing to
provide such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT.
Countrywide is hereby appointed to provide the Trust with
certain accounting and pricing services, and Countrywide accepts such
appointment and agrees to provide such services under the terms and conditions
set forth herein.
2. CALCULATION OF NET ASSET VALUE.
Countrywide will calculate the net asset value of each series
of the Trust and the per share net asset value of each series of the Trust, in
accordance with the Trust's effective Registration Statement on Form N-1A under
the Securities Act of 1933, as amended, including its current prospectus and
statement of additional information (the "Registration Statement"), once daily
as of the time selected by the Trust's Board of Trustees. Countrywide will
prepare and maintain a daily valuation of all securities and other assets of the
Trust in accordance with instructions from a designated officer of the Trust or
its investment adviser and in the manner set forth in the Registration
Statement. In valuing securities of the Trust, Countrywide may contract with,
and rely upon market quotations provided by, outside services, the cost of which
shall be borne by the Trust.
3. BOOKS AND RECORDS.
Countrywide will maintain such books and records as are
necessary to enable it to perform its duties under this Agreement, and, in
addition, will prepare and maintain complete, accurate and current all records
with respect to the Trust required to be maintained by the Trust under the
Internal Revenue Code, as amended (the "Code") and under the general rules and
<PAGE>
regulations of the Investment Company Act of 1940, as amended (the "Act"), and
will preserve said records in the manner and for the periods prescribed in the
Code and such rules and regulations. The retention of such records shall be at
the expense of the Trust.
All of the records prepared and maintained by Countrywide
pursuant to this Paragraph 3 which are required to be maintained by the Trust
under the Code and the Act ("Required Records") will be the property of the
Trust. In the event this Agreement is terminated, all Required Records shall be
delivered to the Trust or to any person designated by the Trust at the Trust's
expense, and Countrywide shall be relieved of responsibility for the preparation
and maintenance of any Required Records delivered to the Trust or any such
person.
4. COOPERATION WITH ACCOUNTANTS.
Countrywide shall cooperate with the Trust's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
5. FEES AND CHARGES.
For performing its services under this Agreement, the Trust
shall pay Countrywide a fee in accordance with the schedule attached hereto as
Schedule A.
6. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
Except as otherwise provided in this Agreement and except for
the accuracy of information furnished to it by Countrywide, the Trust assumes
full responsibility for the preparation, contents and distribution of each
prospectus and statement of additional information of the Trust, for complying
with all applicable requirements of the Act, the Securities Act of 1933, as
amended, and any laws, rules and regulations of governmental authorities having
jurisdiction.
7. CONFIDENTIALITY.
Countrywide agrees to treat all records and other information
relative to the Trust and its prior, present or potential shareholders
confidentially and Countrywide on behalf of itself and its employees agrees to
keep confidential all such information, except (after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where Countrywide may be exposed to civil or
criminal contempt proceedings for failure to comply) when requested to divulge
such information by duly constituted authorities or when so requested by the
Trust.
- 2 -
<PAGE>
8. REFERENCES TO COUNTRYWIDE.
The Trust shall not circulate any printed matter which
contains any reference to Countrywide without the prior written approval of
Countrywide, excepting solely such printed matter as merely identifies
Countrywide as Transfer Agent, Plan Agent, Dividend Disbursing Agent,
Shareholder Service Agent and Accounting and Pricing Services Agent. The Trust
will submit printed matter requiring approval to Countrywide in draft form,
allowing sufficient time for review by Countrywide and its counsel prior to any
deadline for printing.
9. EQUIPMENT FAILURES.
In the event of equipment failures beyond Countrywide's
control, Countrywide shall take all steps necessary to minimize service
interruptions but shall have no liability with respect thereto. Countrywide
shall endeavor to enter into one or more agreements making provision for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
10. INDEMNIFICATION OF COUNTRYWIDE.
(a) Countrywide may rely on information reasonably believed by
it to be accurate and reliable. Except as may otherwise be required by the Act
or the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under or
payments made pursuant to this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of the duties of
Countrywide under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Countrywide under this Agreement.
(b) Any person, even though also a director, officer,
employee, shareholder or agent of Countrywide, who may be or become an officer,
trustee, employee or agent of the Trust, shall be deemed, when rendering
services to the Trust or acting on any business of the Trust (other than
services or business in connection with Countrywide's duties hereunder), to be
rendering such services to or acting solely for the Trust and not as a director,
officer, employee, shareholder or agent of, or one under the control or
direction of Countrywide, even though paid by it.
- 3 -
<PAGE>
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless Countrywide, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which Countrywide may sustain or incur or which may be asserted
against Countrywide by any person by reason of, or as a result of: (i) any
action taken or omitted to be taken by Countrywide in good faith in reliance
upon any certificate, instrument, order or stock certificate believed by it to
be genuine and to be signed, countersigned or executed by any duly authorized
person, upon the oral instructions or written instructions of an authorized
person of the Trust or upon the opinion of legal counsel for the Trust or its
own counsel; or (ii) any action taken or omitted to be taken by Countrywide in
connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
11. MAINTENANCE OF INSURANCE COVERAGE.
At all times during the term of this Agreement, Countrywide
shall be a named insured party on the Trust's Errors & Omissions policy and the
Trust's Fidelity Bond, both of which shall include coverage of Countrywide's
officers and employees. Countrywide shall pay its allocable share of the cost of
such policies in accordance with the provisions of the Act. The scope of
coverage and amount of insurance limits applicable to the Trust on such policies
shall also be made applicable to Countrywide.
12. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
13. TERMINATION.
(a) The provisions of this Agreement shall be effective upon
its execution, shall continue in effect for two years from that date and shall
continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by Countrywide, (2) by vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's trustees who are
not parties to this Agreement or interested persons (as defined
- 4 -
<PAGE>
in the Act) of any such party, and (3) by vote of a majority of the Trust's
Board of Trustees or a majority of the Trust's outstanding voting securities.
(b) Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor.
(c) This Agreement shall automatically terminate in the
event of its assignment.
(d) In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust by written notice to
Countrywide, Countrywide shall, promptly upon such termination and at the
expense of the Trust, transfer all Required Records and shall cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from Countrywide's cognizant personnel in the establishment of books, records
and other data by such successor.
14. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the Act) of Countrywide from providing services
for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
15. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
16. LIMITATION OF LIABILITY.
The term "Countrywide Strategic Trust" means and refers to the
trustees from time to time serving under the Trust's Declaration of Trust as the
same may subsequently thereto have been, or subsequently hereto may be, amended.
It is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the trust property of the
Trust. This Agreement has been authorized by the trustees of the Trust and
signed by an officer of the Trust, acting as such, and neither such
authorization by such trustees nor such execution by such officer shall be
deemed
- 5 -
<PAGE>
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the trust property of the Trust.
17. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
18. QUESTIONS OF INTERPRETATION.
(a) This Agreement shall be governed by the laws of the
State of Ohio.
(b) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision of
the Act and to interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued pursuant
to said Act. In addition, where the effect of a requirement of the Act,
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
19. NOTICES.
Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Trust
and of Countrywide for this purpose shall be 312 Walnut Street, Cincinnati, Ohio
45202.
20. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
21. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
- 6 -
<PAGE>
22. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
COUNTRYWIDE STRATEGIC TRUST
By: /s/ Robert H. Leshner
------------------------------
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
-------------------------------
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<PAGE>
Effective August 1, 1999 Schedule A
COMPENSATION
FOR FUND ACCOUNTING AND PORTFOLIO PRICING:
Utility Fund
Equity Fund
Growth/Value Fund
Asset Size Monthly Fee
----------------------------- --------------
$ 0 - $ 50,000,000 $3,000
$ 50,000,000 - $100,000,000 $3,500
$100,000,000 - $200,000,000 $4,000
$200,000,000 - $300,000,000 $4,500
Over $300,000,000 $5,500*
Aggressive Growth Fund
Asset Size Monthly Fee
----------------------------- --------------
$ 0 - $ 50,000,000 $2,000
$ 50,000,000 - $100,000,000 $2,500
$100,000,000 - $200,000,000 $3,000
$200,000,000 - $300,000,000 $3,500
Over $300,000,000 $4,500*
* Subject to an additional fee of .001% of average daily net
assets.
- 8 -
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 30, 1999 and to all references to our Firm included in or made a
part of this Post-Effective Amendment No. 38.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
July 29, 1999
