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SIGNATURE CAROL J. HIGHSMITH
TITLE ASSISTANT SECRETARY
Independent Auditors' Report on Internal Accounting Control
The Board of Trustees and Shareholders of the Veredus Growth Fund:
In planning and performing our audit of the financial statements of the Veredus
Growth Fund (the "Fund") for the period ended October 31, 1998, we considered
its internal control, including control activities for safeguarding securities,
in order to determine our auditing procedures for the purpose of expressing our
opinion on the financial statements and to comply with the requirements of Form
N-SAR, not to provide assurance on internal control.
The management of the Fund is responsible for establishing and maintaining
internal control. In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
controls. Generally, controls that are relevant to an audit pertain to the
entit's objective of preparing financial statements for external purposes that
are fairly presented in conformity with generally accepted accounting
principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, error or fraud may occur
and not be detected. Also, projection of any evaluation of internal control to
future periods is subject to the risk that it may become inadequate because of
changes in conditions or that the effectiveness of the design and operation may
deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be a material weakness under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or more
of the internal control components does not reduce to a relatively low level the
risk that misstatements caused by error or fraud in amounts that would be
material in relation to the financial statements being audited may occur and not
be detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving
internal control and its operation, including controls for safeguarding
securities that we consider to be material weaknesses as defined above as of
October 31, 1998.
This report is intended solely for the information and use of management, the
Board of Trustees of the Fund and the Securities and Exchange Commission.
/s/ KPMG Peat Marwick LLP
December 4, 1998
<TABLE> <S> <C>
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<NAME> Veredus Growth Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-1-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 12901651
<INVESTMENTS-AT-VALUE> 13098620
<RECEIVABLES> 310441
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<OTHER-ITEMS-LIABILITIES> 12748
<TOTAL-LIABILITIES> 758265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14051911
<SHARES-COMMON-STOCK> 1469832
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<INTEREST-INCOME> 44214
<OTHER-INCOME> 0
<EXPENSES-NET> 49425
<NET-INVESTMENT-INCOME> (483)
<REALIZED-GAINS-CURRENT> (1575341)
<APPREC-INCREASE-CURRENT> 196969
<NET-CHANGE-FROM-OPS> (1378855)
<EQUALIZATION> 0
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<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (1.38)
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</TABLE>
ATTACHMENT OF DISCLOSURES REQUIRED BY ITEMS
77K AND 77Q1 OF FORM N-SAR
(Attachment also required pursuant to Section 304(a)(1) of Regulation S-K)
1. In connection with the contemplated reorganization of Veredus Growth Fund
into Alleghany/Veredus Aggressive Growth Fund, Arthur Andersen LLP resigned
as independent auditors for the Veredus Funds (the "Trust") effective on
shareholder approval of the reorganization and shareholder ratification of
the selection of KPMG Peat Marwick LLP ("KPMG") as independent auditors.
The shareholders approved the reorganization and ratified the selection of
KPMG as independent auditors on November 25, 1998. The engagement of KPMG
as the independent auditors for the Veredus Growth Fund for the fiscal year
ended October 31, 1998 was effective on that date.
2. The report of Arthur Andersen LLP on the balance sheet dated as of June 18,
1998 did not contain an adverse opinion or disclaimer of opinion nor were
any reports qualified or modified as to uncertainty, audit scope, or
accounting principles.
3. The change of accountants to KPMG Peat Marwick LLP was approved by the
Board of Trustees on October 26, 1998, subject to shareholder approval. The
shareholders approved the change on November 25, 1998. KPMG Peat Marwick
LLP has been engaged to audit the Trust for the fiscal year ended October
31, 1998.
4. In connection with the audit of the balance sheet dated June 18, 1998, and
the interim period preceding the resignation, the Trust had no
disagreements with Arthur Andersen LLP on any matter of accounting
principles or practice, financial statement disclosure, or auditing scope
or procedures, which disagreements, if not resolved to the satisfaction of
Arthur Andersen LLP would have caused it to make reference to the subject
matter of the disagreement in connection with its report.
5. There are no reportable events under Item 304(a)(1)(v)(A) through (D) of
Regulation S-K for any fiscal period preceding the resignation of Arthur
Andersen LLP.
ARTHUR
ANDERSEN
Arthur Andersen LLP
425 Walnut Street
Cincinnati OH 45202-3912
513-381-6900
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir/Madam:
We have read the disclosures required by Items 77K and 77Q1 of Form N-SAR and
Section 304 (a)(1) of Regulation S-K included in the Form N-SAR dated October
31, 1998 of The Veredus Funds to be filed with the Securities and Exchange
Commission and are in agreement with the statements contained therein.
Very truly yours,
Arthur Andersen LLP
Copies to:
B. Anthony Weber, Veredus Asset Management
James R. Jenkins, Veredus Asset Mangement
Carol Highsmith, The Veredus Funds
