<PAGE>
Report From Koeneman Capital Management Ernst Asia Fund
- --------------------------------------------------------------------------------
Dear Shareholders:
The Ernst Asia Fund has appreciated by 9.8% (excluding sales charges, 5.2% with
sales charges) from inception in mid-December 1995 through March 31, 1996, as
compared with 6.7% for the Morningstar weighted average return of
International/Pacific Funds and 5.0% for the MSCI AC Far East Free Index. For
the quarter ended March 31, 1996 the Fund rose by 6.9% (excluding sales
charges), exceeding both the Morningstar Average return of 5.3% and the MSCI
Index which rose 2.2%. The main contributors to the returns during the first
quarter were the Hong Kong, Singapore and Malaysian markets which appreciated
by 7.4% to 11.8%. The Japanese market rose 3.8% for the first quarter, and 6.5%
since mid-December, also adding to the appreciation of the Fund.
As we have discussed with our clients previously, we have been bullish on the
Asian markets including Japan. This has been a position we adopted since
November of last year, on the basis of a decline in US interest rates, or at
least the cessation of the interest rate rises of 1994-95. Coupled with low to
moderate valuations in Asian markets, we expected good returns. This thesis has
generally proven correct, with practically all Asian markets having risen at
least 5% since the end of November. In the case of Japan, maximum exposure was
taken up in the Ernst Asia Fund on the basis of a continuing economic recovery,
underpinned by low interest rates. Again, this scenario has been unfolding over
the last quarter.
Looking forward, although the long term outlook on Asia remains positive, we
are entering a phase where there may be opportunities to buy stocks at cheaper
levels, and are raising some cash accordingly. The markets are now at moderate
rather than cheap valuations. The key factor, however, will be the direction of
US interest rates.
The following table shows the performance of Asian markets during periods of
rising and falling interest rates:
ASIAN MARKET/1/ PERFORMANCE
1972 - 1995
<TABLE>
<CAPTION>
% OF YEARS
US INTEREST WHEN ASIAN AVERAGE YEARLY
RATES/2/ MARKET ROSE RETURN
----------- ----------- --------------
<S> <C> <C>
Falling US Interest Rates............................ 85% 23%
Rising US interest Rates............................. 50% 5%
</TABLE>
- ------
/1/ Asian Markets measured with average of Hong Kong, Singapore and Malaysia.
/2/ US interest rates measured with 3 month interbank rates.
Source: Morgan Stanley Capital International, Koeneman Capital Management
Since the beginning of 1996, US short term interest rates have not changed
much, but 2 year interest rates have risen by about 75bp, and 10 year bonds
have risen about 100bp. The short end of the US yield curve has also become
much steeper, implying a market consensus expectation of rising short term
interest rates. If this proves to be correct, then Asian markets will probably
have just moderate gains through the end of the year. Stable interest rates
will allow a more significant gain.
In the context of US investors, a rising short term interest rate environment
will also be negative for the US investors. In fact, in years of rising US
interest rates, the US market has had a negative average yearly return. Thus,
in either case, we believe the US investor may be better off diversifying a
portion of equity holdings into Asia.
ASIAN STRATEGY GOING FORWARD
There have been some shifts in asset allocation going into the second quarter
of 1996. Cash levels have been raised to about 30%. The country mix has also
changed.
Japan--We have been bullish on Japan since the beginning of the year, based on
the continuing economic recovery. Given that there is still slack in the
economy, the Bank of Japan has continued accommodative monetary policy. We are
therefore maintaining the maximum allowed exposure to
- --------------------------------------------------------------------------------
-1-
<PAGE>
Report From Koeneman Capital Management Ernst Asia Fund
- --------------------------------------------------------------------------------
Japan. We have however, stopped hedging the Yen exposure into US Dollars. This
hedge has been profitable during the first quarter, as the US Dollar
strengthened particularly against the Yen. However, our models have changed
forecast on the Yen/Dollar relationship; we do not expect a continuation of Yen
weakening against the Dollar.
Hong Kong--We remain invested in Hong Kong, although we are less positive than
before, in the face of a market which has risen, and rising interest rates.
Hong Kong is most sensitive to US interest rates because its currency is pegged
to the US Dollar.
Malaysia--We have cut down our exposure to Malaysia. The market has risen
sharply, while monetary conditions are deteriorating, as the country attempts
to cure its current account deficit.
Singapore--We remain fully invested in Singapore. Valuations are still moderate
and the country is still enjoying low inflation and flat to falling interest
rates.
Korea--While the Korean market was late in catching up with the other Asian
markets, we remain committed to our exposure here. Korea was first weighted
down by the political corruption scandals, then by the North Korean violation
of the demilitarized zone. However, with these events behind us, the monetary
easing should lead to positive equity market appreciation.
Philippines--We have scaled back our exposure in the Philippines because of the
rising market.
Thailand, Indonesia--We have been avoiding these markets due to high interest
rates and unattractive valuation. This has been profitable in the case of
Thailand, but not so in the case of Indonesia. The fundamentals not having
changed, we are maintaining our avoidance of these two markets.
SUMMARY
The long term outlook remains bright. In the immediate future, the markets will
be driven by concerns over US interest rates. The year has started out well. If
interest rates rise, we will have the opportunity to pick up stocks at lower
levels.
Respectfully,
/s/ Geoffrey E. Wong
Geoffrey E. Wong
/s/ John K. Koeneman
John K. Koeneman
Koeneman Capital Management Pte Ltd.
Singapore
May 10, 1996
- --------------------------------------------------------------------------------
-2-
<PAGE>
Report From National Mutual Funds Management Ernst Global Resources Fund
- -------------------------------------------------------------------------------
The Ernst Global Resources Fund has produced a solid return of 6.7% (excluding
sales charges, 2.2% with sales charges) from inception in mid-December 1995
through March 31, 1996. By way of direct comparison the Morningstar weighted
average return for Speciality/Natural Resources funds was 12.7% and the MSCI
World Free Index return was 5.2%. For the quarter ended March 31, 1996, the
Fund's total return was 8.4% as compared with the Morningstar Average of 10.9%
and the MSCI Index of 4.2%.
Our investment discipline has been deliberately conservative during these
first months of existence and entirely consistent with our stated goal of
producing longer term gains for fund investors. During this short period, the
funds within the Morningstar Average that produced higher returns than the
Ernst Global Resources Fund all possessed a greater portfolio weighting in the
Energy Sector of between two and nine times that of the Fund.
From a performance point of view, we continue to believe that the Fund should
benefit from an improving global growth outlook and therefore deliver strong
returns to all investors in the next 12 months and the longer term.
PORTFOLIO COMPOSITION
The following tables provide details of portfolio composition on a sector and
individual stock basis at March 31, 1996. Portfolio composition is subject to
change.
<TABLE>
<CAPTION>
SECTOR BASIS (%) STOCK BASIS (%)
---------------- ---------------
<S> <C> <C> <C>
Aluminum 16.2 Barrick Gold 4.8
Copper 7.8 Freeport McMoran 4.7
Gold Mining 22.9 Western Mining Corp. 4.7
Nickel 2.9 Aluminum Co. of America 4.5
Oil and Gas 7.9 Alcan Aluminum 4.3
Diversified Metals Centaur Mining & Exploration 4.2
& Minerals 22.0 RTZ Corporation 4.2
Other Sectors 19.0 Savage Resources, Ltd. 4.1
Cash/Liquids 1.3 Woodside Petroleum 4.1
</TABLE>
The Fund was near maximum exposure to gold mining over the period. The
fundamentals for gold were strong and the price action in the physical market
was supportive. The high weighting in gold will be reduced in the coming
months as the exposure to base metals is increased. Diversified
metals/minerals is a key sector for the fund, as many of the world's largest
mining companies are covered within this sector. We believe the major
opportunities for growth within the new resource markets of the world are best
achieved via investment in these companies.
PORTFOLIO OUTLOOK AND SUMMARY
The US economy has shown considerable growth over the past quarter. This
growth was somewhat at odds with market consensus; however, the consensus view
has now changed to be one of moderate optimism for US growth over the
remainder of 1996. This profile of the US economy is positive for the global
metals/minerals outlook. In addition, the outlook for the Japanese economy
continues to strengthen on the back of accommodative fiscal and monetary
policy. Asia (ex Japan) is still growing at between 6 1/2% and 8% and
therefore remains a key positive for global resources. Finally, the European
economic outlook following the recent easing of policy in Germany is at least
looking like the worst is over and the prospects of improving growth in the
second half of 1996 and into 1997 are now far better than they were three
months ago. The outlook for base metal prices over the next six months is
looking positive given the economic outlook outlined, and with the inventory
destocking cycle coming to an end we would expect base metal prices to be
supported by inventory draw downs and increased investment demand within this
sector. Overall the outlook is very positive on a 6-12 month view.
Respectfully,
/s/ Tony Fernie
Tony Fernie
NNational Mutual Funds Management (Global), Ltd.
Melbourne, Australia
May 10, 1996
- -------------------------------------------------------------------------------
-3-
<PAGE>
Performance Review Ernst Word Funds
- -------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Ernst Asia Fund
Value of a $10,000 Investment
<TABLE>
<CAPTION>
Morningstar
weighted
Ernst Ernst MSCI AC average
Asia Asia Far East return of
Fund Fund Free International/
DATE load no load Index Pacific Funds
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/06/95 9,579 10,000 10,000 10,000
03/31/96 10,517 10,980 10,502 10,674
</TABLE>
<TABLE>
<CAPTION>
Since
Date Inception
(12/06/95)
- -------------------------
<S> <C>
03/31/96 9.80%*
</TABLE>
The Morgan Stanley Capital International All Country Far East Free Index
measures performance of the stock markets in eight developed and emerging
market countries in the Far East, and the Morningstar weighted average
return of International/Pacific Funds measures the performance of over 100
mutual funds with that investment objective. The indices are not managed and
do not reflect the deduction of expenses associated with a mutual fund.
[GRAPH APPEARS HERE]
Ernst Global Resources Fund
Value of a $10,000 Investment
<TABLE>
<CAPTION>
Morgan Morningstar
Stanley weighted
Ernst Ernst Capital average
Global Resources Global Resources International return of
Fund Fund World Free Specialty/Natural
DATE load no load Index Resource Funds
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/11/95 9,579 10,000 10,000 10,000
03/31/96 10,220 10,670 10,523 11,267
</TABLE>
<TABLE>
<CAPTION>
Since
Date Inception
(12/11/95)
- -------------------------
<S> <C>
03/31/96 6.70%*
</TABLE>
The Morgan Stanley Capital International World Free Index measures
performance of twenty-two global stock markets. The Morningstar weighted
average return of Specialty/Natural Resources Funds measures the performance
of over 40 mutual funds with that investment objective. The indices are not
managed and do not reflect the deduction of expenses associated with a
mutual fund.
* Total return with the maximum 4.25% sales charge was 5.17% and 2.20% for
the Asia Fund and Global Resources Fund, respectively. Past performance is
not predictive of future results. Investment return and principal value of
the Funds will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost. International investing is subject to
certain factors such as currency exchange rate volatility, possible
political, social or economic instablility, foreign taxation and
differences in auditing and other financial standards.
This material is authorized for distribution only when accompanied or preceded
by a current prospectus. Please read the prospectus carefully before investing
or sending money. The Funds are distributed by BISYS Fund Services.
- -------------------------------------------------------------------------------
-4-
<PAGE>
TABLE OF CONTENTS
Report of Independent Accountants
Page 6
Statements of Assets and Liabilities
Page 7
Statements of Operations
Page 8
Statements of Changes in Net Assets
Page 9
Schedules of Portfolio Investments
Page 10
Notes to Financial Statements
Page 13
Financial Highlights
Page 20
-5-
<PAGE>
Report of Independent Accountants Ernst World Funds
- -------------------------------------------------------------------------------
To the Shareholders and Board of Trustees,
The Coventry Group--Ernst World Funds
We have audited the accompanying statements of assets and liabilities of the
Ernst World Funds (comprising, respectively, the Asia Fund and Global
Resources Fund), including the schedules of portfolio investments, as of March
31, 1996, and the related statements of operations and changes in net assets,
and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Ernst World Funds' management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1996, by correspondence with the custodians and brokers
or other auditing procedures where confirmations from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds comprising the Ernst World Funds as of March 31, 1996,
and the results of their operations, the changes in their net assets and the
financial highlights for each of the periods referred to above in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
May 22, 1996
- -------------------------------------------------------------------------------
-6-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
<CAPTION>
ERNST
GLOBAL
ERNST ASIA RESOURCES
FUND FUND
---------- -----------
<S> <C> <C>
ASSETS:
Investments, at value (cost $4,048,255 and $5,047,930,
respectively)........................................ $4,336,646 $ 5,378,963
Cash.................................................. -- 70,809
Interest and dividends receivable..................... 2,260 12,455
Foreign currency (cost $1,496,773 and $1,360,
respectively)........................................ 1,500,658 1,360
Receivable for capital shares issued.................. 2,873 5,000,000
Receivable from brokers for investments sold.......... 1,351,403 --
Unamortized organization costs........................ 13,900 14,140
---------- -----------
Total Assets...................................... 7,207,740 10,477,727
---------- -----------
LIABILITIES:
Payable for forward currency contracts purchased...... 1,319,468 --
Accrued expenses and other payables:
Investment advisory fees............................ 1,193 1,112
Administration fees................................. 1,025 1,025
Distribution and shareholder service fees........... 1,218 1,242
Other............................................... 19,728 17,524
---------- -----------
Total Liabilities................................. 1,342,632 20,903
---------- -----------
NET ASSETS:
Paid-in capital....................................... 5,351,693 10,120,633
Net unrealized appreciation from investments.......... 331,135 237,875
Net unrealized appreciation (depreciation) from
translation of assets and liabilities in foreign
currencies............................................ (6,930) 93,240
Accumulated undistributed net realized gains from
investment transactions.............................. 192,408 5,076
Accumulated undistributed net realized losses from
foreign currency transactions........................ (3,198) --
---------- -----------
Net Assets........................................ $5,865,108 $10,456,824
========== ===========
Outstanding shares.................................... 534,392 979,696
========== ===========
Net asset value and redemption price per share........ $10.98 $10.67
========== ===========
Maximum sales charge.................................. 4.25% 4.25%
========== ===========
Maximum offering price per share ($10.98/0.9575 and
$10.67/0.9575, respectively)......................... $11.47 $11.14
========== ===========
</TABLE>
See notes to financial statements.
-7-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ERNST GLOBAL
ERNST ASIA RESOURCES
FUND FUND
----------- ------------
DECEMBER 6, DECEMBER 11,
1995 TO 1995 TO
MARCH 31, MARCH 31,
1996(A) 1996(A)
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income....................................... $12,718 $ 21,196
Dividend income....................................... 7,280 21,249
Foreign tax withholding............................... (1,436) (2,276)
-------- --------
Total Income........................................ 18,562 40,169
-------- --------
EXPENSES:
Investment advisory fees.............................. 17,884 16,530
Administration fees................................... 11,988 11,476
Distribution and shareholder service fees............. 4,471 4,133
Custodian fees........................................ 4,000 4,000
Legal and audit fees.................................. 18,704 18,004
Organization costs.................................... 5,699 5,459
Trustees' fees and expenses........................... 204 174
Accounting and transfer agent fees.................... 14,714 13,192
Registration and filing fees.......................... 10,552 10,172
Printing costs........................................ 6,284 5,778
Other................................................. 2,155 2,086
Expenses voluntarily reduced.......................... (26,346) (25,338)
-------- --------
Total expenses before reimbursement................... 70,309 65,666
Expenses reimbursed................................... (7,203) (7,203)
-------- --------
Total Expenses...................................... 63,106 58,463
-------- --------
Net Investment Loss................................... (44,544) (18,294)
-------- --------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gains from investment transactions....... 192,408 5,076
Net realized gains (losses) from foreign currency
transactions......................................... 37,884 (3,763)
Net change in unrealized appreciation from
investments.......................................... 331,135 237,875
Net change in unrealized appreciation (depreciation)
from translation of assets and liabilities in foreign
currencies........................................... (6,930) 93,240
-------- --------
Net realized and unrealized gains from investments and
foreign currencies................................... 554,497 332,428
-------- --------
Change in net assets resulting from operations........ $509,953 $314,134
======== ========
</TABLE>
- ------
(a) Period from commencement of operations.
See notes to financial statements.
-8-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ERNST GLOBAL
ERNST ASIA RESOURCES
FUND FUND
----------- ------------
DECEMBER 6, DECEMBER 11,
1995 TO 1995 TO
MARCH 31, MARCH 31,
1996(A) 1996(A)
----------- ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS
Net investment loss.................................. $ (44,544) $ (18,294)
Net realized gains from investment transactions...... 192,408 5,076
Net realized gains (losses) from foreign currency
transactions....................................... 37,884 (3,763)
Net change in unrealized appreciation from
investments........................................ 331,135 237,875
Net change in unrealized appreciation (depreciation)
from translation of assets and liabilities in
foreign currencies................................... (6,930) 93,240
---------- -----------
Change in net assets resulting from operations........ 509,953 314,134
---------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......................... 5,355,155 10,142,690
---------- -----------
Change in net assets................................. 5,865,108 10,456,824
NET ASSETS:
Beginning of period.................................. -- --
End of period........................................ $5,865,108 $10,456,824
========== ===========
SHARE TRANSACTIONS:
Issued............................................... 534,392 979,696
---------- -----------
Change in shares...................................... 534,392 979,696
========== ===========
</TABLE>
- ------
(a) Period from commencement of operations.
See notes to financial statements.
-9-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (70.3%):
HONG KONG (14.4%)
Agriculture & Livestock (1.6%):
200,000 CP Pokphand (b)........................................... $ 95,047
-----------
Banks--Commercial (3.0%):
6,800 Hong Kong & Shanghia Bank................................. 102,004
19,500 Wing Hang Bank (b)........................................ 77,162
-----------
179,166
-----------
Diversified (2.2%):
11,000 Hutchinson Whampoa, Ltd. (b).............................. 69,416
6,500 Swire Pacific "A" (b)..................................... 57,157
-----------
126,573
-----------
Electronic & Electrical (0.1%):
8,000 ASM Pacific Technology (b)................................ 7,604
-----------
Real Estate (5.3%):
11,000 Cheung Kong (b)........................................... 77,524
73,000 Henderson Investment, Ltd. (b)............................ 67,024
16,000 Henderson Land (b)........................................ 112,246
6,000 Sun Hung Kai Properties (b)............................... 53,730
-----------
310,524
-----------
Utilities (2.2%):
16,500 China Light & Power Co.................................... 74,466
26,400 Hong Kong Telecom (b)..................................... 52,745
-----------
127,211
-----------
Total Hong Kong 846,125
-----------
JAPAN (24.0%)
Automobiles (0.9%):
7,000 Nissan Motor Co., Ltd..................................... 54,270
-----------
Banks (1.1%):
3,150 Mitsubishi Bank........................................... 66,657
-----------
Electronic & Electrical Equipment (8.4%):
5,000 Canon, Inc................................................ 95,506
10,000 Hitachi, Ltd.............................................. 97,378
13,000 Mitsubishi Electric Corp.................................. 96,891
7,000 Nichicon Corp............................................. 91,760
1,800 Sony...................................................... 107,698
-----------
489,233
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED
Engineering & Industrial Construction (1.3%):
7,000 Amada..................................................... $ 74,064
-----------
Forest Products--Lumber, Paper (1.0%):
4,600 Daio Paper Corp........................................... 60,730
-----------
Heavy Machinery (1.8%):
12,000 Komatsu................................................... 107,079
-----------
Insurance (2.0%):
9,000 Tokio Marine & Fire Insurance............................. 117,135
-----------
Machine Tools (2.3%):
12,000 Makino Milling Machine.................................... 132,584
-----------
Radio & Television (1.6%):
6,000 Tokyo Broadcasting........................................ 93,258
-----------
Textile Manufacturing (1.8%):
7,000 Onward Kashiyama.......................................... 106,180
-----------
Wholesale & International Trade (1.8%):
10,000 Sumitomo Corp............................................. 105,805
-----------
Total Japan 1,406,995
-----------
MALAYSIA (0.5%)
Agriculture & Livestock (0.5%):
13,000 Kuala Lumpur Kepong....................................... 31,105
-----------
Total Malaysia 31,105
-----------
THE PHILLIPINES (1.5%)
Manufacturing (1.5%):
240,000 Republic Glass Holdings Corp. (b)......................... 86,173
-----------
Total Phillipines 86,173
-----------
SINGAPORE (26.8%)
Airlines (3.0%):
17,000 Singapore Airlines F (b).................................. 176,337
-----------
Automobiles (3.1%):
16,000 Cycle & Carriage (b)...................................... 184,152
-----------
Banks (9.4%):
10,000 Development Bank of Singapore (b)......................... 122,910
10,000 Overseas Chinese Banking Corp. (b)........................ 134,277
23,000 Overseas Union Bank (b)................................... 163,406
13,000 United Overseas Bank (b).................................. 131,151
-----------
551,744
-----------
</TABLE>
Continued
-10-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
MARCH 31, 1996
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- ----------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SINGAPORE, CONTINUED
Diversified (1.0%):
25,000 Singapore Technologies Ind. (b)............................ $ 58,258
----------
Financial Services (2.8%):
38,000 Hong Leong Finance (b)..................................... 164,685
----------
Real Estate (4.4%):
16,000 City Developments (b)...................................... 142,092
16,000 DBS Land (b)............................................... 61,384
26,000 United Overseas Land, Ltd. (b)............................. 54,862
----------
258,338
----------
Textile Manufacturing (3.1%):
69,000 Wing Tai Holdings.......................................... 182,361
----------
Total Singapore 1,575,875
----------
SOUTH KOREA (3.1%)
Electronic & Electrical (0.9%):
878 Samsung Electronics (ADR) (b).............................. 50,266
----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SOUTH KOREA, CONTINUED
Investment Funds--Closed End (1.1%):
3,122 Korea Fund................................................ $ 65,952
----------
Utilities (1.1%):
2,680 Korea Electric Power Corp. (ADR) (b)...................... 61,640
----------
Total South Korea 177,858
----------
Total Common Stocks 4,124,131
----------
INVESTMENT COMPANIES (3.6%):
UNITED STATES (3.6%)
212,515 Highmark Diversified Obligations Money Market Fund........ 212,515
----------
Total Investment Companies 212,515
----------
Total Investments (Cost $4,048,255)(a) $4,336,646
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $5,865,108.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation from investments as follows:
<TABLE>
<S> <C>
Unrealized appreciation............. $309,985
Unrealized depreciation............. (21,594)
--------
Net unrealized appreciation......... $288,391
========
</TABLE>
(b) Non-income producing security.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
VALUE ON
FORWARD FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
CONTRACTS EXPIRING DATE VALUE APPRECIATION
------------------------ -------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Currency Purchased:
Japanese Yen 5/8/96 $1,351,403 $1,319,468 $31,935
----------
Payable for Forward Foreign
Currency Contracts $1,319,468
==========
</TABLE>
See notes to financial statements.
-11-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST GLOBAL RESOURCES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- ---------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS (51.4%):
AUSTRALIA (24.0%):
Coal-Coking (2.1%):
300,000 Savage Resources, Ltd. (b)................................ $ 222,932
----------
Forestry, Metals & Minerals (1.2%):
43,200 North, Ltd................................................ 128,409
----------
Gold Mining (6.1)%:
200,000 Centaur Mining & Exploration (b).......................... 225,279
39,600 Delta Gold, NL (b)........................................ 98,503
98,700 Gold Mines of Kalgoorlie, Ltd............................. 107,315
21,100 Newcrest Mining........................................... 94,408
19,000 Plutonic Resources........................................ 107,008
----------
632,513
----------
Metals-Fabrication (3.9%):
13,975 CRA, Ltd.................................................. 209,338
40,000 RGC, Ltd.................................................. 203,377
----------
412,715
----------
Mining Diversified (4.5%):
150,000 Mount ISA Mining (b)...................................... 217,066
38,500 Western Mining Corp....................................... 254,776
----------
471,842
----------
Oil & Gas Production (4.1%):
80,200 Novus Petroleum........................................... 106,648
106,300 Oil Search, Ltd. (b)...................................... 105,600
39,300 Woodside Petroleum (b).................................... 220,107
----------
432,355
----------
Oil, Gas, Metals & Mining (2.1%):
14,800 The Broken Hill Proprietary Company, Ltd. (b)............. 210,930
----------
Total Australia 2,511,696
----------
BRITAIN (2.1%):
Metals & Minerals (2.1%):
15,450 RTZ Corp.................................................. 223,816
----------
Total Britain 223,816
----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------ ----------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
CANADA (3.9%):
Metals Diversified (2.1%):
8,000 Cameco Corp................................................ $ 218,722
----------
Metals & Minerals (1.8%):
8,000 Cominco, Ltd. (b).......................................... 187,895
----------
Total Canada 406,617
----------
FRANCE (1.7%):
Aluminum (1.7%):
4,340 Pechiney Certs D'Invest (b)................................ 181,442
----------
Total France 181,442
----------
SOUTH AFRICA (1.5%):
Metals & Minerals (1.5%):
40,000 Gencorp, Ltd............................................... 157,858
----------
Total South Africa 157,858
----------
UNITED STATES (18.2%):
Aluminum (6.7%):
7,200 Alcan Aluminum............................................. 232,200
3,900 Aluminum Company of America................................ 244,237
14,500 Kaiser Aluminum (b)........................................ 222,938
----------
699,375
----------
Copper Mining (4.1%):
8,000 Freeport McMoran........................................... 253,000
2,500 Phelps Dodge Corp.......................................... 171,563
----------
424,563
----------
Gold Mining (5.9%):
8,110 Ashanti Goldfields......................................... 202,750
8,473 Barrick Gold Corp. (b)..................................... 257,366
2,700 Newmont Mining............................................. 152,888
----------
613,004
----------
Nickel & Cobalt Mining (1.5%):
5,078 Inco, Ltd.................................................. 160,592
----------
Total United States 1,897,534
----------
Total (Cost--$5,047,930)(a) $5,378,963
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $10,456,824.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation from investments as follows:
<TABLE>
<S> <C>
Unrealized appreciation............. $331,646
Unrealized depreciation............. (613)
--------
Net unrealized appreciation......... $331,033
========
</TABLE>
(b) Non-income producing security.
See notes to consolidated financial statements.
-12-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. ORGANIZATION:
The Coventry Group (the "Group") was organized on January 8, 1992 as a
Massachusetts business trust, and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Ernst Asia Fund and the Ernst Global
Resources Fund, (individually, a "Fund"; collectively, the "Funds"), each a
series of the Group, commenced operations December 6, 1995 and December 11,
1995, respectively. Between the date of organization and the date of
commencement of operations, the Funds earned no investment income and had no
operations other than incurring organizational costs. Each Fund seeks long-
term capital appreciation.
The Group is authorized to issue an unlimited number of shares of beneficial
interest with a par value of $0.01 per share. Sales of shares of the Funds
may be made to the general public.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements 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 for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
Portfolio securities for which market quotations are readily available
are valued based on their current available bid prices in the principal
market (closing sales prices if the principal market is an exchange) in
which such securities are normally traded. Unlisted securities for which
market quotations are not readily available, including restricted
securities and securities purchased in private transactions are valued at
their fair market value in the investment adviser's best judgment under
the supervision of the Group's Board of Trustees. Investments in debt
securities with a remaining maturity of sixty days or less are valued
based on amortized cost which approximates market value. Investments in
investment companies are valued at their respective net asset values as
reported by such companies. Investments in foreign securities, currency
holdings and other assets and liabilities of the Funds are valued based
on quotations from the primary market in which they are traded and are
translated from the local currency to U.S. dollars using current exchange
rates. The differences between cost and market value of investments held
by the Funds are reflected as either unrealized appreciation or
depreciation.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the pro rata amortization
of
Continued
-13-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1996
premium or discount. Dividend income is recorded on the ex-dividend date.
Realized gains or losses from sales of securities are determined by
comparing the identified cost of the security lot sold with the net sales
proceeds.
FOREIGN INVESTMENTS:
Investments in foreign securities are subject to certain risks that
differ in some respects from investments in securities of domestic
issuers. Such risks include trade balances and imbalances, related
economic policies, future adverse political, economic and social
developments, the possible imposition of withholding taxes on interest
and dividends, possible seizure, nationalization or expropriation of
foreign investments or deposits, currency blockage, less stringent
disclosure requirements, the possible establishment of exchange controls
or the adoption of other foreign governmental laws and restrictions.
Additional risks include the difficulty in obtaining or enforcing a court
judgment abroad, restrictions on foreign investment in other
jurisdictions, reduced levels of capital invested abroad, difficulties in
transaction settlement, different accounting and financial standards and
the possibility of price volatility and reduced liquidity in certain
foreign markets.
Certain countries may also impose substantial restrictions on investments
in their capital markets by foreign entities, including restrictions on
investments in issuers of industries deemed sensitive to relevant
national interests. These factors may limit the investment opportunities
available to the Funds and result in a lack of liquidity and a high price
volatility with respect to securities of issuers from developing
countries.
Withholding taxes on foreign dividends have been provided for in
accordance with the Funds' understanding of each applicable country's tax
rules and rates.
The accounting records of the Funds are maintained in U.S. dollars.
Investment securities, other assets and liabilities of the Funds
denominated in a foreign currency are translated into U.S. dollars at the
current exchange rate. Purchases and sales of securities, income receipts
and expense payments are translated to U.S. dollars at the exchange rate
on the dates of the transactions.
The Funds isolate that portion of the results of operations resulting
from changes in currency exchange rates from the fluctuation arising from
changes in market prices of securities held. Reported net realized
foreign exchange gains or losses arise from sales and maturities of
portfolio securities, sales of foreign currencies, currency exchange
fluctuations between the trade and settlement dates of securities
transactions, and the difference between the amounts of assets and
liabilities recorded and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities,
including investments in securities, resulting from changes in currency
exchange rates.
Continued
-14-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1996
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS:
In order to offset the risks associated with trading securities
denominated in foreign currencies, the Funds may enter forward foreign
currency exchange contracts ("forwards"), which are agreements between
two parties to buy and sell a currency at a set price on a future date.
The market value of the forward fluctuates with the changes in currency
exchange rates. The forward is marked-to-market daily and the change in
market value is recorded by a Fund as unrealized appreciation or
depreciation. When the forward is closed, the Fund records a realized
gain or loss equal to the fluctuation in value during the period the
forward was open. A Fund could be exposed to risk if a counterparty is
unable to meet the terms of a forward or if the value of the currency
changes unfavorably.
The Funds may also enter foreign currency options which give the Funds,
as the option buyer, the right to buy or sell a stated amount of foreign
currency at the exercise price at a specified date or during the option
period. A call option gives the right, but not the obligation, to buy the
currency, while a put option gives the right, but not the obligation, to
sell the currency. The value of a call option rises if the underlying
currency appreciates while the value of a put option rises if the
underlying currency depreciates. While purchasing a foreign currency
option can protect a Fund against adverse movement in the value of the
foreign currency, it does not limit the gain which might result from a
favorable movement in the value of such currency. If the value of the
foreign currency option depreciated, the Fund would not have to exercise
the option but could acquire or sell the foreign currency needed for
settlement in the spot market.
FUTURES CONTRACTS:
The Funds may enter into contracts for the future delivery of securities
and futures contracts based on a specific security, class of securities
or an index. In addition, the Funds may enter into contracts for the
future delivery of foreign currencies and futures contracts based on a
specific foreign currency. At the time a Fund enters into a futures
contract, an amount of cash, U.S. Government securities or other highly
liquid debt securities equal to the market value of the contract will be
deposited in a segregated account with the Fund's custodian. When writing
futures contracts, the Fund will maintain with its custodian liquid
assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are at least equal to the value
of the instruments underlying the contract, or the Fund may cover its
position by owning the instruments underlying the contract. Futures
contracts are subject to risk that the interest rates, securities prices
or foreign currency exchange rates may move in an unanticipated manner.
OPTIONS TRANSACTIONS:
In order to hedge investment positions and facilitate buying and selling
securities, the Funds may purchase call and put options and may write
covered call options on individual securities and futures contracts. By
writing call options, the Funds receive a premium and become obligated
during the term of the option to sell securities at a set price if the
option is exercised. The Funds will write only covered call
Continued
-15-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1996
options, thereby owning the underlying securities in the case of call
options. To cover put options, the Funds will segregate cash or
securities with a value at least equal to the exercise price. The risk in
writing options is that the market value of the underlying securities
could move in the opposite direction from what is anticipated. The Funds
also have the additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist.
Upon writing a covered option, an amount equal to the premium is recorded
by the Funds as an asset or liability. The liability is marked-to-market
each day to reflect the current value of the option, resulting in
unrealized appreciation or depreciation. The Funds will realize a gain or
loss upon expiration or closing of the option transaction. When options
are exercised, the premium amount will be added to the proceeds from
selling call options or subtracted from the cost of purchasing put
options. For the period ended March 31, 1996, the Funds had no option
activity.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS:
The Funds may purchase securities on a when-issued or delayed-delivery
basis. A Fund will engage in when-issued or delayed-delivery transactions
only for purposes of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage. When-
issued securities are purchased for delivery beyond normal settlement
dates at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than those available in
the market when delivery takes place. A Fund will generally not pay for
the securities nor earn income on them until they are received. The
custodian will set aside sufficient cash or liquid securities in a
separate account to make payment for the securities purchased. In when-
issued and delayed-delivery transactions, a Fund relies on the seller to
complete the transaction. The seller's failure to do so may cause a Fund
to miss a price or yield considered to be advantageous.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared and paid quarterly for
each Fund. Distributable net realized capital gains, if any, are declared
and distributed at least annually for each Fund.
Dividends from net investment income and from net realized capital gains
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currency transactions,
organization costs, expiring capital loss carryforwards and deferrals of
certain losses. Permanent book and tax basis differences are reflected in
the components of net assets.
FEDERAL INCOME TAXES:
It is the policy of each Fund to qualify as a regulated investment
company by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal
Continued
-16-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1996
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or
substantially all, federal income taxes.
OTHER:
Expenses that are directly related to one of the Funds are charged
directly to that Fund. Expenses relating to the Funds collectively are
prorated to the Funds on the basis of each Fund's relative net assets.
Other expenses for the Group are prorated to the Funds and any other
portfolios of the Group on the basis of relative net assets.
ORGANIZATION COSTS:
All expenses incurred in connection with the Funds' organization and
registration under the 1940 Act and the Securities Act of 1933 were paid
by the Funds. Such expenses are being amortized over a period of two
years commencing with the date of the initial public offering.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
period ended March 31, 1996 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Asia Fund (a)........................................... $5,422,488 $1,775,958
Global Resources Fund (b)............................... 5,217,822 --
</TABLE>
------
(a) For the period from December 6, 1995 (commencement of operations)
through March 31, 1996.
(b) For the period from December 11, 1995 (commencement of operations)
through March 31, 1996.
4. RELATED PARTY TRANSACTIONS:
Ernst & Company ("Ernst") serves as investment adviser to the Funds. Under
the terms of the investment advisory agreement, Ernst is entitled to receive
fees computed based on 1.00% of the average daily net assets of each Fund.
Ernst supervises the investment management activities of the affiliated sub-
advisers, Koeneman Capital Management Pte Ltd, Singapore for the Asia Fund
and National Mutual Funds Management (Global), Ltd., Melbourne, Australia
for the Global Resources Fund. From its fees, Ernst pays to each sub-adviser
fees computed based on 0.60% of the average daily net assets of each Fund.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of the BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves as administrator to the Group. Such officers and trustees are paid no
fees directly by the Funds for serving as officers and trustees of the
Group. Under the terms of the administration agreement, BISYS' fees are
computed based on 0.17% of
Continued
-17-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1996
the average daily net assets up to $500 million of each Fund. The fees are
reduced on a sliding scale to 0.05% of average daily net assets in excess of
$1 billion of each Fund. BISYS is entitled to a minimum annual fee of
$37,500 per Fund.
BISYS Ohio serves as transfer agent to the Funds. Pursuant to a Transfer
Agency Agreement, BISYS Ohio is entitled to a minimum annual fee of $20,000
per Fund plus a specified amount per shareholder account. BISYS Ohio also
serves as fund accountant to the Funds. Pursuant to a Fund Accounting
Agreement, BISYS Ohio receives fees based on 0.03% of average daily net
assets up to $500 million of each Fund. The fees are reduced on a sliding
scale to 0.01% of average daily net assets in excess of $1 billion of each
Fund. BISYS Ohio is entitled to a minimum annual fee of $20,000 per Fund.
The Funds have adopted a Distribution and Shareholder Service Plan in
accordance with Rule 12b-1 of the 1940 Act, pursuant to which each Fund is
authorized to pay or reimburse BISYS, as distributor, a periodic amount,
calculated at an annual rate not to exceed 0.25% of the average daily net
assets of each Fund. BISYS uses the fees to pay banks, broker-dealers and
other institutions, including BISYS and its affiliates, for administrative
and shareholder services and other similar services including distribution
services in connection with the distribution of Fund shares. For the period
ended March 31, 1996, BISYS received $4,666 of commissions from sales of
shares of the Funds, all of which BISYS reallowed to dealers of the Funds'
shares including $926 to affiliates of the Funds.
Ernst and BISYS may periodically waive all or a portion of their fees to
assist the Funds in maintaining competitive expense ratios, and may
voluntarily reimburse the Funds if their operating expenses exceed statutory
expense limitations imposed by certain states.
Information regarding these transactions is as follows for the period ended
March 31, 1996:
<TABLE>
<CAPTION>
TRANSFER AGENT
INVESTMENT AND FUND
ADVISORY FEES ADMINISTRATION ACCOUNTANT FEES REIMBURSEMENT
VOLUNTARILY FEES VOLUNTARILY VOLUNTARILY FROM INVESTMENT
REDUCED REDUCED REDUCED ADVISER
------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Asia Fund (a)........... $13,008 $6,148 $7,190 $7,203
Global Resources Fund
(b).................... 12,651 6,251 6,436 7,203
</TABLE>
------
(a) For the period from December 6, 1995 (commencement of operations)
through March 31, 1996.
(b) For the period from December 11, 1995 (commencement of operations)
through March 31, 1996.
Ernst owns shares of each Fund, as of March 31, 1996, with aggregate values
of $5,490,000 and $10,309,802 of the Asia Fund and Global Resources Fund,
respectively.
Continued
-18-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 1996
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
The Funds elected to pass the benefits of the foreign tax credit to
shareholders for the period ended March 31, 1996. The following information
is presented with respect to the election:
<TABLE>
<CAPTION>
GROSS INCOME FROM INCOME TAXES PAID
FOREIGN COUNTRIES TO FOREIGN COUNTRIES
----------------- ----------------------
AMOUNT PER SHARE AMOUNT PER SHARE
------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Asia Fund........................... $19,998 $0.037 $1,436 $0.003
Global Resources Fund............... 42,445 0.043 2,276 0.002
</TABLE>
As of March 31, 1996, for Federal income tax purposes, the Funds have no
capital loss carryforwards available to offset future capital gains, if any.
-19-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ERNST GLOBAL
ERNST ASIA FUND RESOURCES FUND
--------------- --------------
DECEMBER 6, DECEMBER 11,
1995 TO 1995 TO
MARCH 31, MARCH 31,
1996 (A) 1996 (A)
--------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 10.00 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment loss.......................... (0.08) (0.02)
Net realized and unrealized gains from
investments and foreign currencies......... 1.06 0.69
------- -------
Total from Investment Activities............ 0.98 0.67
------- -------
NET ASSET VALUE, END OF PERIOD................ $ 10.98 $ 10.67
======= =======
Total Return (excludes sales charge).......... 9.80%(b) 6.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............ $5,865 $10,457
Ratio of expenses to average net assets*..... 3.53%(c) 3.54%(c)
Ratio of net investment loss to average net
assets*.................................... (2.49)%(c) (1.11)%(c)
Portfolio Turnover........................... 45.83% 0.00%
Average commission rate paid (d)............. $0.0110 $0.0128
</TABLE>
- ------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio of expenses to average net assets
would have been 5.41% and 5.51%, on an annualized basis, and the ratio of
net investment loss to average net assets would have been (4.37%) and
(3.08%), on an annualized basis, for the Asia Fund and Global Resources
Fund, respectively.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements.
-20-
<PAGE>
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<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
ERNST WORLD FUNDS
ERNST ASIA FUND
ERNST GLOBAL RESOURCES FUND
[LOGO]
ERNST & COMPANY
INVESTMENT ADVISER
ANNUAL REPORT TO SHAREHOLDERS
MARCH 31, 1996
