<PAGE>
ERNST WORLD FUNDS
ERNST GLOBAL ASSET ALLOCATION FUND
ERNST ASIA FUND
ERNST GLOBAL RESOURCES FUND
[LOGO ERNST WORLD FUNDS]
ERNST & COMPANY
INVESTMENT ADVISER
SEMI-ANNUAL REPORT TO SHAREHOLDERS
SEPTEMBER 30, 1996
<PAGE>
Report From National Mutual Funds Management
Ernst Global Asset Allocation Fund/1/
- --------------------------------------------------------------------------------
Dear Shareholders:
The Global Asset Allocation Fund commenced operations on July 2, 1996 and
reached full investment in early August. For the period from commencement of
operations to September 30, 1996 the Fund gained 1.4%/2/ (excluding sales
charges) as compared with 2.2% for a composite total return based on a 60%
allocation to the Morgan Stanley Capital International World Free Index/3/ and
a 40% allocation to the Lipper Global Government Bond Index/4/.
PORTFOLIO COMPOSITION
At September 30, 1996, the Fund was allocated approximately 57% to equities and
38% to U.S. Government bonds. The remaining 1% was invested in short-term
investments. The equity exposure is currently achieved through investments in
futures on the major market indices in the U.S., Asia and Europe. Over the next
three months the Fund will begin to purchase direct equity holdings. The
composition of the Fund as of September 30, 1996 is presented below/5/:
<TABLE>
<S> <C> <C>
U.S. Government Bonds.............................................. 37.8%
Equities:
U.S............................................................... 13.4
Japan............................................................. 8.5
France............................................................ 9.7
Germany........................................................... 10.2
Hong Kong......................................................... 14.9
----
Total Equities..................................................... 56.7
Short-Term Investments............................................. 5.5
-----
Total.............................................................. 100.0%
=====
</TABLE>
Our view of the major world economies is presented below along with commentary
on the international bond and equities markets.
ECONOMIC OVERVIEW
Our view of the world economies is based on several fundamental conditions
which appear to be in operation. Our beliefs are summarized as follows:
Desynchronized growth is here to stay.--The U.S. economy is decelerating while
Japan returns to trend growth. Europe will recover through 1997 while world
industrial production is unlikely to mount a significant upswing in 1997.
Inflation is not a problem.--Inflation in the G5 countries will remain less
than 2.5% over the next 18 months. Rising Japanese inflation will be offset by
declines in the U.S., and European inflation should be steady.
Trade account improvement to consolidate.--We do not expect the U.S. and
Japanese trade accounts to improve further in 1997.
Monetary policy is unlikely to be tightened significantly.--Tighter fiscal
policy and low inflation will mitigate rate rises over 1997.
European Monetary Union (EMU) will go ahead on time.--Our growth projections
will allow sufficient fiscal consolidation to allow a core of EMU partners.
Considering these fundamental factors we believe the U.S. is likely to slow
into the first half of 1997. There is the possibility of monetary easing as
inflation in the U.S. declines next year. The Japanese recovery is both broad
based and growing in momentum. Rising business investment in Japan should
offset fiscal cuts in the second half of 1996. Inflation is back and as a
result interest rates of 0.5% are unsustainable. The call rate in Japan should
rise this year and the overnight discount rate should rise by the middle of
next year. Europe should commence recovery despite tightening fiscal policy.
Inflation will remain low in Europe while interest rates have bottomed, except
possibly in the United Kingdom (UK).
INTERNATIONAL BOND MARKETS
The U.S. bond market will, as always, be a key driver for the other major
markets in coming months. The U.S. market will in turn be driven by interest
rate
- --------------------------------------------------------------------------------
-1-
<PAGE>
Report From National Mutual Funds Management Ernst Global Asset Allocation Fund
- --------------------------------------------------------------------------------
expectations associated with the pace of growth and inflation. At the moment
it looks as if the bond market is pricing no more than 50 basis points of
tightening in coming months. This is at odds with our expectations of an
easing of rates into 1997. Central to our expectation is a slower economy and
no rise in inflation. We will be watching key growth indicators such as the
report of the National Association of Purchasing Managers, the regional survey
of the Federal Reserve Bank of Philadelphia and the unemployment rate as well
as the Producer Price Index and Consumer Price Index. If our forecasts are
correct, the magnitude of adjustment in the market's interest rate expectations
would be large enough to produce a major bond rally.
In Europe, the markets had thought the recent 0.30% repo cut in Germany would
be the last reduction in this cycle. However, doubts are now being cast on this
and sentiment is growing for the possibility of further cuts. Our forecasts do
not expect this and are more bearish than the market. However, the impact of
the U.S. rally would pull the European and UK markets with it. There are some
expectations of another possible rate cut in the UK, but if this happened the
market could take it badly. We do not expect another cut.
In Japan, the market's expectations about eventual interest rate increases are
too sanguine in our view and we see this market as vulnerable to a significant
sell-off. It is our least preferred market.
INTERNATIONAL EQUITY MARKETS
Our preferred international equity position is to overweight Asia and Europe
and underweight Japan and the U.S. Asia is expected to benefit from an easing
of monetary policy both domestically and in the U.S. Valuations are in the
neutral zone and if the U.S. bond rally eventuates the markets will benefit.
Europe is attractive as growth is expected to pick up, monetary policy will
remain easy and valuations are supportive. Japan and the U.S. are both higher
risk markets. Japan can come under pressure if either growth is sluggish or
growth is in line but monetary policy is tightened. The U.S. market is likely
to move higher on our core scenario of moderating growth and stable inflation.
However,
valuations are above fair and if interest rates rise the U.S. market will
struggle.
SUMMARY
During the first quarter of operations, the Fund gradually invested the net
assets to achieve the target asset allocation. Our methodology involves an
active process which results in periodic adjustment of investment allocation as
part of the management of the Fund. We continue to review our allocations with
regard to changes in economic, market and political dynamics.
Respectfully,
/s/ Richard Greenfield
Richard Greenfield
National Mutual Funds Management (Global), Ltd. Melbourne, Australia
October 22, 1996
- ------
/1/International investing is subject to certain factors such as currency
exchange rate volatility, possible political, social or economic instability,
foreign taxation and differences in auditing and other financial standards.
/2/Total return with the maximum 5.50% sales charge was (4.2%). Past performance
is not predictive of future results.
/3/The Morgan Stanley Capital International World Free Index is an unmanaged
index that measures performance of twenty-two global stock markets.
/4/The Lipper Global Government Bond Index measures the performance of the 30
largest funds in this category.
/5/The composition of the Fund's holdings is subject to change.
- --------------------------------------------------------------------------------
-2-
<PAGE>
Report From Koeneman Capital Management Ernst Asia Fund/1/
- --------------------------------------------------------------------------------
Dear Shareholders:
In our report to the Board in May 1996, we sounded a note of caution on the
Asian markets, based on a rise in U.S. interest rates in the first quarter of
this year. Our outlook was correct as Asian markets experienced an overall
decline in the past six months. The Ernst Asia Fund declined 2.3%/2/ (excluding
sales charges) as compared with losses of 0.9% for the Morningstar Weighted
Average Return of International/Pacific Funds/3/ (Morningstar Average) and 4.0%
for the Morgan Stanley Capital International All Country Far East Free Index/4/
(MSCI Index) in the six months ended September 30, 1996. For the quarter ended
September 30, 1996 the Fund declined by 0.8%/2/ (excluding sales charges), as
compared with greater losses for both the Morningstar Average of 2.5% and the
MSCI Index of 4.6%.
Our cautious approach caused us to begin raising cash levels in the portfolio.
In July, 1996, cash levels reached 40% of the portfolio, reflecting our bearish
stance. In the month of July, the Asia ex-Japan markets fell by 8% justifying
the bearish position. As investment opportunities arose in subsequent months,
we brought the equity weightings from 60% up to 67%. With the further decline
in some of the markets, we have brought those weightings to 73% in equities in
October 1996.
In addition to concerns over interest rates, the reasons for our caution during
the period were the strength of the U.S. dollar, which thanks to the currency
links of Asia ex Japan currencies, meant strong Asia ex Japan currencies. This
hurt the export oriented Asian economies. At the same time, the electronics
sector was undergoing a slow down. While the U.S. dollar and Asia ex Japan
currencies continue to be strong, there are signs of a turnaround in
electronics. PC shipments are rising, and the book-to-bill ratio has rebounded
strongly to 0.99.
The stability to slight softness in U.S. interest rates has been a positive
influence on Hong Kong, with the strongest U.S. currency link. However, in some
other countries, the response was more muted due to domestic political and
economic reasons as discussed below.
Our country by country strategy is outlined below:
Hong Kong--The portfolio benefitted from our full weighting of 23% which we
have held in the portfolio since August, 1996. Hong Kong is the main
beneficiary of low U.S. interest rates. Hong Kong's earnings cycle is also
relatively favorable as its property market is still in a recovery phase.
Property is the main earnings driver of the Hong Kong market. We remain
positive on the market, but with the 17% rise in the market since the beginning
of August, we are trimming our position to 21%.
Japan--We maintained a full weight of 24% in Japan over the period, during
which the market essentially remained unchanged. In our last note we stated
that either earnings would rise as the economy recovered, or else interest
rates would remain low. As it turns out, the latter scenario prevailed as the
recovery remained muted. We believe it is a case of paradise postponed, with
stronger earnings a matter of time, in the face of very easy monetary policy:
short-term interest rates are at 0.5%. We are maintaining our weight in this
market.
Taiwan--Last quarter, we raised our Taiwan weight to 15% of the portfolio. The
market subsequently rose 5% over the quarter. The fundamentals remain the same:
the economy is in a recovery phase with low interest rates prevailing. We are
maintaining our weight.
Philippines--We initiated a weight of 3% in the Philippines, which subsequently
appreciated by 1.4% We are raising the weight to 4%.
Korea--We initiated a position in Korea which has subsequently been raised to
6.4%. The market remained flat over the period.
- --------------------------------------------------------------------------------
-3-
<PAGE>
Report From Koeneman Capital Management Ernst Asia Fund
- -------------------------------------------------------------------------------
For the six months ended September 30, 1996, we were cautious on the rest of
Asia. Probably the most important investment decision was the avoidance of any
weight in Thailand, which declined 11% for the period from August 1, 1996
through September 30, 1996. Thailand is in the midst of a change of
government, coinciding with a period of economic slowdown. It needs to break
its currency link with the U.S. dollar, so that it can ease interest rates and
get its economy going. However, without a strong political leadership, such a
dramatic step seems unlikely in the near term. With the market having fallen
26% since the start of the year it is almost at the level that our models
would have us move in to some bottom fishing.
The current target weights for the Ernst Asia Fund are as follows/5/:
<TABLE>
<CAPTION>
COUNTRY TARGET %
- ------- --------
<S> <C>
Hong Kong.............................................................. 21%
Indonesia.............................................................. --
Japan.................................................................. 25
Korea.................................................................. 7
Malaysia............................................................... --
Philippines............................................................ 4
Singapore.............................................................. --
Taiwan................................................................. 15
Thailand............................................................... --
---
Total Equities......................................................... 72%
===
</TABLE>
SUMMARY
We are more optimistic now on the Asian markets, compared to six months ago.
Our three concerns were interest rates, the electronics sector, and currency
strength. The interest rate outlook appears to have improved, and the
electronics sector shows signs of improvement. If the currency situation were
to improve, we would become more fully invested. These short-term concerns
should be seen against a backdrop of the longer term (3-5 year) outlook for
Asia, which remains very bright.
Respectfully,
/s/ Geoffrey E. Wong
Geoffrey E. Wong
/s/ John J. Koeneman
John J. Koeneman
Koeneman Capital Management Pte Ltd.
Singapore
October 22, 1996
- ------
/1/International/investing is subject to certain factors such as currency
exchange rate volatility, possible political, social or economic
instability, foreign taxation and differences in auditing and other
financial standards.
/2/Total returns with the maximum 4.25% sales charge were (6.5%) and (5.0%),
for the six month period and three month period ended September 30, 1996,
respectively. Past performance is not predictive of future results.
/3/The Morningstar weighted average return of International/ Pacific Funds
measures the performance of over 100 mutual funds with that investment
objective.
/4/The Morgan Stanley Capital International All Country Far East Free Index is
an unmanaged index that measures performance of the stock markets in eight
developed and emerging market countries in the Far East.
/5/The composition of the Fund's holdings is subject to change.
- -------------------------------------------------------------------------------
-4-
<PAGE>
Report From National Mutual Funds Management Ernst Global Resources Fund/1/
- --------------------------------------------------------------------------------
The Ernst Global Resources Fund declined 7.6%/2/ (excluding sales charges) for
the six months ended September 30, 1996, as compared with gains of 9.9% for the
Morningstar Weighted Average Return for Specialty/Natural Resources Funds
(Morningstar Average)/3/ and 3.6% for the Morgan Stanley Capital International
World Free Index (MSCI Index)/4/. For the nine months ended September 30, 1996,
the Fund returned 0.2% while the Morningstar Average rose 21.2% and the MSCI
Index gained 7.3%.
The Fund's performance resulted primarily from our bias to the metals/minerals
segment of the world's resource markets. Specifically, there were two factors
which led to the Fund's severe price correction in the past six months. In the
first instance, world equity markets, in particular the U.S. market became very
concerned over the prospects of the Federal Reserve tightening official rates--
the impact upon U.S. equity markets was quite severe. The carryover effect to
the Australian market and other "global resource" markets was also negative.
The major negative for resources was the perceived doubt about growth
prospects, particularly in the U.S., and therefore the relative pricing of
resource equity.
The second key performance factor was the "Sumitomo-Copper" situation. The
disclosure of a very large long position held by Sumitomo and associated
losses, both realized and unrealized, caused an aggressive sell-off in the
copper market which had a spill-over effect upon other metal markets and
commodity markets. The deterioration within the commodity markets also affected
the resource equity prices around the world. The effect upon the copper market
saw the copper price fall over 25% in the space of two weeks. The dramatic fall
was a true reflection of just how large and unknown the Sumitomo position
actually was.
PORTFOLIO COMPOSITION
The following tables provide details of portfolio composition on a sector and
individual stock basis at September 30, 1996. However, in the near term we
intend to maintain the current sector weightings/5/.
<TABLE>
<CAPTION>
TOP TEN EQUITY HOLDINGS AT
SECTOR BASIS (%) SEPTEMBER 30, 1996 (%)
---------------- --------------------------
<S> <C> <C> <C>
Aluminum 20% Freeport McMoran 6.0%
Copper 7 Aluminum Co. of America 5.6
Energy 8 Alcan Aluminum 5.5
Gold 20 Barrick Gold Corp. 5.2
Lead 11 Inco, Ltd. 4.9
Diversified Mining RTZ Corp. 4.8
Companies 23 Phelps Dodge Corp. 4.7
Nickel 8 Kaiser Aluminum 4.5
Savage Resources, Ltd. 4.5
Cominco, Ltd. 3.9
---
Total Equities 97%
===
</TABLE>
PORTFOLIO OUTLOOK AND SUMMARY
Over the last six months, base metal equities underperformed. Metal and mineral
share prices continued to be negatively affected by the Sumitomo copper trading
affair and the seasonal weakness in global metal and mineral markets, after the
Northern hemisphere summer holiday period.
However, there is now clear evidence of base metal prices "bottoming" and
renewed producer buying is commencing as fourth quarter order books start to
build. The inventory destocking phase is over and visible stock drawdown from
the LME (London Metals Exchange) will materialize over the next three months.
The expectation is for an increase in base metal prices before the end of the
first quarter 1997, and this should result in rising equity prices.
Increased growth in industrial production will produce stronger metals
consumption in 1997 and 1998, which will tighten most metal markets apart from
copper which is facing quite large increases in supply. Aluminum and zinc
should perform well. Although fabrication demand for gold exceeds mine output,
the current low inflation environment and firm U.S. dollar are inhibiting
investor interest, and the threat of IMF sales is a near term concern. Because
of depressed conditions in both Japanese and European steel industries, the
outlook is for maintained 1997 contract prices in iron ore and coking coal.
Excess supply will reduce steam coal prices.
- --------------------------------------------------------------------------------
-5-
<PAGE>
Report From National Mutual Funds Management Ernst Global Resources Fund
- -------------------------------------------------------------------------------
Energy related equities performed strongly in the last quarter. Oil prices
have far exceeded analysts forecasts, inventory levels in the U.S. have been
very low, corporate action has been prominent, the Iraqi/UN/U.S. humanitarian
oil sale program has been delayed due to military action within Iraq and as a
result energy equity prices have been strong. In the next six months, oil
prices are likely to remain firm as a consequence of voluntary U.S. inventory
replenishment flowing from the deferment of Iraqi oil-for-food sales.
The Fund is well positioned to benefit from a recovery of the metals/minerals
sector of the world's resource markets while continuing to participate in
other natural resource segments. While we believe that global resources and
refining companies will benefit from the increased industrialization of the
world economies which will drive the need for metal and mineral goods, we are
currently in the process of some restructuring of the portfolio to take
advantage of potential market appreciation in diverse segments of the resource
sector. We will continue to monitor developments in world markets and allocate
assets based on our view of the opportunities presented.
Respectfully,
/s/Tony Fernie
Tony Fernie
National Mutual Funds Management (Global), Ltd. Melbourne, Australia
October 22, 1996
- ------
/1/International investing is subject to certain factors such as currency
exchange rate volatility, possible political, social or economic
instability, foreign taxation and differences in auditing and other
financial standards.
/2/Total returns with the maximum 4.25% sales charge were (11.49%), (4.09%) and
(5.56%) for the six month period ended September 30, 1996, nine month period
ended September 30, 1996 and period from commencement of operations
(December 11, 1995) to September 30, 1995, respectively. Past performance is
not predictive of future results. The total return set forth may reflect the
waiver of a portion of the Fund's advisory or administrative fees for
certain periods since the inception date (December 11, 1995). On such
instances, and without waiver of fees, total return would have been lower.
/3/The Morningstar weighted average return of Specialty/Natural Resources Funds
measures the performance of over 40 mutual funds with that investment
objective.
/4/The Morgan Stanley Capital International World Free Index is an unmanaged
index that measures performance of twenty-two global stock markets.
/5/The composition of the Fund's holdings is subject to change.
This material is authorized for distribution only when accompanied or preceded
by a current prospectus. Please read the prospectus carefully before
investing. The Funds are distributed by BISYS Fund Services.
Shares in the Funds involve investment risks. The investment return and
principal value will fluctuate so that an investor's shares when redeemed, may
be worth more or less than their original cost. Fund shares are not deposits
or obligations of, or guaranteed or endorsed by Ernst & Company, National
Mutual Funds Management (Global), Ltd., Koeneman Capital Management Pte Ltd.,
Singapore or subsidiaries of the above companies. Shares in the Funds are not
insured by the Federal Deposit Insurance Corporation.
- -------------------------------------------------------------------------------
-6-
<PAGE>
TABLE OF CONTENTS
Statements of Assets and Liabilities
Page 8
Statements of Operations
Page 9
Statements of Changes in Net Assets
Page 10
Schedules of Portfolio Investments
Page 11
Notes to Financial Statements
Page 17
Financial Highlights
Page 24
-7-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ERNST
ERNST GLOBAL GLOBAL
ASSET ALLOCATION ERNST ASIA RESOURCES
FUND FUND FUND
---------------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost
$5,107,156, $5,704,450, and
$10,141,178, respectively)........... $5,104,294 $5,886,230 $9,744,469
Interest and dividends receivable..... 37,656 9,305 29,249
Foreign currency...................... -- 189,583 --
Receivable for foreign currency
contract sold........................ -- 21,279 --
Reclaim receivable.................... -- -- 2,097
Net variation margin on open futures
contracts............................ 16,377 -- --
Unamortized organization costs........ 23,979 8,381 8,528
Prepaid expenses and other assets..... 4,654 6,341 4,594
---------- ---------- ----------
Total Assets...................... 5,186,960 6,121,119 9,788,937
---------- ---------- ----------
LIABILITIES:
Payable for investment securities
purchased............................. -- 20,602 --
Accrued expenses and other payables:
Investment advisory fees............ 4,575 4,871 8,125
Administration fees................. 1,027 1,027 1,027
Distribution and shareholder service
fees............................... 1,039 1,218 2,031
Custodian fees...................... 2,918 2,679 2,726
Printing costs...................... 2,465 6,228 7,091
Accounting and transfer agent fees.. 7,357 3,325 2,359
Legal and audit fees................ 9,432 -- --
Other............................... 1,046 529 1,895
---------- ---------- ----------
Total Liabilities................. 29,859 40,479 25,254
---------- ---------- ----------
NET ASSETS:
Paid-in capital....................... 5,086,349 5,750,233 10,226,498
Distributions in excess of net
investment income..................... (4,158) (58,676) (11,417)
Net unrealized appreciation
(depreciation) from investments and
futures.............................. 117,535 254,991 (503,172)
Net unrealized appreciation
(depreciation) from translation of
assets and liabilities in foreign
currencies........................... -- (53,083) 106,448
Accumulated undistributed net realized
gains (losses) from investment
transactions......................... (48,587) 189,143 5,076
Accumulated undistributed net realized
gains (losses) from
foreign currency transactions........ 5,962 (1,968) (59,750)
---------- ---------- ----------
Net Assets........................ $5,157,101 $6,080,640 $9,763,683
========== ========== ==========
Outstanding shares.................... 508,819 572,084 990,284
========== ========== ==========
Net asset value and redemption price
per share............................ $10.14 $10.63 $9.86
========== ========== ==========
Maximum sales charge.................. 5.50% 4.25% 4.25%
========== ========== ==========
Maximum offering price per share
($10.14/0.945,
$10.63/0.9575, and $9.86/0.9575,
respectively)........................ $10.73 $11.10 $10.30
========== ========== ==========
</TABLE>
See notes to financial statements.
-8-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ERNST
ERNST GLOBAL ERNST GLOBAL
ASSET ALLOCATION ASIA RESOURCES
FUND (A) FUND FUND
---------------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................... $ 58,905 $ 29,361 $ --
Dividend income......................... 1,064 52,065 111,137
Foreign tax withholding................. -- (5,139) (4,238)
-------- --------- ---------
Total Income.......................... 59,969 76,287 106,899
-------- --------- ---------
EXPENSES:
Investment advisory fees................ 27,293 29,296 50,549
Administration fees..................... 9,247 18,801 18,801
Distribution and shareholder service
fees................................... 6,203 7,342 12,676
Custodian fees.......................... 2,970 5,766 5,679
Legal and audit fees.................... 11,970 7,659 16,824
Organization costs...................... 1,440 5,519 5,612
Trustees' fees and expenses............. 180 183 273
Accounting and transfer agent fees...... 13,841 27,569 26,930
Registration and filing fees............ 3,420 2,380 3,112
Printing costs.......................... 3,870 1,769 3,480
Other................................... 493 216 276
-------- --------- ---------
Total expenses........................ 80,927 106,500 144,212
Expenses voluntarily reduced............ (16,800) (14,631) (25,896)
-------- --------- ---------
Net Expenses.......................... 64,127 91,869 118,316
-------- --------- ---------
Net Investment Loss..................... (4,158) (15,582) (11,417)
-------- --------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gains (losses) from
investment transactions................ (48,587) (3,265) --
Net realized gains (losses) from foreign
currency transactions.................. 5,962 1,230 (59,750)
Net change in unrealized appreciation
(depreciation) from
investments and futures................ 117,535 (76,144) (741,047)
Net change in unrealized appreciation
(depreciation) from
translation of assets and liabilities
in foreign currencies.................. -- (46,153) 13,208
-------- --------- ---------
Net realized and unrealized gains
(losses) from investments and
foreign currencies..................... 74,910 (124,332) (787,589)
-------- --------- ---------
Change in net assets resulting from
operations.............................. $ 70,752 $(139,914) $(799,006)
======== ========= =========
</TABLE>
- ------
(a) For the period from July 2, 1996 (commencement of operations) through
September 30, 1996.
See notes to financial statements.
-9-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ERNST GLOBAL
ASSET ALLOCATION ERNST GLOBAL RESOURCES
FUND ERNST ASIA FUND FUND
---------------- ------------------------- --------------------------
JULY 2, SIX MONTHS DECEMBER 6, SIX MONTHS DECEMBER 11,
1996 TO ENDED 1995 TO ENDED 1995 TO
SEPTEMBER 30, SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31,
1996 (A) 1996 1996 (A) 1996 1996 (A)
---------------- ------------- ----------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS
Net investment loss.... $ (4,158) $ (15,582) $ (44,544) $ (11,417) $ (18,294)
Net realized gains
(losses) from
investment
transactions......... (48,587) (3,265) 192,408 -- 5,076
Net realized gains
(losses) from foreign
currency
transactions......... 5,962 1,230 37,884 (59,750) (3,763)
Net change in
unrealized
appreciation
(depreciation) from
investments and
futures.............. 117,535 (76,144) 331,135 (741,047) 237,875
Net change in
unrealized
appreciation
(depreciation) from
translation of assets
and liabilities in
foreign currencies... -- (46,153) (6,930) 13,208 93,240
---------- ---------- ---------- ----------- -----------
Change in net assets
resulting from
operations............. 70,752 (139,914) 509,953 (799,006) 314,134
---------- ---------- ---------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................ -- (43,094) -- -- --
---------- ---------- ---------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 5,086,349 367,084 5,355,155 106,168 10,142,690
Dividends reinvested... -- 43,059 -- -- --
Cost of shares
redeemed.............. -- (11,603) -- (303) --
---------- ---------- ---------- ----------- -----------
Change in net assets
from share
transactions......... 5,086,349 398,540 5,355,155 105,865 10,142,690
---------- ---------- ---------- ----------- -----------
Change in net assets... 5,157,101 215,532 5,865,108 (693,141) 10,456,824
NET ASSETS:
Beginning of period.... -- 5,865,108 -- 10,456,824 --
---------- ---------- ---------- ----------- -----------
End of period.......... $5,157,101 $6,080,640 $5,865,108 $ 9,763,683 $10,456,824
========== ========== ========== =========== ===========
SHARE TRANSACTIONS:
Issued................. 508,819 34,772 534,392 10,618 979,696
Reinvested............. -- 4,024 -- -- --
Redeemed............... -- (1,104) -- (30) --
---------- ---------- ---------- ----------- -----------
Change in shares........ 508,819 37,692 534,392 10,588 979,696
========== ========== ========== =========== ===========
</TABLE>
- ------
(a) Period from commencement of operations.
See notes to financial statements.
-10-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST GLOBAL ASSET ALLOCATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- --------------------------------------------------------- ----------
<C> <S> <C>
U.S. TREASURY NOTES (37.2%):
$500,000 5.88%, 2/15/04........................................... $ 477,968
500,000 6.50%, 8/15/05........................................... 492,968
500,000 6.88%, 5/15/06........................................... 505,781
500,000 6.00%, 2/15/26........................................... 439,688
----------
Total U.S. Treasury Notes 1,916,405
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------- ----------
<C> <S> <C>
TIME DEPOSITS (61.8%):
UNITED STATES (61.8%):
$3,187,889 Union Bank of California, 4.42%,
dated 9/30/96, due 10/1/96............................ $3,187,889
----------
Total Time Deposits 3,187,889
----------
Total Investments (Cost--$5,107,156) (a) $5,104,294
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $5,157,101.
(a)Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............. $ 5,145
Unrealized depreciation............. (8,007)
-------
Net unrealized depreciation......... $(2,862)
=======
</TABLE>
At September 30, 1996, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
CURRENT
OPENING MARKET
# OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE (000) (000)
--------- ------------------------------ --------- -------
LONG CONTRACTS
<C> <S> <C> <C>
6 CAC Index, December 1996 $503 $498
3 DAX Index, December 1996 515 525
10 Hang Sang Index, December 1996 697 768
2 S & P 500 Index, December 1996 672 691
3 TOPIX, December 1996 414 437
</TABLE>
See notes to financial statements.
-11-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ---------------------------------------------------------- ---------
<C> <S> <C>
COMMON STOCKS (64.2%):
HONG KONG (26.4%):
Banks (3.8%):
8,400 Hong Kong & Shanghia Bank (b)............................. $ 155,877
19,500 Wing Hang Bank............................................ 73,128
---------
229,005
---------
Diversified (4.8%):
17,000 Citi Pacific.............................................. 76,943
14,000 Hutchinson Whampoa, Ltd................................... 94,142
13,500 Swire Pacific, "A"........................................ 120,894
---------
291,979
---------
Hotels (0.8%):
27,000 Hong Kong & Shanghai Hotel................................ 48,707
---------
Real Estate (10.8%):
60,000 Amoy Properties (b)....................................... 69,830
27,000 Cheung Kong............................................... 207,746
73,000 Henderson Investment, Ltd................................. 82,128
16,000 Henderson Land............................................ 137,075
15,000 Sun Hung Kai Properties................................... 159,543
---------
656,322
---------
Transportation--Marine (1.2%):
41,000 Hong Kong Ferry Holdings.................................. 72,371
---------
Utilities (5.0%):
10,000 Asia Satellite Telecommunications (b)..................... 26,445
16,500 China Light & Power Co.................................... 76,813
22,000 Hong Kong Electric Holdings............................... 71,124
73,000 Hong Kong Telecom......................................... 132,160
---------
306,542
---------
Total Hong Kong 1,604,926
---------
Automobiles (2.5%):
4,000 Honda Motor Co............................................ 100,561
2,000 Toyota Motor Corp......................................... 51,178
---------
151,739
---------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ---------------------------------------------------------- ---------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN (22.8%):
Banks (2.9%):
6,000 Asahi Bank................................................ $ 68,418
5,000 Bank of Tokyo--Mitsubishi................................. 109,091
---------
177,509
---------
Electronic & Electrical Equipment (6.0%):
5,000 Canon, Inc. (b)........................................... 98,316
4,000 Daiichi Corp.............................................. 104,153
4,000 Matsushita Electric Industrial Co......................... 67,160
7,000 Nichicon Corp............................................. 93,019
---------
362,648
---------
Engineering & Industrial Construction (1.2%):
8,000 Amada (b)................................................. 73,984
---------
Heavy Machinery (0.8%):
6,000 Komatsu................................................... 52,040
---------
Insurance (1.7%):
9,000 Tokio Marine & Fire Insurance (b)......................... 106,667
---------
Iron & Steel (1.4%):
30,000 Sumitomo Metal (b)........................................ 85,118
---------
Machine Tools (1.2%):
8,000 Makino Milling Machine (b)................................ 71,470
---------
Pharmaceuticals (1.8%):
7,000 Daiichi Pharmaceuticals Co., Ltd.......................... 110,617
---------
Radio & Television (1.9%):
7,000 Tokyo Broadcasting........................................ 113,760
---------
Textile Manufacturing (1.4%):
6,000 Onward Kashiyama (b)...................................... 84,040
---------
Total Japan 1,389,592
---------
</TABLE>
Continued
-12-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- --------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
THE PHILIPPINES (1.6%):
Banks (0.4%):
900 Metro Bank & Trust....................................... $ 21,441
----------
Diversified (0.3%):
91,000 Solid Group, Inc. (b).................................... 20,465
----------
Manufacturing (0.0%):
1,000 La Tondena Distillers, Inc............................... 1,887
----------
Real Estate (0.2%):
8,614 Ayala Land, Inc. "B" (b)................................. 10,507
8,000 Filinvest Development Corp. (b).......................... 3,049
----------
13,556
----------
Retail (0.3%):
85,000 Uniwide Holdings, Inc. (b)............................... 16,524
----------
Utilities (0.4%):
1,140 Manila Electric Co., "B" (b)............................. 8,430
250 Philippine Long Distance
Telephone Co............................................ 15,533
----------
23,963
----------
Total Philippines 97,836
----------
SOUTH KOREA (4.9%):
Banks (1.3%):
3,200 Kookmin Bank (GDR) (b)................................... 78,400
----------
Electronic & Electrical (0.3%):
380 Samsung Electronics (GDR) (b)(c)......................... 19,285
----------
Investment Funds--Closed End (0.8%):
5 Korea Asia Fund (b)...................................... 50,000
----------
Oil & Gas Production (0.2%):
1,973 Yukong, Ltd. (GDR) (b)................................... 12,660
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SOUTH KOREA, CONTINUED:
Steel (0.6%):
1,658 Pohang Iron & Steel (ADR) (b)........................... $ 35,440
----------
Telecommunications Equipment (0.6%):
10,000 Korea Mobile Telecom (ADR) (b).......................... 35,483
----------
Utilities (1.1%):
3,481 Korea Electric Power Corp.
(ADR) (b).............................................. 65,704
----------
Total South Korea 296,972
----------
TAIWAN (8.5%):
Investment Fund--Closed End (8.5%):
25 Formosa Fund (IDR)...................................... 221,250
35 Taipei Fund (IDR)....................................... 299,250
----------
Total Taiwan 520,500
----------
Total Common Stocks 3,909,826
----------
WARRANTS (1.9%):
TAIWAN (1.9%):
20,000 BZW Taiwan Index Limited
Warrants (b)........................................... 116,723
----------
Total Warrants 116,723
----------
U.S. TREASURY BILLS (22.0%):
1,340,000 10/24/96................................................ 1,335,779
----------
Total U.S. Treasury Bills 1,335,779
----------
TIME DEPOSITS (7.5%):
UNITED STATES (7.5%):
453,382 State Street Bank & Trust, 5.13%,
dated 9/30/96, due 10/1/96............................. 453,382
----------
Total Time Deposits 453,382
----------
</TABLE>
Continued
-13-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
INVESTMENT COMPANIES (1.2%):
UNITED STATES (1.2%):
70,520 Highmark Diversified Obligations Money Market Fund...... $ 70,520
----------
Total Investment Companies 70,520
----------
Total Investments (Cost--$5,704,450) (a) $5,886,230
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $6,080,640.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............. $267,085
Unrealized depreciation............. (85,305)
--------
Net unrealized appreciation......... $181,780
========
</TABLE>
(b) Represents non-income producing securities.
(c) Restricted security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
IDR--International Depository Receipt.
See notes to financial statements
-14-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST GLOBAL RESOURCES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS (96.9%):
AUSTRALIA (35.8%):
Coal--Coking (4.5%):
475,000 Savage Resources, Ltd. (b).............................. $ 443,487
----------
Forestry, Metals & Minerals (2.7%):
93,200 North, Ltd. (b)......................................... 259,576
----------
Gold Mining (5.5%):
200,000 Centaur Mining & Exploration (b)........................ 302,252
39,600 Delta Gold, NL (b)...................................... 87,731
21,100 Newcrest Mining......................................... 73,458
19,000 Plutonic Resources...................................... 76,671
----------
540,112
----------
Metals--Diversified (1.6%):
105,000 Pasminco, Ltd. (b)...................................... 154,528
----------
Metals--Fabrication (5.4%):
23,475 CRA, Ltd................................................ 352,910
40,000 RGC, Ltd. (b)........................................... 178,186
----------
531,096
----------
Mining--Diversified (5.4%):
150,000 Mount ISA Mining (b).................................... 182,775
70,077 Normandy Mining, Ltd. (b)............................... 95,369
38,500 Western Mining Corp..................................... 247,660
----------
525,804
----------
Oil & Gas Production (7.4%):
80,200 Novus Petroleum (b)..................................... 139,605
260,300 Oil Search, Ltd. (b).................................... 323,355
39,300 Woodside Petroleum (b).................................. 260,580
----------
723,540
----------
Oil, Gas, Metals & Mining (3.3%):
24,800 The Broken Hill Proprietary Company, Ltd. (b)........... 317,886
----------
Total Australia 3,496,029
----------
BRITAIN (4.8%):
Metals & Minerals (4.8%):
30,450 RTZ Corp................................................ 465,820
----------
Total Britain 465,820
----------
CANADA (5.8%):
Metals--Diversified (1.9%):
8,000 Cameco Corp............................................. 182,047
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
CANADA, CONTINUED:
Metals & Minerals (3.9%):
18,400 Cominco, Ltd............................................ $ 378,188
----------
Total Canada 560,235
----------
FRANCE (1.9%):
Aluminum (1.9%):
4,340 Pechiney Certs D'Invest................................. 184,573
----------
Total France 184,573
----------
SOUTH AFRICA (1.5%):
Metals & Minerals (1.5%):
40,000 Gencorp, Ltd............................................ 142,841
----------
Total South Africa 142,841
----------
UNITED STATES (47.1%):
Aluminum (15.6%):
17,800 Alcan Aluminum.......................................... 534,000
9,300 Aluminum Company of America............................. 548,700
38,200 Kaiser Aluminum (b)..................................... 444,075
----------
1,526,775
----------
Copper Mining (10.7%):
18,700 Freeport McMoran........................................ 584,375
7,200 Phelps Dodge Corp....................................... 461,700
----------
1,046,075
----------
Gold Mining (11.8%):
19,110 Ashanti Goldfields Co., Ltd............................. 314,593
20,073 Barrick Gold Corp....................................... 504,334
7,100 Newmont Mining.......................................... 335,475
----------
1,154,402
----------
Metals--Fabrication (2.4%):
7,100 Alumax, Inc. (b)........................................ 237,850
----------
Metals & Minerals (0.9%):
4,300 Cominco, Ltd............................................ 87,613
----------
Mining--Diversified (0.8%):
1,700 Newmont Gold Co......................................... 80,538
----------
Nickel & Cobalt Mining (4.9%):
15,478 Inco, Ltd............................................... 475,949
----------
Total United States 4,609,202
----------
Total Common Stocks 9,458,700
----------
</TABLE>
Continued
-15-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST GLOBAL RESOURCES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------------ ------
<C> <S> <C>
WARRANTS (0.1%):
AUSTRALIA (0.1%):
30,000 Savage Resources (b)........................................ $7,358
------
Total Warrants 7,358
------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
TIME DEPOSITS (2.9%):
UNITED STATES (2.9%):
$278,411 Union Bank of California, 4.42%,
dated 9/30/96, due 10/1/96............................. $ 278,411
----------
Total Time Deposits 278,411
----------
Total Investments (Cost--$10,141,178) $9,744,469
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $9,763,683.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........... $ 391,851
Unrealized depreciation........... (788,560)
---------
Net unrealized depreciation....... $(396,709)
=========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements
-16-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
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 Global Asset Allocation Fund, the
Ernst Asia Fund, and the Ernst Global Resources Fund (individually, a
"Fund"; collectively, the "Funds"), each a series of the Group, commenced
operations July 2, 1996, 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 as its investment objective.
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 remaining maturities 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
-17-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
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 countries'
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
-18-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
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 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
Continued
-19-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
the option to sell securities at a set price if the option is exercised.
The Funds will write only covered call 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 September 30, 1996, the Funds had no
written 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
-20-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
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 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
six months ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Global Asset Allocation Fund (a)........................ $1,918,203 --
Asia Fund............................................... 2,899,673 $2,637,681
Global Resources Fund................................... 5,060,199 245,362
</TABLE>
------
(a) For the period from July 2, 1996 (commencement of operations) through
September 30, 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 daily and paid monthly, at an annual rate of 1.10% of the
average daily net assets of the Global Asset Allocation Fund and 1.00% of
the average daily net assets of the Asia Fund and the Global Resources Fund.
Ernst supervises the investment management activities of the affiliated sub-
advisers, National Mutual Funds Management (Global), Ltd., for the Global
Asset Allocation Fund and the Global Resources Fund and Koeneman Capital
Management Pte Ltd., Singapore for the Asia Fund. From its fees, Ernst pays
to each sub-adviser 0.70% of the average daily net assets of the Global
Asset Allocation Fund and 0.60% each of the average daily net assets of the
Asia Fund and the Global Resources Fund.
Continued
-21-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
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's fees are
computed based on an annual rate of 0.17% of the first $500 million of the
Funds' average daily net assets, 0.13% of the next $200 million, 0.11% of
the next $200 million, 0.07% of the next $100 million and 0.05% of the
average daily net assets exceeding $1 billion. 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 $40,000 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 six
months ended September 30, 1996, BISYS received $17,357 of commissions from
sales of shares of the Funds all of which BISYS reallowed to dealers of the
Funds' shares including $7,158 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 for the six months ended September 30, 1996 is as follows:
<TABLE>
<CAPTION>
DISTRIBUTION
AND
INVESTMENT SHAREHOLDER
ADVISORY SERVICING
FEES FEES
VOLUNTARILY VOLUNTARILY
REDUCED REDUCED
----------- ------------
<S> <C> <C>
Global Asset Allocation Fund (a)..................... $13,689 $3,111
Asia Fund............................................ 14,631 --
Global Resources Fund................................ 25,896 --
</TABLE>
------
(a) For the period from July 2, 1996 (commencement of operations) through
September 30, 1996.
Continued
-22-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1996
(UNAUDITED)
Ernst owns shares of each Fund, as of September 30, 1996, with aggregate
values of $2,737,800, $5,348,536, and $9,545,159 of the Global Asset
Allocation Fund, Asia Fund, and Global Resources Fund, respectively.
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 had no
capital loss carryforwards available to offset future capital gains, if any.
-23-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ERNST GLOBAL
ASSET ALLOCATION
FUND
-----------------
JULY 2,
1996 TO
SEPTEMBER 30,
1996 (A)
-----------------
<S> <C>
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD....................... $10.00
-----------
INVESTMENT ACTIVITIES
Net investment loss....................................... (0.01)
Net realized and unrealized gains from investments and
foreign currencies...................................... 0.15
-----------
Total from Investment Activities......................... 0.14
-----------
NET ASSET VALUE, END OF PERIOD............................. $10.14
===========
Total Return (excludes sales charge)....................... 1.40%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $5,157
Ratio of expenses to average net assets*.................. 2.58%(c)
Ratio of net investment loss to average net assets*....... (0.17)%(c)
Portfolio Turnover........................................ 0.00%
</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 3.26%, on an annualized basis, and the ratio of net
investment loss to average net assets would have been (0.85%) on an
annualized basis.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
See notes to financial statements.
-24-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ERNST ASIA FUND
---------------------------
SIX MONTHS DECEMBER 6,
ENDED 1995 TO
SEPTEMBER 30, MARCH 31,
1996 1996 (A)
------------- -----------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $10.98 $10.00
------- -------
INVESTMENT ACTIVITIES
Net investment loss........................ (0.02) (0.08)
Net realized and unrealized gains (losses)
from investments
and foreign currencies................... (0.25) 1.06
------- -------
Total from Investment Activities.......... (0.27) 0.98
------- -------
Distributions to Shareholder from Net
Investment Income........................... (0.08) --
------- -------
Total Distributions....................... (0.08) --
------- -------
NET ASSET VALUE, END OF PERIOD.............. $10.63 $10.98
======= =======
Total Return (excludes sales charge)........ 2.29%(b) 9.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).......... $6,081 $5,865
Ratio of expenses to average net assets*... 3.14%(c) 3.53%(c)
Ratio of net investment loss to average net
assets*.................................. (0.53)%(c) (2.49)%(c)
Portfolio Turnover......................... 54.36% 45.83%
Average commission rate paid (d)........... $0.0182 $0.0110
</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 3.64% on an annualized basis, and the ratio of net
investment loss to average net assets would have been (1.03%), on an
annualized basis.
(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.
-25-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ERNST GLOBAL
RESOURCES FUND
------------------------------
SIX MONTHS, DECEMBER 11,
ENDED 1995 TO
SEPTEMBER 30, MARCH 31,
1996 1996 (A)
------------- ------------
<S> <C> <C>
(UNAUDITED)
NET ASSET VALUE, BEGINNING OF PERIOD.......... $10.67 $10.00
----------- -------
INVESTMENT ACTIVITIES
Net investment loss.......................... (0.01) (0.02)
Net realized and unrealized gains (losses)
from investments
and foreign currencies..................... (0.80) 0.69
----------- -------
Total from Investment Activities............ (0.81) 0.67
----------- -------
NET ASSET VALUE, END OF PERIOD................ $ 9.86 $10.67
=========== =======
Total Return (excludes sales charge).......... (7.59)%(b) 6.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............ $9,764 $10,457
Ratio of expenses to average net assets*..... 2.34%(c) 3.54%(c)
Ratio of net investment loss to average net
assets*.................................... (0.23)%(c) (1.11)%(c)
Portfolio Turnover........................... 2.76% 0.00%
Average commission rate paid (d)............. $0.0267 $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 2.85% on an annualized basis, and the ratio of net
investment loss to average net assets would have been (0.74%), on an
annualized basis.
(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.
-26-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
Results of Special Shareholder Meeting (Unaudited)
On April 22, 1996, a special meeting of the shareholders of Coventry Group
was held to consider the election of five Trustees. The results of such vote
are as follows:
<TABLE>
<CAPTION>
NOMINEE IN FAVOR OPPOSED ABSTAIN
------- ----------- --------- ---------
<S> <C> <C> <C>
Nancy E. Converse 202,251,129 1,230,319 1,084,021
Walter B. Grimm 202,251,129 1,230,319 1,084,021
Maurice G. Stark 202,251,129 1,230,319 1,084,021
Michael M. VanBuskirk 202,251,129 1,230,319 1,084,021
Chalmbers P. Wylie 202,251,129 1,230,319 1,084,021
</TABLE>
-27-
<PAGE>
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