<PAGE> 1
As filed with the Securities and Exchange Commission on July 31, 1997
Registration No. 33-44964
Investment Company Act File No. 811-6526
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 32 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 34 [X]
THE COVENTRY GROUP
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(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
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(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 899-4669
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Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
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(Name and Address of Agent for Service)
Copies to:
Walter B. Grimm
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
It is proposed that this filing will become effective on July 31, 1997 pursuant
to paragraph (b) of Rule 485.
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Registrant has registered an indefinite number of shares of all series then
existing or subsequently established under the Securities Act of 1933 pursuant
to Rule 24f-2 under the Investment Company Act of 1940, which it expressly
reaffirms. Registrant filed the notice required by Rule 24f-2 with respect to
its fiscal year ended March 31, 1997, on May 29, 1997.
<PAGE> 2
CROSS REFERENCE SHEET
REQUIRED BY RULE 495 UNDER THE
SECURITIES ACT OF 1933
The enclosed materials contained in Prospectus I and Statement of Additional
Information I relate only to The Shelby Fund, and the materials contained in
Prospectus II and Statement of Additional Information II relate only to Brenton
U.S. Government Money Market Fund, Brenton Intermediate U.S. Government
Securities Fund and Brenton Value Equity Fund (the "Brenton Funds"), each of
which are separate investment series of The Coventry Group (the "Group").
Information relating to the AMCORE Vintage U.S. Government Obligations Fund,
AMCORE Vintage Fixed Income Fund, AMCORE Vintage Intermediate Tax-Free Fund,
AMCORE Vintage Equity Fund, AMCORE Vintage Balanced Fund, AMCORE Vintage
Aggressive Growth Fund and AMCORE Vintage Fixed Total Return Fund, is contained
in Post-Effective Amendment No. 31, filed on July 31, 1997. Information relating
to Ernst Asia Fund, Ernst Global Asset Allocation Fund and Ernst Global
Resources Fund is contained in Post-Effective Amendment No. 33 filed on July 31,
1997. Information relating to Ernst Global Smaller Companies Fund and Ernst
Australia-New Zealand Fixed Income Fund (neither of which Fund's shares are
currently being offered to the public) is contained in Post-Effective Amendment
No. 25 filed on March 19, 1996.
PROSPECTUS I
Items Required by Form N-1A
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Item Number in Part A Prospectus Caption
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1. Cover Page......................... Cover Page
2. Synopsis........................... Fee Table
3. Condensed Financial
Information...................... Financial Highlights
4. General Description of
Registrant....................... Investment Objective and
Policies; Investment
Restrictions; General
Information -Description of
the Group and Its Shares
5. Management of the Fund............. Management of the Group
5A. Management's Discussion of
Fund Performance................. Provided in Annual Report to
Shareholders
6. Capital Stock and Other
Securities....................... How to Purchase and Redeem
Shares; Dividends and Taxes;
General Information -
<PAGE> 3
Description of the Group and
Its Shares General
Information - Miscellaneous
7. Purchase of Securities
Being Offered.................... Valuation of Shares; How to
Purchase and Redeem Shares
8. Redemption or Repurchase........... How to Purchase and Redeem
Shares
9. Pending Legal Proceedings.......... Inapplicable
STATEMENT OF ADDITIONAL INFORMATION I
<TABLE>
<CAPTION>
Item Number in Part B Statement of Additional Information Caption
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10. Cover Page......................... Cover Page
11. Table of Contents.................. Table of Contents
12. General Information and
History.......................... The Coventry Group; Additional Information
13. Investment Objectives and
Policies......................... Investment Objective and Policies
14. Management of the Fund............. Management of the Group
15. Control Persons and Principal
Holders of Securities............ Additional Information - Description of Shares
16. Investment Advisory and other
Services......................... Management of the Group
17. Brokerage Allocation............... Management of the Group - Portfolio Transactions
18. Capital Stock and other
Securities....................... Additional Information - Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered.................... Additional Purchase and Redemption
Information
</TABLE>
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<TABLE>
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20. Tax Status......................... Additional Information - Additional Tax
Information
21. Underwriters....................... Management of the Group - Distributor
22. Calculations of Performance
Data............................. Additional Information - Calculation of
Performance Data
23. Financial Statements............... Financial Statements
</TABLE>
PROSPECTUS II
Items Required by Form N-1A
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<TABLE>
<CAPTION>
Item Number in Part A Prospectus Caption
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<S> <C> <C>
1. Cover Page......................... Cover Page
2. Synopsis........................... Fee Table
3. Condensed Financial
Information...................... Financial Highlights
4. General Description of
Registrant....................... Investment Objective and Policies;
Investment Restrictions; General Information
-Description of the Group and Its Shares
5. Management of the Fund............. Management of the Group
5A. Management's Discussion of
Fund Performance................. Provided in Annual Report to Shareholders
6. Capital Stock and Other
Securities....................... How to Purchase and Redeem Shares;
Dividends and Taxes; General Information -
Description of the Group and Its Share
General Information - Miscellaneous
7. Purchase of Securities
Being Offered.................... Valuation of Shares; How to Purchase and
Redeem Shares
8. Redemption or Repurchase........... How to Purchase and Redeem Shares
</TABLE>
<PAGE> 5
9. Pending Legal Proceedings.......... Inapplicable
STATEMENT OF ADDITIONAL INFORMATION II
<TABLE>
<CAPTION>
Item Number in Part B Statement of Additional Information Caption
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<S> <C> <C>
10. Cover Page......................... Cover Page
11. Table of Contents.................. Table of Contents
12. General Information and
History.......................... The Coventry Group; Additional Information
13. Investment Objectives and
Policies......................... Investment Objective and Policies
14. Management of the Fund............. Management of the Group
15. Control Persons and Principal
Holders of Securities............ Additional Information - Description of Shares
16. Investment Advisory and other
Services......................... Management of the Group
17. Brokerage Allocation............... Management of the Group - Portfolio Transactions
18. Capital Stock and other
Securities....................... Additional Information - Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered.................... Additional Purchase and Redemption
Information
20. Tax Status......................... Additional Information - Additional Tax Information
21. Underwriters....................... Management of the Group - Distributor
</TABLE>
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<TABLE>
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22. Calculations of Performance
Data............................. Additional Information - Calculation of
Performance Data
23. Financial Statements............... Financial Statements
</TABLE>
<PAGE> 7
PART A
PROSPECTUS I
THE SHELBY FUND
<PAGE> 8
THE SHELBY FUND
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase, and redemption
Columbus, Ohio 43219 information, call 800-774-3529
</TABLE>
The Coventry Group (the "Group") is an open-end management investment
company that consists of several separate investment portfolios. This Prospectus
relates only to The Shelby Fund (the "Fund"). The Fund is a diversified
investment portfolio of the Group.
The Fund's investment objective is to seek capital appreciation. The Fund
invests primarily in a diversified portfolio of equity securities. There can be
no assurance that the Fund will be successful in achieving its investment
objective.
Shelby County Trust Bank, Shelbyville, Kentucky (the "Adviser") acts as the
investment adviser to the Fund. SMC Capital, Inc., Louisville, Kentucky (the
"Sub-Adviser") acts as sub-investment adviser to the Fund.
BISYS Fund Services, Inc., Columbus, Ohio (the "Distributor") acts as the
Fund's administrator and distributor. BISYS Fund Services Ohio, Inc., Columbus,
Ohio, acts as the Fund's transfer agent (the "Transfer Agent") and performs
certain accounting services for the Fund.
A Statement of Additional Information bearing the same date as this
Prospectus, containing additional and more detailed information about the Fund,
has been filed with the Securities and Exchange Commission (the "Commission")
and is incorporated by reference in its entirety into this Prospectus. It is
available upon request without charge by writing to the Fund at its address or
by calling the Fund at the telephone number shown above.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Investors should read this
Prospectus and retain it for future reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY SHELBY COUNTY TRUST BANK OR ITS AFFILIATES, AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY.
INVESTMENTS IN THE FUND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JULY 31, 1997
<PAGE> 9
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Fund........................... The Shelby Fund (the "Fund"), a diversified investment
portfolio of The Coventry Group, an open-end,
management investment company organized as a
Massachusetts business trust (the "Group").
Shares Offered..................... Shares of beneficial interest ("Shares") of the Fund.
Offering Price..................... The public offering price of the Fund is equal to the
net asset value per Share.
Minimum Purchase................... The minimum initial investment is $25,000. The minimum
amount for subsequent investments is $500.
Investment Objective............... The Fund seeks capital appreciation.
Investment Policy.................. Under normal market conditions, the Fund will invest
primarily in a diversified portfolio of equity
securities.
Investment Adviser and Sub-Invest-
ment Adviser....................... Shelby County Trust Bank serves as the investment
adviser (the "Adviser") and SMC Capital Inc. (the
"Sub-Adviser") serves as the sub-investment adviser
to the Fund.
Dividends and Capital Gains........ Dividends from net income are declared quarterly and
paid quarterly. Net realized capital gains are
distributed at least annually.
Distributor........................ BISYS Fund Services, Inc., Columbus, Ohio (the
"Distributor").
</TABLE>
2
<PAGE> 10
FEE TABLE
<TABLE>
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Shareholder Transaction Expenses(1)............................................. None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................................ 1.00%
Other Expenses (After Fee Waiver)(2)....................................... .29%
Total Fund Operating Expenses (After Fee Waiver)(3)........................ 1.29%
</TABLE>
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(1) A wire redemption charge (currently $10) is deducted from the amount of a
wire redemption payment made at the request of a shareholder.
(2) During the period, the Administrator voluntarily waived a portion of its
administration fee. Absent the waiver of these fees, "Other Expenses" as a
percentage of average daily net assets would have been .34%.
(3) If the Administrator had not voluntarily agreed to the waiver of a portion
of its administration fee, "Total Fund Operating Expenses" as a percentage
of average daily net assets would have been 1.34%.
EXAMPLE
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<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on a $1,000 investment,
assuming (i) a 5% annual return, and (ii) redemption at
the end of each time period............................... $ 13 $41 $71 $156
</TABLE>
The purpose of the above table is to assist a potential investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
3
<PAGE> 11
Additional information relating to the status of the Fund prior to its
registration as an investment company with the Securities and Exchange
Commission on July 1, 1994 is included on Page 18 under "GENERAL
INFORMATION -- Performance Information."
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information for the Fund for
the period July 1, 1994 (commencement of operations) to March 31, 1995 and for
the fiscal years ended March 31, 1996 and 1997. These financial highlights have
been derived from financial statements audited by Arthur Andersen LLP,
independent certified public accountants, whose report thereon is incorporated
by reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED JULY 1, 1994
MARCH 31, 1997 MARCH 31, 1996 TO MARCH 31, 1995(A)
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<S> <C> <C> <C>
Net Asset Value, Beginning of Period..... $11.82 $10.99 $10.00
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INVESTMENT ACTIVITIES
Net investment income.................. (0.09) (0.06) 0.06
Net realized and unrealized gains on
investments......................... (0.19) 3.44 1.04
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Total from Investment
Activities..................... (0.28) 3.38 1.10
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DISTRIBUTIONS
Net investment income.................. -- -- (0.06)
Net realized capital gains............. (0.41) (2.55) (0.05)
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Total Distributions............... (0.41) (2.55) (0.11)
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NET ASSET VALUE, END OF PERIODS.......... $11.13 $11.82 $10.99
========= ========= ============
TOTAL RETURN............................. (2.80%) 31.41% 11.04%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets at end of period (000)........ $ 90,137 $ 95,357 $ 64,157
Ratio of expenses to average net
assets................................. 1.29% 1.33% 1.41%(c)
Ratio of net investment income to average
net assets............................. (0.67%) (0.58%) 0.74%(c)
Ratio of expenses to average net
assets*................................ 1.34% 1.38% 1.46%(c)
Ratio of net investment income to average
net assets*............................ (0.72%) (0.63%) 0.69%(c)
Portfolio turnover....................... 204.06% 292.28% 101.86%
Average commission paid (d).............. $ 0.0617
</TABLE>
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* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the rates would have been as indicated.
(a) Period from commencement of operations.
(b) Aggregate total return.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions for the year ended March 31, 1997, divided by total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
4
<PAGE> 12
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation. The Fund
invests primarily in a diversified portfolio of equity securities of companies
that the Adviser and the Sub-Adviser have identified as having accelerating cash
flows. Such accelerating cash flows are typically generated by expanding unit
volume growth, new product development and expanding margins. These companies
consist of entities with various sized market capitalizations with the primary
focus on small ($1 billion and under in market capitalization) to mid-size ($1
to 3 billion in market capitalization) companies. By focusing on companies whose
cash flows are accelerating, the stocks selected typically experience increased
earnings expectations from the investment community. There can be no assurance
that the Fund will achieve its investment objective.
Under normal market conditions, the Fund invests at least 65% of its assets in
equity securities, which are defined as common stocks, preferred stocks,
securities convertible into common stocks, warrants and any rights to purchase
common stocks. The remainder of the Fund's assets may be invested in corporate
debt securities, U.S. Government securities, repurchase agreements and money
market instruments rated within the two highest rating categories of one or more
nationally recognized statistical rating organizations ("NRSROs") or, if
unrated, are deemed by the Adviser to be of comparable quality. The Fund may
also engage in certain options transactions described below and invest in
securities of other investment companies.
The investment objective of the Fund is a fundamental policy and, as such, may
not be changed without a vote of the holders of a majority of the outstanding
Shares of the Fund (as defined in the Statement of Additional Information). The
other policies of the Fund may be changed without a vote of the holders of a
majority of Shares unless (i) the policy is expressly deemed to be a fundamental
policy of the Fund or (ii) the policy is expressly deemed to be changeable only
by such majority vote.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest generally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have several unique investment
characteristics such as (1) higher yields than common stock, but lower yields
than comparable nonconvertible securities, (2) a lesser degree of fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (3) the potential for capital appreciation if the market price of the
underlying common stock increases. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by the Fund is
called for redemption, the Fund may be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
CORPORATE DEBT SECURITIES. The Fund may invest in certain debt securities
consisting of bonds, notes and debentures of various U.S. corporate issuers.
Because the market value of debt securities can be expected to vary inversely to
changes in prevailing interest rates, investing in such debt securities can
provide an opportunity for capital appreciation when interest rates are expected
to decline. The Fund will invest in those debt securities that are, at the time
of purchase, rated investment grade by one or more NRSROs, or, if unrated, are
deemed by the Adviser to be of comparable quality to those securities that are
rated investment grade. Securities rated in the fourth highest rating category
may have speculative characteristics even though they are of investment grade
quality, and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with higher grade bonds.
5
<PAGE> 13
In the event a security was rated, at the time of purchase, in the top four
rating categories of one or more of the specified rating agencies, and such
security either ceases to be rated or has its rating reduced below such levels,
the Adviser may, but is not required to, sell or exchange such security within a
reasonable time thereafter, taking into consideration such factors as price,
credit risk, market conditions and interest rates. For a description of
securities rated within the fourth highest rating category of NRSROs, see
"INVESTMENT OBJECTIVE AND POLICIES" in the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES. The types of U.S. Government obligations invested
in by the Fund will include obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Treasury
consisting of Treasury bills, notes, bonds and certificates of indebtedness, and
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government, but not supported by such full faith and credit. The guarantee that
is provided by the U.S. Government, its agencies and instrumentalities extends
only to the payment of principal and interest by the issuer of the underlying
security. It does not extend to the market value of such security, nor does it
extend to the value of the Fund's shares.
FOREIGN SECURITIES. The Fund may invest up to 10% of its total assets
directly in the debt and equity securities of foreign issuers. In addition, the
Fund may also indirectly invest in foreign securities through the purchase of
sponsored American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs") and may also invest in securities issued by foreign branches of U.S.
banks and foreign banks, in Canadian commercial paper, and in Europaper (U.S.
dollar-denominated commercial paper of a foreign issuer). For a discussion of
the risks associated with investments in foreign securities, see "INVESTMENT
OBJECTIVE AND POLICIES--Risk Factors and Special Considerations."
OTHER INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and from registered broker-dealers which the Adviser deems
creditworthy under guidelines approved by the Group's Board of Trustees. The
seller agrees to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. Securities
subject to repurchase agreements must be of the same type and quality as those
in which the Fund may invest directly. The seller under a repurchase agreement
will be required to maintain at all times the value of collateral held pursuant
to the agreement at an amount equal to the repurchase price (including accrued
interest). This requirement will be continually monitored by the Adviser. In
addition, securities subject to a repurchase agreement will be held in a
segregated account. If the seller were to default on its repurchase obligation
or become insolvent, the Fund would suffer a loss if the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or the disposition of such securities by the Fund were delayed
pending court action. Repurchase agreements are considered to be loans
collateralized by the underlying security under the Investment Company Act of
1940 (the "1940 Act"). For further information about repurchase agreements, see
"INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS--Additional Information on
Portfolio Instruments--Repurchase Agreements" in the Statement of Additional
Information.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, the Fund
would sell certain of its securities to financial institutions such
6
<PAGE> 14
as banks and broker-dealers, and agree to repurchase them at a mutually agreed
upon date and price. At the time the Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid high grade
debt securities, such as U.S. Government securities, consistent with its
investment restrictions, having a value equal to the repurchase price (including
accrued interest), and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of securities sold by the Fund
may decline below the price at which it is obligated to repurchase the
securities. A reverse repurchase agreement is considered to be a borrowing by an
investment company under the 1940 Act. For further information about reverse
repurchase agreements, see "INVESTMENT OBJECTIVES, POLICIES AND RISK
FACTORS--Additional Information on Portfolio Instruments--Reverse Repurchase
Agreements" in the Statement of Additional Information.
SHORT SALES. The Fund may sell securities short "against-the-box." A short
sale "against-the-box" is a short sale (i.e., a sale made in anticipation of the
drop in value of a particular stock) in which the Fund owns an equal amount of
the securities sold short or securities convertible into or exchangeable without
payment of further consideration for securities of the same issue as, and equal
in amount to, the securities sold short. In the event that the Fund were to sell
securities short "against the box" and the price of such securities were to then
increase rather than decrease, the Fund would forego the potential realization
of the increased value of the shares sold short.
LENDING OF PORTFOLIO SECURITIES. From time to time, in order to generate
additional income, the Fund may lend its portfolio securities, provided such
action is consistent with its investment objective, policies, and restrictions.
During the time portfolio securities are on loan, the borrower will pay the
Fund any dividends or interest paid on the securities. In addition, loans will
be subject to termination by the Fund or the borrower at any time.
The Fund will enter into loan arrangements only with broker-dealers, banks or
other institutions that are not affiliated directly or indirectly with the Group
and which the Adviser has determined are creditworthy under guidelines
established by the Group's Board of Trustees. While the lending of securities
may subject the Fund to certain risks, such as delays or an inability to regain
the securities in the event the borrower defaults on its lending agreement or
enters into bankruptcy, the Fund will receive 102% of the collateral on loaned
securities in the form of cash or U.S. Government securities. This collateral
will be valued daily by the Adviser and, should the market value of the loaned
securities increase, the borrower will be required to furnish additional
collateral to the Fund. Although the Fund does not expect to do so on a regular
basis, it may lend portfolio securities in amounts representing up to one-third
of the value of the Fund's total assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase debt
securities on a when-issued or delayed-delivery basis. The Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objective, policies and
restrictions, not for investment leverage. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield and thereby may involve a risk that the yield obtained in the transaction
will be less than those available in the market when delivery takes place. The
Fund will generally not pay for such securities or start earning interest on
them until they are received. When the Fund agrees to purchase such securities,
however, the Fund's custodian will set aside cash or liquid securities equal to
the amount of the commitment in a separate account. Securities purchased on a
when-issued basis are recorded as an asset and are subject to changes in the
value based upon changes in the general level of interest rates. In when-issued
and delayed-delivery transactions, the Fund relies on the seller to complete the
transaction; the seller's failure
7
<PAGE> 15
to do so may cause the Fund to miss a price or yield considered to be
advantageous.
The Fund's commitment to purchase when-issued securities will not exceed 25%
of its total assets absent unusual market conditions.
RESTRICTED SECURITIES. The Fund may invest up to 5% of its total assets in
restricted securities excluding restricted securities that are eligible for
resale under Rule 144A under the Securities Act of 1933. Restricted securities
are securities subject to legal or contractual restrictions on their resale.
Such restrictions might prevent the sale of restricted securities at a time when
sale would otherwise be desirable.
OTHER INVESTMENT COMPANIES. The Fund may invest up to 10% of its total assets
in the securities of other investment companies. As a result of the Fund
investing in other investment companies, shareholders of the Fund will
indirectly bear a proportionate share of the expenses of these underlying funds
during the period while the Fund is invested in these funds. For further
information about investments in other investment companies, see "INVESTMENT
OBJECTIVES, POLICIES AND RISK FACTORS--Additional Information on Portfolio
Instruments--Securities of Other Investment Companies" in the Statement of
Additional Information.
TEMPORARY INVESTMENTS. The Fund may, for daily cash management purposes, also
invest in high quality money market securities (commercial paper, certificates
of deposit and bankers' acceptances), as well as the repurchase agreements
referred to above. The Fund may invest, without limit, in any combination of the
U.S. Government securities, money market instruments and repurchase agreements
referred to above when, in the opinion of the Adviser, it is determined that a
temporary defensive position is in the best interests of the Fund based upon
current market conditions.
OPTIONS. The Fund may purchase put and call options in an amount not
exceeding 5% of its total assets. Such options may or may not be listed on a
domestic or foreign securities exchange, and may or may not be issued by the
Options Clearing Corporation. Such options may relate to particular securities
or to various stock or bond indices. Purchasing options is a specialized
investment technique which entails the risk of a complete loss of the amounts
paid as premiums to the option writer. Such transactions will be entered into
only as a hedge against fluctuations in the value of securities which the Fund
holds or intends to purchase.
The Fund may also write covered call options. A covered call option is an
option to acquire a security that the Fund owns or has the right to acquire
during the option period. Such options may or may not be listed on a national
securities exchange and may or may not be issued by the Options Clearing
Corporation. The aggregate value of the securities subject to covered call
options written by the Fund will not exceed 25% of its total assets. In order to
close out an option position, the Fund may enter into a "closing purchase
transaction"--the purchase of a covered call option on the same security with
the same exercise price and expiration date as the option which the Fund
previously wrote. By writing a covered call option, the Fund forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price but retains the risk of loss should the price
of the security decline. The use of covered call options will not be a primary
investment technique of the Fund.
The Fund will invest and trade in unlisted over-the-counter options only with
firms deemed creditworthy by the Adviser. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which fulfills the obligations of its members which fail
to perform them in connection with the purchase or sale of options. For further
information about options trading, see "INVESTMENT OBJECTIVES, POLICIES AND RISK
FACTORS--Additional Information on Portfolio Instruments--Options Trading" in
the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The principal risk factor associated with an investment in the Fund is the
fluctuation in the
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<PAGE> 16
principal value of equity securities. To the extent that the Fund may invest in
foreign securities, it will be subject to the special risks that are generally
associated with such investments.
Investment in securities of foreign issuers is subject to special risks, such
as future adverse political and economic developments, possible seizure,
currency blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, or the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that companies may not be subject
to the accounting, auditing and financial reporting standards and requirements
of U.S. companies, the risk that foreign securities markets may have less volume
and therefore less liquidity and greater price volatility than U.S. securities,
and custodian and brokerage costs that may be higher. Further, the Fund may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. To the extent that the Fund may invest in
securities of foreign issuers which are not traded on any exchange, there is a
further risk that these securities may not be readily marketable. The Fund will
not hold foreign currency as a result of such investments. For additional
information regarding these risks, see "INVESTMENT OBJECTIVE AND
POLICIES--Additional Information on Portfolio Instruments--Foreign Investments"
in the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is calculated by dividing the lesser
of the Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The calculation excludes all
securities whose remaining maturities at the time of acquisition were one year
or less.
For the fiscal year ended March 31, 1997, the annual portfolio turnover rate
for the Fund was 204%. Portfolio turnover for the Fund may vary greatly from
year to year as well as within a particular year. High turnover rates will
generally result in higher transaction costs to the Fund. Portfolio turnover
will not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of fundamental investment restrictions that
may be changed only by a vote of a majority of the outstanding Shares of the
Fund (as defined in the Statement of Additional Information). Among the more
significant restrictions, the Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, with respect to 75% of its portfolio, more
than 5% of the value of the total assets of the Fund would be invested in such
issuer, or the Fund would hold more than 10% of any class of securities of the
issuer or more than 10% of the outstanding voting securities of the issuer.
2. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (i) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (ii) wholly owned finance companies will be considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of their parents; and (iii) utilities will
be divided according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a separate
industry.
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<PAGE> 17
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at the
time of its borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding.
4. Make loans, except that the Fund may purchase or hold debt securities and
lend portfolio securities in accordance with its investment objective and
policies, and may enter into repurchase agreements.
In addition to the above investment restrictions, the Fund is subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVE AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
VALUATION OF SHARES
The net asset value of the Fund is determined and its Shares are priced as of
4:00 p.m. (Eastern Time) (the "Valuation Time") on each Business Day. A
"Business Day" is a day on which the New York Stock Exchange is open for trading
and any other day (other than a day on which no Shares of the Fund are tendered
for redemption and no order to purchase any Shares is received) during which
there is sufficient trading in its portfolio instruments such that the Fund's
net asset value per share might be materially affected. The New York Stock
Exchange will not be open in observance of the following holidays: New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
Share for purposes of pricing sales and redemptions is calculated by dividing
the value of all securities and other assets belonging to the Fund, less the
liabilities charged to the Fund, by the number of the Fund's outstanding Shares.
The net asset value per Share will fluctuate as the value of the investment
portfolio of the Fund changes. The securities in the Fund will be valued at
market value. If market quotations are not available, the securities will be
valued by a method which the Board of Trustees believes accurately reflects fair
value. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by BISYS Fund Services,
Inc., the Group's distributor. The principal office of the Distributor is 3435
Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, telephone
the Fund at (800) 774-3529.
PURCHASES OF SHARES
Shares of the Fund are continuously offered and may be purchased directly
either by mail, by telephone or by electronic transfer. Shares of the Fund may
be purchased at net asset value without a sales charge. The minimum investment
amount is $25,000 for the initial purchase of Shares and $500 for subsequent
purchases. Shares may be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by Shelby County Trust Bank,
its affiliates or their correspondents ("Banks"). Shares of the Fund may also be
purchased through a broker-dealer who has established
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<PAGE> 18
a dealer agreement with the Distributor. Shares of the Fund sold to Banks acting
in a fiduciary, advisory, custodial, or other similar capacity on behalf of
Customers will normally be held of record by Banks. Beneficial ownership of the
Shares will be recorded by the Banks and reflected in the account statements
provided by the Banks to Customers. Every Shareholder will receive a
confirmation of each new transaction in such Shareholder's account, which will
also show the total number of Shares of the Fund owned by the Shareholder.
Depending upon the terms of the particular Customer account, a Bank may charge
a Customer account fees for services provided in connection with investments in
the Fund. Information concerning their services and any charges will be provided
by the Bank. This Prospectus should be read in conjunction with any such
information received from a Bank.
Shares of the Fund are purchased at the net asset value per Share next
determined after receipt by the Distributor of a purchase order in proper form.
An order to purchase Shares will be deemed to have been received by the
Distributor in proper form only when Federal funds with respect thereto are
available to the Fund's custodian for investment.
If a purchase order for Shares is received in proper form by the Valuation
Time on the day the purchase order is received, the order will be effected that
day. Purchase orders will be accepted only on Business Days. See "VALUATION OF
SHARES."
PURCHASES BY MAIL
To purchase Shares of the Fund, complete an Account Application and return it
along with a check (or other negotiable bank draft or money order) in at least
the minimum initial purchase amount, made payable to the Fund to:
THE SHELBY FUND
P.O. Box 182698
Columbus, OH 43218-2698
An Account Application form can be obtained by calling the Funds at (800)
774-3529. Subsequent purchases of Shares of the Fund may be made at any time by
mailing a check payable to the Fund, to the above address.
PURCHASES BY TELEPHONE
Shares of the Fund may be purchased by calling the Fund at (800) 774-3529, if
your Account Application has been previously received by the Distributor.
Payment for Shares ordered by telephone is made by electronic transfer to the
Funds' custodian. Prior to wiring funds and in order to ensure that wire orders
are invested promptly, investors must call the Fund at the number above to
obtain instructions regarding the bank account number to which the funds should
be wired and other pertinent information.
OTHER PURCHASE INFORMATION. Purchases of the Fund's Shares will be made in
full and fractional Shares.
The Fund reserves the right, in its sole discretion, to suspend the offering
of Shares, reject any proposed new account or reject any purchase order
(including purchases made with foreign and third party drafts or checks) when,
in the judgment of its management, such suspension or rejection is in the best
interests of the Fund; to waive any minimum initial and subsequent investment
requirements for certain investors; and to redeem Shares if information provided
in the application proves to be incorrect in any material manner.
REDEMPTION OF SHARES
Shareholders may redeem their Shares on any day that a net asset value is
calculated (see "VALUATION OF SHARES"). Redemptions will be effected at the net
asset value per share next determined after receipt of a redemption request in
good order. Redemptions may ordinarily be requested by mail, telegraph, wire
communication or by calling the Fund at (800) 774-3529.
All or part of a Customer's Shares may be required to be redeemed in
accordance with instructions and limitations pertaining to his or her account
held by a Bank. For example, if a Customer has
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<PAGE> 19
agreed to maintain a minimum balance in his or her account, and the balance in
that account falls below that minimum, the Customer may be obliged to redeem, or
the Bank may redeem for and on behalf of the Customer, all or part of the
Customer's Shares to the extent necessary to maintain the required minimum
balance. There may be no notice period affording Shareholders an opportunity to
increase the account balance in order to avoid an involuntary redemption under
these circumstances.
At various times, the Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Fund may delay the
forwarding of proceeds until payment has been collected for the purchase of such
Shares, which delay may be for up to 15 days or more. The Fund reserves the
right to pay any portion of redemption proceeds in whole or in part by a
distribution in kind of securities held by the Fund in lieu of cash. It is
highly unlikely that Shares would ever be redeemed in kind. If Shares are
redeemed in kind, however, the redeeming Shareholder would incur transaction
costs upon the disposition of the securities received in the distribution.
REDEMPTION BY MAIL
A written request for redemption must be received by the Fund in order to
honor the request. The Fund's address is: 3435 Stelzer Road, Suite 1000,
Columbus, Ohio 43219. The Transfer Agent may require a signature guarantee by an
eligible guarantor institution. For purposes of this policy, the term "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934. The Transfer Agent reserves the right to reject any
signature guarantee if (i) it has reason to believe that the signature is not
genuine, (ii) it has reason to believe that the transaction would otherwise be
improper, or (iii) the guarantor institution is a broker or dealer that is
neither a member of a clearing corporation nor maintains net capital of at least
$100,000. The signature guarantee requirement will be waived if all of the
following conditions apply: (i) the redemption check is payable to the
Shareholder(s) of record and (ii) the redemption check is mailed to the
Shareholder(s) at the address of record or the proceeds are either mailed or
wired to a commercial bank account previously designated on the account
application. Such wire redemption requests may be made by the Shareholder by
telephone to the Fund. There is no charge for having redemption requests mailed
to a designated bank account.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that option on
the account application. The Shareholder may have the proceeds mailed to his or
her address or mailed, wired or electronically transferred to a commercial bank
account previously designated on the account application. Under most
circumstances, wire payments will be transmitted on the next Business Day and
electronic transfer will be on the Second Business Day. Wire redemption requests
may be made by the Shareholder by telephone to the Fund at (800) 774-3529. The
then-current wire redemption charge, presently $10.00, will be deducted from
proceeds of a wire redemption. It is not necessary for Shareholders to confirm
telephone redemption requests in writing. During periods of significant economic
or market change, telephone redemptions may be difficult to complete. If a
Shareholder is unable to contact the Fund by telephone, a Shareholder may also
mail the redemption request to the Distributor at the address listed above.
Neither the Distributor, the Transfer Agent, the Fund nor the Adviser or
Sub-Adviser will be liable for any losses, damages, expense or cost arising out
of any telephone transaction (including exchanges and redemptions) effected in
accordance with the Fund's telephone transaction procedures, upon instructions
believed to be genuine. The Fund will employ procedures reasonably designed to
provide assurance that instructions by telephone are genuine; if these
procedures are not followed, the Fund or its service contractors may be liable
for any losses due to unauthorized or fraudulent instructions. These procedures
include recording all telephone
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<PAGE> 20
conversations, sending confirmations to Shareholder within 72 hours of the
telephone transaction, verification of account name and account number or tax
identification number, and sending redemption proceeds only to the address of
record or to a previously authorized bank account. This option will be suspended
for a period of 30 days following a telephonic address change.
DIVIDENDS AND TAXES
DIVIDENDS
The Fund generally intends to declare its net investment income quarterly as a
dividend to Shareholders at the close of business on the day of declaration, and
will generally pay such dividends quarterly. The Fund also intends to distribute
its capital gains, if any, at least annually, normally in December of each year.
A Shareholder will automatically receive all ordinary income and capital gain
dividends in additional full and fractional Shares of the Fund reinvested in the
Fund at declaration date NAV on pay date, unless the Shareholder elects to
receive such dividends in cash. Such election must be made on the account
application, and any change in such election must be made in writing to the
Transfer Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become
effective with respect to dividends having record dates after its receipt by the
Transfer Agent. Dividends are paid in cash no later than seven business days
after a Shareholder's complete redemption of his or her Shares. Dividends will
generally be taxable to a Shareholder as ordinary income to the extent of the
Shareholder's ratable share of the Fund's earnings and profits as determined for
tax purposes.
If you elect to receive distributions in cash, and checks (1) are returned and
marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the declaration date. In addition, any undeliverable
checks or checks that remain uncashed for six months will be canceled and will
be reinvested in the Fund at the per share net asset value determined as of the
date of cancellation.
FEDERAL TAXES
The following discussion is intended for general information only. An investor
should consult with his or her own tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable State or local law.
The Fund intends to qualify annually and elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify, the Fund must meet certain income, distribution and
diversification requirements. In any year in which the Fund qualifies as a
regulated investment company and timely distributes all of its income, the Fund
generally will not pay any U.S. federal income or excise tax.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared in October, November or December with a record date in
such a month and paid by the Fund during January of the following calendar year.
Such distributions will be treated as received by Shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received.
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to a U.S.
Shareholder as ordinary income. A portion of the Fund's income may consist of
dividends paid by U.S. corporations. Therefore, a portion of the dividends paid
by the Fund may be eligible for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, designated as capital gain
dividends are taxable as long-term capital gains, regardless of how long the
Shareholder has held the
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<PAGE> 21
Fund's Shares. Dividends are taxable to Shareholders in the same manner whether
received in cash or reinvested in additional Fund Shares.
Prior to purchasing Shares, the impact of ordinary income or capital gain
dividends which are expected to be declared or have been declared, but have not
been paid, should be carefully considered. Ordinary income and capital gains
dividends paid after a purchase of Shares are subject to federal income taxes,
although in some circumstances the dividends may be, as an economic matter, a
return of capital. A Shareholder should consult his or her adviser for special
advice.
Each year, the Fund will notify Shareholders of the tax status of dividends
and distributions.
Any gain or loss realized by a Shareholder upon the sale or other disposition
of Shares of the Fund, or upon receipt of a distribution in complete liquidation
of the Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the Shareholder's holding period for the
Shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of
31% of all taxable distributions payable to Shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the Shareholder's U.S. federal income tax
liability.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
STATE AND LOCAL TAXES
The Group is organized as a Massachusetts business trust and, under current
law, neither the Group nor the Fund is liable for any income or franchise tax in
the Commonwealth of Massachusetts as long as it qualifies as a regulated
investment company under the Code.
Fund distributions may be subject to state and local taxes. Shareholders
should consult their own tax advisers regarding the particular tax consequences
to them of an investment in the Fund, including the application of state and
local tax laws.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of the Group's funds. There are
currently five Trustees, two of whom are "interested persons" of the Group
within the meaning of that term under the 1940 Act. The Group will be managed by
the Trustees in accordance with the laws of Massachusetts governing business
trusts. The Trustees, in turn, elect the officers of the Group to supervise
actively its day-to-day operations.
The Trustees receive fees and are reimbursed for their expenses in connection
with each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, Inc. or BISYS Fund Services Ohio, Inc. receives
any compensation from the Group for acting as a Trustee of the Group. The
officers of the Group (see the Statement of Additional Information) receive no
compensation directly from the Group for performing the duties of their offices.
BISYS Fund Services, Inc. receives fees from the Fund for acting as
administrator. BISYS Fund Services Ohio, Inc. receives fees from the Fund for
acting as transfer agent and for providing certain fund accounting services.
INVESTMENT ADVISER AND SUB-INVESTMENT ADVISER
Shelby County Trust Bank, Shelbyville, Kentucky 40066, (the "Adviser"), is the
investment adviser for the Fund. Shelby County Trust Bank was organized in 1881,
is a full service bank and trust company and is a wholly-owned subsidiary of
Commonwealth Bancshares Inc. of Shelbyville, Kentucky.
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<PAGE> 22
SMC Capital, Inc., Louisville, Kentucky 40207 (the "Sub-Adviser"), is the
sub-investment adviser for the Fund and has been engaged to provide day-to-day
investment advisory services to the Fund. SMC Capital, Inc. is a registered
investment adviser established in 1993.
The following individuals serve as managers for the Fund:
DARRELL R. WELLS, Chairman and Chief Executive Officer of SMC Capital, Inc.,
Harvard University, A.B. (1965); SMC Capital, Inc. (1993-present); Security
Management (1972-present).
B. ANTHONY WEBER, President of SMC Capital, Inc., Centre College, B.A.
(1981), SMC Capital Inc. (1993-present); Shelby County Trust Bank (1989-1993);
Fred Alger Management (1983-1989); First Kentucky Trust Company (1981-1983).
Subject to the general supervision of the Group's Board of Trustees and in
accordance with the Fund's investment objective, policies and restrictions, the
advisers manage the investments of the Fund, make decisions with respect to and
places orders for all purchases and sales of the Fund's portfolio securities,
and maintain the Fund's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Fund, the Adviser receives a fee from the Fund
computed daily and paid monthly, at the annual rate of up to one percent (1.00%)
of the Fund's average daily net assets. The Adviser in turn pays the Sub-Adviser
a fee equal to .40% of the Fund's first $30 million in net assets, .50% of the
next $10 million of the Fund's net assets, and .60% of the Fund's net assets in
excess of $40 million.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc. is the administrator for the Fund and also acts as
the Fund's principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates).
The Administrator generally assists in all aspects of the Fund's
administration and operation. For expenses assumed and services provided as
administrator pursuant to its management and administration agreement with the
Fund, the Administrator receives a fee from the Fund computed daily and paid
periodically, calculated at an annual rate of up to 0.20% of the Fund's average
daily net assets. The Administrator may periodically waive all or a portion of
its administrative fee to increase the net income of the Fund available for
distribution as dividends. The Administrator may not seek reimbursement of such
waived fees at a later date. The waiver of such fee will cause the yield and
total return of the Fund to be higher than it would otherwise be in the absence
of such a waiver.
The Distributor acts as agent for the Fund in the distribution of its Shares
and, in such capacity, solicits orders for the sale of Shares, advertises, and
pays the costs of advertising, office space and its personnel involved in such
activities. The Distributor receives no compensation under the Group's
Distribution Agreement for providing these services to the Fund.
EXPENSES AND PORTFOLIO TRANSACTIONS
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Fund.
The policy of the Fund, regarding purchases and sales of securities for its
portfolio, is that primary consideration is to be given to obtaining the most
favorable prices and efficient execution of transactions. In seeking to
implement the Fund's policies, the Adviser effects transactions with those
brokers and dealers whom the Adviser believes provide the most favorable prices
and are capable of providing efficient executions. If the Adviser believes such
price and executions are obtainable from more than one broker or dealer, it may
give consideration to placing portfolio transactions with those brokers and
dealers who also furnish research and other services
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<PAGE> 23
to the Fund or the Adviser. Such services may include, but are not limited to,
any one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or opinions
pertaining to investments; wire services; and appraisals or evaluations of
portfolio securities. Such information may be useful to the Adviser in serving
both the Fund and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to the
Adviser in carrying out it obligations to the Fund.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research or execution services. In order to cause the Fund
to pay such higher commissions, the Adviser must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage and/or
research services provided by such executing broker-dealers, viewed in terms of
a particular transaction or the Adviser's overall responsibilities to the Fund.
In reaching this determination, the Adviser will not attempt to place a specific
dollar value on the brokerage and/or research services provided, or to determine
what portion of the compensation should be related to those services.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219,
serves as the Fund's transfer agent (the "Transfer Agent") pursuant to a
Transfer Agency Agreement with the Group and receives a fee for such services.
BISYS Fund Services Ohio, Inc. also provides certain accounting services for the
Fund pursuant to a Fund Accounting Agreement and receives a fee for such
services. See "MANAGEMENT OF THE GROUP-- Transfer Agency and Fund Accounting
Services" in the Statement of Additional Information for further information.
CUSTODIAN
Fifth Third Bank, Cincinnati, Ohio (the "Custodian") serves as custodian for
the Fund. Pursuant to the Custodian Agreement with the Group, the Custodian
receives compensation from the Fund for such services in an amount equal to a
designated annual fee plus fixed fees charged for certain portfolio transactions
and out-of-pocket expenses.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
advisory services for the Fund contemplated by the investment advisory
agreement, as described in this Prospectus, without violation of applicable
banking laws and regulations. Future changes in Federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which the Adviser could continue to
perform such services for the Fund. It is not anticipated, however, that any
change in the Fund's method of operations would affect its net asset value per
share or result in financial losses to any Shareholder. See "MANAGEMENT OF THE
GROUP--Banking Laws" in the Statement of Additional Information for further
discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on January 8, 1992.
The Group consists of several funds organized as separate series of shares. Each
share represents an equal proportionate interest in a fund with other shares of
the same fund, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that fund as are declared at the
discretion of the Trustees (see "Miscellaneous" below).
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<PAGE> 24
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held, and will vote in
the aggregate and not by series except as otherwise expressly required by law.
For example, shareholders of each fund will vote in the aggregate with other
shareholders of the Group with respect to the election of Trustees and
ratification of the selection of independent accountants. However, shareholders
of a particular fund will vote as a fund, and not in the aggregate with other
shareholders of the Group, for purposes of approval of that fund's investment
advisory agreement.
Overall responsibility for the management of the Fund is vested in the Board
of Trustees of the Group. See "MANAGEMENT OF THE GROUP--Trustees of the Group."
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and
Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in the Statement
of Additional Information for further information.
Annual or special meetings of shareholders are not generally required by the
Declaration of Trust, the 1940 Act or other applicable authority. To the extent
that such meetings are not required, the Group may elect not to have an annual
or special meeting. The Group has undertaken that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a meeting, a quorum
of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its average annual total return,
aggregate total return, yield and effective yield in advertisements, sales
literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average
annual total return will be calculated for the period since the establishment of
the Fund. Average annual total return is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period to the ending
redeemable value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions). Aggregate total
return is calculated similarly to average annual total return except that the
return figure is aggregated over the relevant period instead of annualized.
Yield will be computed by dividing the Fund's net investment income per Share
(as calculated on a yield to maturity basis) earned during a recent 30-day
period by the Fund's per Share maximum offering price on the last day of the
period and annualizing the result.
In addition, from time to time, the Fund may present its distribution rates in
supplemental sales literature that is accompanied or preceded by a prospectus
and in Shareholder reports. Distribution rates will be computed by dividing the
distribution per Share made by the Fund over a twelve-month period by the
maximum offering price per Share on the last day of the period. The calculation
of income in the distribution rate includes both income and capital gain
dividends and does not reflect unrealized gains or losses. The distribution rate
differs from the yield, because, among other things, it includes capital items
which are often non-recurring in nature, whereas yield does not include such
items.
Investors may also judge the performance of the Fund by comparing or
referencing its performance to the performance of other mutual funds with
comparable investment objectives and policies through various mutual fund or
market indices and to data prepared by various services which may be published
by such services or by other services or publications. In addition to
performance information, general information about the Fund that
17
<PAGE> 25
appears in such publications may be included in advertisements and in reports to
Shareholders.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. To the extent the Adviser or the Distributor
voluntarily waives all or part of their respective fees with respect to the
Fund, the yield and total return of the Fund will be higher than they would be
in the absence of such voluntary fee waivers.
Set forth below is certain performance data for the Fund illustrating the
Fund's average annual total return for various periods ended March 31, 1997. The
performance shown for the Fund includes performance of certain common trust
funds and collective investment funds (the "Commingled Funds") which were
managed with full investment authority by principals of SMC Capital, Inc. prior
to the establishment of the Fund on July 1, 1994. The assets of the Commingled
Funds were converted into assets of the Fund upon the establishment of the Fund.
These Commingled Funds were operated with the same investment objective and used
investment strategies and techniques that are in all material respects
equivalent to those used for the Fund. During the time period of their existence
the Commingled Funds were not registered under the 1940 Act and therefore were
not subject to certain investment restrictions that are imposed under the 1940
Act. If the Commingled Funds had been registered under the 1940 Act, the
Commingled Funds' performance may have been adversely affected.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR
VARIOUS PERIODS ENDED MARCH 31, 1997
<S> <C>
One Year......................... (2.80)%
Five Years....................... 13.46%
Ten Years........................ 14.08%
Since Inception (1/1/81)......... 14.44%
</TABLE>
Additional information regarding the investment performance of the Fund is
contained in the annual report of the Fund which may be obtained without charge
by writing or calling the Fund.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and audited annual
reports describing the investment operations of the Fund.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the Fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (i) 67% or more
of the votes of Shareholders of the Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
the Fund are represented in person or by proxy, or (ii) the holders of more than
50% of the outstanding votes of Shareholders of the Fund.
Inquiries regarding the Fund may be directed in writing to the Fund at 3435
Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800) 774-3529.
18
<PAGE> 26
INVESTMENT ADVISER
Shelby County Trust Bank
P.O. Box 249
Shelbyville, Kentucky 40066
SUB-INVESTMENT ADVISER
SMC Capital, Inc.
4350 Brownsboro Road
Suite 310
Louisville, Kentucky 40207
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
AUDITORS
Arthur Andersen LLP
2300 Meidinger Tower
Louisville Galleria
Louisville, Kentucky 40202
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Fee Table............................. 3
Financial Highlights.................. 4
Investment Objective and Policies..... 5
Investment Restrictions............... 9
Valuation of Shares................... 10
How to Purchase and Redeem Shares..... 10
Dividends and Taxes................... 13
Management of the Group............... 14
General Information................... 16
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
SHELBY COUNTY TRUST BANK
INVESTMENT ADVISER
SMC CAPITAL, INC.
SUB-INVESTMENT ADVISER
BISYS FUND SERVICES, INC.
PROSPECTUS DATED JULY 31, 1997
<PAGE> 27
PART A
PROSPECTUS II
BRENTON U.S. GOVERNMENT MONEY MARKET FUND
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
AND BRENTON VALUE EQUITY FUND
<PAGE> 28
BRENTON U.S. GOVERNMENT MONEY MARKET FUND
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
BRENTON VALUE EQUITY FUND
For current yield, purchase, and redemption
information, call (800) 706-FUND.
TDD/TTY Call (800) 300-8893.
The Coventry Group (the "Group") is an open-end management investment company
which issues its shares in separate series. Each series relates to a separate
portfolio of assets. The portfolios advised by Brenton Bank, (the "Adviser") are
the Brenton U.S. Government Money Market Fund (the "Money Market Fund"), the
Brenton Intermediate U.S. Government Securities Fund (the "Intermediate
Government Fund") and the Brenton Value Equity Fund (the "Equity Fund")
(collectively, the "Funds").
The Money Market Fund's investment objective is to seek current income
consistent with maintaining liquidity and stability of principal. The Money
Market Fund invests exclusively in short-term U.S. Treasury bills, notes and
other short-term obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations").
THE MONEY MARKET FUND SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00
PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT THE NET ASSET VALUE WILL NOT VARY.
AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
UNITED STATES GOVERNMENT.
The investment objective of the Intermediate Government Fund is to seek total
return consistent with the production of current income and the preservation of
capital. The Intermediate Government Fund invests primarily in U.S. Government
Obligations and will maintain a dollar-weighted average portfolio maturity of 3
to 10 years.
The investment objective of the Equity Fund is long-term capital appreciation.
The Equity Fund invests primarily in a diversified portfolio of equity
securities.
Brenton Bank, Des Moines, Iowa, acts as the investment adviser to each of the
Funds. The Northern Trust Company, Chicago, Illinois, serves as sub-investment
adviser to the Money Market Fund.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OF, OR GUARANTEED OR ENDORSED BY
BRENTON BANK, ITS PARENT HOLDING COMPANY, BRENTON BANKS, INC., OR THEIR
AFFILIATES, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. THE SHARES OF THE FUNDS ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
BISYS Fund Services, Inc., Columbus, Ohio (the "Distributor") acts as the Funds'
administrator and distributor. BISYS Fund Services Ohio, Inc., Columbus, Ohio,
acts as the Funds' transfer agent (the "Transfer Agent") and performs certain
accounting services for the Funds.
Additional information about the Funds, contained in a Statement of Additional
Information, has been filed with the Securities and Exchange Commission (the
"Commission") and is available upon request without charge by writing to the
Funds at their address or by calling the Funds at the telephone number shown
above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------
The date of this Prospectus is July 31, 1997.
<PAGE> 29
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Funds........................ Brenton U.S. Government Money Market Fund (the "Money
Market Fund"), Brenton Intermediate U.S. Government
Securities Fund (the "Intermediate Government Fund") and
the Brenton Value Equity Fund (the "Equity Fund"),
(collectively, the "Funds") each a diversified
investment portfolio of The Coventry Group, an open-end,
management investment company organized as a
Massachusetts business trust.
Shares Offered................... Shares of beneficial interest ("Shares") of the Funds.
Offering Price................... The public offering price of the Money Market Fund is
equal to the net asset value per Share, which the Money
Market Fund will seek to maintain at $1.00. The public
offering price of the Intermediate Government Fund is
equal to the net asset value per Share, plus a sales
charge equal to 3.50% of the public offering price
(3.63% of the amount invested), reduced on investments
of $50,000 or more. The public offering price of the
Equity Fund is equal to the net asset value per Share,
plus a sales charge equal to 4.50% of the public
offering price (4.71% of the amount invested), reduced
on investments of $50,000 or more. (See "HOW TO PURCHASE
AND REDEEM SHARES--Sales Charges").
Minimum Purchase................. $1,000 minimum for the initial investment with a $250
minimum for subsequent investments. (See "HOW TO
PURCHASE AND REDEEM SHARES--Purchases of Shares and Auto
Invest Plan" for a discussion of lower minimum purchase
amounts).
Investment Objective............. The Money Market Fund seeks current income consistent
with maintaining liquidity and stability of principal.
The Intermediate Government Fund seeks total return
consistent with the production of current income and the
preservation of capital.
The Equity Fund seeks long-term capital appreciation.
</TABLE>
2
<PAGE> 30
<TABLE>
<S> <C>
Investment Policy................ The Money Market Fund invests in short-term U.S.
Treasury bills, notes and other short-term obligations
issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
Under normal market conditions, the Intermediate
Government Fund invests primarily in U.S. Government
Obligations and will maintain a dollar-weighted average
portfolio maturity of 3 to 10 years.
Under normal market conditions, the Equity Fund invests
primarily in equity securities of large capitalization
companies with strong earnings potential.
Investment Adviser............... Brenton Bank, Des Moines, Iowa.
Sub-Investment Adviser to the
Money Market Fund.............. The Northern Trust Company, Chicago, Illinois.
Dividends........................ The Money Market Fund intends to declare dividends from
net income daily and pay such dividends monthly. The
Intermediate Government Fund intends to declare and pay
dividends from net investment income monthly. The Equity
Fund intends to declare dividends from net investment
income quarterly and pay such dividends quarterly.
Distributor...................... BISYS Fund Services, Inc., Columbus, Ohio.
</TABLE>
3
<PAGE> 31
FEE TABLE
<TABLE>
<CAPTION>
MONEY INTERMEDIATE
MARKET GOVERNMENT EQUITY
FUND FUND FUND
------ ------------ ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES (1)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............... None 3.50% 4.50%
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage of offering
price)............................................ None None None
Deferred Sales Load (as a percentage
of the amount redeemed, as applicable)............ None None None
Redemption Fees (as a percentage
of amount redeemed, if applicable)(2)............. None None None
Exchange Fee........................................ None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Waivers)(3).................. .15% .45% .69%
12b-1 Fees (After Waivers)(4)....................... .05% .05% .05%
Other Expenses...................................... .57% .52% .54%
------ ---------- ------
Total Fund Operating Expenses
(After Waivers)(5)................................ .77% 1.02% 1.28%
====== ========== ======
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund....................................... $ 8 $25 $ 43 $ 95
Intermediate Government Fund............................ $ 45 $66 $ 89 $155
Equity Fund............................................. $ 57 $84 $ 112 $193
</TABLE>
4
<PAGE> 32
The purpose of the above table is to assist a potential purchaser of a Fund's
Shares in understanding the various costs and expenses that an investor in a
Fund will bear directly or indirectly. The table has been restated to reflect
the current fees for the Funds. Such expenses do not include any fees charged by
Brenton Bank, or any of its affiliates to customer accounts which may have
invested in Shares of a Fund. See "MANAGEMENT OF THE GROUP" and "GENERAL
INFORMATION" for a more complete discussion of the Shareholder transaction
expenses and annual operating expenses for the Funds. THE FOREGOING EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------------------
(1) A Participating Organization (as defined in this Prospectus) or a Bank (as
defined in this Prospectus) may charge a Customer's (as defined in the
Prospectus) account fees for automatic investment and other investment
management services provided in connection with investment in the Funds (See
"HOW TO PURCHASE AND REDEEM INVESTOR SHARES--Purchases of Shares.")
(2) A wire redemption charge (currently $15.00) is deducted from the amount of a
wire redemption payment made at the request of a Shareholder. (See "HOW TO
PURCHASE AND REDEEM INVESTOR SHARES--Redemption by Telephone.")
(3) Absent the reduction of investment advisory fees, "Management Fees" as a
percentage of average daily net assets would have been .40% for the Money
Market Fund.
(4) The Funds have adopted a Distribution and Shareholder Services Plan (the
"Plan") pursuant to which a Fund is authorized to pay or reimburse the
Distributor a periodic amount calculated at an annual rate not to exceed
0.50% of the average daily net assets of such Fund. During the most recent
fiscal year, no fees were paid under the Plan. As a result of the payment of
sales loads and 12b-1 fees, long-term Shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. (the "NASD").
(5) Absent the reduction of investment advisory and distribution fees, "Total
Fund Operating Expenses" as a percentage of average daily net assets would
have been 1.47% for the Money Market Fund. Absent the reduction of
distribution fees, "Total Fund Operating Expenses" as a percentage of
average daily net assets would have been 1.47% for Intermediate Government
Fund and 1.73% for the Equity Fund.
5
<PAGE> 33
FINANCIAL HIGHLIGHTS
The following selected Financial Highlights are derived from the financial
statements of the Funds which have been audited by Ernst & Young LLP,
independent auditors. The Financial Highlights should be read in conjunction
with the financial statements, related notes, and other financial information
incorporated by reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------
AUGUST 10,
YEAR ENDED YEAR ENDED 1994 TO
MARCH 31, MARCH 31, MARCH 31,
1997 1996 1995(a)
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income................. 0.046 0.050 0.028
Net realized and unrealized gains
(losses) on investments............. -- -- --
------- ------- -------
Total from Investment
Activities..................... 0.046 0.050 0.028
------- ------- -------
DISTRIBUTIONS
From net investment income............ (0.046) (0.050) (0.028)
------- ------- -------
Total Distributions.............. (0.046) (0.050) (0.028)
------- ------- -------
NET ASSET VALUE, END OF PERIODS............ $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return............................... 4.67% 5.12% 2.84%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL DATA
Net Assets at end of period (000).......... $ 34,796 $ 35,436 $ 27,810
Ratio of expenses to average net assets.... 0.77% 0.75% 0.97%(c)
Ratio of net investment income to average
net assets............................... 4.57% 4.99% 4.37%(c)
Ratio of expenses to average net assets.... 1.47% 1.46% 1.66%(c)
Ratio of net investment income to average
net assets*.............................. 3.87% 4.28% 3.68%(c)
Portfolio turnover......................... -- -- --
</TABLE>
- ---------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the rates would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
6
<PAGE> 34
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND
---------------------------------------------
AUGUST 10,
YEAR ENDED YEAR ENDED 1994 TO
MARCH 31, MARCH 31, MARCH 31,
1997 1996 1995(a)
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $10.14 $ 9.99 $10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income................. 0.57 0.59 0.35
Net realized and unrealized gains
(losses) on investments............. (0.22) 0.15 (0.02)
------- ------- -------
Total from Investment
Activities..................... 0.35 0.74 0.33
------- ------- -------
DISTRIBUTIONS
From net investment income............ (0.57) (0.59) (0.34)
------- ------- -------
Net realized gains from investments... (0.01) -- --
------- ------- -------
Total Distributions.............. (0.58) (0.59) (0.34)
------- ------- -------
NET ASSET VALUE, END OF PERIODS............ $ 9.91 $10.14 $ 9.99
======= ======= =======
Total Return............................... 3.51% 7.48% 3.42%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL DATA
Net Assets at end of period (000).......... $ 34,158 $ 34,390 $ 16,438
Ratio of expenses to average net assets.... 1.02% 1.07% 1.53%(c)
Ratio of net investment income to average
net assets............................... 5.64% 5.82% 5.71%(c)
Ratio of expenses to average net assets.... 1.47% 1.55% 2.03%(c)
Ratio of net investment income to average
net assets*.............................. 5.19% 5.34% 5.21%(c)
Portfolio turnover......................... 78.95% 30.85% 20.69%
</TABLE>
- ---------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the rates would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
7
<PAGE> 35
<TABLE>
<CAPTION>
EQUITY FUND
---------------------------------------------
AUGUST 10,
YEAR ENDED YEAR ENDED 1994 TO
MARCH 31, MARCH 31, MARCH 31,
1997 1996 1995(a)
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $12.95 $10.83 $10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income................. 0.13 0.10 0.09
Net realized and unrealized gains
(losses) from investments........... 2.11 2.70 0.83
------- ------- -------
Total from Investment
Activities..................... 2.24 2.80 0.92
------- ------- -------
DISTRIBUTIONS
From net investment income............ (0.13) (0.10) (0.09)
------- ------- -------
From net realized gain from investment
transactions........................ (0.19) (0.58) --
------- ------- -------
In excess of net realized gains from
investments......................... (0.07) -- --
Total Distributions.............. (0.39) (0.68) (0.09)
------- ------- -------
NET ASSET VALUE, END OF PERIOD............. $14.80 $12.95 $10.83
======= ======= =======
Total Return (excludes sales charge)....... 17.44% 26.13% 9.25%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets at end of period (000).......... $ 41,727 $ 32,353 $ 15,628
Ratio of expenses to average net assets.... 1.28% 1.45% 1.80%(c)
Ratio of net investment income to average
net assets............................... 0.88% 0.83% 1.39%(c)
Ratio of expenses to average net assets*... 1.73% 1.92% 2.30%(c)
Ratio of net investment income to average
net assets*.............................. 0.43% 0.36% 0.89%(c)
Portfolio turnover......................... 17.15% 43.80% 18.30%
Average commission rate paid(d)............ $0.0824(d) -- --
</TABLE>
- ---------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the rates would have been as indicated.
(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. Disclosure is not required for periods
prior to the year ended March 31, 1997.
8
<PAGE> 36
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each Fund has its own investment objective, policies, and restrictions which
are described below. There is no assurance that a Fund will be successful in
achieving its investment objectives. The investment objective of each Fund is a
fundamental policy and, as such, may not be changed without a vote of the
holders of a majority of the outstanding Shares of a Fund (as described in the
Statement of Additional Information). The other policies of a Fund may be
changed without a vote of the holders of a majority of Shares unless (1) the
policy is expressly deemed to be a fundamental policy of the Fund or (2) the
policy is expressly deemed to be changeable only by such majority vote.
BRENTON U.S. GOVERNMENT MONEY MARKET FUND. The investment objective of the
Money Market Fund is to seek current income consistent with maintaining
liquidity and stability of principal. The Fund seeks to maintain a stable net
asset value of $1.00 per Share.
The Money Market Fund invests in U.S. Treasury bills, notes and other
obligations (described below) issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations") which have
remaining maturities of 397 calendar days (thirteen months) or less. The Money
Market Fund may also invest in master demand notes and repurchase agreements
with respect to U.S. Government Obligations. The short-term U.S. Government
Obligations in the Fund's portfolio will differ only in the agencies that issue
them, their interest rates, maturities and times of issuance. The
dollar-weighted average maturity of the obligations held by the Money Market
Fund will not exceed 90 days. During normal market conditions, the Fund will
generally acquire only U.S. Government Obligations the interest on which is
generally exempt from state income taxation.
Obligations of the U.S. Treasury in which the Money Market Fund may invest
include "stripped" U.S. Treasury obligations offered under the STRIPS or CUBES
programs. Such obligations may represent future interest or principal payments.
These stripped securities are direct obligations of the U.S. Government and
clear through the Federal Reserve book-entry system. Stripped securities are
issued at a discount to their face value and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND. The investment objective
of the Intermediate Government Fund is to seek total return consistent with the
production of current income and the preservation of capital. Total return will
consist of interest from underlying securities and capital appreciation
reflected in unrealized increases in the value of portfolio securities (realized
by the Shareholder only if the Shareholder has sold its Shares) or realized from
the purchase and sale of securities. Because the market value of fixed income
securities can be expected to vary inversely to changes in prevailing interest
rates, investing in such fixed income securities can provide an opportunity for
capital appreciation when interest rates are expected to decline. Likewise, the
value of such fixed income securities can be expected to decline when interest
rates increase.
Under normal conditions, the Intermediate Government Fund will invest
substantially all, but in no event less than 65%, of the value of its total
assets in U.S. Government Obligations. The Intermediate Government Fund expects
to maintain a dollar-weighted average portfolio maturity of three to ten years.
The remainder of the Intermediate Government Fund's assets may be comprised of
corporate debt securities and mortgage-related securities, high quality money
market instruments (commercial paper, certificates of deposit and bankers'
acceptances), variable amount master demand notes, zero coupon obligations,
variable and floating rate notes, taxable municipal bonds, leasing instruments
and trust certificates and asset backed securities. In addition, the
Intermediate Government Fund may engage in certain loans of
9
<PAGE> 37
portfolio securities, repurchase agreements and reverse repurchase agreements.
The Intermediate Government Fund may also invest in securities of other
investment companies.
The debt instruments in which the Intermediate Government Fund invests will in
most cases differ in their interest rates, maturities and times of issuance. The
Intermediate Government Fund will invest in corporate debt securities only if
they are rated within the three highest rating categories at the time of
purchase by a nationally recognized statistical rating organization ("NRSRO"),
or if unrated, deemed by the Adviser to be of comparable quality. For a
description of the applicable ratings, see the Appendix to the Statement of
Additional Information.
The Intermediate Government Fund will purchase commercial paper rated at the
time of purchase within the two highest rating categories by an NRSRO or, if not
rated, found by the Adviser to be of comparable quality. See the Appendix to the
Statement of Additional Information for a description of these ratings.
For temporary defensive purposes, the Intermediate Government Fund may invest
all or any portion of its assets in the money market instruments and repurchase
agreements described above when, in the opinion of the Adviser, it is in the
best interests of the Fund to do so.
BRENTON VALUE EQUITY FUND. The investment objective of the Equity Fund is long
term capital appreciation. The Equity Fund will invest primarily in equity
securities of companies (in excess of $500 million in market capitalization)
with strong earnings potential and will strive for high over-all return while
minimizing risk through the selection of quality dividend paying equity
securities. The securities of such companies will generally be traded on
national securities exchanges and in the over-the-counter market.
Under normal market conditions, the Equity Fund will invest substantially all,
but in no event less than 65%, of its total assets in equity securities, which
are defined as common stocks, preferred stocks, securities convertible into
common stocks, warrants and any rights to purchase common stocks. The remainder
of the Equity Fund's assets may be invested in any combination of U.S.
Government Obligations or other fixed income securities (consisting of bonds,
notes and debentures of corporate issuers) and repurchase agreements
collateralized by such fixed income securities. The Equity Fund will invest in
corporate debt securities only if they are rated within the three highest rating
categories at the time of purchase by a nationally recognized statistical rating
organization ("NRSRO") or, if unrated are deemed by the Adviser to be of
comparable quality. The Equity Fund may also use call options on equity
securities, as described below.
The Equity Fund may, for daily cash management purposes, also invest in high
quality money market securities (commercial paper, certificates of deposit and
bankers' acceptances), as well as the repurchase agreements referred to above.
In addition, the Equity Fund may invest, without limit, in any combination of
the U.S. Government Obligations, money market instruments and repurchase
agreements referred to above when, in the opinion of the Adviser, it is
determined that a temporary defensive position is warranted based upon current
market conditions. The Equity Fund may also invest in securities of other
investment companies including the other investment portfolios advised by the
Adviser, as described more fully under "Other Investment Policies."
Subject to the foregoing limitations, the Equity Fund may invest in foreign
securities through the purchase of sponsored or unsponsored American Depositary
Receipts ("ADRs"). Ownership of unsponsored ADRs may not entitle the Equity Fund
to financial or other reports from the issuer, to which it would be entitled as
the owner of sponsored ADRs. Investment in foreign securities is subject to
special risks that differ in some respects from those related to investments in
securities of U.S. domestic issuers. Such risks include trade balances and
imbalances, and related economic policies, future adverse political, economic
and social developments, the possible imposition of withholding taxes on
interest and dividend income and other taxes,
10
<PAGE> 38
possible seizure, nationalization, or expropriation of foreign investments or
deposits, currency blockage, less stringent disclosure requirements, the
possible establishment of exchange controls or taxation at the source, or the
adoption of other foreign governmental restrictions. For additional information
regarding the special risks associated with investments in foreign securities,
see "Foreign Investments" in the Statement of Additional Information.
OTHER INVESTMENT POLICIES OF THE FUNDS
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. Government Obligations invested in by a Fund will include
obligations issued by or guaranteed as to payment of principal and interest by
the full faith and credit of the U.S. Treasury, consisting of Treasury bills,
notes, bonds and certificates of indebtedness, and obligations issued or
guaranteed by the agencies or instrumentalities of the U.S. Government, but not
supported by such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored agencies or
instrumentalities if it is not obligated to do so by law. A Fund will invest in
the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal. The U.S.
Government does not guarantee the market value of any security; therefore, the
market value of the U.S. Government Obligations in a Fund's portfolio and of the
Shares of a Fund can be expected to fluctuate as interest rates change.
MASTER DEMAND NOTES
The Money Market Fund and the Intermediate Government Fund may each invest in
master demand notes in order to satisfy short-term needs or, if warranted, as
part of a temporary defensive investment strategy. Such notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a United
States commercial bank acting as agent for the payees of such notes. Master
demand notes are direct lending arrangements between the Fund and the issuer of
such notes. Master demand notes are callable on demand by the Fund, but are not
marketable to third parties. The quality of master demand notes will be reviewed
by the Adviser or Sub-Adviser, as applicable, at least quarterly, which review
will consider the earning power, cash flow and debt-to-equity ratios indicating
the borrower's ability to pay principal together with accrued interest on
demand.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES
Mortgage-related securities in which the Intermediate Government Fund may
invest represent pools of mortgage loans assembled for sale to investors by
various governmental agencies (such as the Government National Mortgage
Association) and government-related organizations (such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation), as well as
by private issuers (such as commercial banks, savings and loan institutions,
mortgage bankers and private mortgage insurance companies). Collateralized
mortgage obligations structured as pools of mortgage pass-through certificates
or
11
<PAGE> 39
mortgage loans ("CMOs") will be purchased only if they meet the rating
requirements set forth above with respect to the Intermediate Government Fund's
investments in debt securities of U.S. corporations. The Fund intends to limit
its investment in asset-backed securities issued by private issuers to no more
than 25% of its total assets. For additional information on the Intermediate
Government Fund's investments in mortgage-related securities, see the Statement
of Additional Information.
Although certain mortgage-related securities may be guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, is not so secured. Thus, for example, if the Intermediate
Government Fund purchases a mortgage-related security at a premium, that portion
may be lost if there is a decline in the market value of the security whether
due to changes in interest rates or prepayments of the underlying mortgage
collateral. As with other interest-bearing securities, the prices of
mortgage-related securities are inversely affected by changes in interest rates.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true since, in periods of declining
interest rates, the mortgages underlying the securities are prone to prepayment.
For this and other reasons, the stated maturity of a mortgage-related security
may be shortened by unscheduled prepayments on the underlying mortgages and,
accordingly, it is not possible to predict accurately the security's return to
the Intermediate Government Fund. In addition, regular payments received in
respect to mortgage-related securities include both interest and principal. No
assurance can be given as to the return the Intermediate Government Fund will
receive when these amounts are reinvested.
Certain debt securities such as, but not limited to, mortgage-related
securities, asset-backed securities and securitized loan receivables, as well as
securities subject to prepayment of principal prior to the stated maturity date,
are expected to be repaid prior to their stated maturity dates. As a result, the
effective maturity of these securities is expected to be shorter than the stated
maturity. For purposes of compliance with stated maturity policies and
calculation of the Intermediate Government Fund's weighted average maturity, the
effective maturity of such securities will be used.
Asset-backed securities (unrelated to first mortgage loans) in which the
Intermediate Government Fund may invest represent fractional interests in pools
or leases, retail installment loans or revolving credit receivables, both
secured (such as Certificates for Automobile Receivables or "CARS(SM)") and
unsecured (such as Credit Card Receivable Securities or "CARDS(SM)"). These
assets are generally held by a trust and payments of principal and interest or
interest only are passed through monthly or quarterly to certificate holders and
may be guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee or originator
of the trust. Asset-backed securities will be purchased only if they meet the
rating requirements set forth above with respect to the Intermediate Government
Fund's investments in debt securities of U.S. corporations.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which may
reduce the overall return to certificate holders. Nevertheless, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the underlying car loans or other receivables tend to dampen the
impact of any change in the prepayment level. Certificate holders may also
experience delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the trust because
of unanticipated legal or administrative costs or enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with its investment
objective and policies, the Intermediate Government Fund may invest in other
asset-backed securities that may be developed in the future, provided that
adequate disclosure has first been made in the Prospectus or any supplement
thereto.
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<PAGE> 40
Issuers of mortgage-backed and asset-backed securities often issue one or more
classes of which one (the "Residual") is in the nature of equity. The
Intermediate Government Fund will not invest in any Residual. Mortgage-related
securities and asset-backed securities may include instruments that are also
referred to as derivative instruments.
CALL OPTIONS
The Equity Fund may write covered call options on securities owned by the
Fund. A call option gives the purchaser of the option the right to buy, and
obligates the seller of the option to sell, the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. When the Equity Fund writes a
covered call option and such option is exercised, it will forgo the
appreciation, if any, on the underlying security in excess of the exercise
price. In order to close out a call option it has written, the Equity Fund may
enter into a "closing purchase transaction"--the purchase of a call option on
the same security with the same exercise price and expiration date as the call
option which the Equity Fund previously wrote on any particular securities. When
a portfolio security subject to a call option is sold, the Equity Fund may
effect a closing purchase transaction to close out any existing call option on
that security. If the Equity Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Equity Fund delivers the underlying security upon
exercise. Under normal conditions, it is not expected that the Equity Fund would
permit the underlying value of its portfolio securities subject to such options
to exceed 25% of its net assets.
PUTABLE SECURITIES
The Intermediate Government Fund may acquire puts with respect to fixed income
securities. Under a put, the Fund would have the right to sell or redeem a
specified security at a certain time or within a certain period of time at a
specified price. The security is sold to a third party or redeemed by the issuer
as provided contractually. The put may be an independent feature or may be
combined with a reset feature that is designed to reduce downward price
volatility as interest rates rise by enabling the holder to liquidate the
investment prior to maturity. The Fund may acquire putable securities to
facilitate portfolio liquidity, shorten the maturity of the underlying security,
or to permit the investment of funds at a more favorable rate of return. The
price of a putable security may be higher than the price which otherwise would
be paid for the security without such put feature, thereby increasing the
security's cost and reducing its yield.
The time remaining to the put date will apply for purposes of determining the
maximum maturity of such securities.
LENDING OF PORTFOLIO SECURITIES
From time to time in order to generate additional income, a Fund may lend its
portfolio securities, provided such action is consistent with its investment
objective, policies, and restrictions. During the time portfolio securities are
on loan, the borrower will pay a Fund any dividends or interest paid on the
securities. In addition, loans will be subject to termination by a Fund or the
borrower at any time.
A Fund will enter into loan arrangements only with broker-dealers, banks or
other institutions that are not affiliated directly or indirectly with the Group
and which the Adviser has determined are creditworthy under guidelines
established by the Group's Board of Trustees. While the lending of securities
may subject a Fund to certain risks, such as delays or an inability to regain
the securities in the event the borrower defaults on its lending agreement or
enters into bankruptcy, a Fund will receive 100% collateral on loaned securities
in the form of cash or U.S. Government Obligations. This collateral will be
valued daily by the Adviser and, should
13
<PAGE> 41
the market value of the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund. Although each of the
Funds does not expect to do so on a regular basis, it may lend portfolio
securities in amounts representing up to one-third of the value of the Fund's
total assets.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
A Fund may purchase securities on a when-issued or delayed-delivery basis. A
Fund will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objectives and policies, not for investment leverage. When-issued securities are
securities purchased for delivery beyond the normal settlement date 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 such securities or start earning
interest on them until they are received. When a Fund agrees to purchase such
securities, however, the Fund's custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. 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. The
Intermediate Government Fund's and the Money Market Fund's commitments to
purchase when-issued securities will not exceed 25% of the funds' total assets,
and the Equity Fund's commitments will not exceed 5% of the value of its total
assets absent unusual market conditions. Each of the Funds does not intend to
purchase when-issued securities for speculative purposes but only in furtherance
of its investment objectives.
OTHER INVESTMENT POLICIES
Each of the Funds may also invest up to 5% of its total assets in another
investment company, not to exceed 10% of the value of its total assets in the
securities of other investment companies. A Fund will incur additional expenses
due to the duplication of expenses as a result of investing in mutual funds
other than the Funds. Additional restrictions on a Fund's investments in the
securities of other mutual funds are contained in the Statement of Additional
Information.
The Funds will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase
agreements or reverse repurchase agreements with the Adviser, the Distributor or
their affiliates, and will not give preference to the Adviser's correspondents
with respect to such transactions, securities, savings deposits, and agreements.
INVESTMENT RESTRICTIONS
A Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of such a Fund (as
defined in the Statement of Additional Information).
Each of the Funds will not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if, immediately after such purchase, with respect to 75%
of its portfolio, more than 5% of the value of the total assets of the Fund
would be invested in such issuer, or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer.
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<PAGE> 42
2. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities and repurchase agreements secured by
obligations of the U.S. Government or its agencies or instrumentalities;
(b) there is no limitation with respect to Municipal Securities, which, for
purposes of this limitation only, do not include private activity bonds
that are backed only by the assets and revenues of a non-governmental user;
(c) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents; and (d) utilities will be
divided according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry.
3. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time
of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total assets at the time of its borrowing. The Funds will not purchase
securities while borrowings (including reverse repurchase agreements) in
excess of 5% of its total assets are outstanding.
4. Make loans, except that a Fund may purchase or hold debt securities
and lend portfolio securities in accordance with its investment objective
and policies, and may enter into repurchase agreements.
In addition to the above investment restrictions, each Fund is subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
VALUATION OF SHARES
The net asset value of each of the Funds, except the Money Market Fund, is
determined and their Shares priced as of the close of regular trading on the New
York Stock Exchange (NYSE) (generally 3:00 p.m., Central Time) on each Business
Day. The net asset value of the Money Market Fund is determined and its Shares
priced as of 11:00 a.m. (Central Time) and the close of regular trading on the
NYSE (generally 3:00 p.m., Central Time) on each Business Day ("Valuation
Times"). As used herein, a "Business Day" constitutes any day on which the NYSE
is open for trading, the Federal Reserve Bank of Chicago is open, any other day
except days on which there are not sufficient changes in the value of the Fund's
portfolio securities that the Fund's net asset value might be materially
affected, or days during which no Shares are tendered for redemption and no
orders to purchase Shares are received. Currently, either the NYSE or the
Federal Reserve Bank of Chicago is closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing sales and redemptions is calculated by dividing the value of all
securities and other assets of the Fund less the liabilities charged to the Fund
by the number of its outstanding Shares.
For the Intermediate Government Fund and the Equity Fund (the "Variable NAV
Funds"), the net asset value per share will fluctuate as the value of the
Variable NAV Fund's investment portfolio changes.
The securities in the Variable NAV Funds will be valued at market value.
Investments in debt securities with remaining maturities of 60 days or less may
be valued based upon the amortized cost method. If market
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<PAGE> 43
quotations are not available, the securities will be valued by a method which
the Board of Trustees believes accurately reflects fair value. For further
information about valuation of investments, see "NET ASSET VALUE" in the
Statement of Additional Information.
The assets in the Money Market Fund are valued based upon the amortized cost
method, which the Trustees of the Group believe fairly reflect the market-based
net asset value per Share. Pursuant to rules and regulations of the Commission
regarding the use of the amortized cost method, the Money Market Fund will
maintain a dollar-weighted average portfolio maturity of 90 days or less.
Although the Group seeks to maintain the Money Market Fund's net asset value per
share at $1.00, there can be no assurance that the net asset value will not
vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Funds are sold on a continuous basis by the Group's Distributor,
BISYS Fund Services, Inc. The principal office of the Distributor is 3435
Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact the
Funds at (800) 706-FUND.
PURCHASES OF SHARES
Shares of the Funds are continuously offered and may be purchased directly
either by mail, by telephone or by wire. Shares may also be purchased through a
broker-dealer who has established a dealer agreement with the Distributor. The
minimum investment is generally $100 for the initial purchase of Shares and $25
for subsequent purchases. For purchases that are made in connection with 401(k)
plans, individual retirement accounts, 403(b) plans and other similar plans or
payroll deduction plans, the minimum investment amount is $100 for initial
purchases and no minimum investment amount for subsequent purchases. For
employees of the Adviser or one of its affiliates, the minimum investment amount
for both initial and subsequent purchases is $25. (But, see "HOW TO PURCHASE AND
REDEEM SHARES--Auto Invest Plan" below for minimum investment requirements under
the Auto Invest Plan).
Shares of the Variable NAV Funds are purchased at the next calculated net
asset value per Share after the Distributor's agent's receipt of an order in
good form plus a sales charge ("Public Offering Price") (see "HOW TO PURCHASE
AND REDEEM SHARES--Sales Charges" below). Shares of the Money Market Fund are
purchased at the next calculated net asset value per Share of the Fund after the
Distributor's agent's receipt of an order in good form.
In the case of orders for the purchase of Shares placed through a
broker-dealer, the public offering price will be the net asset value as so
determined plus any applicable sales charge, but only if the broker-dealer
receives the order prior to the Valuation Time for that day and transmits it to
the Funds by the Valuation Time. The broker-dealer is responsible for
transmitting such orders promptly. If the broker-dealer fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next Business Day.
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<PAGE> 44
PURCHASES BY MAIL
To purchase Shares of a Fund, complete an Account Application and return it
along with a check (or other negotiable bank draft or money order) in at least
the minimum initial purchase amount, made payable to the appropriate Fund to:
Brenton Mutual Funds
Department L-1413
Columbus, OH 43260-1413
An Account Application form can be obtained by calling the Funds at (800)
706-FUND. Subsequent purchases of Shares of a Fund may be made at any time by
mailing a check payable to a Fund, to the above address.
PURCHASES BY TELEPHONE
Shares of a Fund may be purchased by calling the Funds at (800) 706-FUND, if
your Account Application has been previously received by the Funds. Payment for
Shares ordered by telephone is made by wiring funds to the Funds' custodian.
Prior to wiring funds and in order to ensure that wire orders are invested
promptly, investors must call the Funds at the number above to obtain
instructions regarding the bank account number to which the funds should be
wired and other pertinent information.
OTHER INFORMATION REGARDING PURCHASES
Shares may also be purchased through procedures established by the Funds in
connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by Brenton Bank, its related companies
or their correspondents ("Banks"). Shares of a Fund sold to the Banks acting in
a fiduciary, advisory, custodial, or other similar capacity on behalf of
Customers will normally be held of record by the Banks. With respect to Shares
sold, it is the responsibility of the holder of record to transmit purchase or
redemption orders to the Funds and to deliver funds for the purchase thereof on
a timely basis.
Purchases of Shares in a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES"). The public offering price of the Variable NAV
Funds will be the net asset value per Share (see "VALUATION OF SHARES"), as
determined on the Business Day the order is received in good form by the Funds,
but only if the Funds receive the order by the last Valuation Time. Otherwise,
the price will be determined as of the Valuation Time on the next Business Day.
Shares of the Money Market Fund are purchased at the net asset value per Share
(see "VALUATION OF SHARES") next determined after receipt by the Funds of an
order in good form to purchase Shares. An order to purchase Shares will be
deemed to have been received by the Funds only if federal funds with respect
thereto are available to the Money Market Fund's custodian for investment on the
same day the order is received. Federal funds are monies credited to a bank's
account with a Federal Reserve Bank. Payment for an order to purchase Shares
which is transmitted by federal funds wire will be available the same day for
investment by the Funds' custodian, if received prior to the last Valuation Time
(see "VALUATION OF SHARES"). Payments transmitted by other means (such as by
check drawn on a member of the Federal Reserve System) will normally be
converted into federal funds within two banking days after receipt. The Money
Market Fund strongly recommends that investors of substantial amounts use
federal funds to purchase Shares.
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<PAGE> 45
Shares of the Money Market Fund purchased before 11:00 a.m., Central Time,
begin earning dividends on the same Business Day. Shares purchased after 11:00
a.m., Central Time, begin earning dividends on the next Business Day. All Shares
continue to earn dividends through the day before their redemption.
Depending upon the terms of the particular Customer account, the Banks may
charge a Customer account fees for services provided in connection with
investments in a Fund. Information concerning these services and any charges
will be provided by the Banks. This Prospectus should be read in conjunction
with any such information so received from the Banks.
The Group reserves the right to reject any order for the purchase of a Fund's
Shares in whole or in part, including purchases made with foreign and third
party drafts or checks.
Every Shareholder of record will receive a confirmation of each transaction in
his or her account, which will also show the total number of Shares of a Fund
owned by the Shareholder. Sending confirmations for purchases and redemptions of
Shares held by a Bank on behalf of its Customer will be the responsibility of
the Bank. Shareholders may rely on these statements in lieu of certificates.
Certificates representing Shares of the Funds will not be issued.
SALES CHARGES
The Public Offering Price of Shares of the Variable NAV Funds equals the sum
of the net asset value per Share plus a sales load in accordance with the tables
below. The Distributor receives this sales charge as Distributor and reallows a
portion of it as dealer discounts and brokerage commissions. However, the
Distributor, in its sole discretion, may pay certain dealers all or part of the
portion of the sales charge it receives. A broker or dealer who receives a
reallowance in excess of 90% of the sales charge may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933. Shares of the Money
Market Fund are sold at net asset value without imposition of a sales charge.
SALES CHARGES FOR THE EQUITY FUND
<TABLE>
<CAPTION>
DEALER DISCOUNTS
SALES SALES AND BROKERAGE
CHARGE AS CHARGE AS COMMISSIONS AS
% OF NET % OF PUBLIC % OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
----------------------------------- --------------- --------------- ----------------
<S> <C> <C> <C>
Less than $50,000.................. 4.71 % 4.50 % 4.05 %
$50,000 but less than $250,000..... 4.17 4.00 3.60
$250,000 but less than $500,000.... 3.63 3.50 3.15
$500,000 but less than
$1,000,000....................... 3.09 3.00 2.70
$1,000,000 or more................. 2.56 2.50 2.25
</TABLE>
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<PAGE> 46
SALES CHARGES FOR THE INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
DEALER DISCOUNTS
SALES SALES AND BROKERAGE
CHARGE AS CHARGE AS COMMISSIONS AS
% OF NET % OF PUBLIC % OF PUBLIC
AMOUNT OFFERING OFFERING
AMOUNT OF PURCHASE INVESTED PRICE PRICE
----------------------------------- --------------- --------------- ----------------
<S> <C> <C> <C>
Less than $50,000.................. 3.63% 3.50% 3.15%
$50,000 but less than $250,000..... 3.09 3.00 2.70
$250,000 but less than $500,000.... 2.56 2.50% 2.25%
$500,000 but less than
$1,000,000....................... 2.04 2.00 1.80
$1,000,000 or more................. 1.52 1.50 1.35
</TABLE>
From time to time, dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers.
The Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Shares of a Fund. Such compensation will
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to certain dealers whose representatives have sold or are expected to sell a
significant amount of Shares. Compensation will also include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will also include the following types of non-cash compensation
offered through promotional contests: (1) vacation trips, including the
provision or travel arrangements and lodging at luxury resorts at exotic
locations; (2) tickets for entertainment events (such as concerts, cruises and
sporting events), and (3) merchandise (such as clothing, trophies and clocks).
Dealers may not use sales of Shares to qualify for this compensation to the
extent such may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by the Funds or their Shareholders.
The sales charges set forth in the table above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which includes the
combination of any of the following: (i) an individual, his or her spouse and
children under the age of 21; (ii) a trustee or other fiduciary of a single
trust estate or single fiduciary account; and (iii) businesses owned as sole
proprietorships (or partnerships), provided that such organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company. In order to qualify
for a lower sales charge, all orders from a Purchaser will have to be placed
through a single investment dealer and identified at the time of purchase as
originating from the same Purchaser, although such orders may be placed into
more than one account which identifies the Purchasers.
SALES CHARGE WAIVERS
The following classes of investors may purchase Shares of the Variable NAV
Funds with no sales charge:
(1) existing Shareholders of a Fund upon the automatic reinvestment
of dividend and capital gains distributions;
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(2) Trustees of the Group, officers, directors, employees and retired
employees of (a) the Adviser and its affiliates and (b) the
Distributor and its affiliates, and spouses and children under
the age of 21 of each of the foregoing;
(3) employees (and their spouses and children under the age of 21) of
any broker-dealer with whom the Distributor enters into a dealer
agreement to sell Shares of the Fund;
(4) investors or members of groups for whom the Adviser acts in a
fiduciary, advisory, custodial, agency or similar capacity; and
(5) investors whose shares are owned and purchases made on behalf of
other investment companies distributed by The BISYS Group, Inc.
or its affiliated companies.
Each investor described in paragraphs (2) and (3) above must so identify
himself/herself at the time of purchase. The Distributor may change or eliminate
the foregoing waivers at any time. The Distributor may also periodically waive
all or a portion of the sales charge for all investors with respect to a
Variable NAV Fund. In addition, the Distributor may waive the sales charge for
the purchase of a Fund's shares with the proceeds from the recent redemption of
shares of another non-money market load mutual fund. The purchase must be made
within 60 days of the redemption, and the Distributor must be notified in
writing by the investor, or by his financial institution, at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice.
BRENTON MUTUAL FUND INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Brenton Mutual Fund IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Brenton Mutual Fund IRA contributions may be tax-deductible and earnings are
tax-deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still may earn income on a tax-deferred basis.
All Brenton Mutual Fund IRA distribution requests must be made in writing to
the Distributor. Any additional deposits to an IRA must distinguish the type and
year of the contribution.
For more information on a Brenton Mutual Fund IRA call the Funds at (800)
706-FUND. Shareholders are advised to consult a tax adviser on IRA contribution
and withdrawal requirements and restrictions.
LETTERS OF INTENT
Any Purchaser may obtain a reduced sales charge by means of a written Letter
of Intent which expresses the Purchaser's intention to purchase Shares at a
specified total public offering price within a 13-month period.
A Letter of Intent is not a binding obligation upon the Purchaser to purchase
the full dollar amount indicated. The minimum initial investment under a Letter
of Intent is 5% of such dollar amount. Shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
Shares actually purchased if the full dollar amount indicated is not purchased,
and such escrowed Shares will be involuntarily redeemed to pay the additional
sales charge, if necessary. Dividends on escrowed Shares, whether paid in cash
or reinvested in
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additional Shares, are not subject to escrow. The escrowed Shares will not be
available for disposal by the Purchaser until all purchases pursuant to the
Letter of Intent have been made or the higher sales charge has been paid. When
the full amount indicated by the Letter of Intent has been purchased, the escrow
will be released. A Letter of Intent may include purchases of Shares made not
more than 30 days prior to the date the Purchaser signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included. A Purchaser as
defined above may combine purchases made in several capacities for purposes of
obtaining reduced sales charges by means of a written Letter of Intent. In order
to accomplish this, however, a Purchaser must designate on the account
application the accounts that are to be combined for this purpose. A Purchaser
can only designate accounts that are open at the time the Letter of Intent is
executed.
If a Purchaser qualifies for a further reduced sales charge because he or she
either has purchased more than the dollar amount indicated on the Letter of
Intent or has entered into a Letter of Intent which includes Shares purchased
prior to the date of the Letter of Intent, the difference in the sales charge
will be used to purchase additional Shares of the Fund on behalf of the
Purchaser; thus the total purchases (included in the Letter of Intent) will
reflect the applicable reduced sales charge of the Letter of Intent.
For Purchasers who purchase more than the dollar amount indicated on the
Letter of Intent or enter into a Letter of Intent that includes Shares purchased
prior to the date of the Letter of Intent and qualify for a reduced sales
charge, such additional Shares will be purchased at the conclusion of the
13-month period and in the form of additional Shares, credited to the
Purchaser's account at the then current public offering price applicable to a
single purchase of the total amount of the purchases.
For further information about Letters of Intent, interested investors should
contact the Funds at (800) 706-FUND. This program, however, may be modified or
eliminated at any time or from time to time without notice.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser may qualify for a reduced sales charge by combining concurrent
purchases of Shares of one or more of the Variable NAV Funds or by combining a
current purchase of Shares of a Variable NAV Fund with prior purchases of Shares
of any Variable NAV Fund sold subject to a sales charge. The applicable sales
charge is based on the sum of (i) the Purchaser's current purchase of shares of
any a Variable NAV Fund sold with a sales charge plus (ii) the then-current net
asset value of all Shares held by the Purchaser in any Variable NAV Fund sold
with a sales charge. The purchaser's combined purchases described above shall
include the combined purchases or holdings of the purchaser, the purchaser's
spouse and children under the age of 21 and the purchaser's retirement plan
accounts. To receive the applicable public offering price pursuant to the right
of accumulation, Shareholders must provide the Transfer Agent or the Distributor
with sufficient information at the time of purchase to permit confirmation of
qualification. Accumulation privileges may be amended or terminated without
notice at any time by the Distributor.
AUTO INVEST PLAN
The Auto Invest Plan enables Shareholders of the Funds to make regular
monthly, bi-monthly or quarterly purchases of Shares through automatic
deductions from their bank accounts (which must be with a domestic member of the
Automated Clearing House). With Shareholder authorization, the Transfer Agent
will deduct the amount specified from the Shareholder's bank account which will
automatically be invested in Shares at the public offering price on the dates of
the deduction. The required minimum initial investment when opening an account
using the Auto Invest Plan is $100; the minimum amount for subsequent
investments in a
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Fund is $25. For employees of the Adviser or one of its affiliates, the minimum
investment amount for both initial and subsequent purchases is $25. To
participate in the Auto Invest Plan, Shareholders should complete the
appropriate section of the Account Application which can be acquired by calling
(800) 706-FUND. For a Shareholder to change the Auto Invest amount, the request
must be made in writing to the Funds.
EXCHANGE PRIVILEGE
The Funds offer an exchange program whereby Shareholders are entitled to
exchange their Shares for Shares of the other Funds. Such exchanges will be
executed on the basis of the relative net asset values of the Shares exchanged.
Exchanges will be subject to a sales charge, representing the difference between
the sales charge already paid, if any, on a Fund held and the sales charge
applicable to a direct purchase of the Fund being exchanged into. Under such
circumstances, in order to receive a reduced sales charge, the Shareholder must
notify the Transfer Agent or Distributor that a sales charge was originally paid
and provide the Transfer Agent or the Distributor with sufficient information to
permit confirmation of qualification.
The Shares exchanged must have a current value that equals or exceeds the
minimum investment that is required (either the minimum amount required for
initial or subsequent investments as the case may be) for the Fund whose Shares
are being acquired. The exchange privilege is only available in states where the
exchange may legally be made. An exchange is considered to be a sale of Shares
for federal income tax purposes on which a Shareholder may realize a taxable
gain or loss. A Shareholder may make an exchange request by calling the Funds at
(800) 706-FUND or by providing written instructions to the Funds. An investor
should consult the Distributor for further information regarding exchanges.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. If a shareholder is unable to contact the Funds by
telephone, a shareholder may also mail the exchange request to the Distributor
at the address listed under "HOW TO PURCHASE AND REDEEM SHARES--Redemption By
Mail." The Funds reserve the right to modify or terminate the exchange privilege
described above at any time and to reject any exchange request. If an exchange
request in good order is received by the Funds by the last Valuation Time, on
any Business Day, the exchange usually will occur on that day. Any shareholder
who wishes to make an exchange should obtain and review the current prospectus
of the Fund in which he or she wishes to invest before making the exchange. This
option will be suspended for a period of 30 days following a telephonic address
change.
The Funds' exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Funds have
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
REDEMPTION OF SHARES
Shareholders may redeem their Shares on any day that net asset value is
calculated (see "VALUATION OF SHARES"). Redemptions will be effected at the net
asset value per share next determined after receipt of a redemption request.
Redemptions may ordinarily be requested by mail or by telephone.
All or part of a Customer's Shares may be required to be redeemed in
accordance with instructions and limitations pertaining to his or her account
held by a Bank. For example, if a Customer has agreed to maintain a minimum
balance in his or her account, and the balance in that account falls below that
minimum, the Customer may be obliged to redeem, or the Bank may redeem for and
on behalf of the Customer, all or part of the Customer's Shares to the extent
necessary to maintain the required minimum balance. There may be no
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<PAGE> 50
notice period affording Shareholders an opportunity to increase the account
balance in order to avoid an involuntary redemption under these circumstances.
REDEMPTION BY MAIL
A written request for redemption must be received by the Funds in order to
honor the request. The Funds' address is: Department L-1413, Columbus, Ohio
43260-1413. The Transfer Agent may require a signature guarantee by an eligible
guarantor institution. For purposes of this policy, the term "eligible guarantor
institution" shall include banks, brokers, dealers, credit unions, securities
exchanges and associations, clearing agencies and savings associations as those
terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. The
Transfer Agent reserves the right to reject any signature guarantee if (1) it
has reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. The signature
guarantee requirement will be waived if all of the following conditions apply:
(1) the redemption check is payable to the Shareholder(s) of record and (2) the
redemption check is mailed to the Shareholder(s) at the address of record or the
proceeds are either mailed or wired to a commercial bank account previously
designated. There is no charge for having redemption requests mailed to a
designated bank account.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that option on
the Account Application. The Shareholder may have the proceeds mailed to his or
her address of record or mailed or sent electronically to a commercial bank
account previously designated. Redemption requests may be made by the
Shareholder by telephone to the Funds at (800) 706-FUND. The then-current wire
redemption charge may be deducted from the proceeds of a wire redemption. This
charge is presently $15.00 for each wire redemption. There is no charge for
having payment of redemption requests mailed or sent via the Automated Clearing
House to a designated bank account. It is not necessary for Shareholders to
confirm telephone redemption requests in writing. If telephone privileges were
not originally selected on the Account Application, the Shareholder must provide
written instructions to the Funds to add it. This option will be suspended for a
period of 30 days following a telephonic address change. For further information
see "HOW TO PURCHASE AND REDEEM SHARES--Telephone Privileges."
REDEMPTION BY CHECK
Free check writing is available for the Money Market Fund. With this service,
a shareholder may write up to five checks a month in amounts of $500 or more. To
establish this service and to obtain checks at the time the account is opened, a
shareholder must complete the Signature Card that accompanies the Application
Form. To establish this service and obtain checks after opening an account in
the Money Market Fund, the shareholder must contact the Funds by telephone or
mail to obtain an Application Form and complete and return the Signature Card. A
shareholder will receive the dividends and distributions declared on the Shares
to be redeemed up to the day that a check is presented for payment. Upon 30
days' prior written notice to Shareholders, the check writing privilege may be
modified or terminated. An investor may not close a Fund account by writing a
check.
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AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular
monthly or quarterly redemptions of Shares. With Shareholder authorization, the
Transfer Agent will automatically redeem Shares at the net asset value on the
dates of the withdrawal and forward the amount specified to the Shareholder. A
Shareholder must have $10,000 invested in a Fund prior to implementing the Auto
Withdrawal Plan. The required minimum withdrawal is $100. To participate in the
Auto Withdrawal Plan, Shareholders should call (800) 706-FUND for more
information. Purchases of additional Shares concurrent with withdrawals may be
disadvantageous to certain Shareholders because of tax liabilities. For a
Shareholder to change the Auto Withdrawal instructions or to discontinue the
feature, the request must be made in writing to the Distributor.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above (subject to the imposition of a contingent deferred sales charge, if
applicable). Payment to Shareholders for Shares redeemed will be made within
seven days after receipt by the Funds of the request for redemption. However, to
the greatest extent possible, the Funds will attempt to honor requests from
Shareholders for next day payments upon redemption of Shares if the request for
redemption is received by the Distributor before the Valuation Time, for the
Variable NAV Funds, and for same day payments if the request for redemption is
received by the Distributor before 11:00 a.m., Central Time, on a Business Day
for the Money Market Fund, unless it would be disadvantageous to a Fund or the
Shareholders of the Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, a Fund may delay the
forwarding of proceeds until payment has been collected for the purchase of such
Shares, which delay may be for up to 15 days or more. Each Fund intends to pay
cash for all Shares redeemed, but under abnormal conditions which make payment
in cash unwise, a Fund may make payment wholly or partly in portfolio securities
at their then-current market value equal to the redemption price. In such cases,
an investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Funds
reserve the right to involuntarily redeem, at net asset value, the Shares of any
Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market price of such
Shares), the account (other than a retirement account) of such Shareholder has a
value of less than $500. Before the Funds exercise their right to redeem such
Shares and to send the proceeds to the Shareholder, the Shareholder will be
given notice that the value of the Shares in his or her account is less than the
minimum amount and will be allowed 60 days to make an additional investment in
an amount which will increase the value of the account to at least $500.
Each Fund may refuse to open an account or may involuntarily redeem the shares
held by an investor who has failed to provide a Fund with a certified taxpayer
identification number or such other tax-related certifications as may be
required. In addition, each Fund may close an account by redeeming its Shares in
full at net asset value upon the failure of a Shareholder who has completed an
"awaiting TIN" certification to provide a Fund with a certified social security
or taxpayer identification number within 60 days after opening the account.
Shareholders will receive 30 days' notice of a Fund's intention to close their
account unless the proper information is provided.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Matters Affecting
Redemption" in the Statement of Additional Information for examples of when the
Group may, under
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applicable law and regulation, suspend the right of redemption if it appears
appropriate to do so in light of the Group's responsibilities under the 1940
Act.
TELEPHONE PRIVILEGES
As noted above, Shareholders may exchange or redeem Shares by telephone if
they have previously elected the privilege on the Account Application or
otherwise informed the Funds in writing. During periods of significant economic
or market change, telephone redemptions may be difficult to complete. If a
Shareholder is unable to contact the Distributor by telephone, a Shareholder may
also mail the redemption request to the Distributor at the address listed above
under "HOW TO PURCHASE AND REDEEM SHARES-- Redemption by Mail."
Neither the Distributor, the Transfer Agent, the Adviser nor the Group will be
liable for any losses, damages, expense or cost arising out of any telephone
transaction (including exchanges and redemptions) effected in accordance with
the Funds' telephone transaction procedures, upon instructions believed to be
genuine. The Funds will employ procedures designed to provide reasonable
assurance that instructions by telephone are genuine; if these procedures are
not followed, the Funds or its service contractors may be liable for any losses
due to unauthorized or fraudulent instructions. These procedures include
recording all phone conversations, sending confirmations to Shareholders within
72 hours of the telephone transaction, verification of account name and account
number or tax identification number, and sending redemption proceeds only to the
address of record or to a previously authorized bank account. This option will
be suspended for a period of 30 days following a telephonic address change.
DIVIDENDS AND TAXES
DIVIDENDS
The Money Market Fund intends to declare its net investment income daily as a
dividend to Shareholders at the close of business on the day of declaration. The
Intermediate Government Fund intends to declare its net investment income
monthly as a dividend to Shareholders at the close of business on the day of
declaration and will generally pay such dividends monthly. The Equity Fund
intends to declare its net investment income quarterly as a dividend to
Shareholders at the close of business on the day of declaration, and generally
pay such dividends quarterly. Each Fund also intends to distribute its capital
gains, if any, at least annually, normally in December of each year. A
Shareholder will automatically receive all income dividends and capital gains
distributions in additional full and fractional Shares of a Fund at net asset
value as of the date of payment, unless the Shareholder elects to receive
dividends or distributions in cash. Such election must be made on the Account
Application; any change in such election must be made in writing to the Funds at
Department L-1413, Columbus, Ohio 43260-1413, and will become effective with
respect to dividends and distributions having record dates after its receipt by
the Funds. Dividends are paid in cash not later than seven business days after a
Shareholder's complete redemption of his or her Shares.
If you elect to receive distributions in cash, and checks (1) are returned and
marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as the date of cancellation.
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FEDERAL TAXES
The following discussion is intended for general information only. An investor
should consult with his or her own tax adviser as to the tax consequences of an
investment in the Funds, including the status of distributions from the Funds
under applicable state or local law.
Each Fund intends to qualify annually and elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify, each Fund must meet certain income, distribution and
diversification requirements. In any year in which a Fund qualifies as a
regulated investment company and timely distributes all of its income and
substantially all of its net tax-exempt interest income, the Fund generally will
not pay any U.S. federal income or excise tax.
Dividends that are distributed by a Fund that are derived from interest income
exempt from federal income tax and are designated by the Fund as
"exempt-interest dividends" will be exempt from federal income taxation.
However, if tax exempt interest earned by the Fund constitutes an item of tax
preference for purposes of the alternative minimum tax, then a portion of the
exempt-interest dividends paid by the Fund may likewise constitute an item of
tax preference.
Dividends paid out of a Fund's investment company taxable income (including
dividends, taxable interest and net short-term capital gains) will be taxable to
a U.S. Shareholder as ordinary income. Except with respect to the Equity Fund,
no portion of a Fund's income is expected to consist of dividends paid by U.S.
corporations, so no portion of the dividends paid by a Fund is expected to be
eligible for the corporate dividends-received deduction. Distributions of net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, designated by a Fund as capital gain dividends are
taxable as long-term capital gains, regardless of the length of time the
Shareholder has held a Fund's Shares. Dividends are generally treated in the
same manner whether received in cash or reinvested in additional Fund Shares.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by a Fund in October, November or December with a record
date in such a month and paid by a Fund during January of the following calendar
year. Such distributions will be treated as received by Shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
Shareholders will be advised at least annually as to the source of
distributions earned by their fund each year. Shareholders are advised to
consult their tax advisors concerning the application of state and local taxes
which may differ from the federal tax consequences described above.
Investments in securities that are issued at a discount will result in income
to a Fund each year equal to a portion of the excess of the face value of the
securities over their issue price, even though the Fund receives no cash
interest payments from the securities. Such income generally will, however, have
to be distributed on a timely basis.
Any gain or loss realized by a Shareholder upon the sale or other disposition
of Shares of a Fund, or upon receipt of a distribution in complete liquidation
of a Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the Shareholder's holding period for the
Shares.
The Funds may be required to withhold U.S. federal income tax at the rate of
31% of all distributions payable to Shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the Shareholder's U.S. federal income tax
liability.
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Further information relating to tax consequences is contained in the Statement
of Additional Information.
STATE AND LOCAL TAXES
The Group is organized as a Massachusetts business trust and, under current
law, neither the Group nor any Fund is liable for any income or franchise tax in
the Commonwealth of Massachusetts as long as each Fund qualifies as a regulated
investment company under the Code.
Fund distributions may be subject to state and local taxes. Distributions of a
Fund which are derived from interest on obligations of the U.S. Government and
certain of its agencies and instrumentalities may be exempt from state and local
taxes in certain states. Shareholders should consult their own tax advisers
regarding the possible exclusion for state and local income tax purposes of the
portion of dividends paid by a Fund which is attributable to interest from
obligations of the U.S. Government and its agencies, authorities and
instrumentalities, and the particular tax consequences to them of an investment
in a Fund, including the application of state and local tax laws.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of the Group's funds. The Group
will be managed by the Trustees in accordance with the laws of Massachusetts
governing business trusts. The Trustees, in turn, elect the officers of the
Group to supervise actively its day-to-day operations.
The Trustees receive fees and are reimbursed for their expenses in connection
with each meeting of the Board of Trustees they attend. However, no officer or
employee of the Distributor or BISYS Fund Services Ohio, Inc. receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group (see the Statement of Additional Information) receive no
compensation directly from the Group for performing the duties of their offices.
BISYS Fund Services receives fees from the Funds for acting as administrator.
BISYS Fund Services Ohio, Inc. receives fees from the Funds for acting as
Transfer Agent and for providing certain fund accounting services.
INVESTMENT ADVISER
Brenton Bank, 2840 Ingersoll, Des Moines, Iowa, serves as the investment
adviser for the Funds. Brenton Bank, is a wholly-owned subsidiary of Brenton
Banks, Inc., with more than 46 locations throughout Iowa. The first Brenton Bank
was founded in 1881. In 1948, Brenton Banks, Inc. became Iowa's first bank
holding company and presently has more than $1.66 billion in total assets.
Brenton Bank, through its Trust & Investment Management Division, has been
managing customer assets for over 60 years and currently provides fiduciary and
investment management service to clients throughout the midwest. The Trust &
Investment Management Division provides trust investment management and
custodial services for over $1.2 billion of trust assets.
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The following individuals serve jointly as portfolio managers for the Funds
and are primarily responsible for the day-to-day management of each Fund's
portfolio:
Charles N. Funk now serves as sole portfolio manager of the Brenton
Intermediate U.S. Government Securities Fund with primary
responsibility for the day-to-day management of that Fund's portfolio.
Mr. Funk holds a B.S. degree in Business Administration and Accounting
from William Jewell College. Mr. Funk joined the Bank in December 1991.
Since that time, Mr. Funk has served as chief investment officer with
the Bank where he has been engaged in various investment management
activities. In addition, Douglas L. Brown and Gary D. Ernst now serve
as co-portfolio managers to the Brenton Value Equity Fund with primary
responsibility for the day-to-day management of this Fund's portfolio.
Mr. Ernst holds a B.A. degree in Business Administration from Northeast
Missouri State University. Mr. Ernst has over twenty-five years of
experience in trust and investments. Mr. Brown holds a B.A. degree in
Economics from St. Ambrose University. Mr. Brown joined the Bank in
July, 1997.
Subject to the general supervision of the Group's Board of Trustees and in
accordance with a Fund's investment objective, policies and restrictions, the
Adviser manages the investments of a Fund, makes decisions with respect to and
places orders for all purchases and sales of a Fund's portfolio securities, and
maintains a Fund's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Group, the Adviser receives fees computed daily and
paid monthly, at the following annual rates: Money Market Fund--up to forty
one-hundredths of one percent (.40%) of the Fund's first $250 million in net
assets and up to thirty one-hundredths of one percent (.30%) of the Fund's net
assets in excess of $250 million; Intermediate Government Fund--up to fifty
one-hundredths of one percent (.50%) of the Fund's first $25 million in net
assets and up to thirty one-hundredths of one percent (.30%) of the Fund's net
assets in excess of $25 million; and Equity Fund--up to seventy four
one-hundredths of one percent (.74%) of the Fund's first $25 million of net
assets and up to sixty one-hundredths of one percent (.60%) of the Fund's net
assets in excess of $25 million. The Adviser may periodically waive all or a
portion of its advisory fee to increase the net income of a Fund available for
distribution as dividends. The Adviser may not seek reimbursement of such waived
fees at a later date. The waiver of such fee will cause a Fund's yield to be
higher than it would otherwise be in the absence of such a waiver.
The Northern Trust Company, Chicago, Illinois (the "Sub-Adviser"), provides
sub-investment advisory services for the Money Market Fund. For the services
provided and expenses assumed pursuant to its sub-investment advisory agreement
with the Adviser in connection with the Money Market Fund, the Sub-Adviser
receives a fee computed daily and paid monthly by the Adviser at the annual rate
of .08% of the Money Market Fund's average daily net assets. The Sub-Adviser is
an Illinois state-chartered commercial bank and the principal subsidiary of
Northern Trust Corporation, a bank holding company.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc. is the administrator for the Funds and also acts as
the Funds' principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates).
The Administrator generally assists in all aspects of the Funds'
administration and operation. For expenses assumed and services provided as
administrator pursuant to its management and administration agreement with the
Funds, the Administrator receives a fee from each Fund equal to the lesser of a
fee computed daily and paid periodically, calculated at an annual rate of up to
twenty one-hundredths of one percent (.20%) of
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the Fund's average daily net assets or such other fee as may be agreed upon in
writing by such Fund and the Administrator. The Administrator may periodically
waive all or a portion of its administrative fee to increase the net income of a
Fund available for distribution as dividends. The Administrator may not seek
reimbursement of such waived fees at a later date. The waiver of such fee will
cause the yield of a Fund to be higher than it would otherwise be in the absence
of such a waiver.
The Distributor acts as agent for the Funds in the distribution of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities.
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and manager and
administrator, respectively, other than the cost of securities (including
brokerage commissions, if any) purchased for the Funds. See "MANAGEMENT OF THE
GROUP--Expenses" in the Statement of Additional Information.
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Funds have adopted a
Distribution and Shareholder Services Plan (the "Plan"), under which the Funds
may pay a periodic amount calculated at an annual rate not to exceed fifty
one-hundredths of one percent (.50%) of the average daily net assets of the
Fund. These amounts would include the payment of a service fee of up to
twenty-five one-hundredths of one percent (0.25%) of the average daily net
assets of a Fund for activities or expenses related to account maintenance or
personal service to existing Shareholders. Such service fees may be paid to
banks (including Brenton Bank) for administrative and shareholder services and
to pay broker-dealers and other institutions for similar services (each such
bank, broker-dealer and other institution is hereafter referred to as a
"Participating Organization"), pursuant to an agreement between the Distributor
and the Participating Organization. Under the Plan, a Participating Organization
may include the Distributor, its subsidiaries and its affiliates.
Distribution and service related activities may include (1) the compensation
of dealers and other sales personnel for distribution assistance, (2) direct
advertising and marketing expenses, (3) expenses incurred in connection with
preparing, printing, mailing, distributing or publishing advertisements and
sales literature, (4) expenses incurred for printing and mailing Prospectuses
and Statements of Additional Information (except those used for regulatory
purposes or for distribution to existing Shareholders), and (5) other costs
associated with implementing and operating the Plan. Payments may be made
directly to the parties providing distribution assistance or to the Funds'
Distributor.
CUSTODIAN
Brenton Bank, 2840 Ingersoll, Des Moines, Iowa (the "Custodian") serves as
custodian for the Funds. Pursuant to the Custodian Agreement with the Group, the
Custodian receives compensation from each Fund for such services in an amount
equal to an asset-based fee plus fixed fees charged for certain portfolio
transactions and out-of-pocket expenses.
29
<PAGE> 57
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc. 3435 Stelzer Road, Columbus, Ohio 43219, serves
as the Funds' transfer agent (the "Transfer Agent") pursuant to a Transfer
Agency Agreement for the Funds and receives a fee for such services. BISYS Fund
Services Ohio, Inc. also provides certain accounting services for the Funds
pursuant to a Fund Accounting Agreement and receives a fee for such services.
See "MANAGEMENT OF THE COMPANY--Transfer Agency and Fund Accounting Services" in
the Statement of Additional Information for further information.
BANKING LAWS
The Adviser believes that it possess the legal authority to perform the
advisory services and the administrative and shareholder support services for
the Funds contemplated by the investment advisory agreement and the Rule 12b-1
Agreement, as described in this Prospectus, without violation of applicable
banking laws and regulations. Future changes in Federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which the Adviser could continue to
perform such services for the Funds. It is not anticipated, however, that any
change in the Funds' method of operations would affect its net asset value per
share or result in financial losses to any Shareholder. See "MANAGEMENT OF THE
GROUP--Banking Laws" in the Statement of Additional Information for further
discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on January 8, 1992.
The Group consists of several funds organized as separate series of shares. Each
share represents an equal proportionate interest in a fund with other shares of
the same fund, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that fund as are declared at the
discretion of the Trustees (see "Miscellaneous" below).
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held, and will vote in
the aggregate and not by series except as otherwise expressly required by law.
For example, shareholders of each fund will vote in the aggregate with other
shareholders of the Group with respect to the election of Trustees and
ratification of the selection of independent auditors. However, shareholders of
a particular fund will vote as a fund, and not in the aggregate with other
shareholders of the Group, for purposes of approval of that fund's investment
advisory agreement and the Plan.
Overall responsibility for the management of the Funds is vested in the Board
of Trustees of the Group. See "MANAGEMENT OF THE GROUP--Trustees of the Group."
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and
Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in the Statement
of Additional Information for further information.
30
<PAGE> 58
Annual or special meetings of shareholders are not generally required by the
Declaration of Trust, the 1940 Act or other applicable authority. To the extent
that such meetings are not required, the Group may elect not to have an annual
or special meeting.
The Group has undertaken that the Trustees will call a special meeting of
Shareholders for purposes of considering the removal of one or more Trustees
upon written request therefor from Shareholders holding not less than 10% of the
outstanding votes of the Group. At such a meeting, a quorum of Shareholders
(constituting a majority of votes attributable to all outstanding shares of the
Group), by majority vote, has the power to remove one or more Trustees.
PERFORMANCE INFORMATION
From time to time the Funds may advertise their average annual total return,
aggregate total return, yield and effective yield in advertisements, sales
literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average
annual total return will be calculated for the period since the establishment of
the Fund and will reflect the imposition of the applicable sales charge. Average
annual total return is measured by comparing the value of an investment in the
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the difference.
Aggregate total return is calculated similarly to average annual total return
except that the return figure is aggregated over the relevant period instead of
annualized. Yield for each of the Variable NAV Funds will be computed by
dividing the Fund's net investment income per share earned during a recent
thirty day period by the Fund's per share maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
day of the period and annualizing the result.
The yield of the Money Market Fund refers to the income generated by an
investment therein over a seven-day period (which period will be stated in the
advertisement). This income is then annualized. That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Money Market Fund is assumed to be reinvested. The
effective yield is slightly higher than the yield because of the compounding
effect of this assumed reinvestment.
In addition, from time to time the Funds may present their respective
distribution rates in supplemental sales literature which will be preceded or
accompanied by a prospectus or in shareholders reports. Distribution rates will
be computed by dividing the distribution per share made by the Fund over a
twelve-month period by the maximum public offering price per share. The
distribution rate includes both income and capital gain dividends and does not
reflect unrealized gains or losses. The distribution rate differs from the
yield, because it includes capital items which are often non-recurring in
nature, whereas yield does not include such items.
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and to
data prepared by various services which may be published by such services or by
other services or publications. In addition to performance information, general
information about a Fund that appears in such publications may be included in
advertisements and in reports to Shareholders.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not
31
<PAGE> 59
necessarily representative of future results. Any fees charged by the Adviser or
any of its affiliates with respect to customer accounts for investing in shares
of the Funds will not be included in performance calculations; such fees, if
charged, will reduce the actual performance from that quoted.
Additional information regarding the investment performance of the Funds is
contained in the annual report of the Funds which may be obtained without charge
by writing or calling the Funds.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent auditors.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of a Fund present at a meeting at which the holders
of more than 50% of the votes attributable to Shareholders of record of the Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of a Fund.
Inquiries regarding the Funds may be directed in writing to the Funds at
Department L-1413, Columbus, Ohio 43260-1413, or by calling toll free (800)
706-FUND.
32
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<PAGE> 63
INVESTMENT ADVISER
Brenton Bank
2840 Ingersoll
Des Moines, Iowa 50312
ADMINISTRATOR AND
DISTRIBUTOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
AUDITORS
Ernst & Young LLP
10 West Broad Street
Suite 2300
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY............................. 2
FEE TABLE...................................... 4
FINANCIAL HIGHLIGHTS........................... 6
INVESTMENT OBJECTIVES AND POLICIES
OF THE FUNDS................................. 9
OTHER INVESTMENT POLICIES
OF THE FUNDS................................. 11
INVESTMENT RESTRICTIONS........................ 14
VALUATION OF SHARES............................ 15
HOW TO PURCHASE AND
REDEEM SHARES................................ 16
DIVIDENDS AND TAXES............................ 25
MANAGEMENT OF THE GROUP........................ 27
GENERAL INFORMATION............................ 30
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE GROUP OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
GROUP OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
BRENTON MUTUAL FUNDS LOGO
U.S. GOVERNMENT MONEY MARKET FUND
INTERMEDIATE U.S. GOVERNMENT SECURITIES
FUND
VALUE EQUITY FUND
----------------
PROSPECTUS DATED JULY 31, 1997
----------------
BRENTON BANK LOGO
BRENTON BANK
INVESTMENT ADVISER
BISYS FUND SERVICES, INC.
ADMINISTRATOR AND DISTRIBUTOR
<PAGE> 64
PART B
STATEMENT OF ADDITIONAL INFORMATION I
THE SHELBY FUND
<PAGE> 65
The Shelby Fund
An Investment Portfolio of
The Coventry Group
Statement of Additional Information
July 31, 1997
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for the Shelby Fund (the "Fund"), dated the
same date as the date hereof (the "Prospectus"). The Fund is a separate
investment portfolio of The Coventry Group (the "Group"), an open-end management
investment company. This Statement of Additional Information is incorporated in
its entirety into the Prospectus. Copies of the Prospectus may be obtained by
writing the Fund at 3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning
toll free (800) 774-3259.
B-1
<PAGE> 66
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVE AND POLICIES......................................... B-1
Additional Information on Portfolio Instruments...................... B-1
Portfolio Turnover................................................... B-10
NET ASSET VALUE........................................................... B-10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................ B-11
Matters Affecting Redemption......................................... B-11
MANAGEMENT OF THE GROUP................................................... B-12
Trustees and Officers................................................ B-12
Investment Adviser and Sub-Adviser................................... B-15
Portfolio Transactions............................................... B-16
Banking Laws......................................................... B-18
Administrator........................................................ B-19
Distributor.......................................................... B-20
Custodian............................................................ B-20
Transfer Agency and Fund Accounting Services......................... B-21
Independent Auditors................................................. B-21
Legal Counsel........................................................ B-22
ADDITIONAL INFORMATION.................................................... B-22
Description of Shares................................................ B-22
Vote of a Majority of the Outstanding Shares......................... B-23
Additional Tax Information........................................... B-23
Calculation of Performance Data...................................... B-27
Performance Comparisons.............................................. B-30
Principal Shareholders............................................... B-31
Miscellaneous........................................................ B-31
FINANCIAL STATEMENTS...................................................... B-32
B-2
<PAGE> 67
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. This Statement of Additional
Information deals only with the Fund.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Fund.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of the Fund should be made without first reading the Fund's
Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies
of the Fund as set forth in the Prospectus for the Fund.
BANK OBLIGATIONS. The Fund may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instruments on maturity.
Bankers' acceptances invested in by the Fund will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic and foreign banks and savings and
loan associations, if (i) at the time of investment the depository institution
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (ii) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
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<PAGE> 68
The Fund may purchase commercial paper consisting of issues rated at
the time of purchase in the two highest rating categories by a nationally
recognized statistical rating organization ("NRSRO"). For example, the Fund may
purchase commercial paper rated A-2 or better by S&P, Prime-2 or better by
Moody's or Duff 2 or better by Duff & Phelps. The Fund may also invest in
commercial paper that is not rated but is determined by the Adviser, under
guidelines established by the Group's Board of Trustees, to be of comparable
quality.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
FOREIGN INVESTMENTS. The Fund may, subject to its investment objectives
and policies, invest in certain obligations or securities of foreign issuers.
Permissible investments consist of Eurobonds, which are U.S. dollar denominated
debt securities issued by corporations located in Europe, Eurodollar
Certificates of Deposit, which are U.S. dollar denominated certificates of
deposit issued by branches of foreign and domestic banks located outside the
United States (primarily Europe), Yankee Certificates of Deposit which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits, which are
U.S. dollar denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits, which are U.S. dollar denominated certificates
of deposit issued by Canadian offices of major Canadian Banks. Investments in
securities issued by foreign branches of U.S. banks, foreign banks, or other
foreign issuers, including American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and securities purchased on foreign securities
exchanges, may subject the Fund to investment risks that differ in some respects
from those related to investment in obligations of U.S. domestic issuers or in
U.S. securities markets. Such risks include future adverse political and
economic developments, possible seizure, currency blockage, nationalization or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, and
the adoption of other foreign governmental restrictions. Additional risks
include currency exchange risks, less publicly available information, the risk
that companies may not be subject to the accounting, auditing and financial
reporting standards and requirements of U.S. companies, the risk that foreign
securities markets may have less volume and therefore many securities traded in
these markets may be less liquid and their prices more volatile than U.S.
securities, and the risk that custodian and brokerage costs may be higher.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or
B-4
<PAGE> 69
obligations. Foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements than those applicable to domestic branches
of U.S. banks. The Fund will acquire such securities only when the Adviser
believes the risks associated with such investments are minimal.
RIGHTS AND WARRANTS. The Fund may participate in rights offerings and
purchase warrants, which are privileges issued by corporations enabling the
owners to subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of time. Subscription
rights normally have a short life span to expiration. The purchase of rights or
warrants involves the risk that the Fund could lose the purchase value of a
right or warrant if the right to subscribe to additional shares is not exercised
prior to the rights' or warrants' expiration. Also, the purchase of rights or
warrants involves the risk that the effective price paid for the right or
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security. The Fund will not invest more
than 5% of its total assets, taken at market value, in warrants, or more than 2%
of its total assets, taken at market value, in warrants not listed on the New
York, American or Canadian Stock Exchanges. Warrants acquired by the Fund in
units or attached to other securities are not subject to this restriction.
MEDIUM-GRADE DEBT SECURITIES. The Fund may invest in debt securities
within the fourth highest rating group assigned by a NRSRO or, if unrated,
securities determined by the Adviser to be of comparable quality ("Medium-Grade
Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of the issuer to make payments of principal and interest.
Medium-Grade Securities are considered to have speculative characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of the Fund to sell such securities at their fair value either to meet
redemption requests or to respond to changes in the financial markets may be
limited.
Particular types of Medium-Grade Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities may react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium-Grade Securities in which the
B-5
<PAGE> 70
Fund may invest may be subject to redemption or call provisions that may limit
increases in market value that might otherwise result from lower interest rates
while increasing the risk that the Fund may be required to reinvest redemption
or call proceeds during a period of relatively low interest rates.
The credit ratings issued by NRSROs are subject to various limitations.
For example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade Securities. In certain circumstances,
the ratings may not reflect in a timely fashion adverse developments affecting
an issuer. For these reasons, the Adviser conducts its own independent credit
analysis of Medium-Grade Securities.
RESTRICTED SECURITIES. As described in the Prospectus, the Fund may
invest up to 5% of its total assets in restricted securities, excluding
restricted securities that are eligible for resale under Rule 144A under the
Securities Act of 1933. Rule 144A under the Securities Act of 1933 allows for a
broader institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A provides a "safe harbor"
from the registration requirements of the Securities Act of 1933 for resales of
certain securities to qualified institutional buyers. The Adviser believes that
the market for certain restricted securities such as institutional commercial
paper may expand further as a result of this regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
The Adviser monitors the liquidity of restricted securities in the
Fund's portfolios under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser may consider the following factors, although
such factors may not necessarily be determinative: (1) the unregistered nature
of a security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (4) the trading markets for the security; (5) dealer
undertakings to make a market in the security; and (6) the nature of the
security and the nature of the marketplace trades (including the time needed to
dispose of the security, methods of soliciting offers, and mechanics of
transfer).
SECURITIES LENDING. In order to generate additional income, the Fund
may, from time to time, subject to its investment objective, policies and
restrictions, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities pursuant to agreements requiring that the
loans be secured by collateral equal in value to 102% of the value of the
securities loaned. Collateral for loans of portfolio securities must consist of
cash or Government Related Securities. This collateral will be valued daily by
the Adviser. Should the market value of the loaned securities increase, the
borrower is required to furnish additional collateral to the Fund. During the
time portfolio securities are on loan, the borrower pays the Fund any dividends
or interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While the Fund does not have the right to vote
securities on loan, the Fund intends to terminate the loan and regain the right
to vote if that is considered important with respect to the
B-6
<PAGE> 71
investment. While the lending of securities may subject a Fund to certain risks,
such as delays or an inability to regain the securities in the event the
borrower were to default or enter into bankruptcy, the Fund will have the
contract right to retain the collateral described above. The Fund will enter
into loan agreements only with broker-dealers, banks, or other institutions that
the Adviser has determined are creditworthy under guidelines established by the
Group's Board of Trustees.
OPTIONS TRADING. As described in the Prospectus, the Fund may purchase
put options with respect to obligations held by it for limited purposes
described in such Prospectus. The Fund may purchase put and call options listed
on a national securities exchange and issued by the Options Clearing
Corporation, or, in certain cases, options that trade in the over-the-counter
("OTC") markets. Such options may relate to particular securities or to various
stock or bond indices.
Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying instruments, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying instruments themselves.
A listed call option for a particular security gives the purchaser of the option
the right to buy from a clearing corporation, and a writer has the obligation to
sell to the clearing corporation, the underlying security at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is in consideration
for undertaking the obligations under the option contract. A listed put option
gives the purchaser the right to sell to a clearing corporation the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. In contrast to an
option on a particular security, an option on an interest rate index provides
the holder with the right to make or receive a cash settlement upon exercise of
the option. The amount of this settlement will be equal to the difference
between the closing price of the index at the time of exercise and the exercise
price of the option expressed in dollars, times a specified multiple.
The Fund may also write call options only if they are "covered." In the
case of a call option on a security, the option is "covered" if the Fund owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount as are
held in a segregated account by its Custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if the Fund maintains with its Custodian cash or cash equivalents equal
to the contract value. A call option is also covered if the Fund holds a call on
the same security or index as the call written where the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written provided the
difference is maintained by the Fund in cash or cash equivalents in a segregated
account with its Custodian.
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When the Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. When the Fund writes a call option, an amount
equal to the net premium (the premium less the commission) received by the Fund
is included in the liability section of the Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities, currencies and indices. For example,
there are significant differences between the securities and options markets
that could result in an imperfect correlation between these markets, causing a
given transaction not to achieve its objectives. A decision as to whether, when
and how to use options involves the exercise of skill and judgment, and even a
wellconceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a
when-issued or delayed-delivery basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date 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. The Fund
will generally not pay for such securities or start earning interest on them
until they are received. When the Fund agrees to purchase securities on a
when-issued basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy the
purchase commitment, and in such a case, the Fund may be required subsequently
to place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. In addition, because the Fund will set aside cash or
liquid portfolio securities to satisfy its purchase commitments in the manner
described above, the Fund's liquidity and the ability of the Adviser to manage
it might be affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets.
B-8
<PAGE> 73
When the Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing the opportunity to obtain a price considered to
be advantageous. The Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's investment
objective, policies and restrictions, and not for investment leverage.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers which the Adviser deems creditworthy
under guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain continually the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). If the seller were to default on its
repurchase obligation or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Additionally, there is no controlling legal
precedent confirming that the Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under the
regular procedures normally in effect for custody of the Fund's securities
subject to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by the Fund's Custodian
or another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by the Fund under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
Fund's investment restrictions. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase the securities at a mutually agreed-upon date and price.
The Fund intends to enter into reverse repurchase agreements only to avoid
otherwise selling securities during unfavorable market conditions to meet
redemptions. At the time the Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account assets such as U.S. Government
securities or other liquid, high grade debt securities consistent with the
Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest), and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements involve the risk that (i) the party obtaining the
securities pursuant to such agreement will be unable to deliver such securities
back to the Fund upon maturity of the agreements, and (ii) the market value of
the securities sold by the Fund may decline below the price at which it is
obligated to repurchase the
B-9
<PAGE> 74
securities, and the Fund will be unable to liquidate its position in such
securities during such periods of decline. Reverse repurchase agreements are
considered to be borrowings by the Fund under the 1940 Act.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities issued by other investment companies. The Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (i) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (ii) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund. As a shareholder of another investment company, the Fund would bear, along
with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations. Investment companies in which the Fund may invest may also impose a
sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by the Fund and, therefore, will be borne directly by Shareholders.
Investment Restrictions
- -----------------------
The following are fundamental investment restrictions and are in
addition to the investment restrictions set forth in the Prospectus. Under these
restrictions, the Fund may not:
1. Underwrite securities issued by other persons, except to the extent
that the Fund may be deemed to be an underwriter under certain securities laws
in the disposition of "restricted securities".
2. Purchase or sell commodities or commodities contracts, except to
the extent disclosed in the current Prospectus of the Fund.
3. Purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein).
The following additional investment restrictions are non-fundamental
and may be changed with respect to the Fund without the vote of a majority of
the outstanding Shares of the Fund. The Fund may not:
1. Invest more than 15% of its assets (taken at market value at the
time of the investment) in "illiquid securities," illiquid securities being
defined to include securities subject to legal or contractual restrictions on
resale (which may include private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that the
B-10
<PAGE> 75
Fund has purchased, securities being used to cover options the Fund has
written, securities for which market quotations are not readily available, or
other securities which legally or in the Adviser's opinion may be deemed
illiquid.
2. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities.
3. Maintain a short position, or purchase, write or sell puts, calls,
straddles, spreads or combinations thereof, except as set forth in the
Prospectus and in this Statement of Additional Information.
4. Purchase participation or direct interests in oil, gas or other
mineral exploration or development programs (although investments by the Fund
in marketable securities of companies engaged in such activities are not
prohibited in this restriction).
5. Purchase securities of other investment companies, except (i) in
connection with a merger, consolidation, acquisition or reorganization, and
(ii) the Fund may invest up to 10% of the value of its total assets in other
investment companies, as specified in the Prospectus and above, subject to such
restrictions as may be imposed by the 1940 Act or any state laws.
6. Invest for the purpose of exercising control or management.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction. In
order to permit the sale of the Fund's Shares in certain states, the Group may
make commitments in the form of non-fundamental policies that are more
restrictive than the investment restrictions described above. Should the Group
determine that any such commitment is no longer in the best interests of the
Group, it will revoke the commitment by terminating sales of its Shares in the
state involved.
Portfolio Turnover
- ------------------
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less. Portfolio turnover for the Fund may vary greatly from year to year
as well as within a particular year. High turnover rates will generally result
in higher transaction costs to the Fund. Portfolio turnover will not be a
limiting factor in making investment decisions.
B-11
<PAGE> 76
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of the Fund is
determined and the Shares of the Fund are priced as of the Valuation Time on
each Business Day. A "Business Day" is a day on which the New York Stock
Exchange (the "NYSE") is open for trading and any other day (other than a day on
which no Shares of the Fund are tendered for redemption and no order to purchase
any Shares is received) during which there is sufficient trading in portfolio
instruments such that the Fund's net asset value per share might be materially
affected. The NYSE will not be open in observance of the following holidays: New
Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
Portfolio securities for which market quotations are readily available
are valued based upon 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 readily available will be valued at the current quoted bid
prices. Other securities and assets for which quotations are not readily
available, including restricted securities and securities purchased in private
transactions, are valued at their fair value in the Adviser's best judgment
under procedures established by, and under the supervision of, the Group's
Board of Trustees.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Fund are the existence of restrictions upon
the sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering
or otherwise qualifying the security for public sale, underwriting commissions
if underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
The Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such
factors as yield, risk, quality, maturity, type of issue, trading
characteristics, special circumstances and other factors it deems relevant in
determining valuations of normal institutional trading units of debt securities
and would not rely exclusively on quoted prices. Certain instruments, for which
pricing services used for the Fund do not provide prices, may be valued by the
Group using methodologies similar to those used by pricing services, where such
methodologies are believed to reflect fair value of the subject security. The
methods used by the pricing service and the Group and the valuations so
established will be reviewed by the Group under the general supervision of the
Group's Board of Trustees. Several pricing services are available, one or more
of which may be used by the Adviser from time to time.
B-12
<PAGE> 77
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by BISYS Fund
Services Limited Partnership d/b/a BISYS Fund Services (the "Distributor") and
BISYS Fund Services has agreed to use appropriate efforts to solicit all
purchase orders. In addition to purchasing Shares directly from the Distributor,
Shares may be purchased through procedures established by BISYS Fund Services in
connection with the requirements of accounts at Shelby County Trust Bank (the
"Bank").
Matters Affecting Redemption
- ----------------------------
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (i) trading on the NYSE is restricted
by applicable rules and regulations of the Commission, (ii) the NYSE is closed
for other than customary weekend and holiday closings, (iii) the Commission has
by order permitted such suspension for the protection of security holders of the
Group, or (iv) the Commission has determined that an emergency exists as a
result of which (a) disposal by the Group of securities owned by it is not
reasonably practical, or (b) it is not reasonably practical for the Group to
determine the fair value of its net assets.
The Group may redeem Shares of the Fund involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940 Act.
See "HOW TO PURCHASE AND REDEEM SHARES -- Redemption of Shares" in the
Prospectus.
MANAGEMENT OF THE GROUP
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board
of Trustees, which is elected by the shareholders of the Group. The Trustees
elect the officers of the Group to supervise actively its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
ages and principal occupations during the past five years are as follows:
B-13
<PAGE> 78
<TABLE>
<CAPTION>
Position(s) Held With Principal Occupation During
Name, Address and Age the Group Past 5 Years
--------------------- --------- ------------
<S> <C> <C>
Walter B. Grimm* Chairman, President and From June 1992 to present, employee of
3435 Stelzer Road Trustee BISYS Fund Services; from 1987 to June 1992,
Columbus, Ohio 43219 President of Leigh Investments
Age: 51 (investment firm).
Maurice G. Stark Trustee Retired. Until December 31, 1994, Vice
505 King Avenue President-Finance and Treasurer, Battelle
Columbus, Ohio 43201 Memorial Institute (scientific research
Age: 61 and development service corporation).
Michael M. Van Buskirk Trustee From June 1991 to present, Executive Vice
37 West Broad Street President of The Ohio Bankers'
Suite 1001 Association (trade association); from
Columbus, Ohio 43215-4162 September 1987 to June 1991, Vice
Age: 49 President - Communications, TRW
Information Systems Group (electronic and
space engineering).
Chalmers P. Wylie Trustee From April 1993 to present, Of Counsel,
754 Stonewood Court Kegler Brown Hill & Ritter; from January
Columbus, Ohio 43235 1993 to present, Adjunct Professor, Ohio
Age: 76 State University; from January 1967 to
January 1993, member of the United States
House of Representatives for the 15th
District of Ohio
Nancy E. Converse* Trustee and Assistant From July 1990 to present, employee of
3435 Stelzer Road Secretary BISYS Fund Services.
Columbus, Ohio 43219
Age: 47
</TABLE>
B-14
<PAGE> 79
<TABLE>
<S> <C> <C>
J. David Huber Vice President From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, Ohio 43219
Age: 50
Thresa Dewar Treasurer From March 1997 to present, employee of
3435 Stelzer Road BISYS Fund Services; from September,
Columbus, Ohio 43219 1994 to March 1997, Independent Consultant,
Age: 41 from April 1975 to September 1994, employee
of Federated Investors, Inc.
George L. Stevens Secretary From September 1996 to present, employee
3435 Stelzer Road of BISYS Fund Services; from September
Columbus, Ohio 43219 1995 to September 1996, Independent
Age: 46 Consultant; from September 1989 to
September 1995, Senior Vice President,
AmSouth Bank, N.A.
Alaina V. Metz Assistant Secretary From June 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May 1989 to
Columbus, Ohio 43219 June 1995, employee of Alliance Capital
Age: 29 Management.
Richard B. Ille Assistant Secretary From July 1990 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, Ohio 43219
Age: 32
James L. Smith Assistant Secretary From October 1996 to present, employee of
3435 Stelzer Road BISYS Fund Services; from October 1995 to
Columbus, Ohio 43219 October 1996, employee of Davis Graham &
Age: 37 Stubbs LLP, from June 1990 to October 1995,
Compliance Officer for ALPS Mutual Funds Services, Inc.
D'Ray Moore Assistant Secretary From February 1990 to present, employee
3435 Stelzer Road of BISYS Fund Services.
Columbus, Ohio 43219
Age: 38
</TABLE>
B-15
<PAGE> 80
<TABLE>
<S> <C> <C>
Brenda J. Bittermann Assistant Secretary From February 1996 to present, employee
3435 Stelzer Road of BISYS Fund Services; from August 1992
Columbus, Ohio 43219 to January 1996, Manager; Banc One
Age: 44 Securities Corp.; from November 1990 to
August 1992, employee of BISYS Fund
Services.
<FN>
- ---------------------
*Mr. Grimm and Ms. Converse are each considered to be an "interested person" of the Group as defined in
the 1940 Act.
</TABLE>
As of the date of this Statement of Additional Information, the Group's
officers and Trustees, as a group, own less than 1% of the Fund's outstanding
Shares.
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services receives
fees from the Fund for acting as Administrator. BISYS Fund Services Ohio, Inc.
receives fees from the Fund for acting as transfer agent and for providing
certain fund accounting services. Messrs. Huber, Stevens, Grimm, Ille and Smith
and Ms. Converse, Ms. Bittermann, Ms. Moore, Ms. Dewar and Ms. Metz are
employees of BISYS Fund Services.
Trustees of the Group not affiliated with BISYS Fund Services receive
from the Group an annual fee of $1,000, plus $2,250 for each regular meeting of
the Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone, and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
For the fiscal year ended March 31, 1997, the Trustees received the
following compensation from the Group and from certain other investment
companies (if applicable) that have the same investment adviser as the Fund or
an investment adviser that is an affiliated person of the Group's investment
adviser:
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Est. Annual Total Compensation From
Name of Trustee Compensation Benefits Accrued As Part Benefits Upon Registrant and Fund
- --------------- from the Fund of Fund Expenses Retirement Complex Paid to Trustees
----------------- ----------------------- -------------- -------------------------
<S> <C> <C> <C> <C>
Walter B. Grimm $0 $0 $0 $0
Nancy E. Converse $0 $0 $0 $0
Maurice G. Stark $1,111.84 $0 $0 $8,980.20
</TABLE>
B-16
<PAGE> 81
<TABLE>
<S> <C>
Michael Van Buskirk $1,111.84 $0 $0 $8,980.20
Chalmers P. Wylie $1,111.84 $0 $0 $8,980.20
</TABLE>
Investment Adviser and Sub-Adviser
- ----------------------------------
Investment advisory services are provided by Shelby County Trust Bank,
Shelbyville, Kentucky 40066 (the "Adviser"), pursuant to an Investment Advisory
Agreement dated as of June 27, 1994 (the "Investment Advisory Agreement"). SMC
Capital Inc., Louisville, Kentucky 40207 (the "Sub-Adviser"), provides
sub-investment advisory services to the Fund pursuant to a Sub-Advisory
Agreement dated as of June 27, 1994 (the "Sub-Advisory Agreement"). (The
Investment Advisory Agreement and the Sub-Advisory Agreement are referred to
collectively as the "Advisory Agreements").
Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services as described in the Prospectus of the Fund.
For the services provided pursuant to the Investment Advisory Agreement, the
Fund pays the Adviser a fee computed daily and paid monthly, at an annual rate,
calculated as one percent (1.00%) of the average daily net assets of the Fund.
Under the Sub-Advisory Agreement, the Sub-Adviser has agreed to provide
sub-investment advisory services as described in the Prospectus of the Fund. The
Adviser is responsible at all times for supervising the activities of the
Sub-Adviser. For the services provided pursuant to the Sub-Advisory Agreement,
the Adviser pays the Sub-Adviser a fee equal to 0.40% of the Fund's first $30
million in net assets, 0.50% of the next $10 million of the Fund's net assets,
and 0.60% of the Fund's net assets in excess of $40 million.
The total investment advisory fees paid to the Adviser for the period
from July 1, 1994 (commencement of operations) to March 31, 1995 was $450,788;
the total investment advisory fees paid to the Adviser for the fiscal year ended
March 31, 1996 was $819,585 and the total investment advisory fees paid to the
Adviser for the fiscal year ended March 31, 1997 was $1,047,031. The total
sub-advisory fees paid to the Sub-Adviser for the period from July 1, 1994
(commencement of operations) to March 31, 1995 was $215,870; the total
subadvisory fees paid to the Sub-Adviser for the fiscal year ended March 31,
1996 was $417,771 and the total sub-advisory fees paid to the Sub-Adviser for
the fiscal year ended March 31, 1997 was $554,238.27.
Unless sooner terminated, the Advisory Agreements will continue in
effect until February 28, 1998 and from year to year thereafter, if such
continuance is approved at least annually by the Group's Board of Trustees or by
vote of a majority of the outstanding Shares of the Fund (as defined under
"GENERAL INFORMATION Miscellaneous" in the Fund's Prospectus), and a majority of
the Trustees who are not parties to the Advisory Agreements or interested
persons (as defined in the 1940 Act) of any party to the Advisory Agreements by
votes cast in person at a meeting called for such purpose. The Advisory
Agreements are terminable at any time on 60 days' written notice without penalty
by the Trustees, by vote of a majority of the outstanding Shares of
B-17
<PAGE> 82
the Fund, or by the Adviser or Sub-Adviser. The Advisory Agreements also
terminate automatically in the event of any assignment, as defined in the 1940
Act.
The Advisory Agreements provide that neither the Adviser nor the
Sub-Adviser shall be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with their performance under the
Advisory Agreements, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith, or gross negligence on the part of either
party in the performance of their duties, or from reckless disregard of their
duties and obligations thereunder.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with the Fund's investment objective, policies and restrictions,
which securities are to be purchased and sold by the Fund, and which brokers are
to be eligible to execute the Fund's portfolio transactions. Purchases and sales
of portfolio securities with respect to the Fund usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities generally include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers may include the spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. Transactions in the over-the-counter market are generally principal
transactions with dealers. With respect to the over-the-counter market, the
Adviser, where possible, will deal directly with dealers who make a market in
the securities involved except in those circumstances where better price and
execution are available elsewhere.
The Group, on behalf of the Fund, will not execute portfolio
transactions through, acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with
Shelby County Trust Bank, SMC Capital Inc., BISYS Fund Services, or their
affiliates, and will not give preference to Shelby County Trust Bank's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
The Adviser may cause a Fund to pay a broker which provides brokerage and
research services to the Adviser a commission for effecting a securities
transaction or a price for certain securities in excess of the amount another
broker might have charged. Such higher commissions or prices may not be paid
unless the Adviser determined in good faith that the amount paid is reasonable
in relation to the services received in terms of the particular transaction or
the Adviser's overall responsibilities to the Trust and any other of the
Adviser's clients.
B-18
<PAGE> 83
Information so received is in addition to and not in lieu of services required
to be performed by the Adviser and does not reduce the advisory fees payable to
the Adviser by the Fund. Such information may be useful to the Adviser in
serving both the Fund and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be
useful to the Adviser in carrying out its obligations to the Fund.
While the Adviser generally seeks competitive commissions, the Group
may not necessarily pay the lowest commission available on each brokerage
transaction, for reasons discussed above.
Investment decisions for the Fund are made independently from those for
any other investment company or account managed by the Adviser. Any such other
investment company or account may also invest in the same securities as the
Group on behalf of the Fund. When a purchase or sale of the same security is
made at substantially the same time on behalf of the Fund and another investment
company or account, the transaction will be averaged as to price, and available
investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained by the
Fund. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for the
other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement, in making investment
recommendations for the Fund, the Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of the Adviser, its parent or its subsidiaries or
affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Fund.
For the period from July 1, 1994 (commencement of operations) to March
31, 1995, the Fund paid brokerage commissions of $136,234, none of which
commissions were paid to any affiliate of the Fund or the Adviser. For the
fiscal year ended March 31, 1996, the Fund paid brokerage commissions of
$260,151, none of which commissions were paid to any affiliate of the Fund or
the Adviser. For the fiscal year ended March 31, 1997, the Fund paid brokerage
commissions of $227,198.25, none of which commissions were paid to any affiliate
of the Fund or the Adviser.
Banking Laws
- ------------
Shelby County Trust Bank believes that it possesses the legal authority
to perform the services for the Fund contemplated by the Prospectus, this
Statement of Additional Information and the Investment Advisory Agreement
without violation of applicable statutes and regulations. Shelby County Trust
Bank has been advised by its counsel that, while the question is not free from
doubt, such laws should not prevent Shelby County Trust Bank from providing the
services required of it under the Investment Advisory Agreement. Future changes
in either federal or state
B-19
<PAGE> 84
statutes and regulations relating to the permissible activities of banks or
bank holding companies and the subsidiaries or affiliates of those entities, as
well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict Shelby
County Trust Bank from continuing to perform such services for the Fund.
Depending upon the nature of any changes in the services which could be
provided by Shelby County Trust Bank, the Board of Trustees of the Group would
review the Fund's relationship with Shelby County Trust Bank and consider
taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of Shelby County Trust Bank and/or its
affiliated and correspondent banks in connection with Customer purchases of
Shares of the Fund, those banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Group's method of operations would affect its
net asset value per share or result in financial losses to any Customer.
Administrator
- -------------
BISYS Fund Services serves as administrator (the "Administrator") to
the Fund pursuant to a Management and Administration Agreement dated June 27,
1994 (the "Administration Agreement"). The Administrator assists in supervising
all operations of the Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, the Custodian under the Custodian Agreement and
by BISYS Fund Services Ohio, Inc. under the Transfer Agency Agreement and the
Fund Accounting Agreement). The Administrator is a broker-dealer registered with
the Commission, and is a member of the National Association of Securities
Dealers, Inc.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Fund and file all of
the Fund's federal and state tax returns and required tax filings other than
those required to be made by the Fund's Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Fund with the Fund's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts and records of the Fund, including calculation of daily
expense accruals; and generally assist in all aspects of the Fund's operations
other than those performed by the Adviser under the Investment Advisory
Agreement, by the Custodian under the Custodian Agreement and by BISYS Fund
Services Ohio, Inc. under the Transfer Agency Agreement and the Fund Accounting
Agreement. Under the Administration Agreement, the Administrator may delegate
all or any part of its responsibilities thereunder.
B-20
<PAGE> 85
The Administrator receives a fee from the Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
computed daily and paid monthly, calculated at an annual rate of 0.20% of the
Fund's first $300 million in net assets, 0.125% of the next $400 million of net
assets, 0.08% of the next $300 million of net assets and 0.05% of the Fund's net
assets in excess of $1 billion. The Administrator may periodically waive all or
a portion of its fee with respect to the Fund in order to increase the net
income of the Fund available for distribution as dividends.
For the period from July 1, 1994 (commencement of operations) to March
31, 1995, the Administrator earned administrative fees of $90,238 and the
Administrator waived administrative fees in the amount of $22,620. For the
fiscal year ended March 31, 1996, the Administrator earned administrative fees
of $163,988 and the Administrator waived administrative fees in the amount of
$41,200. For the fiscal year ended March 31, 1997, the Administrator earned
administrative fees of $209,497 and the Administrator waived administrative
fees in the amount of $52,442.
The Administration Agreement shall be renewed automatically for
successive three-year terms, unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days' prior to the expiration
of the then-current term. The Administration Agreement is terminable with
respect to the Fund through a failure by either party to the Administration
Agreement to renew at the end of a three-year term, upon mutual agreement of
the parties, or for cause (as defined in the Administration Agreement) by the
party alleging cause, on not less than 60 days' notice by the Group's Board of
Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
the Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
Distributor
- -----------
BISYS Fund Services serves as distributor to the Fund pursuant to the
Distribution Agreement dated October 1, 1993, as amended (the "Distribution
Agreement"). Unless otherwise terminated, the Distribution Agreement will
continue in effect from year to year if its continuance is approved at least
annually (i) by the Group's Board of Trustees or by the vote of a majority of
the outstanding Shares of the Fund and (ii) by the vote of a majority of the
Trustees of the Group who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
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<PAGE> 86
In its capacity as Distributor, BISYS Fund Services solicits orders
for the sale of Shares, advertises and pays the costs of advertising, office
space and the personnel involved in such activities. The Distributor receives
no compensation under the Distribution Agreement with the Group.
Custodian
- ---------
Fifth Third Bank, Cincinnati, Ohio, serves as custodian (the
"Custodian") to the Fund pursuant to the Custodian Agreement dated as of June
27, 1994 between the Group and the Custodian (the "Custodian Agreement"). The
Custodian's responsibilities include safeguarding and controlling the Fund's
cash and securities, handling the receipt and delivery of securities, and
collecting interest on the Fund's investments. In consideration of such
services, the Fund pays the Custodian an annual fee plus fixed fees charged for
certain portfolio transactions and out-of-pocket expenses.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Fund Services Ohio, Inc. serves as transfer agent and dividend
disbursing agent ("BISYS Fund Services Ohio" or the "Transfer Agent") for the
Fund pursuant to the Transfer Agency Agreement dated June 27, 1994. Pursuant to
such Agreement, the Transfer Agent, among other things, performs the following
services in connection with the Fund's Shareholders of record: maintenance of
shareholder records for the Fund's Shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of Shares of the Fund on the shareholder files and records; processing dividend
payments and reinvestments; and assistance in the mailing of shareholder reports
and proxy solicitation materials. For such services the Transfer Agent receives
a fee based on the number of shareholders of record.
In addition, BISYS Fund Services Ohio provides certain fund accounting
services to the Fund pursuant to a Fund Accounting Agreement dated June 27,
1994. BISYS Fund Services Ohio receives a fee from the Fund for such services
equal to a fee computed daily and paid periodically at an annual rate of three
one-hundredths of one percent (.03%) of the Fund's average daily net assets,
subject to a minimum annual fee of $30,000. Under such Agreement, BISYS Fund
Services Ohio maintains the accounting books and records for the Fund, including
journals containing an itemized daily record of all purchases and sales of
portfolio securities, all receipts and disbursements of cash and all other
debits and credits, general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, including interest
accrued and interest received, and other required separate ledger accounts;
maintains a monthly trial balance of all ledger accounts; performs certain
accounting services for the Fund, including calculation of the net asset value
per Share, calculation of the dividend and capital gain distributions, if any,
and of yield, reconciliation of cash movements with the Custodian, affirmation
to the Custodian of all portfolio trades and cash settlements, and verification
and reconciliation with the Custodian of all daily trade activity; provides
certain reports; obtains dealer quotations, prices from a pricing service or
matrix prices on all portfolio securities in order to mark the portfolio to the
market; and
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<PAGE> 87
prepares an interim balance sheet, statement of income and expense, and
statement of changes in net assets for the Fund.
Independent Auditors
- --------------------
Arthur Andersen LLP has been selected as auditors for the Fund for the
fiscal year ending March 31, 1998. Arthur Andersen LLP performs an annual audit
of the Fund's financial statements and provides other services related to
filings with respect to securities regulations. Reports of their activities are
provided to the Fund's Board of Trustees.
Legal Counsel
- -------------
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
is counsel to the Group.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust, organized on January 8,
1992. The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of shares, which are shares of beneficial interest,
with a par value of $0.01 per share. The Group currently has several separate
series of shares, one of which represents interests in the Fund. The Group's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued shares of the Group into one or more additional series by setting or
changing in any one or more respects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Fund's Prospectus and
this Statement of Additional Information, the shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each
B-23
<PAGE> 88
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Group voting without regard to series.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Group.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Group for acts or obligations of the Group, which
are binding only on the assets and property of the Group, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Group or the Trustees. The Declaration of Trust provides for
indemnification out of Group property for all loss and expense of any
shareholder held personally liable for the obligations of the Group. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Group itself would be unable to meet its
obligations, and thus should be considered remote.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of the Fund means the
affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a)
67% or more of the votes of Shareholders of the Fund present at a meeting at
which the holders of more than 50% of the votes attributable to Shareholders of
record of the Fund are represented in person or by proxy, or (b) the holders of
more than 50% of the outstanding votes of Shareholders of the Fund.
Additional Tax Information
- --------------------------
TAXATION OF THE FUND. The Fund intends to qualify annually and to elect
to be treated as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code").
To qualify as a regulated investment company, the Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of certain assets held less than three months (namely,
(i) stock or securities, (ii) options, futures, and forward contracts (other
than those on foreign currencies), and (iii) foreign currencies (including
options, futures, and forward contracts on such currencies) not directly related
to the Fund's principal business of investing in stock or securities (or options
and futures
B-24
<PAGE> 89
with respect to stocks or securities)) (the "30% Limitation"); (c) diversify
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash and
cash items (including receivables), U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in the
securities (other than U.S. Government securities or the securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related business; and (d) distribute at least 90% of its
investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) and its net tax-exempt interest income each taxable year.
As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to Shareholders. The Fund intends
to distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts, other than
tax-exempt interest, not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, the Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year, and (3) any ordinary
income and capital gains for previous years that were not distributed during
those years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December with a record date in such a month and paid by the Fund during January
of the following calendar year. Such distributions will be taxable to
Shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company
taxable income will be taxable to a U.S. Shareholder as ordinary income. A
portion of the Fund's income may consist of dividends paid by U.S. corporations
and, accordingly, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the Shareholder has held the Fund's
Shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the net asset value
of a Share of the Fund on the reinvestment date. Shareholders will be notified
annually as to
B-25
<PAGE> 90
the U.S. federal tax status of distributions, and Shareholders receiving
distributions in the form of additional Shares will receive a report as to the
net asset value of those Shares.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by the Fund for selling a
put or call option is not included in income at the time of receipt. If the
option expires, the premium is short-term capital gain to the Fund. If the Fund
enters into a closing transaction, the difference between the amount paid to
close out its position and the premium received is short-term capital gain or
loss. If a call option written by the Fund is exercised, thereby requiring the
Fund to sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or loss will be a
capital gain or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by the Fund, if the option is sold, any resulting gain or loss will be
a capital gain or loss, and will be long-term or short-term, depending upon the
holding period of the option. If the option expires, the resulting loss is a
capital loss and is long-term or short-term, depending upon the holding period
of the option. If the option is exercised, the cost of the option, in the case
of a call option, is added to the basis of the purchased security and, in the
case of a put option, reduces the amount realized on the underlying security in
determining gain or loss.
Certain options in which the Fund may invest may be "section 1256
contracts". Gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses ("60/40"). Also,
section 1256 contracts held by the Fund at the end of each taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
B-26
<PAGE> 91
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which, will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
The 30% Limitation and the diversification requirements applicable to
the Fund's assets may limit the extent to which the Fund will be able to engage
in transactions in options.
If the Fund invests in stock of certain foreign investment companies
directly or through ADRs, the Fund may be subject to U.S. federal income
taxation on a portion of any "excess distribution" with respect to, or gain from
the disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the Fund's holding period for the
stock. The distribution or gain so allocated to any taxable year of the Fund,
other than the taxable year of the excess distribution or disposition, would be
taxed to the Fund at the highest ordinary income rate in effect for such year,
and the tax would be further increased by an interest charge to reflect the
value of the tax deferral deemed to have resulted from the ownership of the
foreign company's stock. Any amount of distribution or gain allocated to the
taxable year of the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be taxable to the
Fund to the extent distributed by the Fund as a dividend to its Shareholders.
The Fund may be able to make an election, in lieu of being taxable in
the manner described above, to include annually in income its pro rata share of
the ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in the Fund's investment company
taxable income and net capital gain which, to the extent distributed by the Fund
as ordinary or capital gain dividends, as the case may be, would not be taxable
to the Fund. In order to make this election, the Fund would be required to
obtain certain annual information from the foreign investment companies in which
it invests, which in many cases may be difficult to obtain. The Fund may make an
election with respect to those foreign investment companies which provide the
Fund with the required information. In addition, the Fund may make other
tax-related elections as those become available.
SALE OF SHARES. Upon the sale or other disposition of Shares of the
Fund, or upon receipt of a distribution in complete liquidation of the Fund, a
Shareholder generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including Shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the Shares. In
such a case, the basis of the Shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a Shareholder on a disposition of Fund
Shares
B-27
<PAGE> 92
held by the Shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of net capital gains received
by the Shareholder with respect to such Shares. Furthermore, a loss realized by
a Shareholder on the redemption, sale or exchange of Shares of the Fund with
respect to which exempt-interest dividends have been paid will, to the extent
of such exempt-interest dividends, be disallowed if such Shares have been held
by the Shareholder for less than six months.
FOREIGN WITHHOLDING TAXES. Income received by the Fund from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
Shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Corporate
Shareholders and certain other Shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the Shareholder's U.S. federal
income tax liability.
OTHER TAXATION. The information that is set forth in the Prospectus and
in this Statement of Additional Information relating to Federal taxation is only
a summary of some of the important Federal tax considerations generally
affecting purchasers of Shares of the Fund. No attempt has been made to present
a detailed explanation of the Federal income tax treatment of the Fund or its
Shareholders and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential purchasers of Shares of the Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the Prospectus and in this Statement of
Additional Information is based on tax laws and regulations which are in effect
on the date of the Prospectus and in this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action.
Calculation of Performance Data
- -------------------------------
YIELD CALCULATIONS. As summarized in the Prospectus of the Fund under
the heading "PERFORMANCE INFORMATION", yields of the Fund will be computed by
dividing the net investment income per share (as described below) earned by the
Fund during a 30-day (or one month) period by the maximum offering price per
share on the last day of the period and annualizing the result on a semi-annual
basis by adding one to the quotient, raising the sum to the power of six,
subtracting one from the result and then doubling the difference. The Fund's net
investment income per share earned during the period is based on the average
daily number of Shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
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<PAGE> 93
Yield = 2 [( a-b + 1)to the sixth power - 1]
----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per Share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities, if
any, held by the Fund is recognized by accruing 1/360 of the stated dividend
rate of the security each day that the security is in the Fund. Interest earned
on any debt obligations held by the Fund is calculated by computing the yield to
maturity (given reasonable assumptions) of each obligation held by the Fund
based on the market value of the obligation (including actual accrued interest)
at the close of business on the last Business Day of each month, or, with
respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Fund. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of a non-mortgage-related obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, the Adviser or the Administrator may
voluntarily waive all or a portion of their fees with respect to the Fund. Such
waiver would cause the yield of the Fund to be higher than it would otherwise be
in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. As summarized in the Prospectus of the Fund
under the heading "PERFORMANCE INFORMATION", average annual total return is a
measure of the change in value of an investment in the Fund over the period
covered, which assumes any dividends or capital gains distributions are
reinvested in the Fund immediately rather than paid to the investor in cash. The
Fund computes its average annual total return by determining the
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<PAGE> 94
average annual compounded rates of return during specified periods that equate
the initial amount invested to the ending redeemable value of such investment.
This is done by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
Average Annual
Total Return = [( ERV )1/n - 1]
-------
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Fund computes its aggregate total return by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
Aggregate Total
Return = [( ERV ) - 1]
---------
P
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
For the fiscal year ended March 31, 1997, the Fund's total return was
(2.80)%. Based upon the period beginning with the Commingled Funds' commencement
of operations (January 1, 1981) through March 31, 1997, the aggregate total
return for the Fund was 896.15% and the average annual total return for the Fund
was 14.44%.
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<PAGE> 95
Performance Comparisons
- -----------------------
Investors may judge the performance of the Fund by comparing or
referencing it to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies. Such comparisons
may be made by referring to market indices such as those prepared by Dow Jones &
Co., Inc. and Standard & Poor's Corporation. Such comparisons may also be made
by referring to data prepared by Lipper Analytical Services, Inc. (a widely
recognized independent service which monitors the performance of mutual funds).
Comparisons may also be made to indices or data published in national financial
publications such as Ibottson Associates, Inc., Morningstar, CDA/Wiesenberger,
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Fortune, Institutional Investor, U.S.A. Today
and local newspapers. In addition to performance information, general
information about the Fund that appears in a publication such as those mentioned
above may be included in advertisements and in reports to Shareholders.
From time to time, the Fund may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to Shareholders. The Fund may also include calculations,
such as hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of the Fund.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Fund may
include descriptions of the investment advisers including, but not limited to,
(i) descriptions of the advisers' operations, (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
advisers' operations.
From time to time, the Fund may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including but not
limited to insured bank products, annuities, qualified retirement plans and
individual stocks and bonds) which may or may not include the Fund; (7)
comparisons of investment products (including the Fund) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations.
Current yields and total return figures will fluctuate from time to
time and are not necessarily representative of future results. Accordingly, the
Fund's yield or other performance
B-31
<PAGE> 96
may not provide for comparison with bank deposits or other investments that pay
a fixed return for a stated period of time. Yield and total return are functions
of the Fund's quality, composition and maturity, as well as expenses allocated
to the Fund.
Principal Shareholders
- ----------------------
As of July 1, 1997, no persons or entities owned beneficially or of
record 5% or more of the Fund's outstanding shares, except: Shelby County Trust
Bank, 4350 Brownsboro Road, Suite 310, Louisville, Kentucky 40207, which owned
of record 97.7% of the Fund's shares.
Miscellaneous
- -------------
Shareholders will receive unaudited Semi-Annual Reports and Annual
Reports audited by independent public accountants describing the investment
operations of the Fund. Each of these Reports, when available for a particular
fiscal year end or half-year end, is incorporated herein by reference. The Fund
may include information in its Annual Reports and Semi-Annual Reports to
Shareholders that (i) describes general economic trends, (ii) describes general
trends within the financial services industry or the mutual fund industry, (iii)
describes past or anticipated portfolio holdings for a fund within the Group or
(iv) describes investment management strategies for such funds. Such information
is provided to inform Shareholders of the activities of the Fund for the most
recent fiscal year or half-year and to provide the views of the advisers and/or
Group officers regarding expected trends and strategies.
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Shareholders owning not less than 10% of the outstanding Shares of the Group
entitled to vote may cause the Trustees to call a special meeting, including for
the purpose of considering the removal of one or more Trustees. Any Trustee may
be removed at any meeting of Shareholders by vote of two-thirds of the Group's
outstanding shares. The Declaration of Trust provides that the Trustees will
assist shareholder communications to the extent required by Section 16(c) of the
1940 Act in the event that a shareholder request to hold a special meeting is
made.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
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FINANCIAL STATEMENTS
The financial statements of the Fund appearing in the Fund's Annual
Report to Shareholders for the year ended March 31, 1997 have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report thereon. Such financial statements are incorporated herein by reference.
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PART B
STATEMENT OF ADDITIONAL INFORMATION II
BRENTON U.S. GOVERNMENT MONEY MARKET FUND
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
AND BRENTON VALUE EQUITY FUND
<PAGE> 99
Brenton U.S. Government Money Market Fund
Brenton Intermediate U.S Government Securities Fund
Brenton Value Equity Fund
Each an Investment Portfolio of
The Coventry Group
Statement of Additional Information
July 31, 1997
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for the Brenton U.S. Government Money Market
Fund (the "Money Market Fund"), the Brenton Intermediate U.S. Government
Securities Fund (the "Intermediate Government Fund") and the Brenton Value
Equity Fund (the "Equity Fund"), each dated the same date as the date hereof
(the "Prospectus"), hereinafter referred to collectively as the "Funds" and
singly, a "Fund". The Funds are four separate investment portfolios of The
Coventry Group (the "Group"), an open-end management investment company. This
Statement of Additional Information is incorporated in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing the Funds at
3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning toll free (800)
706-FUND.
<PAGE> 100
TABLE OF CONTENTS
-----------------
Page
----
THE COVENTRY GROUP....................................................... B-1
INVESTMENT OBJECTIVE AND POLICIES........................................ B-1
Additional Information on Portfolio Instruments................. B-1
Investment Restrictions......................................... B-15
Portfolio Turnover.............................................. B-16
NET ASSET VALUE.......................................................... B-16
Valuation of the Money Market Fund.............................. B-17
Valuation of the Intermediate Government Fund
and the Equity Fund........................................... B-18
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................... B-19
Matters Affecting Redemption.................................... B-19
MANAGEMENT OF THE GROUP.................................................. B-19
Trustees and Officers........................................... B-19
Investment Adviser and Sub-Adviser.............................. B-22
Portfolio Transactions.......................................... B-24
Banking Laws.................................................... B-26
Administrator................................................... B-26
Expenses........................................................ B-28
Distributor..................................................... B-29
Custodian....................................................... B-31
Transfer Agency and Fund Accounting Services.................... B-31
Independent Auditors............................................ B-32
Legal Counsel................................................... B-32
ADDITIONAL INFORMATION................................................... B-32
Description of Shares........................................... B-32
Vote of a Majority of the Outstanding Shares.................... B-34
Additional Tax Information...................................... B-34
Yields and Total Returns of the Money Market Fund............... B-42
Yields and Total Returns of the Intermediate Government Fund
and the Equity Fund........................................... B-43
B-2
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Performance Comparisons......................................... B-47
Principal Shareholders.......................................... B-48
Miscellaneous................................................... B-49
FINANCIAL STATEMENTS..................................................... B-50
APPENDIX................................................................. A-1
B-3
<PAGE> 102
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. The portfolios advised by Brenton
Bank (the "Adviser") are each referred to generally as a "Fund". This Statement
of Additional Information deals with the four Funds, the Brenton U.S. Government
Money Market Fund, the Brenton Intermediate U.S. Government Securities Fund and
the Brenton Value Equity Fund. Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
Prospectus of the Funds. Capitalized terms not defined herein are defined in
such Prospectus. No investment in Shares of a Fund should be made without first
reading the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies
of the Funds as set forth in their respective Prospectuses.
BANK OBLIGATIONS. The Equity Fund and the Intermediate Government Fund
may invest in bank obligations such as bankers' acceptances, certificates of
deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic banks and savings and loan
associations, if (a) at the time of investment the depository institution has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
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<PAGE> 103
The Equity Fund and the Intermediate Government Fund may purchase
commercial paper consisting of issues rated at the time of purchase in one of
the two highest rating categories assigned by an NRSRO or that is not rated but
is determined by the Adviser under guidelines established by the Group's Board
of Trustees, to be of comparable quality.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which each of the Funds may invest, are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic
readjustments in the interest rate according to the terms of the instrument.
They are also referred to as variable rate demand notes. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
may demand payment of principal and accrued interest at any time or during
specified periods not exceeding one year, depending upon the instrument
involved, and may resell the note at any time to a third party. The Adviser will
consider the earning power, cash flow, and other liquidity ratios of the issuers
of such notes and will continuously monitor their financial status and ability
to meet payment on demand. In determining the dollar weighted average portfolio
maturity, a variable amount master demand note will be deemed to have a maturity
equal to the longer of the period of time remaining until the next interest rate
readjustment or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
VARIABLE AND FLOATING RATE NOTES. The Intermediate Government Fund and
the Money Market Fund may acquire variable and floating rate notes, subject to
each Fund's investment objective, policies and restrictions. A variable rate
note is one whose terms provide for the readjustment of its interest rate on set
dates and which, upon such adjustment, can reasonably be expected to have a
market value that approximates its par value. A floating rate note is one whose
terms provide for the readjustment of its interest rate whenever a specified
interest rate changes and which, at any time, can reasonably be expected to have
a market value that approximates its par value. Such notes are frequently not
rated by credit rating agencies; however, unrated variable and floating rate
notes purchased by a Fund will be determined by the Adviser under guidelines
approved by the Group's Board of Trustees to be of comparable quality at the
time of purchase to rated instruments eligible for purchase under the Fund's
investment policies. In making such determinations, the Adviser will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
notes (such issuers include financial, merchandising, bank holding and other
companies and government agencies) and will continuously monitor their financial
condition. Although there may be no active secondary market with respect to a
particular variable or floating rate note purchased by a Fund, the Fund may
resell the note any time to a third party. The absence of an active secondary
market, however, could make it difficult for the Fund to dispose of a variable
or floating rate note in the event the issuer of the note defaulted on its
payment obligations and the Fund could, as a result or for other reasons, suffer
a loss to the extent of the default. Variable or floating rate notes may be
secured by bank letters of credit or drafts.
U.S. GOVERNMENT OBLIGATIONS. The Money Market Fund will invest
primarily in short-term U.S. Treasury bills, notes and other obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities
including "stripped" U.S. Treasury obligations
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<PAGE> 104
("Stripped Treasury Securities") subject to its investment objective and
policies (collectively, "U.S. Government Obligations"). The Intermediate
Government Fund and the Equity Fund may also invest in U.S. Government
Obligations. Obligations of certain agencies and instrumentalities of the U.S.
Government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law. A Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
STRIPPED TREASURY SECURITIES. Stripped Treasury Securities are U.S.
Treasury securities that have been stripped of their unmatured interest coupons
(which typically provide for interest payments semi-annually), interest coupons
that have been stripped from such U.S. Treasury securities, and receipts and
certificates for such stripped debt obligations and stripped coupons. Stripped
bonds and stripped coupons are sold at a deep discount because the buyer of
those securities receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest payments on
the security.
Stripped Treasury Securities will include coupons that have been
stripped from U.S. Treasury bonds, which may be held through the Federal Reserve
Bank's book-entry system called "Separate Trading of Registered Interest and
Principal of Securities" ("STRIPS") or through a program entitled "Coupon Under
Book-Entry Safekeeping" ("CUBES").
The U.S. Government does not issue Stripped Treasury Securities
directly. The STRIPS program, which is ongoing, is designed to facilitate the
secondary market in the stripping of selected U.S. Treasury notes and bonds into
separate interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.
CUBES, like STRIPS, are direct obligations of the U.S. Government.
CUBES are coupons that have previously been physically stripped from U.S.
Treasury notes and bonds, but which were deposited with the Federal Reserve
Bank's book-entry system and are now carried and transferable in book-entry form
only. Only stripped U.S. Treasury coupons maturing on or after January 15, 1988,
that were stripped prior to January 5, 1987, were eligible for conversion to
book-entry form under the CUBES program.
By agreement, the underlying debt obligations will be held separate
from the general assets of the custodian and nominal holder of such securities,
and will not be subject to any right, charge, security interest, lien or claim
of any kind in favor of or against the custodian or any person
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<PAGE> 105
claiming through the custodian, and the custodian will be responsible for
applying all payments received on those underlying debt obligations to the
related receipts or certificates without making any deductions other than
applicable tax withholding. The custodian is required to maintain insurance for
the protection of holders of receipts or certificates in customary amounts
against losses resulting from the custody arrangement due to dishonest or
fraudulent action by the custodian's employees. The holders of receipts or
certificates, as the real parties in interest, are entitled to the rights and
privileges of the underlying debt obligations, including the right, in the event
of default in payment of principal or interest to proceed individually against
the issuer without acting in concert with other holders of those receipts or
certificates or the custodian.
FOREIGN INVESTMENTS. The Equity Fund may, subject to its investment
objective and policies, invest up to 10% of its total assets in certain
obligations or securities of foreign issuers. Permissible investments include
sponsored and unsponsored American Depository Receipts ("ADRs"). Investment in
securities issued by foreign branches of U.S. banks, foreign banks, or other
foreign issuers, including ADRs may subject the Fund to investment risks that
differ in some respects from those related to investment in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, possible seizure, nationalization, or expropriation of foreign
investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, and the adoption of other
foreign governmental restrictions.
Additional risks include less publicly available information, the risk
that companies may not be subject to the accounting, auditing and financial
reporting standards and requirements of U.S. companies, the risk that foreign
securities markets may have less volume and therefore many securities traded in
these markets may be less liquid and their prices more volatile than U.S.
securities, and the risk that custodian and brokerage costs may be higher.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks.
CALL OPTIONS. The Equity Fund may write (sell) "covered" call options
and purchase options to close out options previously written by it. Such options
must be listed on a National Securities Exchange and issued by the Options
Clearing Corporation. The purpose of writing covered call options is to generate
additional premium income for the Equity Fund. This premium income will serve to
enhance the Fund's total return and will reduce the effect of any price decline
of the security involved in the option. Covered call options will generally be
written on securities which, in the Adviser's opinion, are not expected to make
any major price moves in the near future but which, over the long term, are
deemed to be attractive investments for the Equity Fund.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to deliver the underlying
security against payment of the exercise price. This obligation terminates upon
the expiration of the call option,
B-7
<PAGE> 106
or such earlier time at which the writer effects a closing purchase transaction
by repurchasing an option identical to that previously sold. To secure his
obligation to deliver the underlying security in the case of a call option, a
writer is required to deposit in escrow the underlying security or other assets
in accordance with the rules of the Options Clearing Corporation. The Equity
Fund will write only covered call options.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with the Equity
Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Equity Fund
will not do), but capable of enhancing the Equity Fund's total return. When
writing a covered call option, the Equity Fund, in return for the premium, gives
up the opportunity for profit from a price increase in the underlying security
above the exercise price, but retains the risk of loss should the price of the
security decline. Unlike one who owns securities not subject to an option, the
Equity Fund has no control over when it may be required to sell the underlying
securities, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Equity Fund
has written expires, the Equity Fund will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security during the option period. If the call option is
exercised, the Equity Fund will realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of the Equity Fund's Custodian. The Equity Fund does not
consider a security covered by a call to be "pledged" as that term is used in
each Fund's policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Equity Fund will receive from writing a call option will reflect, among other
things, the current market price of the underlying security, the relationship of
the exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser, in determining whether a
particular call option should be written on a particular security, will consider
the reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for such option. The premium received by the Equity
Fund for writing covered call options will be recorded as a liability in the
Equity Fund's statement of assets and liabilities. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Equity Fund
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The liability will be extinguished upon expiration
of the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If the Equity Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the
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<PAGE> 107
security. There is, of course, no assurance that the Equity Fund will be able to
effect such closing transactions at a favorable price. If the Equity Fund cannot
enter into such a transaction, it may be required to hold a security that it
might otherwise have sold, in which case it would continue to be at market risk
on the security. This could result in higher transaction costs. The Equity Fund
will pay transaction costs in connection with the writing of options to close
out previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Equity Fund will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities at the time the options are written. From time to time,
the Equity Fund may purchase an underlying security for delivery in accordance
with an exercise notice of a call option assigned to it, rather than delivering
such security from its portfolio. In such cases, additional costs will be
incurred.
The Equity Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Equity Fund.
PUT OPTIONS The Intermediate Government Fund may acquire "puts" with
respect to debt securities held in its portfolio. A put is a right to sell or
redeem a specified security (or securities) at a certain time or within a
certain period of time at a specified exercise price. The put may be an
independent feature or may be combined with a reset feature that is designed to
reduce downward price volatility as interest rates rise by enabling the holder
to liquidate the investment prior to maturity.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities subject to the put (excluding
any accrued interest which the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the
portfolio assets. Puts may also be used to facilitate the reinvestment of assets
at a rate of return more favorable than that of the underlying security. Puts
may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of a Fund's assets.
The Intermediate Government Fund will, if necessary or advisable, pay
for puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
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<PAGE> 108
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, each of the
Funds may purchase securities on a when-issued or delayed-delivery basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date 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 such
securities or start earning interest on them until they are received. When a
Fund agrees to purchase securities on a when-issued basis, the Custodian will
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally, the Custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such a case, the
Fund may be required subsequently to place additional assets in the separate
account in order to assure that the value of the account remains equal to the
amount of the Fund's commitment. It may be expected that the Fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. In addition,
because a Fund will set aside cash or liquid portfolio securities to satisfy its
purchase commitments in the manner described above, the Fund's liquidity and the
ability of the Adviser to manage it might be affected in the event its
commitments to purchase when-issued securities ever exceeded 25% of the value of
its total assets.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing the opportunity to obtain a price considered to
be advantageous. The Funds will engage in when issued delivery transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives, policies and restrictions, not for investment leverage.
MORTGAGE-RELATED SECURITIES. The Intermediate Government Fund may,
consistent with its investment objectives, policies and restrictions, invest in
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Mortgage-related securities, for purposes of the
Funds' Prospectus and this Statement of Additional Information, represent pools
of mortgage loans assembled for sale to investors by various governmental
agencies such as the Government National Mortgage Association and
government-related organizations such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, as well as by
nongovernmental issuers such as commercial banks, savings and loan institutions,
mortgage bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. Conversely,
when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the average life of the security and lengthening the period
of time over which income at the lower rate is received. For these and
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<PAGE> 109
other reasons, a mortgage-related security's average maturity may be shortened
or lengthened as a result of interest rate fluctuations and, therefore, it is
not possible to predict accurately the security's return to a Fund. In addition,
regular payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow Funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. The
FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the principal
and interest by FNMA. Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
The Intermediate Government Fund may invest in mortgage-related
securities which are collateralized mortgage obligations ("CMOs") structured on
pools of mortgage pass-through certificates or mortgage loans. The CMOs in which
the Intermediate Government Fund may invest represent securities issued by a
private corporation or a U.S. Government instrumentality that are backed by a
portfolio of mortgages or mortgage-backed securities held under an indenture.
The issuer's obligations to make interest and principal payments is secured by
the underlying portfolio of mortgages or mortgage-backed securities. CMOs are
issued with a number of classes or series which have different maturities and
which may represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of a CMO first to mature generally will be retired prior to
its maturity. Thus, the
B-11
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early retirement of a particular class or series of a CMO held by a Fund would
have the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security. Mortgage-related securities will be purchased only if
rated within the three highest bond rating categories assigned by an NRSRO or,
if unrated, which The Adviser deems to present attractive opportunities and are
of comparable quality.
OTHER ASSET-BACKED SECURITIES. The Intermediate Government Fund may
also invest in interests in pools of receivables, such as motor vehicle
installment purchase obligations (known as Certificates of Automobile
Receivables or CARSSM) and credit card receivables (known as Certificates of
Amortizing Revolving Debts or CARDS (SM). Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments which are also known as collateralized obligations and are generally
issued as the debt of a special purpose entity organized solely for the purpose
of owning such assets and issuing such debt.
Such securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
(such as a bank or insurance company) unaffiliated with the issuers of such
securities. Non-mortgage backed securities will be purchased by the Intermediate
Government Fund only when rated within the three highest rating categories by an
NRSRO at the time of purchase. In addition, such securities generally will have
remaining estimated lives at the time of purchase of 7 years or less.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by the other investment companies. Each of the Funds currently
intend to limit its investments so that, as determined immediately after a
securities purchase is made: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of all investment companies; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by any of
the Funds; and (d) not more than 10% of the outstanding voting stock of any one
investment company will be owned in the aggregate by the Funds. As a shareholder
of another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the Fund
bears directly in connection with its own operations. Investment companies in
which a Fund may invest may also impose a sales or distribution charge in
connection with the purchase or redemption of their shares and other types of
commissions or charges. Such charges will be payable by the Funds and,
therefore, will be borne directly by Shareholders.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers which the Adviser deems creditworthy
under guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and
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<PAGE> 111
price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain continually the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). If the seller were to default on its
repurchase obligation or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Additionally, there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under the
regular procedures normally in effect for custody of a Fund's securities subject
to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by that Fund's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with that
Fund's investment restrictions. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase the securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, it will place in
a segregated custodial account assets such as U.S. Government securities or
other liquid, high grade debt securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act.
MUNICIPAL SECURITIES. Municipal Securities include debt obligations
issued by governmental entities to obtain funds for various public purposes,
such as the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to other public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Municipal Securities
if the interest paid thereon is exempt from federal individual income taxes and
is not treated as a preference item for purposes of the federal alternative
minimum tax.
Other types of Municipal Securities include short-term General
Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue
Anticipation Notes, Tax-Exempt Commercial Paper, Project Notes, Construction
Loan Notes and other forms of short-term tax-
B-13
<PAGE> 112
exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
The two principal classifications of Municipal Securities consist of
"general obligation" and "revenue" issues. The Funds may also acquire "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Municipal Securities, both
within a particular classification and between classifications, and the yields
on Municipal Securities depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of NRSROs
represent their opinions as to the quality of Municipal Securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and securities with the same maturity, interest rate and rating may
have different yields, while securities of the same maturity and interest rate
with different ratings may have the same yield. Subsequent to purchase, an issue
of Municipal Securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by a Fund. The Adviser will consider
such an event in determining whether the Fund should continue to hold the
obligation.
An issuer's obligations for Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
for the payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
Investment Restrictions
- -----------------------
The following are fundamental investment restrictions and are in
addition to the investment restrictions set forth in the Prospectus. Under these
restrictions a Fund may not:
1. Underwrite securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under
certain securities laws in the disposition of "restricted
securities";
2. Purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of the
Funds;
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<PAGE> 113
3. Purchase or sell real estate (although investments by the
Equity Fund and the Intermediate Government Fund in marketable
securities of companies engaged in such activities are not
prohibited by this restriction);
The following additional investment restrictions are not fundamental
and may be changed with respect to a particular Fund without the vote of a
majority of the outstanding Shares of that Fund. A Fund may not:
1. Enter into repurchase agreements with maturities in excess of
seven days if such investments, together with other
instruments in that Fund that are not readily marketable or
are otherwise illiquid, exceed 15% of that Fund's total assets
(10% of total assets in the case of the Money Market Fund).
2. Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio
securities;
3. Engage in any short sales;
4. Purchase participation or direct interests in oil, gas or
other mineral exploration or development programs (although
investments by the Equity Fund and the Intermediate Government
Fund in marketable securities of companies engaged in such
activities are not prohibited in this restriction);
5. Purchase securities of other investment companies, except (a)
in connection with a merger, consolidation, acquisition or
reorganization, and (b) a Fund may invest in other investment
companies, including other Funds for which the Adviser acts as
investment adviser, as specified in the Prospectus subject to
such restrictions as may be imposed by the 1940 Act or any
state laws.
6. With respect to the Equity Fund and the Intermediate
Government Fund, invest more than 5% of total assets in
securities of issuers which together with any predecessors
have a record of less than three years continuous operation.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose remaining maturities at the time of
acquisition were one year or less. Portfolio turnover for any of the Funds may
vary greatly from year to year as well as within a particular year. High
turnover rates will generally result in
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<PAGE> 114
higher transaction costs to a Fund. Portfolio turnover will not be a limiting
factor in making investment decisions.
Because the Money Market Fund intends to invest entirely in securities
with maturities of less than 397 days and because the Commission requires such
securities to be excluded from the calculation of the portfolio turnover rate,
the portfolio turnover with respect to the Money Market Fund is expected to be
zero percent for regulatory purposes.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Times
applicable to such Fund on each Business Day of the Group. A "Business Day"
constitutes Monday through Friday except (i) days on which there are not
sufficient changes in the value of a Fund's portfolio securities that the Fund's
net asset value might be materially affected; (ii) days on which no Shares of a
Fund are tendered for redemption and no order to purchase any Shares is
received; (iii) the following federal holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day; and (iv) Good Friday.
Valuation of the Money Market Fund
- ----------------------------------
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Money Market Fund would receive if it sold the instrument.
The value of securities in the Money Market Fund can be expected to vary
inversely with changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Fund's objective
of maintaining a stable net asset value per share, provided that the Fund will
not purchase securities with a remaining maturity of more than 397 days
(thirteen months) (securities subject to repurchase agreements and certain
variable or floating rate obligations may bear longer maturities) nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. The Group's
Board of Trustees has also undertaken to establish procedures reasonably
designed, taking into account current market conditions and the investment
objective of the Fund, to stabilize the net asset value per share of the Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per Share of the Fund calculated by
using available market quotations deviates from $1.00 per Share. In the event
such deviation exceeds one-half of one percent, Rule 2a-7 requires that the
Board of Trustees promptly consider what action, if any, should be initiated. If
the Trustees believe that the extent of any deviation from the Fund's $1.00
amortized cost price per Share may result in material dilution or other unfair
results to new or existing investors, they will take such
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<PAGE> 115
steps as they consider appropriate to eliminate or reduce, to the extent
reasonably practicable, any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the average
portfolio maturity, withholding or reducing dividends, reducing the number of
the Money Market Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per share determined by using available market
quotations.
Valuation of the Intermediate Government Fund and the Equity Fund
- -----------------------------------------------------------------
Portfolio securities for which market quotations are readily available
are valued based upon 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 readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including
restricted securities and securities purchased in private transactions, are
valued at their fair value in the Adviser's best judgment under the supervision
of the Group's Board of Trustees. Investments in debt securities with remaining
maturities of 60 days or less may be valued based upon the amortized cost
method.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Intermediate Government Fund and the Equity
Fund are the existence of restrictions upon the sale of the security by the
Fund, the absence of a market for the security, the extent of any discount in
acquiring the security, the estimated time during which the security will not be
freely marketable, the expenses of registering or otherwise qualifying the
security for public sale, underwriting commissions if underwriting would be
required to effect a sale, the current yields on comparable securities for debt
obligations traded independently of any equity equivalent, changes in the
financial condition and prospects of the issuer, and any other factors affecting
fair value. In making valuations, opinions of counsel may be relied upon as to
whether or not securities are restricted securities and as to the legal
requirements for public sale.
The Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will be reviewed by the Group under the
general supervision of the Group's Board of Trustees. Several pricing services
are available, one or more of which may be used by the Adviser from time to
time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
- ----------------------------
Shares in each of the Funds are sold on a continuous basis by BISYS
Fund Services Limited Partnership d/b/a BISYS Fund Services (the "Distributor")
and BISYS Fund Services has agreed to use appropriate efforts to solicit all
purchase orders. In addition to purchasing Shares
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<PAGE> 116
directly from the Distributor, Shares may be purchased through procedures
established by BISYS Fund Services in connection with the requirements of
accounts at Brenton Bank, or its affiliated entities (collectively, "Banks").
Customers purchasing Shares of the Funds may include officers, directors, or
employees of the Banks.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension for
the protection of security holders of the Group, or (d) the Commission has
determined that an emergency exists as a result of which (i) disposal by the
Group of securities owned by it is not reasonably practical, or (ii) it is not
reasonably practical for the Group to determine the fair value of its net
assets.
The Group may redeem Shares of each of the Funds involuntarily if
redemption appears appropriate in light of the Group's responsibilities under
the 1940 Act. See "NET ASSET VALUE" in this Statement of Additional Information.
MANAGEMENT OF THE COMPANY
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board
of Trustees, which is elected by the Shareholders of the Group. The Trustees
elect the officers of the Group to supervise actively its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
ages and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held With Principal Occupation During
Name, Address and Age the Group Past 5 Years
--------------------- --------- ------------
<S> <C> <C>
Walter B. Grimm* Chairman, President and Trustee From June 1992 to present, employee of
3435 Stelzer Road BISYS Fund Services; from 1987 to
Columbus, Ohio 43219 June 1992, President of Leigh Invest-
Age: 51 ments (investment firm).
Maurice G. Stark Trustee Retired. Until December 31, 1994, Vice
505 King Avenue President-Finance and Treasurer, Battelle
Columbus, Ohio 43201 Memorial Institute (scientific research
Age: 61 and development service corporation).
</TABLE>
B-18
<PAGE> 117
<TABLE>
<S> <C> <C>
Michael M. Van Buskirk Trustee From June 1991 to present, Executive Vice
37 West Broad Street President of The Ohio Bankers'
Suite 1001 Association (trade association); from
Columbus, Ohio 43215-4162 September 1987 to June 1991, Vice
Age: 49 President - Communications, TRW
Information Systems Group (electronic
and space engineering).
Chalmers P. Wylie Trustee From April 1993 to present, Of Counsel,
754 Stonewood Court Kegler Brown Hill & Ritter; from January
Columbus, Ohio 43235 1993 to present, Adjunct Professor, Ohio
Age: 76 State University; from January 1967 to
January 1993, member of the United States
House of Representatives for the 15th
District of Ohio
Nancy E. Converse* Trustee and Assistant From July 1990 to present,
3435 Stelzer Road Secretary employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 47
J. David Huber Vice President From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, Ohio 43219
Age: 51
Thresa Dewar Treasurer From March 1997 to present, employee of
3435 Stelzer Road BISYS Fund Services; from September, 1994
Columbus, Ohio 43219 to March 1997, Independent Consultant;
Age: 41 from April 1975 to September 1994, employee
of Federated Investors, Inc.
George L. Stevens Secretary From September 1996 to present, employee
3435 Stelzer Road of BISYS Fund Services; from September
Columbus, Ohio 43219 1995 to September 1996, Independent
Age: 46 Consultant; from September 1989 to
September 1995, Senior Vice President,
AmSouth Bank, N.A.
</TABLE>
B-19
<PAGE> 118
<TABLE>
<S> <C> <C>
Alaina V. Metz Assistant Secretary From June 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May 1989 to
Columbus, Ohio 43219 June 1995, employee of Alliance Capital
Age: 29 Management.
Richard B. Ille Assistant Secretary From July 1990 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, Ohio 43219
Age: 32
James L. Smith Assistant Secretary From October 1996 to present, employee of
3435 Stelzer Road BISYS Fund Series; from employee of BISYS
Columbus, Ohio 43219 Fund Services; from October 1995 to October
Age: 37 1996, employee of Davis Graham & Stubbs LLP,
from June 1990 to October 1995, Compliance
Officer for ALPS Mutual Services, Inc.
D'Ray Moore Assistant Secretary From February 1990 to present, employee
3435 Stelzer Road of BISYS Fund Services.
Columbus, Ohio 43219
Age: 38
Brenda J. Bittermann Assistant Secretary From February 1996 to present, employee
3435 Stelzer Road of BISYS Fund Services; from August 1992
Columbus, Ohio 43219 to January 1996, Manager; Banc One
Age: 44 Securities Corp.; from November 1990 to
August 1992, employee of BISYS Fund
Services.
- ---------------
<FN>
* Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
</TABLE>
As of the date of this Statement of Additional Information, the Group's
officers and Trustees, as a group, own less than 1% of the Funds' outstanding
Shares.
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services receives
fees from the Funds for acting as Administrator. BISYS Fund Services Ohio, Inc.
receives fees from the Funds for acting as transfer agent and for providing
certain fund accounting services. Messrs. Huber, Stevens, Grimm, Ille and Smith
and Ms. Converse, Ms. Bittermann, Ms. Moore, Ms. Dewar and Ms. Metz are
employees of BISYS Fund Services.
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<PAGE> 119
Trustees of the Group not affiliated with BISYS Fund Services receive
from the Group an annual fee of $1,000, plus $2,250 for each regular meeting of
the Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
For the fiscal year ended March 31, 1997, the Trustees received the
following compensation from the Group and from certain other investment
companies (if applicable) that have the same investment adviser as the Funds or
an investment adviser that is an affiliated person of the Group's investment
adviser:
<TABLE>
<CAPTION>
Pension or Est. Annual Total Compensation
Aggregate Retirement Benefits Benefits From Registrant
Compensation Accrued As Part of Upon and Fund Complex
Name of Trustee from the Funds Fund Expenses Retirement Paid to Trustees
- --------------- -------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Nancy E. Converse $0 $0 $0 $0
Walter B. Grimm $0 $0 $0 $0
Maurice G. Stark $1119.74 $0 $0 $8980.20
Michael Van Buskirk $1119.74 $0 $0 $8980.20
Chalmers P. Wylie $1119.74 $0 $0 $8980.20
</TABLE>
Investment Adviser and Sub-Adviser
- ----------------------------------
Investment advisory services are provided by Brenton Bank, Des Moines,
Iowa, pursuant to an Investment Advisory Agreement dated as of August 8, 1994
(the "Investment Advisory Agreement").
Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services as described in the Prospectus of the
Funds. For the services provided pursuant to the Investment Advisory Agreement,
each of the Funds pays the Adviser a fee computed daily and paid monthly, at the
following annual rates: Money Market Fund - forty one-hundredths of one percent
(.40%) of the Fund's first $250 million in net assets and thirty one-hundredths
of one percent (.30%) of the Fund's net assets in excess of $250 million;
Intermediate Government Fund -fifty one-hundredths of one percent (.50%) of the
Fund's first $25 million in net assets and thirty one-hundredths of one percent
(.30%) of the Fund's net assets in excess of $25 million; and Equity Fund -
seventy four one-hundredths of one percent (.74%) of the Fund's first $25
million of net assets and sixty one-hundredths of one percent (.60%) of the
Fund's net assets in excess of $25 million.
The total investment advisory fees paid to Brenton Bank for each of the
last three fiscal years is as follows:
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<PAGE> 120
Money Market Fund - for the fiscal year ended March 31, 1995, the
Adviser earned investment advisory fees of $74,558 and voluntarily waived
investment advisory fees of $35,849; for the fiscal year ended March 31, 1996,
the Adviser earned investment advisory fees of $139,512 and voluntarily waived
investment advisory fees of $87,172; and for the fiscal year ended March 31,
1997, the Adviser earned investment advisory fees of $127,413 and voluntarily
waived investment advisory fees of $79,694.
Intermediate Government Fund - for the fiscal year ended March 31,
1995, the Adviser earned investment advisory fees of $41,971 and voluntarily
waived investment advisory fees of $0; for the fiscal year ended March 31, 1996,
the Adviser earned investment advisory fees of $137,790 and voluntarily waived
investment advisory fees of $3,980; and for the fiscal year ended March 31,
1997, the Adviser earned investment advisory fees of $151,209, and voluntarily
waived investment advisory fees of $0.
Equity Fund - for the fiscal year ended March 31, 1995, the Adviser
earned investment advisory fees of $57,613 and voluntarily waived investment
advisory fees of $0; for the fiscal year ended March 31, 1996, the Adviser
earned investment advisory fees of $172,324 and voluntarily waived investment
advisory fees of $1,888; and for the fiscal year ended March 31, 1997, the
Adviser earned investment advisory fees of $257,306, and voluntarily waived
investment advisory fees of $0.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each Fund until February 28, 1998 and from year to year
thereafter, if such continuance is approved at least annually by the Group's
Board of Trustees or by vote of a majority of the outstanding Shares of the
relevant Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the
Funds' Prospectus), and a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement by votes cast in person at a
meeting called for such purpose. The Investment Advisory Agreement is terminable
as to a Fund at any time on 60 days' written notice without penalty by the
Trustees, by vote of a majority of the outstanding Shares of that Fund, or by
the Adviser. The Investment Advisory Agreement also terminates automatically in
the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
The Northern Trust Company, Chicago, Illinois (the "Sub-Adviser"),
provides sub-investment advisory services to the Money Market Fund pursuant to a
Sub-Advisory Agreement dated as of August 8, 1994 (the "Sub-Advisory
Agreement"). The terms and conditions of the Sub-Advisory Agreement are
substantially identical to those of the Investment Advisory
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<PAGE> 121
Agreement. For the services provided pursuant to the Sub-Advisory Agreement, the
Adviser pays the Sub-Adviser a fee computed daily and paid monthly, at an annual
rate, calculated as a percentage of the average daily net asset value of the
Money Market Fund of 0.08%. The Sub-Adviser is an Illinois state-chartered
commercial bank and the principal subsidiary of Northern Trust Corporation, a
bank holding company. For the fiscal year ended March 31, 1995, the Sub-Adviser
earned sub-advisory fees of $14,912, for the fiscal year ended March 31, 1996,
the Sub-Adviser earned sub-advisory fees of $27,907; and for the fiscal year
ended March 31, 1997, the Sub-Adviser earned sub-advisory fees of $_________.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute such Fund's portfolio transactions. Purchases and sales of
portfolio securities with respect to the Funds usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities generally include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers may include the spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. Transactions in the over-the-counter market are generally principal
transactions with dealers. With respect to the over-the-counter market, the
Adviser, where possible, will deal directly with dealers who make a market in
the securities involved except in those circumstances where better price and
execution are available elsewhere.
The Group, on behalf of the Funds, will not execute portfolio
transactions through, acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with the
Adviser, the Sub-Adviser, BISYS Fund Services, or their affiliates, and will not
give preference to the Adviser's or the Sub-Adviser's correspondents with
respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for the other Funds or any other investment company or account managed by the
Adviser. Any such other Fund, investment company or account may also invest in
the same securities as the Group on behalf of the Funds. When a purchase or sale
of the same security is made at substantially the same time on behalf of more
than one Fund or a Fund and another investment company or account, the
transaction will be averaged as to price, and available investments will be
allocated as to amount in a manner which the Adviser believes to be equitable to
the Fund(s) and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by a Fund. To the extent permitted by
law, the Adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for the other Funds or for other investment
companies or accounts in order to obtain best execution. As provided by the
Investment Advisory Agreement,
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<PAGE> 122
in making investment recommendations for the Funds, the Adviser will not inquire
or take into consideration whether an issuer of securities proposed for purchase
or sale by the Funds is a customer of the Adviser its parent or its subsidiaries
or affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Funds.
For the fiscal years ended March 31, 1995, 1996 and 1997, only the
Equity Fund paid any brokerage commissions, which commissions amounted to
$3,082.23, $60,705 and $28,365.80, respectively. None of these commissions were
paid to any affiliate of the Funds, the Adviser or the Sub-Adviser.
Banking Laws
- ------------
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the Prospectus, this Statement of
Additional Information, the Investment Advisory Agreement, and Rule 12b-1
Agreement described below without violation of applicable statutes and
regulations. The Adviser has been advised by its counsel that, while the
question is not free from doubt, such laws should not prevent the Adviser from
providing the services required of it under the Investment Advisory Agreement
and Rule 12b-1 Agreement. Future changes in either federal or state statutes and
regulations relating to the permissible activities of banks or bank holding
companies and the subsidiaries or affiliates of those entities, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent or restrict the Adviser from
continuing to perform such services for the Funds. Depending upon the nature of
any changes in the services which could be provided by the Adviser, the Board of
Trustees of the Group would review the Funds' relationship with the Adviser and
consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or its affiliated and
correspondent banks in connection with Customer purchases of Shares of the
Funds, those banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that any
change in the Group's method of operations would affect its net asset value per
share or result in financial losses to any Customer.
Administrator
- -------------
BISYS Fund Services serves as administrator (the "Administrator") to
the Funds pursuant to a Management and Administration Agreement dated August 8,
1994 (the "Administration Agreement"). The Administrator assists in supervising
all operations of each Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, the Sub-Adviser under the Sub-Advisory Agreement,
the Custodian under the Custodian Agreement and by BISYS Fund Services Ohio
under the Transfer Agency Agreement and Fund Accounting Agreement). The
Administrator is a broker-dealer registered with the Commission, and is a member
of the National Association of Securities Dealers, Inc.
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<PAGE> 123
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Funds with each Fund's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts and records of each Fund, including calculation of daily
expense accruals; and generally assists in all aspects of the Funds' operations
other than those performed by the Adviser, the Sub-Adviser, the Custodian and by
BISYS Fund Services Ohio under the Transfer Agency Agreement and Fund Accounting
Agreement. Under the Administration Agreement, the Administrator may delegate
all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
which fee is calculated daily and paid periodically, at an annual rate equal to
twenty one-hundredths of one percent (.20%) of each Fund's average daily net
assets.
The total administrative fees paid to the Administrator for each of the
last three fiscal years is as follows:
Money Market Fund - for the fiscal year ended March 31, 1995, the
Administrator earned administrative fees of $37,279; for the fiscal year ended
March 31, 1996 the Administrator earned administrative fees of $69,756; and for
the fiscal year ended March 31, 1997, the Administrator earned administrative
fees of $63,625.
Intermediate Government Fund - for the fiscal year ended March 31,
1995, the Administrator earned administrative fees of $16,788; for the fiscal
year ended March 31, 1996 the Administrator earned administrative fees of
$58,526; and for the fiscal year ended March 31, 1997, the Administrator earned
administrative fees of $67,546.
Equity Fund - for the fiscal year ended March 31, 1995, the
Administrator earned administrative fees of $15,571; for the fiscal year ended
March 31, 1996 the Administrator earned administrative fees of $46,574; and for
the fiscal year ended March 31, 1997, the Administrator earned administrative
fees of $74,135.
Unless sooner terminated as provided therein, the Administration
Agreement will continue in effect until February 28, 1998. The Administration
Agreement thereafter shall be renewed automatically for successive five-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the
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<PAGE> 124
Administration Agreement) by the party alleging cause, on not less than 60 days'
notice by the Group's Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
any of the Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
Expenses
- --------
The Adviser and the Administrator each bear all expenses in connection
with the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions) purchased for the Funds. Each Fund will bear expenses relating to
its respective operations including the following: taxes, interest, brokerage
fees and commissions, fees and travel expenses of the Trustees, Securities and
Exchange Commission fees, state securities qualification expenses, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to current Shareholders, outside auditing and legal expenses, advisory and
administration fees, fees and out-of-pocket expenses of the custodian and
transfer agent, expenses incurred for pricing securities owned by each
respective Fund, insurance premiums, costs of maintenance of the Group's
existence, costs of Shareholders' reports and meetings, proxy solicitation
expenses, costs of Board of Trustees meetings and any extraordinary expenses
incurred in each Fund's operation.
Distributor
- -----------
BISYS Fund Services serves as distributor to the Funds pursuant to the
Distribution Agreement dated August 8, 1994, as amended (the "Distribution
Agreement"). Unless otherwise terminated, the Distribution Agreement will
continue in effect from year to year if its continuance is approved at least
annually (i) by the Group's Board of Trustees or by the vote of a majority of
the outstanding Shares of the Funds and (ii) by the vote of a majority of the
Trustees of the Group who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS Fund Services solicits orders for
the sale of Shares, advertises and pays the costs of advertising, office space
and the personnel involved in such activities. The Distributor receives no
compensation under the Distribution Agreement with the Group, but may receive
compensation under the Distribution and Shareholder Service Plan.
For the fiscal year ended March 31, 1995, the Distributor received
$10,803.60 in commissions on the Intermediate Government Fund, of which it
retained $42.12 after dealer reallowances and it received $85,617.26 in
commissions on the Equity Fund, of which it retained $353.76 after dealer
reallowances. For the fiscal year ended March 31, 1996, the Distributor
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<PAGE> 125
received $186,824 in commissions on the Intermediate Government Fund, of which
it retained $6,373 after dealer reallowances; and it received $445,251 in
commissions on the Equity Fund, of which it retained $17,765 after dealer
reallowances. For the fiscal year ended March 31, 1997, the Distributor received
$169,189 in commissions on the Intermediate Government Fund, of which it
retained $719.45 after dealer reallowances, and it received $185,837 in
commissions on the Equity Fund, of which it retained $2,530.22 after dealer
reallowances.
As described in the Prospectus, the Group has adopted a Distribution
and Shareholder Service Plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act under which the Funds are authorized to pay the Distributor for payments it
makes to banks, including Brenton Bank, other institutions and broker-dealers,
and for expenses the Distributor and any of its affiliates or subsidiaries incur
(with all of the foregoing organizations being referred to as "Participating
Organizations") for providing administration, distribution or shareholder
service assistance. Payments to such Participating Organizations may be made
pursuant to agreements entered into with BISYS Fund Services. The Plan
authorizes the Funds to make payments to the Distributor in an amount not to
exceed, on an annual basis, .50% of the average daily net assets of a Fund. As
required by Rule 12b-1, the Plan was approved by the sole Shareholder of each
Fund and by the Board of Trustees, including a majority of the Trustees who are
not interested persons of the Funds and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent Trustees"). The Plan may
be terminated with respect to a Fund by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding Shares of the Fund. The
Trustees review quarterly a written report of such costs and the purposes for
which such costs have been incurred. The Plan may be amended by vote of the
Trustees including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. However, any change in the Plan that would
materially increase the distribution cost to a Fund requires Shareholder
approval. For so long as the Plan is in effect, selection and nomination of the
Independent Trustees shall be committed to the discretion of such disinterested
persons. All agreements with any person relating to the implementation of the
Plan may be terminated, with respect to a Fund, at any time on 60 days' written
notice without payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding Shares of the Fund. The
Plan will continue in effect for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees, and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose. The Board of
Trustees has a duty to request and evaluate such information as may be
reasonably necessary for it to make an informed determination of whether the
Plan should be implemented or continued. In addition the Trustees in approving
the Plan must determine that there is a reasonable likelihood that the Plan will
benefit each Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests of each of the Funds since it encourages Fund growth. As a Fund
grows in size, certain expenses, and therefore total expenses per Share, may be
reduced and overall performance per Share may be improved.
For the fiscal year ended March 31, 1997, the Distributor received
$16,887.00 for the Intermediate U.S. Government Fund, $15,550.00 for the U.S.
Government Money Market Fund,
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<PAGE> 126
and $18,532.00 for the Value Equity Fund. None of these fees were retained by
the Distributor. All fees were paid to broker-dealers.
Custodian
- ---------
Brenton Bank serves as custodian (the "Custodian") to the Funds
pursuant to the Custodian Agreement dated as of August 8, 1994, between the
Group and the Custodian (the "Custodian Agreement"). The Custodian's
responsibilities include safeguarding and controlling each Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest on each Fund's investments. In consideration of such services, each of
the Funds pays the Custodian an annual asset-based fee plus fixed fees charged
for certain portfolio transactions and out-of-pocket expenses.
Unless sooner terminated, the Custodian Agreement will continue in
effect until terminated by either party upon 60 days' advance written notice to
the other party. Notwithstanding the foregoing, the Custodian Agreement, with
respect to a Fund, must be approved at least annually by the Group's Board of
Trustees or by vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectus), and a
majority of the Trustees who are not parties to the Custodian Agreement or
interested persons (as defined in the 1940 Act) of any party to the Custodian
Agreement ("Disinterested Persons") by votes cast in person at a meeting called
for such purpose.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Fund Services Ohio, Inc. serves as transfer agent and dividend
disbursing agent ("BISYS Fund Services Ohio" or the "Transfer Agent") for the
Funds, pursuant to the Transfer Agency Agreement dated August 8, 1994. Pursuant
to such Agreement, the Transfer Agent, among other things, performs the
following services in connection with each of the Funds' Shareholders of record:
maintenance of shareholder records for each of the Fund's Shareholders of
record; processing shareholder purchase and redemption orders; processing
transfers and exchanges of Shares of the Funds on the shareholder files and
records; processing dividend payments and reinvestments; and assistance in the
mailing of shareholder reports and proxy solicitation materials. For such
services the Transfer Agent receives a fee based on the number of shareholders
of record.
In addition, BISYS Fund Services Ohio provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement dated August 8,
1994. BISYS Fund Services Ohio receives a fee from the Money Market Fund, the
Intermediate Government Fund and the Equity Fund for such services equal to a
fee computed daily and paid periodically at an annual rate of three
one-hundredths of one percent (.03%) of each Fund's average daily net assets
(subject to a minimum annual fee of $30,000) and in the case of the Tax-Free
Fund, BISYS Fund Services Ohio receives a fee computed daily and paid
periodically at an annual rate of four one-hundredths of one percent (.04%) of
that Fund's average daily net assets (subject to a minimum annual fee of
$40,000). Under such Agreement, BISYS Fund Services Ohio maintains the
accounting books
B-28
<PAGE> 127
and records for each Fund, including journals containing an itemized daily
record of all purchases and sales of portfolio securities, all receipts and
disbursements of cash and all other debits and credits, general and auxiliary
ledgers reflecting all asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received, and other required
separate ledger accounts; maintains a monthly trial balance of all ledger
accounts; performs certain accounting services for the Fund, including
calculation of the net asset value per Share, calculation of the dividend and
capital gain distributions, if any, and of yield, reconciliation of cash
movements with the Custodian, affirmation to the Custodian of all portfolio
trades and cash settlements, verification and reconciliation with the Custodian
of all daily trade activity; provides certain reports; obtains dealer
quotations, prices from a pricing service or matrix prices on all portfolio
securities in order to mark the portfolio to the market; and prepares an interim
balance sheet, statement of income and expense, and statement of changes in net
assets for each Fund.
Independent Auditors
- --------------------
Ernst & Young LLP, 10 West Broad Street, Suite 2300, Columbus, Ohio
43215, has been selected as independent auditors for the Funds for the fiscal
year ended March 31, 1998. Ernst & Young LLP performs an annual audit of the
Funds' financial statements and provides other services related to filings with
respect to securities regulations. Reports of their activities are provided to
the Group's Board of Trustees.
Legal Counsel
- -------------
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, is
counsel to the Group.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust, organized on January 8,
1992. The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of shares, which are shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a
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<PAGE> 128
proportionate distribution, based upon the relative asset values of the
respective funds, of any general assets not belonging to any particular fund
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each Fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a Fund will be required in
connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a Fund only if approved
by a majority of the outstanding Shares of such Fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by Shareholders of the Group voting without regard to
series.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Group.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Group for acts or obligations of the Group, which
are binding only on the assets and property of the Group, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Group or the Trustees. The Declaration of Trust provides for
indemnification out of Group property for all loss and expense of any
shareholder held personally liable for the obligations of the Group. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Group itself would be unable to meet its
obligations, and thus should be considered remote.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Additional Tax Information
- --------------------------
TAXATION OF THE FUNDS. Each Fund intends to qualify annually and to
elect to be treated as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the "Code").
To qualify as a regulated investment company, each Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments
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<PAGE> 129
with respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies or other income derived with respect to
its business of investing in such stock, securities or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of certain
assets held less than three months (namely, in the case of a Fund, (i) stock or
securities, (ii) options, futures, and forward contracts (other than those on
foreign currencies), and (iii) foreign currencies (including options, futures,
and forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)) (the "30% Limitation"); (c) diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash and cash
items (including receivables), U.S. Government securities, the securities of
other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its total assets is invested in the securities
(other than U.S. Government securities or the securities of other regulated
investment companies) of any one issuer, or of two or more issuers which a Fund
controls and which are determined to be engaged in the same or similar trades or
businesses or related trades or businesses; and (d) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) and its net tax-exempt interest income each taxable year.
As a regulated investment company, each Fund will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to Shareholders. Each Fund intends to
distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts, other than
tax-exempt interest, not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, each Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year, and (3) any ordinary
income and capital gains for previous years that were not distributed during
those years. A distribution, including an "exempt-interest dividend," will be
treated as paid on December 31 of the current calendar year if it is declared by
a Fund in October, November or December with a record date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be treated as received by Shareholders in the calendar year
in which the distributions are declared, rather than the calendar year in which
the distributions are received. To prevent application of the excise tax, each
Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS. Dividends paid out of a Fund's investment company
taxable income generally will be taxable to a U.S. Shareholder as ordinary
income. Because no portion of the income derived by the Money Market Fund, the
Intermediate Government Fund and the Tax-Free Fund is expected to consist of
dividends paid by U.S. corporations, no portion of the dividends
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<PAGE> 130
paid by those Funds is expected to be eligible for the corporate
dividends-received deduction. A portion of the Equity Fund's income may,
however, consist of dividends paid by U.S. corporations and, accordingly, a
portion of the dividends paid by that Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains, if any,
designated as capital gain dividends are taxable as long-term capital gains,
regardless of how long the Shareholder has held the Fund's Shares, and are not
eligible for the dividends-received deduction. The Money Market Fund is not
expected to realize any long-term capital gains or losses. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the net asset value
of a Share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. federal tax status of distributions, and Shareholders
receiving distributions in the form of additional Shares will receive a report
as to the net asset value of those Shares.
Distributions by a Fund reduce the net asset value of Fund Shares.
Should a taxable distribution reduce the net asset value below a Shareholder's
cost basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
ORIGINAL ISSUE DISCOUNT/MARKET DISCOUNT SECURITIES. Investments by a
Fund in securities that are issued at a discount will result in income to the
Fund equal to a portion of the excess of the face value of the securities over
their issue price (the "original issue discount") each year that the securities
are held, even though the Fund receives no cash interest payments. This income
is included in determining the amount of income which the Fund must distribute
to maintain its status as a regulated investment company and to avoid the
payment of federal income tax and the 4% excise tax.
Some of the debt securities may be purchased by a Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
Generally, the gain realized on the disposition of any debt security having
market discount will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by the Code section
1234. Pursuant to the Code section 1234, the premium received by a Fund for
selling a put or call option is not included in income at the time of receipt.
If the option expires, the premium is short-term capital gain to the Fund. If
the Fund enters into a closing transaction, the difference between the amount
paid to close out its position and the premium received is short-term capital
gain or loss. If a call option written by a Fund is exercised, thereby requiring
the Fund to sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or loss will be a
capital gain or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by a Fund, if the
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<PAGE> 131
option is sold, any resulting gain or loss will be a capital gain or loss, and
will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Certain options in which a Fund may invest are "section 1256
contracts." Gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses ("60/40"). Also,
section 1256 contracts held by a Fund at the end of each taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Funds which is taxed as
ordinary income when distributed to Shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
The 30% Limitation and the diversification requirements applicable to
each Fund's assets may limit the extent to which each Fund will be able to
engage in transactions in options.
The Equity Fund may invest in shares of foreign corporations (through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax
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on a portion of the excess distribution, whether or not the corresponding income
is distributed by the Fund to Shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. The Fund itself will be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Equity Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
SALE OF SHARES. Upon the sale or other disposition of Shares of a Fund,
or upon receipt of a distribution in complete liquidation of a Fund, a
Shareholder generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including Shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the Shares. In
such a case, the basis of the Shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a Shareholder on a disposition of Fund
Shares held by the Shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the Shareholder with respect to such Shares. Furthermore, a loss
realized by a Shareholder on the redemption, sale or exchange of Shares of a
Fund with respect to which exempt-interest dividends have been paid will, to the
extent of such exempt-interest dividends, be disallowed if such Shares have been
held by the Shareholder for less than six months.
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In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries.
BACKUP WITHHOLDING. Each Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
Shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Corporate
Shareholders and certain other Shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the Shareholder's U.S. federal
income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of
an investment in a Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER TAXATION. The Group is organized as a Massachusetts business
trust and, under current law, neither the Group nor any Fund is liable for any
income or franchise tax in the Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.
Fund Shareholders may be subject to state and local taxes on their Fund
distributions. In certain states, Fund distributions which are derived from
interest on obligations of that state or any municipality or political
subdivision thereof may be exempt from taxation. Also, in many states, Fund
distributions which are derived from interest on certain U.S. Government
obligations may be exempt from taxation.
Yields and Total Returns of the Money Market Fund
- -------------------------------------------------
As summarized in the Prospectus under the heading "Performance
Information," the yield of the Money Market Fund for a seven-day period (the
"base period") will be computed by
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<PAGE> 134
determining the net change in value (calculated as set forth below) of a
hypothetical account having a balance of one share at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and
multiplying the base period return by 365/7 with the resulting yield figure
carried to the nearest hundredth of one percent. Net changes in value of a
hypothetical account will include the value of additional Shares purchased with
dividends from the original Share and dividends declared on both the original
Share and any such additional Shares, but will not include realized gains or
losses or unrealized appreciation or depreciation on portfolio investments.
Yield may also be calculated on a compound basis (the "effective yield") which
assumes that net income is reinvested in Fund Shares at the same rate as net
income is earned for the base period.
The yield and effective yield of the Money Market Fund will vary in
response to fluctuations in interest rates and in the expenses of the Fund. For
comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for the
same base period and calculated by the methods described below.
For the seven-day period ended March 31, 1997, the yield for the Money
Market Fund was 4.87% and its effective yield was 4.99%.
The Money Market Fund may wish to publish total return figures in its
sales literature and other advertising materials. For a discussion of the manner
in which such total return figures are calculated, see "Yields and Total Returns
of the Intermediate Government Fund and the Equity Fund--Total Return
Calculations" below.
Yields and Total Returns of the Intermediate Government Fund and the Equity Fund
- --------------------------------------------------------------------------------
YIELD CALCULATIONS. As summarized in the Prospectuses of the Funds
under the heading "PERFORMANCE INFORMATION", yields of each of the Funds except
the Money Market Fund will be computed by dividing the net investment income per
share (as described below) earned by the Fund during a 30-day (or one month)
period by the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. A Fund's net investment income per share earned during
the period is based on the average daily number of Shares outstanding during the
period entitled to receive dividends and includes dividends and interest earned
during the period minus expenses accrued for the period, net of reimbursements.
This calculation can be expressed as follows:
a - b
Yield = 2 [(------- + 1)to the sixth power - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
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<PAGE> 135
c = the average daily number of Shares outstanding during
the period that were entitled to receive dividends.
d = maximum offering price per Share on the last day of
the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Fund. Interest earned on any debt
obligations held by a Fund is calculated by computing the yield to maturity of
each obligation held by that Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
Business Day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by that Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
For the 30-day period ended March 31, 1997, the yield for the
Intermediate Government Fund and the Equity Fund was 5.66%, and .78%,
respectively.
During any given 30-day period, the Adviser or Administrator may
voluntarily waive all or a portion of its fees with respect to a Fund. Such
waiver would cause the yield of that Fund to be higher than it would otherwise
be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. As summarized in the Prospectuses of the
Funds under the heading "PERFORMANCE INFORMATION", average annual total return
is a measure of the change in value of an investment in a Fund over the period
covered, which assumes any dividends or capital gains distributions are
reinvested in the Fund immediately rather than paid to the investor in cash.
Aggregate total return is calculated similarly to average annual total return
except that the return figure is aggregated over the relevant period instead of
annualized.
The Funds compute their average annual total returns by determining the
average annual compounded rates of return during specified periods that equate
the initial amount invested to the ending redeemable value of such investment.
This is done by dividing the ending redeemable
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<PAGE> 136
value of a hypothetical $1,000 initial payment by $1,000 and raising the
quotient to a power equal to one divided by the number of years (or fractional
portion thereof) covered by the computation and subtracting one from the
result. This calculation can be expressed as follows:
Average Annual ERV
Total Return = [(------)1/n - 1]
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Funds compute their aggregate total returns by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(------)1/n - 1]
P
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
Based upon the period beginning with each Fund's commencement of
operations (August 10, 1994) through March 31, 1997, the aggregate total return
for each Fund (other than the Money Market Fund), assuming the imposition of the
maximum applicable sales charge, was as follows: 11.06% for the Intermediate
Government Fund and 54.57% for the Equity Fund. Assuming that the maximum
applicable sales charge had not been imposed, the aggregate total return for
this same period would have been as follows: 15.06% for the Intermediate
Government Fund and 61.84% for the Equity Fund.
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Based upon the period beginning with each Fund's commencement of
operations (August 10, 1994) through March 31, 1997, the average annual total
return for each Fund (other than the Money Market Fund), assuming the imposition
of the maximum applicable sales charge, was as follows: 4.05% for the
Intermediate Government Fund and 17.91% for the Equity Fund. Assuming that the
maximum applicable sales charge had not been imposed, the average annual total
return for this same period would have been as follows: 5.45% for the
Intermediate Government Fund and 19.97% for the Equity Fund.
For the fiscal year ended March 31, 1997, the total return for each
Fund (other than the Money Market Fund), assuming the imposition of the maximum
applicable sales charge, was as follows: (0.13)% for the Intermediate Government
Fund and 12.16% for the Equity Fund. Assuming that the maximum applicable sales
charge had not been imposed, the total return for this same period would have
been as follows: 3.51% for the Intermediate Government Fund and 17.44% for the
Equity Fund.
Performance Comparisons
- -----------------------
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds or
Ibbotson Associates, Inc. Comparisons may also be made to indices or data
published in IBC/Donoghue's MONEY FUND REPORT(TM), a nationally recognized money
market fund reporting service, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, Morningstar, Inc., CDA/Wiesberger, Pensions and
Investments, U.S.A. Today and local newspapers. In addition to performance
information, general information about the Funds that appears in a publication
such as those mentioned above may be included in advertisements and in reports
to Shareholders. The Funds may also include in advertisements and reports to
Shareholders information comparing the performance of the Adviser or its
predecessors to other investment advisers; such comparisons may be published by
or included in Nelsons Directory of Investment Managers, Roger's, Casey/PIPER
Manager Database or CDA/Cadence.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of a Fund's quality, composition and maturity, as well
as expenses allocated to the Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's effective yield to Customers.
From time to time, the Fund may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative
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<PAGE> 138
investments, in advertisements, sales literature and reports to shareholders.
The Funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any Fund.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Funds may
include descriptions of the investment advisers including, but not limited to,
(i) descriptions of the advisers' operations, (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
advisers' operations.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Funds; (5)
descriptions of investment strategies for the Funds; (6) descriptions or
comparisons of various savings and investment products (including but not
limited to insured bank products, annuities, qualified retirement plans and
individual stocks and bonds) which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations.
Principal Shareholders
- ----------------------
As of July 1, 1997, the following persons or entities owned
beneficially or of record 5% or more of the outstanding shares of the indicated
Funds: (i) in the case of the Money Market Fund, Ingersoll and Company (c/o
Brenton Bank, Trust Department) P.O. Box 10478, Des Moines, Iowa 50306, which
owned of record 79.7% of the Fund's shares; (ii) in the case of the
Intermediate Government Fund, Ingersoll and Company (c/o Brenton Bank, Trust
Department) P.O. Box 10478, Des Moines, Iowa 50306, which owned of record 98.5%
of the Fund's shares; and (iii) in the case of the Equity Fund, Ingersoll and
Company (c/o Brenton Bank, Trust Department) P.O. Box 10478, Des Moines, Iowa
50306, which owned of record 95.2% of the Fund's shares.
Miscellaneous
- -------------
The Funds may include information in their Annual Reports and
Semi-Annual Reports to Shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for a
fund within the Group or (4) describes investment management strategies for such
funds. Such information is provided to inform Shareholders of the activities of
the Funds for the most recent fiscal year or half-year and to provide the views
of the Adviser and/or Group officers regarding expected trends and strategies.
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<PAGE> 139
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Shareholders owning not less than 10% of the outstanding Shares of the Group
entitled to vote may cause the Trustees to call a special meeting, including for
the purpose of considering the removal of one or more Trustees. Any Trustee may
be removed at any meeting of Shareholders by vote of two-thirds of the Group's
outstanding shares. The Declaration of Trust provides that the Trustees will
assist shareholder communications to the extent required by Section 16(c) of the
1940 Act in the event that a shareholder request to hold a special meeting is
made.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectuses and this Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements of the Money Market Fund, the Intermediate
Government Fund and the Equity Fund appearing in the Annual Report to
Shareholders for the fiscal year ended March 31, 1997 have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE> 140
APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Adviser with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P") and Duff & Phelps, Inc.
("D&F"). Set forth below is a description of the relevant ratings of each such
NRSRO. The NRSROs that may be utilized by the Adviser and the description of
each NRSRO's ratings is as of the date of this Statement of Additional
Information, and may subsequently change.
LONG TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the Fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
<PAGE> 141
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Description of the three highest long-term debt ratings by D&P;
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods of
A- economic stress.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions)
have a superior capacity for repayment of senior
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by many of the
following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on Funds employed.
- Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
- Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions)
have a strong capacity for repayment of senior
short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to
variation. Capitalization characteristics, while
still appropriate, may be
A-2
<PAGE> 142
more affected by external conditions. Ample alternate
liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayments of senior
short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a
plus sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
D&P's description of the short-term debt ratings (D&P incorporates
gradations of "1+" (one plus) and "1-" (one minus) to assist investors in
recognizing quality differences within the highest rating category);
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors
and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental
protection factors. Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing
requirements, access to capital markets is good.
Risk factors are small.
A-3
<PAGE> 143
Short-Term Loan/Municipal Note Ratings
- --------------------------------------
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Definitions of Certain Money Market Instruments
- -----------------------------------------------
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
A-4
<PAGE> 144
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Export-Import Bank of the United States, the Tennessee Valley Authority, the
Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association are supported
by the right of the issuer to borrow from the Treasury; others, such as those of
the Student Loan Marketing Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks, are supported only by
the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
A-5
<PAGE> 145
PART C
------
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements
--------------------
PROSPECTUS I
Included in Part A:
Financial Highlights
STATEMENT OF ADDITIONAL INFORMATION I
Incorporated by Reference in Part B:
Report of Independent Public Accountants
Statement of Assets and Liabilities as of March 31,
1997
Statement of Operations for the year ended March 31,
1997
Statement of Changes in Net Assets for the years
ended March 31, 1996 and March 31, 1997
Schedule of Portfolio Investments as of March 31,
1997
Notes to Financial Statements
PROSPECTUS II
Included in Part A:
Financial Highlights
STATEMENT OF ADDITIONAL INFORMATION II
Incorporated by Reference in Part B:
Report of Independent Auditors
C-1
<PAGE> 146
Statements of Assets and Liabilities as of March 31,
1997
Statements of Operations for the year ended March 31,
1997
Statements of Changes in Net Assets for the years
ended March 31, 1996 and March 31, 1997
Schedules of Portfolio Investments as of March 31,
1997
Notes to Financial Statements
(b) Exhibits
--------
(1) Declaration of Trust(1)
(2) (a) By-Laws(2)
(b) Establishment and Designation of a
Series of Shares (The Shelby
Fund)(3)
(c) Establishment and Designation of
Series of Shares (Brenton U.S.
Government Money Market Fund,
Brenton Intermediate U.S. Government
Securities Fund and Brenton Value
Equity Fund)(4)
(3) Not Applicable
(4) Certificates for Shares are not issued.
Articles IV, V, VI and VII of the
Declaration of Trust, previously filed as
Exhibit 1 hereto, define rights of holders
of Shares.
(5) (a) Investment Advisory Agreement
between Registrant and Shelby County
Trust Bank (with respect to The
Shelby Fund)(3)
- ----------------------
1 Filed with initial Registration Statement on January 8, 1992.
2 Filed with Post-Effective Amendment No. 2 on September 4, 1992.
3 Filed with Post-Effective Amendment No. 9 on April 18, 1994.
4 Filed with Post-Effective Amendment No. 10 on June 8, 1994.
C-2
<PAGE> 147
(b) Sub-Advisory Agreement between
Registrant and SMC Capital Inc.
(with respect to The Shelby Fund)(3)
(c) Investment Advisory Agreement
between Registrant and Brenton Bank
(with respect to Brenton U.S.
Government Money Market Fund,
Brenton Intermediate U.S. Government
Securities Fund and Brenton Value
Equity Fund)(4)
(d) Sub-Advisory Agreement between
Registrant, Brenton Bank and The
Northern Trust Company (with respect
to Brenton U.S. Government Money
Market Fund)(4)
(6) Distribution Agreement between Registrant
and BISYS Fund Services(2)
(7) Not Applicable
(8) (a) Custodian Agreement between
Registrant and Fifth Third Bank
(with respect to The Shelby Fund)(3)
(b) Custodian Agreement between
Registrant and Brenton Bank (with
respect to Brenton U.S. Government
Money Market Fund, Brenton
Intermediate U.S. Government
Securities Fund and Brenton Value
Equity Fund)(4)
(9) (a) Management and Administration
Agreement between the Registrant and
BISYS Fund Services (with respect to
The Shelby Fund)(3)
(b) Fund Accounting Agreement between
the Registrant and BISYS Fund
Services Ohio, Inc. (with respect to
The Shelby Fund)(3)
(c) Transfer Agency Agreement between
the Registrant and BISYS Fund
Services Ohio, Inc. (with respect to
The Shelby Fund)(3)
(d) Management and Administration
Agreement between the Registrant and
BISYS Fund Services (with respect to
Brenton U.S. Government Money Market
Fund, Brenton Intermediate U.S.
Government Securities Fund and
Brenton Value Equity Fund)(4)
C-3
<PAGE> 148
(e) Fund Accounting Agreement between
the Registrant and BISYS Fund
Services Ohio, Inc. (with respect to
Brenton U.S. Government Money Market
Fund, Brenton Intermediate U.S.
Government Securities Fund and
Brenton Value Equity Fund)(4)
(f) Transfer Agency Agreement between
the Registrant and BISYS Fund
Services Ohio, Inc. (with respect to
Brenton U.S. Government Money Market
Fund, Brenton Intermediate U.S.
Government Securities Fund and
Brenton Value Equity Fund)(4)
(10) Opinion and Consent of Counsel(5)
(11) Consents of Independent Auditors
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) (a) Distribution and Shareholder Service
Plan (with respect to Brenton U.S.
Government Money Market Fund,
Brenton Intermediate U.S. Government
Securities Fund and Brenton Value
Equity Fund)(4)
(b) Distribution Servicing Agreement
(with respect to Brenton U.S.
Government Money Market Fund,
Brenton Intermediate U.S. Government
Securities Fund and Brenton Value
Equity Fund)(4)
(16) Schedules for Computation of Performance
Data
(27) Financial Data Schedules
Item 25. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
Not applicable.
- ------------------------
5 Filed with Rule 24f-2 Notice on May 29, 1997.
C-4
<PAGE> 149
Item 26. Number of Record Holders
- -------- ------------------------
As of June 30, 1997, the number of record holders of each
series of the Registrant was as follows:
<TABLE>
<CAPTION>
<S> <C>
AMCORE Vintage U.S. Government Obligations Fund 1500
AMCORE Vintage Fixed Income Fund 283
AMCORE Vintage Intermediate Tax-Free Fund 119
AMCORE Vintage Equity Fund 2562
AMCORE Vintage Balanced Fund 429
AMCORE Vintage Aggressive Growth Fund 875
AMCORE Vintage Fixed Total Return Fund 128
Brenton U.S. Government Obligations Fund 406
Brenton Intermediate U.S. Government Securities
Fund 40
Brenton Value Equity Fund 414
The Shelby Fund 24
Ernst Asia Fund 88
Ernst Global Resources Fund 64
Ernst Global Asset Allocation Fund 35
Ernst Global Smaller Companies Fund 0
Ernst Australia-New Zealand Fixed Income Fund 0
</TABLE>
Item 27. Indemnification
- -------- ---------------
Article IV of the Registrant's Declaration of Trust states as
follows:
Section 4.3. Mandatory Indemnification.
------------ --------------------------
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof; and
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative or other, including appeals),
actual or threatened; and the words "liability" and "expenses"
shall
C-5
<PAGE> 150
include, without limitation, attorneys fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court
or other body before which a proceeding was brought that he
engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of
the Trust; or
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
or (b)(ii) resulting in a payment by a Trustee or officer,
unless there has been a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved
in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (1) vote
of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the
Disinterested Trustees then in office acts on the
matter) or (2) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such person. Nothing contained
herein shall affect any rights to indemnification to which personnel of
the Trust other than Trustees and officers may be entitled by contract
or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a)
of this Section 4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 4.3, provided
that either:
C-6
<PAGE> 151
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
acts on the matter) or an independent legal counsel in a
written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has
been exempted from being an Interested Person by any rule, regulation
or order of the Commission), or (ii) involved in the claim, action,
suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers
or controlling persons of the Registrant in connection with
the successful defense of any act, suit or proceeding) is
asserted by such trustees, officers or controlling persons in
connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of Investment Advisers and
- -------- ---------------------------------------------------------
their Officers and Directors
----------------------------
(a) Shelby County Trust Bank is the investment adviser for The
Shelby Fund. Set forth below are the senior officers and
directors of Shelby County Trust Bank and their principal
business and other connections. The Business Address of the
officers and directors is 422 Main Street, Shelbyville,
Kentucky 40066.
<TABLE>
<CAPTION>
<S> <C> <C>
Position with
Name the Adviser Principal Occupation
- ---- ----------- --------------------
</TABLE>
C-7
<PAGE> 152
<TABLE>
<CAPTION>
<S> <C> <C>
Perry Day Chairman and Chief Executive Officer Position with Shelby County Trust
Bank
Bobby Hudson President Position with Shelby County Trust
Bank
Robert Logan Director Retired from Manufacturing
Frank Goodwin Director Manager of the Budd Company
(manufacturing)
Rebecca Irvine Director Homemaker
Darrell Wells Director Chief Executive Officer, SMC
Capital, Inc.; General Partner,
Security Management Company
Ben Matthews Director Attorney with Matthews and Myles
Robert Pearce Director Auto Sales; Pearce Motor Company
Frank Kiley Director Chief Financial Officer, SMC
Capital, Inc.; Principal, Security
Management Company
W.A. Smith Director Real Estate Agent with A.W. Smith
Realty
John Brenzel Director Partner in Tasa International
Ann Wells Director Private Investor
Wayne Wells, Jr. Director Restaurant Owner, Nautical
Restaurants, Inc.
B.A. Thomas, Jr. Director Agricultural Interests
</TABLE>
C-8
<PAGE> 153
<TABLE>
<CAPTION>
Position with
Name the Adviser Principal Occupation
- ---- ----------- --------------------
<S> <C> <C>
Arthur Logan Director President and Chief Executive
Officer, Logan's (manufacturing)
</TABLE>
SMC Capital, Inc. serves as the sub-investment adviser for The
Shelby Fund. The business and other connections of SMC
Capital, Inc. are set forth in the Uniform Application for
Investment Adviser Registration ("Form ADV") of SMC Capital,
Inc. as currently filed with the SEC which is incorporated by
reference herein.
(b) Brenton Bank is the investment adviser for Brenton U.S.
Government Money Market Fund; Brenton Intermediate U.S.
Government Securities Fund and Brenton Value Equity Fund.
Brenton Bank is a wholly-owned subsidiary of Brenton Banks,
Inc., a multibank holding company. Set forth below are the
senior officers and directors of Brenton Bank and their
principal business and other connections. The Business Address
of the officers and directors is 400 Locust Street, Des
Moines, Iowa 50309.
<TABLE>
<CAPTION>
Position with
Name the Adviser Principal Occupation
- ---- ----------- --------------------
<S> <C> <C>
J.C. Brenton Director Position with Brenton Bank
W.H. Brenton Director Position with Brenton Bank
C.R. Brenton Director Position with Brenton Bank
Larry A. Mindrup President, Chief Executive Position with Brenton Bank
Officer and Director
Norman D. Schuneman Executive Vice President and Position with Brenton Bank
Director
Marsha A. Findley Senior Vice President and Position with Brenton Bank
Chief Operating Officer
David L. Nagel Executive Vice President Position with Brenton Bank
</TABLE>
C-9
<PAGE> 154
<TABLE>
<CAPTION>
Position with
Name the Adviser Principal Occupation
- ---- ----------- --------------------
<S> <C> <C>
Woodward G. Brenton Director President & CEO, Brenton First
National
Robert L. DeMeulenaerc Director Position with Brenton Banks, Inc.
John C. Eddy Director Attorney
Robert E. Jester Director President, Jester Insurance
Service, Inc.
Bruce G. Kelley Director President, Employers Mutual Co.
John F. Krantz Director President, Adventureland of
America, Inc.
David J. Lundquist Director Vice Chairman, New Heritage
Association
Richard A. Matthes Director Chairman & CEO, GenEx
Samuel G. O'Brien Director Attorney
Richard J. Oggaro Director Chairman, The Weitz Company
Joseph B. Ryan, Jr. Director Coltec Industries
John O. Hintze Director Attorney
</TABLE>
The Northern Trust Company serves as the sub-investment
adviser for Brenton U.S. Government Money Market Fund.
Reference is made to the response to Item 28 in the
Registration Statement on Form N-1A of The Benchmark Funds
(File Nos. 2-80543/811-3605) regarding the business and other
connections of certain directors and officers of The Northern
Trust Company, which Item is incorporated by reference herein.
C-10
<PAGE> 155
Item 29. Principal Underwriter
- -------- ---------------------
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor and administrator for
Registrant. BISYS Fund Services also distributes the
securities of American Performance Fund, the AmSouth Mutual
Funds, the ARCH Fund, Inc., The BB&T Mutual Funds Group,
Empire Builder Tax Free Bond Fund, First Choice Funds Trust,
Fountain Square Funds, Hirtle Callaghan Trust, HSBC Family of
Funds, The Infinity Mutual Funds, Intrust Funds, The Kent
Funds, Marketwatch Funds, Meyers Sheppard Investment Trust,
Minerva Funds, MMA Praxis Mutual Funds, Magna Funds, M.S.D.&T
Funds, Pacific Capital Funds, The Parkstone Group of Funds,
The Parkstone Advantage Funds, Pegasus Funds, Qualivest Funds,
The Republic Funds Trust, The Republic Advisors Funds Trust,
The Riverfront Funds, Inc., SBSF Funds, Inc. dba Key Mutual
Funds, Sefton Funds, The Sessions Group, Summit Investment
Trust, The Time Horizon Funds and The Victory Portfolios, each
of which is an open-end management investment company.
(b) Partners of BISYS Fund Services, as of June 30, 1997, were as
follows
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address BISYS Fund Services Registrant
- ------------------ ------------ ------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
- -------- --------------------------------
(a) In connection with The Shelby Fund, the accounts, books, and
other documents required to be maintained by Registrant
pursuant to Section 31(a) of the
C-11
<PAGE> 156
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Shelby County Trust Bank,
422 Main Street, Shelbyville, Kentucky 40066 (records relating
to its function as adviser for The Shelby Fund), SMC Capital,
Inc., 4350 Brownsboro Road, Louisville, Kentucky 40207
(relating to its function as sub-adviser for The Shelby Fund),
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as general manager,
administrator and distributor), and BISYS Fund Services Ohio,
Inc., 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as transfer agent).
(b) In connection with The Brenton Funds, the accounts, books, and
other documents required to be maintained by Registrant
pursuant to Section 31(a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of
Brenton Bank, 400 Locust Street, Des Moines, Iowa 50309
(records relating to its function as adviser for Brenton U.S.
Government Money Market Fund; Brenton Intermediate U.S.
Government Securities Fund and Brenton Value Equity Fund), The
Northern Trust Company, 50 S. LaSalle Street, Chicago,
Illinois 60675 (relating to its function as sub-adviser for
Brenton U.S. Government Money Market Fund), BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as general manager, administrator
and distributor), and BISYS Fund Services Ohio, Inc., 3435
Stelzer Road, Columbus, Ohio 43219 (records relating to its
functions as transfer agent).
Item 31. Management Services
- -------- -------------------
Not Applicable.
Item 32. Undertakings.
- -------- -------------
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom
a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders, upon request
and without charge, in the event that the information
called for by Item 5A of Form N-1A has been presented
in the Registrant's latest annual report to
shareholders.
(d) Registrant undertakes to call a meeting of
Shareholders for the purpose of voting upon the
question of removal of a Trustee or Trustees when
requested to do so by the holders of at least 10% of
the Registrant's outstanding shares of beneficial
interest and in connection with such
C-12
<PAGE> 157
meeting to comply with the shareholders
communications provisions of Section 16(c) of the
Investment Company Act of 1940.
C-13
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 32 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington in the
District of Columbia on the 31st day of July, 1997.
THE COVENTRY GROUP
/s/ Walter B. Grimm
-----------------------
By: Walter B. Grimm***
By: /s/ Jeffrey L. Steele
--------------------------------------
Jeffrey L. Steele, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/ Walter B. Grimm Chairman, President July 31, 1997
- -------------------------- and Trustee (Principal
Walter B. Grimm*** Executive Officer)
/s/ Chalmers P. Wylie Trustee July 31, 1997
- --------------------------
Chalmers P. Wylie**
/s/ Maurice G. Stark Trustee July 31, 1997
- --------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee July 31, 1997
- --------------------------
Michael M. Van Buskirk*
C-14
<PAGE> 159
/s/ Nancy E. Converse Trustee July 31, 1997
- ------------------------
Nancy E. Converse***
/s/ Thresa Dewar Treasurer July 31, 1997
- ------------------------ (Principal Financial and
Thresa Dewar**** Accounting Officer)
By:
--------------------------------------
Jeffrey L. Steele, as attorney-in-fact
* Pursuant to power of attorney filed with Pre-Effective Amendment No. 3
on April 6, 1992.
** Pursuant to power of attorney filed with Post-Effective Amendment No. 6
on May 4, 1993.
*** Pursuant to power of attorney filed with Post-Effective Amendment No.
26 on May 1, 1996.
**** Pursuant to power of attorney filed with Post-Effective Amendment No.
30 on July 1, 1997.
-2-
<PAGE> 160
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED
WITH
POST-EFFECTIVE AMENDMENT NO. 32
TO THE
REGISTRATION STATEMENT
OF
THE COVENTRY GROUP
<PAGE> 161
INDEX TO EXHIBITS
(FOR POST-EFFECTIVE AMENDMENT NO. 32)
-------------------------------------
EXHIBIT NO.
UNDER PART C
NAME OF EXHIBIT OF FORM N-1A
- --------------- ------------
Consents of Independent Auditors 11
Schedules Showing Computation of Performance 16
Financial Data Schedules 27
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference in this Post-Effective No. 32 of our report on the financial
statements of The Shelby Fund of The Coventry Group, dated April 30, 1997 and to
all references to our firm included in or made a part of this Post-Effective
Amendment No. 32.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Cincinnati, Ohio
July 30, 1997
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Highlights" in the Prospectus and under the captions "Independent Auditors" and
"Financial Statements" in the Statement of Additional Information, both included
in Post-Effective Amendment No. 32 to the Registration Statement (Form N-1A No.
33-44964) of the Brenton Mutual Funds, one of the series of portfolios
constituting The Coventry Group, and to the use of our report dated May 9, 1997,
incorporated by reference therein.
/s/ Ernst & Young LLP
Columbus, Ohio
July __, 1997
<PAGE> 1
EXHIBIT 16
SCHEDULE SHOWING COMPUTATION OF PERFORMANCE
<PAGE> 2
THE COVENTRY GROUP
EXHIBIT 16
TOTAL RETURN CALCULATIONS
MONEY MARKET FUNDS
BRENTON U.S. GOVERNMENT MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
T = (ERV/P) 1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/09/94 TO 03/31/97 ):
( 1,131.6 /1000 (1/( 966 /365))-1) = 4.78%
ONE YEAR: ( 03/31/96 TO 03/31/97 ):
( 1,046.7 /1000 (1/( 365 /365))-1) = 4.67%
<PAGE> 3
THE COVENTRY GROUP
EXHIBIT 16
TOTAL RETURN
NO LOAD CALCULATIONS
BRENTON VALUE EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T = (ERV/P) 1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/09/94 TO 03/31/97 ):
( 1,618.4 /1000 (1/( 965 /365))-1) = 19.97%
ONE YEAR: ( 03/31/96 TO 03/31/97 ):
( 1,174.4 /1000 (1/( 365 /365))-1) = 17.44%
<PAGE> 4
THE COVENTRY GROUP
EXHIBIT 16
TOTAL RETURN
NO LOAD CALCULATIONS
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T = (ERV/P) 1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/09/94 TO 03/31/97 ):
( 1,150.6 /1000 (1/( 965 /365))-1) = 5.45%
ONE YEAR: ( 03/31/96 TO 03/31/97 ):
( 1,035.1 /1000 (1/( 365 /365))-1) = 3.51%
<PAGE> 5
THE COVENTRY GROUP
EXHIBIT 16
TOTAL RETURN
LOAD CALCULATIONS
BRENTON VALUE EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- ---------------------------
T = (ERV/P) 1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/09/94 TO 03/31/97 ):
( 1,545.7 /1000 (1/( 965 /365))-1) = 17.91%
ONE YEAR: ( 03/31/96 TO 03/31/97 ):
( 1,121.6 /1000 (1/( 365 /365))-1) = 12.16%
<PAGE> 6
THE COVENTRY GROUP
EXHIBIT 16
TOTAL RETURN
LOAD CALCULATIONS
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 3.50%
- ---------------------------
T = (ERV/P) 1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/09/94 TO 03/31/97 ):
( 1,110.6 /1000 (1/( 965 /365))-1) = 4.05%
ONE YEAR: ( 03/31/96 TO 03/31/97 ):
( 998.7 /1000 (1/( 365 /365))-1) = 0.13%
<PAGE> 7
THE COVENTRY GROUP
EXHIBIT 16
TOTAL RETURN
NO LOAD CALCULATIONS
SHELBY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T = (ERV/P) 1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 01/01/81 TO 03/31/97 ):
( 8,961.5 /1000 (1/( 5934 /365))-1) = 14.44%
ONE YEAR: ( 03/31/96 TO 03/31/97 ):
( 972.0 /1000 (1/( 365 /365))-1) = 2.80%
THREE YEAR: ( 03/31/94 TO 03/31/97 ):
( 1,339.3 /1000 (1/( 1095 /365))-1) = 10.23%
FIVE YEAR: ( 03/31/92 TO 03/31/97 ):
( 1,880.1 /1000 (1/( 1825 /365))-1) = 13.46%
TEN YEAR: ( 03/31/87 TO 03/31/97 ):
( 3,733.9 /1000 (1/( 3650 /365))-1) = 14.08%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882748
<NAME> THE COVENTRY GROUP
<SERIES>
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<NAME> THE SHELBY FUND
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882748
<NAME> THE COVENTRY GROUP
<SERIES>
<NUMBER> 6
<NAME> BRENTON U.S. GOVERNMENT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882748
<NAME> THE COVENTRY GROUP
<SERIES>
<NUMBER> 7
<NAME> BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000882748
<NAME> THE COVENTRY GROUP
<SERIES>
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<NAME> BRENTON VALUE EQUITY FUND
<S> <C>
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</TABLE>
