<PAGE>
ERNST WORLD FUNDS
ERNST GLOBAL ASSET ALLOCATION FUND
ERNST ASIA FUND
ERNST GLOBAL RESOURCES FUND
[LOGO]
[Logo of Ernst World Funds appears here]
ERNST & COMPANY
INVESTMENT ADVISER
SEMI-ANNUAL REPORT TO SHAREHOLDERS
SEPTEMBER 30, 1997
<PAGE>
Report From National Mutual Funds Management Ernst Global Asset Allocation Fund
- --------------------------------------------------------------------------------
Dear Shareholders:
The Global Asset Allocation Fund has been in operation for over a year. As
shown in the table below, performance since inception continues to be pleasing
when compared to a Composite Index, which is based on a 60% allocation to the
Morgan Stanley Capital International (MSCI) World Free Index and a 40%
allocation to the Lipper Global Government Bond Index. As a result of the
Fund's allocation to fixed income and short term investments, the Fund's
performance was below the Morgan Stanley Capital International (MSCI) World
Free Index which produced a return of 18.5%.
For the six months ended September 30, 1997, for that same period the Fund
gained 11.7% (excluding sales charges), as compared with 13.3% for a Composite
Index total return.
The Fund underperformed the Composite Index over the past six months, although
it outperformed this benchmark for the quarter ended September 30, 1997. The
Fund's cash weighting and its underweighting to the U.S. equity market were
negatives on performance over the six-month period ended September 30, 1997.
Offsetting this was the Fund's overweighting in the better performing European
and U.K. share markets.
COMPARATIVE RETURNS, PERIODS ENDING SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THREE SIX ONE CUMULATIVE SINCE
MONTHS MONTHS YEAR INCEPTION (7/2/96)
------ ------ ---- ------------------
<S> <C> <C> <C> <C>
Global Asset Allocation Fund (excluding
sales charges)*........................ 3.4% 11.7% 17.0% 18.7%
Composite Index......................... 2.7% 13.3% 17.9% 20.4%
</TABLE>
*If the Maximum Sales Load of 5.50% had been charged, the Fund's returns would
have been -2.3%, 5.5%, 10.6% and 12.1% respectively for each time period ending
September 30, 1997.
International investing involves increased risk and volatility. Past
performance is no guarantee of future results. The investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than the original cost.
World stock markets performed strongly in the quarter ended June 30, 1997,
after the United States failed to raise interest rates as initially
anticipated. With rising U.S. corporate profits and strong inflows into U.S.
mutual funds, the MSCI World Free Index rose 15.2% in the quarter ended June
30, 1997. In the quarter ended September 30, 1997, world stock markets
generally rose, with the exception of the Asian markets. The MSCI World Free
Index rose 3% over the quarter. The Japanese stock market fell 10.4% in the
third quarter as its economy continued to disappoint, while the Asian, markets
with the exception of Hong Kong and Singapore, fell sharply as a result of the
currency crisis gripping the Far East.
PORTFOLIO COMPOSITION
No significant changes were made to the Fund's asset or country allocation in
the six months ended September 30, 1997. Equity investments are still, at this
stage, being made via equity futures to enable proper diversification until the
Fund reaches a critical size.
The composition of the Fund as of September 30, 1997, as a percentage of total
investments is presented below**:
<TABLE>
<CAPTION>
% OF % OF
TOTAL EQUITIES
PORTFOLIO EXPOSURE
--------- --------
<S> <C> <C> <C>
EQUITIES (INDEX FUTURES)............................. 43.9%
U.S................................................. 7.0 15.9
Germany............................................. 6.9 15.7
France.............................................. 4.5 10.3
Japan............................................... 6.7 15.3
Hong Kong........................................... 7.2 16.4
Australia........................................... 2.2 5.0
U.K................................................. 9.4 21.4
----
100%
====
GOVERNMENT BONDS..................................... 28.0
U.S................................................. 22.0
Australia........................................... 6.0
SHORT-TERM INVESTMENTS............................... 28.1
-----
TOTAL................................................ 100.0%
=====
</TABLE>
**Portfolio composition is subject to change.
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-1-
<PAGE>
Report From National Mutual Funds Management Ernst Global Asset Allocation Fund
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ECONOMIC OVERVIEW
Mainly as a result of recent developments in Asia, we believe that world growth
has peaked, and that its pattern will change over the next year. The expected
slowing in world growth mainly reflects the sharp slowdowns in some Asian
countries more than offsetting the recovery in Europe. While we expect very
weak growth for the Asian economies, there is a risk that it could be even
weaker, particularly given the recent policy responses in this region.
The U.S. economy is expected to begin to slow in the fourth quarter, reflecting
a slowing in inventory accumulation, a decline in export growth and a slowdown
in investment growth. The Japanese economy contracted sharply in the second
quarter as the effects of fiscal consolidation took its toll on an already
fragile economy. Since then, growth has been weak, and this is expected to
continue, with GDP growth of 0.5% expected in 1998. Continental European
economies are showing signs that their export-led recoveries are broadening to
their domestic base. These countries are expected to expand by around 3% in
1998. Conversely, the U.K. economy is expected to slow from its current strong
pace reflecting higher interest rates and the recent strength of the pound.
Growth is expected to slow sharply in Southeast Asia, with the potential for
many of the region's problems to persist for quite some time. In addition,
problems in some countries in northern Asia will lead to growth slowing in that
region.
Inflation is expected to remain under control in all of the major economies.
Some caution is warranted in the United States, as the economy is growing
strongly and is operating close to full capacity. However, U.S. inflation is
expected to continue to moderate, with the major upside risk being stronger
growth persisting for longer than expected. Mainly reflecting the April 1,
1997, rise in consumption tax, the Japanese inflation rate has been pushed up
to 2.4% but should fall sharply, to below 0.5% in the second quarter of 1998.
Inflation is expected to remain below 2% over the next year in Continental
Europe despite the recent rise in Germany, while U.K. inflation is expected to
moderate around 2.5% moving into 1998.
While our forecasts suggest that U.S. inflation will fall further, the Federal
Reserve is likely to increase rates again in coming months, mainly reflecting
the tightness of the labor market. For the Fed to tighten more than once,
inflation would need to accelerate or growth be very strong. In Europe, rates
are expected to be raised further over the remainder of 1997 and into 1998, and
the Bank of England may increase rates again, as the U.K. labor market is very
tight. The Bank of Japan is unlikely to tighten rates until there are signs
that the domestic economy is on a sustainable growth path.
GLOBAL BOND MARKETS
We believe the prospects for International Bonds remain neutral to negative
over the next quarter. In the United States, valuations look reasonable, but
the market does not appear to be pricing any further increases in rates. The
U.S. market therefore looks to be a risk in the case of rising interest rates.
Valuations in Europe look more stretched and may sell off by at least as much
as the U.S. market should price pressures force a rise in European rates. In
the U.K., the market is also not pricing another tightening, although another
increase may occur given the tightness in the labor market. In addition, the
U.K. market will obviously remain vulnerable to what happens in the United
States and Continental Europe. Within the sector, the United Kingdom is
preferred ahead of the United States, Continental Europe and Japan, with yields
expected to rise in all of these markets.
GLOBAL EQUITY MARKETS
The U.S. equity market remains fully extended in terms of valuations. However,
in the absence of a substantial rise in interest rates, there appears to be
- --------------------------------------------------------------------------------
-2-
<PAGE>
Report From National Mutual Funds Management Ernst Global Asset Allocation Fund
- --------------------------------------------------------------------------------
no obvious trigger for a correction. We recommend an underweight position in
the U.S. market, with the interest rate outlook being the driving factor. The
Japanese market is attractively valued but is unlikely to perform strongly
until greater confidence in the economy is established, and a neutral position
is recommended. Moderate overweight positions are recommended for both the U.K.
and Continental European markets. These positions are supported by reasonable
earnings growth and attractive valuations in the U.K., while Continental
European markets offer good earnings momentum into 1998 and are generally
priced at the top end of neutral. We are cautious with our outlook for the
Asian markets given our belief that the momentum of Asian growth may decline
more sharply than expected over the next six months.
The Fund is holding a larger than normal amount of cash, although part of this
is as a result of the Fund's U.S. bonds being of long duration. We do not want
to commit further funds at this time. Our current positioning reflects the
potential vulnerability of the U.S. equity market to any rise in U.S. interest
rates given its valuations. However, we are ready to avail ourselves to any
buying opportunities that may present themselves.
Respectfully,
/s/ Richard Greenfield
Richard Greenfield
National Mutual Funds Management (Global), Ltd.
Melbourne, Australia
November 4, 1997
- ------
/1/The Morgan Stanley Capital International World Free Index measures
performance of 22 global stock markets. The Lipper Global Government Bond Index
measures performance of the 30 largest mutual funds with that investment
objective. The indices are not managed and do not reflect the deduction of
expenses associated with a mutual fund.
Foreign investing involves a greater degree of risk and volatility.
- --------------------------------------------------------------------------------
-3-
<PAGE>
Report From Koeneman Capital Management Ernst Asia Fund
- --------------------------------------------------------------------------------
Dear Shareholders:
The Asia Fund was down 13.0% (excluding sales load) for the six-month period
ended September 30, 1997. In contrast, the Morgan Stanley Capital International
(MSCI) AC Far East Free Index (including Japan) was up 1.39%, and the MSCI AC
Far East Free Ex-Japan Index was down 15.3%. The large difference comes because
of the performance of the Japanese market. The Tokyo Stock Price Index
(TOPIX)/1/ was up 1.4%, and Japan constitutes about 75% of the MSCI AC Far East
Free Index. The Fund however is limited to a maximum of 25% weight in Japan, as
per the conditions set forth in the prospectus. The Morningstar
International/Pacific Funds average by comparison was down 3.0% in the six-
month period./2/
The recent volatility in Asian currencies took its toll on the Fund. Since the
Fund does not hedge any of its currency exposures, the sharp decline in the
value of most Asian currencies against the U.S. dollar impacted the Fund. About
two thirds of the value lost during this six-month period was from the currency
side. Most of this came from our exposures in Malaysia, Japan, the Philippines
and Indonesia.
On the equity side, allocations to Hong Kong and Taiwan securities added value,
while those in Malaysia, the Philippines and Singapore lost value for the Fund.
Overall, asset allocation and stock selection made negative contributions to
the Fund. Stock selection in the Philippines, Taiwan and Thailand added value
for the Fund, while Japan, Malaysia, Singapore and Hong Kong lost value. We
refurbished our Japanese portfolio in June, and it added value during the
quarter ended September 30, 1997.
The Fund's cash position was high at the beginning of the six-month period. The
Fund was invested more fully into June and July, as weightings in Taiwan and
Japan were raised because the expected returns in these markets became
positive. In the last two months, however, the cash level has been raised
again, primarily by cutting down our exposures in Hong Kong and Taiwan. The
Hong Kong and Malaysian weights have been reduced further since the end of
September.
The Japan weight was reduced in April, as it was felt that the consumption tax
increase on April 1, 1997, and the increase in consumption in March 1997 to
beat the tax hike would mean reduced domestic demand going forward. Indeed, the
slippage in domestic demand turned out to be worse than expected. Given the
much larger problems in the Southeast Asian economies and the guideline for the
Fund to be invested at least 65% in equities, the Japan weight has been raised
to the maximum permitted level again.
Malaysia is one of the few countries at this point in time whose expected
return is positive according to our models. Given the correction in the market,
we feel there is limited downside in the market. The Hong Kong weights have
been reduced over the last two months. Our view was that Hong Kong would be a
safer market for investment than Thailand or Taiwan, as lower interest rates in
China would stimulate the Hong Kong market. Though the rate cut in China has
come about, the Hong Kong market has been severely affected by the weakness in
U.S. equities. We have reduced our Hong Kong weights further in October.
- --------------------------------------------------------------------------------
-4-
<PAGE>
Report From Koeneman Capital Management Ernst Asia Fund
- --------------------------------------------------------------------------------
Our current target weights as a percentage of total investments are as
follows*:
<TABLE>
<CAPTION>
COUNTRY TARGET %
- ------- --------
<S> <C>
Japan.................................................................. 25
Hong Kong.............................................................. 10
Singapore.............................................................. 15
Malaysia............................................................... 12
Thailand............................................................... --
Indonesia.............................................................. 2
Philippines............................................................ 2
Taiwan................................................................. --
Korea.................................................................. --
Total Equities......................................................... 66%
Total Cash............................................................. 34%
</TABLE>
The top ten holdings as of September 30, 1997, as a percentage of the total
investments are as follows*:
<TABLE>
<CAPTION>
% OF
COMPANY COUNTRY PORTFOLIO
- ------- --------- ---------
<S> <C> <C>
Hutchison Whampoa Ltd....................................... Hong Kong 5.2%
Matsushita Electric Industrial Co. Ltd...................... Japan 2.9
Telekom Malaysia Berhad..................................... Malaysia 2.9
77 Bank..................................................... Japan 2.8
Toyota Motor Corp........................................... Japan 2.8
Sun Hung Kai Properties Ltd................................. Hong Kong 2.4
Malayan Banking Berhad...................................... Malaysia 2.2
Sony Corp................................................... Japan 2.2
Sime Darby Berhad........................................... Malaysia 2.1
Takeda Chemical Industries.................................. Japan 2.1
</TABLE>
MARKET EXPECTATIONS GOING FORWARD
At this point in time, we remain concerned on the outlook for Asian markets as
a whole. This shows in our cash target, which is close to the 35% guideline as
stated in the prospectus. The only two markets we are reasonably comfortable
with are Japan and Singapore.
The Singapore stock market has been battered along with the rest of the region.
Though Singapore will undoubtedly suffer from a slowdown in the rest of the
region, we feel the magnitude of the sell-off has been overdone. Unlike
Thailand or Indonesia, the fundamentals of the Singapore economy are still
intact. Inflation is under control; the current account is in surplus; fiscal
discipline is tight; and there is no problem of excess private sector
indebtedness. While the currency has slipped against the U.S. dollar in
sympathy with the other Southeast Asian currencies, there has been none of the
vicious fall in the currency, along with all the consequent destabilizing
effects, seen in the rest of Southeast Asia.
The effects of the recent currency volatility in Southeast Asia are still not
over. Interest rates remain high; earnings momentum is negative; and valuations
are changing rapidly as the underlying earnings streams change. In these
uncertain conditions, we expect to keep cash levels high in the near future.
This should insulate us against any near-term weakness, as well as enable us to
participate in the strong market recoveries, which we anticipate in the medium
term.
Respectfully,
/s/ John J. Koeneman
John J. Koeneman
Koeneman Capital Management Pte Ltd.
Singapore
November 4, 1997
- ------
*Portfolio composition is subject to change.
/1/The Tokyo Stock Price Index (TOPIX) is designed to reflect the general
movement of the Japanese stock market. The index consists of all shares listed
on the First Section of the Tokyo Stock Exchange, which is generally reserved
for Japan's larger companies.
/2/The Morgan Stanley Capital International All Country Far East Index measures
performance of the stock markets in eight developed and emerging market
countries in the Far East, and the Morningstar weighted average return of
International/Pacific Funds measures the performance of over 100 mutual funds
with that investment objective. The MSCI AC Far East Free Index is not managed
and does not reflect the deduction of expenses associated with a mutual fund.
Foreign investing involves a greater degree of risk and volatility.
- --------------------------------------------------------------------------------
-5-
<PAGE>
Report From National Mutual Funds Management Ernst Global Resources Fund
- -------------------------------------------------------------------------------
Dear Shareholders:
For the six months ended September 30, 1997, the Fund gained 1.1% (excluding
sales charges), compared with the Morgan Stanley Capital International World
Free Index of 18.5% and the Morningstar Specialty/Natural Resources Funds
average of 22.8%./1/
Overall performance was very disappointing for the six-month period. The
primary reasons for the fund falling behind the Morningstar Average are as
follows:
. Underweight position in the energy sector, including oil service companies,
international integrated producers and U.S.-based exploration/production
companies. In addition, the Australian energy stocks had a mixed period of
performance after a very strong performance in the previous six months.
. Overweight position in gold stocks. We see very good long-term value in gold
stocks. However, the impact of Central Bank selling has been a major
negative for the gold price, and due to this, investor sentiment is very
poor.
. Overweight position in metal and minerals. The recent currency and interest
rate turmoil in Asia has had a direct impact upon expectations of global
metal and mineral consumption. This has resulted in a major pullback in
equity prices for metal and mineral stocks.
PORTFOLIO COMPOSITION
While the composition of the Fund's investments is subject to change, as of
September 30, 1997, the top ten equity holdings as a percentage of total
investments were as follows:
<TABLE>
<CAPTION>
COMPANY SECTOR % OF PORTFOLIO
- ---------------------- -------------------- --------------
<S> <C> <C>
Kaiser Aluminum Aluminum 6.1
Oil Search Limited Oil & Gas Production 5.6
Freeport McMoran Diversified Mining 5.0
Alcan Aluminum Aluminum 4.9
Barrick Gold Gold Mining 4.6
Rio Tinto plc Diversified Minerals 4.5
Cominco Ltd. Diversified Metals 4.3
Woodside Petroleum Oil & Gas Production 3.5
Rio Tinto (Aust.) Ltd. Diversified Minerals 3.3
Newmont Mining Gold Mining 3.0
</TABLE>
MARKET EXPECTATIONS AND INVESTMENT STRATEGY
Global economic growth forecasts are at the forefront of our strategy. We are
concerned about the implications of the recent events in Asia and the strong
possibility that the region could experience a major slowdown over the next
two years.
In addition, the expectation that the U.S. economy, which has been the best
performing economy for the past six years, will experience slower growth in
1998 versus 1997 implies a more subdued global growth outlook than we forecast
some six to nine months ago. Because of this potential situation, we expect
metals and mineral stocks to remain relatively lackluster over the next six
months.
The gold sector should be led by the gold price. Central Bank selling is still
a considerable potential negative, while any weakness in the U.S. dollar would
be positive. Gold stocks are cheap but will likely remain so in the short
term.
Within the energy sector, the U.S./Northern Hemisphere winter conditions will
play a major role in setting energy prices over the next three months. We
expect the oil prices to be slightly down over
- -------------------------------------------------------------------------------
-6-
<PAGE>
Report From National Mutual Funds Management Ernst Global Resources Fund
- -------------------------------------------------------------------------------
the next six months, reflecting the global economic slowdown.
As discussed above, the next six months may prove to be difficult for the
sectors in which the Fund invests. However, the prudent investor, rather than
expecting dramatic short-term gains, should remain focused on the long-term
view.
Respectfully,
/s/ Paul Willis
Paul Willis
National Mutual Funds Management (Global), Ltd.
Melbourne, Australia
- ------
/1/The Morgan Stanley Capital International World Free Index measures
performance of 22 global stock markets. The Morningstar weighted average
return of Specialty/Natural Resources Fund measures the performance of over 40
mutual funds with that investment objective. The MSCI World Free Index is not
managed and does not reflect the deduction of expenses associated with a
mutual fund.
Foreign investing involves a greater degree of risk and volatility.
This material must be preceded or accompanied by a current prospectus.
BISYS Fund Services, Distributor.
11/97
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-7-
<PAGE>
TABLE OF CONTENTS
Statements of Assets and Liabilities
Page 9
Statements of Operations
Page 10
Statements of Changes in Net Assets
Page 11
Schedules of Portfolio Investments
Page 12
Notes to Financial Statements
Page 18
Financial Highlights
Page 25
-8-
<PAGE>
COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ERNST
GLOBAL ERNST
ASSET ERNST GLOBAL
ALLOCATION ASIA RESOURCES
FUND FUND FUND
------------ ---------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $6,773,640,
$5,224,426, and $10,602,038,
respectively)........................... $6,833,799 $4,343,496 $10,787,154
Interest and dividends receivable........ 53,429 9,304 35,560
Foreign currency (cost $0, $1,026,456,
and $1,845, respectively)................ -- 995,845 1,844
Receivable from investment advisor....... 30,525 16,544 17,904
Receivable from brokers for investments
sold..................................... -- 20,439 --
Reclaims receivable...................... -- 19 2,382
Unamortized organization costs........... 22,288 3,481 5,571
Net variation margin on open futures
contracts................................ 14,906 -- --
Prepaid expenses and other assets........ 2,610 6,004 1,208
---------- ---------- -----------
Total Assets.......................... 6,957,557 5,395,132 10,851,623
---------- ---------- -----------
LIABILITIES:
Investment securities purchased.......... -- 7,181 --
Accrued expenses and other payables:
Investment advisory fees............... 6,148 -- --
Administration fees.................... 411 411 411
Distribution and shareholder service
fees.................................. 1,397 1,114 2,188
Custodian.............................. 6,669 2,086 1,496
Printing............................... 7,172 3,214 5,008
Accounting and transfer agent fees..... 3,980 -- 2,299
Legal and audit fees................... 6,577 -- --
Postage................................ -- 651 --
Other.................................. 3,995 87 4,614
---------- ---------- -----------
Total Liabilities..................... 36,349 14,744 16,016
---------- ---------- -----------
NET ASSETS:
Paid-in capital.......................... 6,008,468 6,107,965 10,570,192
Accumulated (Distributions in excess of)
net investment income.................... 59,982 (16,628) (26,358)
Net unrealized appreciation
(depreciation) from investments.......... 146,658 (838,185) 91,958
Net unrealized appreciation
(depreciation) from translation of
assets and liabilities in foreign
currencies.............................. 11 (73,552) 92,946
Accumulated undistributed net realized
gains (losses) from investment
transactions including futures
contracts............................... 719,798 165,939 188,556
Accumulated undistributed net realized
gains (losses) from foreign currency
transactions............................ (13,709) 34,849 (81,687)
---------- ---------- -----------
Net Assets............................... $6,921,208 $5,380,388 $10,835,607
========== ========== ===========
Outstanding shares....................... 592,517 605,818 1,033,272
========== ========== ===========
Net asset value and redemption price per
share.................................... $11.68 $8.88 $10.49
========== ========== ===========
Maximum sales charge..................... 5.50% 4.25% 4.25%
========== ========== ===========
Maximum offering price per share......... $12.36 $9.27 $10.96
========== ========== ===========
</TABLE>
See notes to financial statements.
-9-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ERNST GLOBAL ERNST GLOBAL
ASSET ALLOCATION ERNST ASIA RESOURCES
FUND FUND FUND
---------------- ---------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income..................... $253,581 $ 19,256 $ 48,615
Dividend income..................... -- 61,179 67,300
Other............................... -- 42,434 23,586
Foreign tax withholding............. -- (9,638) (8,612)
-------- --------- --------
Total Income...................... 253,581 113,231 130,889
-------- --------- --------
EXPENSES:
Investment advisory fees............ 35,521 30,869 54,341
Administration fees................. 18,801 18,801 18,802
Distribution and shareholder service
fees................................ 8,073 7,717 13,585
Custodian fees...................... 2,679 5,805 5,175
Legal and audit fees................ 11,379 11,652 19,632
Organization costs.................. 15,189 7,869 10,614
Trustees' fees and expenses......... 366 261 444
Accounting and transfer agent fees.. 22,510 31,153 27,376
Registration and filing fees........ 6,666 4,689 4,581
Printing costs...................... 4,820 3,137 5,617
Other............................... 315 184 183
-------- --------- --------
Total Expenses.................... 126,319 122,137 160,350
Less: Fee waivers/reimbursements.... (39,084) (45,690) (39,531)
-------- --------- --------
Net Expenses...................... 87,235 76,447 120,819
Net Investment Income............... 166,346 36,784 10,070
-------- --------- --------
REALIZED AND UNREALIZED GAINS
(LOSSES) FROM
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gains (losses) from
investment transactions............. -- 51,207 201,286
Net realized gains (losses) from
futures contracts................... 394,029 -- --
Net realized gains (losses) from
foreign currency transactions....... (10,607) 8,741 (19,234)
Net change in unrealized
appreciation (depreciation) from
investments........................ 148,568 (861,301) (79,405)
Net change in unrealized
appreciation (depreciation) from
translation of assets and
liabilities in foreign currencies.. 24 (30,181) 1,680
-------- --------- --------
Net realized and unrealized gains
(losses) from investments and
foreign currencies................. 532,014 (831,534) 104,327
-------- --------- --------
Change in net assets resulting from
operations.......................... $698,360 $(794,750) $114,397
======== ========= ========
</TABLE>
See notes to financial statements.
-10-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ERNST GLOBAL ERNST GLOBAL
ASSET ALLOCATION ERNST ASIA RESOURCES
FUND FUND FUND
------------------------ ------------------------ -------------------------
SIX MONTHS JULY 2, SIX MONTHS YEAR SIX MONTHS YEAR
ENDED 1996 TO ENDED ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31,
1997 1997 (A) 1997 1997 1997 1997
------------- ---------- ------------- ---------- ------------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income
(loss)................. $ 166,346 $ (3,279) $ 36,784 $ (68,216) $ 10,070 $ (69,057)
Net realized gains
(losses) from
investment
transactions.......... -- 31,460 51,207 237,625 201,286 (73,561)
Net realized gains
(losses) from futures
contracts............. 394,029 291,208 -- -- -- --
Net realized gains
(losses) from foreign
currency transactions. (10,607) (3,102) 8,741 29,306 (19,234) (62,453)
Net change in
unrealized
appreciation
(depreciation) from
investments........... 148,568 (1,910) (861,301) (308,019) (79,405) (66,512)
Net change in
unrealized
appreciation
(depreciation) from
translation of assets
and liabilities in
foreign currencies.... 24 (13) (30,181) (36,441) 1,680 (1,974)
---------- ---------- ---------- ---------- ----------- -----------
Change in net assets
resulting from
operations............. 698,360 314,364 (794,750) (145,745) 114,397 (273,557)
---------- ---------- ---------- ---------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment
income.................. (96,484) -- (42,434) -- (23,586) --
In excess of net
investment income....... -- (3,500) -- (64,549) -- --
From net realized gains
on investments.......... -- -- -- (190,052) -- --
---------- ---------- ---------- ---------- ----------- -----------
Change in net assets
from shareholder
distributions.......... (96,484) (3,500) (42,434) (254,601) (23,586) --
---------- ---------- ---------- ---------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................. 434,832 5,575,623 34,106 656,307 190,712 420,536
Dividends reinvested... 9,317 3,500 5,848 254,529 1,203 --
Cost of shares
redeemed............... (4,984) (9,820) (137,628) (60,352) (44,457) (6,465)
---------- ---------- ---------- ---------- ----------- -----------
Change in net assets
from share
transactions.......... 439,165 5,569,303 (97,674) 850,484 147,458 414,071
---------- ---------- ---------- ---------- ----------- -----------
Change in net assets... 1,041,041 5,880,167 (934,858) 450,138 238,269 140,514
NET ASSETS:
Beginning of period.... 5,880,167 -- 6,315,246 5,865,108 10,597,338 10,456,824
---------- ---------- ---------- ---------- ----------- -----------
End of period.......... $6,921,208 $5,880,167 $5,380,388 $6,315,246 $10,835,607 $10,597,338
========== ========== ========== ========== =========== ===========
SHARE TRANSACTIONS:
Issued................. 38,484 554,219 3,412 62,232 18,154 40,126
Reinvested............. 836 329 551 24,427 111 --
Redeemed............... (430) (920) (13,404) (5,792) (4,162) (653)
---------- ---------- ---------- ---------- ----------- -----------
Change in shares........ 38,890 553,628 (9,441) 80,867 14,103 39,473
========== ========== ========== ========== =========== ===========
</TABLE>
- ------
(a) Period from commencement of operations.
See notes to financial statements.
-11-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST GLOBAL ASSET ALLOCATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- --------------------------------------------------------- ----------
<C> <S> <C>
U.S. TREASURY NOTES (21.7%):
$350,000 5.88%, 2/15/04........................................... $ 346,391
500,000 6.88%, 5/15/06........................................... 522,813
500,000 8.75%, 5/15/20........................................... 633,281
----------
Total U.S. Treasury Notes 1,502,485
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------ ----------
<C> <S> <C>
TIME DEPOSITS (77.0%) (B):
UNITED STATES (77.0%):
$5,331,314 Union Bank of California, 4.91%, dated 09/30/97, due
10/1/97.............................................. $5,331,314
----------
Total Time Deposits 5,331,314
----------
Total Investments (Cost--$6,773,640) (a) $6,833,799
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $6,921,208.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............. $60,159
Unrealized depreciation.............. --
-------
Net unrealized appreciation.......... $60,159
=======
</TABLE>
(b) The Fund has temporarily invested in futures contracts. As of September 30,
1997, $220,191 of time deposits was reserved for these contracts.
OPEN FUTURES CONTRACTS AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CURRENT
OPENING MARKET
# OF POSITIONS VALUE
CONTRACTS CONTRACT TYPE COUNTRY (000) (000)
--------- --------------------------------- ------------- --------- -------
<C> <S> <C> <C> <C>
LONG CONTRACTS--BONDS
4 Australian, March 1998 Australia $ 407 $ 413
====== ======
10 year Australian Treasury Bonds
LONG CONTRACTS--EQUITIES
3 Australian SPI, December 1997 Australia 153 152
3 CAC Index, December 1997 France 299 306
2 DAX (DTB), December 1997 Germany 440 474
3 FTSE 100, December 1997 Great Britain 603 645
5 Hang Sang Index, December 1997 Hong Kong 465 489
1 SPX (CME), December 1997 U.S. 479 477
4 TOPIX Index, December 1997 Japan 480 457
------ ------
$2,919 $3,000
====== ======
</TABLE>
See notes to financial statements.
-12-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS (68.9%):
HONG KONG (14.6%):
Banks (1.4%):
2,000 HSBC Holdings plc....................................... $ 66,938
2,200 Wing Hang Bank Ltd...................................... 9,609
----------
76,547
----------
Diversified (5.5%):
15,000 Cosco Pacific Ltd....................................... 26,652
23,000 Hutchison Whampoa Ltd................................... 226,626
5,500 Swire Pacific Ltd. "A".................................. 42,111
----------
295,389
----------
Real Estate (4.9%):
6,000 Cheung Kong (Holdings) Ltd.............................. 67,455
7,000 Henderson Land Development Co. Ltd...................... 60,154
9,000 Sun Hung Kai Properties Ltd............................. 105,834
8,000 Wharf (Holdings) Ltd.................................... 29,463
----------
262,906
----------
Utilities (2.8%):
9,000 Asia Satellite Telecommunications Holdings Ltd.(b)...... 25,005
9,500 China Light & Power Co. Ltd............................. 52,297
20,000 Hongkong Electric Holdings Ltd.......................... 74,433
----------
151,735
----------
Total Hong Kong 786,577
----------
INDONESIA (2.3%):
Automobiles (0.4%):
26,000 Astra International--Foreign............................ 23,654
----------
Banks (0.2%):
32,664 Bank Internasional Indonesia--Foreign................... 9,490
----------
Financial Services (0.2%):
29,000 Putra Surya Multi--Foreign.............................. 13,303
----------
Fisheries (0.7%):
21,000 Daya Guna Samudera--Foreign............................. 35,000
----------
Real Estate (0.2%):
16,500 Kawasan Industri Jababeka--Foreign...................... 10,344
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
INDONESIA, CONTINUED:
Telecommunications (0.5%):
25,000 Telekomunikasi Indonesia--Foreign....................... $ 27,714
----------
Transportation Services (0.1%):
11,275 Steady Safe Transportation--Foreign..................... 4,396
----------
Total Indonesia 123,901
----------
JAPAN (25.8%):
Automobiles (2.3%):
4,000 Toyota Motor Corp....................................... 122,587
----------
Banks (5.4%):
12,000 77 Bank................................................. 122,255
2,000 Bank of Tokyo--Mitsubishi............................... 38,102
4,000 Sanwa Bank Ltd.......................................... 49,035
4,000 The Sumitomo Bank Ltd................................... 60,300
2,000 Sumitomo Trust & Banking................................ 19,879
----------
289,571
----------
Electronic & Electrical (6.4%):
7,000 Matsushita Electric Industrial Co. Ltd.................. 126,398
3,000 Matsushita Electric Works............................... 31,310
1,000 Sony Corp............................................... 94,426
1,000 TDK Corp................................................ 89,456
----------
341,590
----------
Manufacturing (1.4%):
4,000 Nitto Denko Corp........................................ 74,878
----------
Pharmaceuticals (2.6%):
3,000 Banyu Pharmaceutical Co. Ltd............................ 49,201
3,000 Takeda Chemical Industries.............................. 89,953
----------
139,154
----------
Radio & Television (1.6%):
5,000 Tokyo Broadcasting System............................... 88,213
----------
Retail (2.7%):
7,000 Isetan Co............................................... 67,258
5,000 Uny Co. Ltd............................................. 75,375
----------
142,633
----------
</TABLE>
See notes to financial statements.
-13-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Steel--Producers (0.8%):
19,000 Nippon Steel Corp....................................... $ 41,862
----------
Telecommunications (1.0%):
6 Nippon Telegraph & Telephone Corp....................... 55,164
----------
Textile Manufacturing (1.3%):
5,000 Onward Kashiyama Co. Ltd................................ 72,061
----------
Wire & Cable Products (0.3%):
2,000 Fujikura Ltd............................................ 14,296
----------
Total Japan 1,382,009
----------
MALAYSIA (12.5%):
Automobiles (2.1%):
13,000 Edaran Otomobil Nasional Berhad......................... 52,136
22,000 Perusahaan Otomobil Nasional Berhad..................... 61,421
----------
113,557
----------
Banks (3.6%):
19,000 AMMB Holdings Berhad.................................... 49,822
42,000 Commerce Asset Holdings Berhad.......................... 47,163
19,000 Malayan Banking Berhad.................................. 95,540
----------
192,525
----------
Diversified Operations (2.9%):
80,000 Magnum Corp. Berhad..................................... 70,337
43,000 Sime Darby Berhad....................................... 89,540
----------
159,877
----------
Leisure & Recreation (1.5%):
28,000 Berjaya Sports Toto Berhad.............................. 80,332
----------
Telecommunications (2.4%):
42,000 Telekom Malaysia Berhad................................. 127,624
----------
Total Malaysia 673,915
----------
THE PHILIPPINES (1.6%):
Beverages--Wine/Spirits (0.2%):
7,000 La Tondena Distillers, Inc.............................. 6,725
1,800 San Miguel Corp. Class "B".............................. 2,908
----------
9,633
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
THE PHILIPPINES, CONTINUED:
Construction (0.0%):
5,800 DMCI Holdings, Inc. (b)................................. $ 464
----------
Diversified Operations (0.1%):
54,000 Metro Pacific Corp...................................... 6,524
----------
Electronics & Electrical (0.9%):
71,250 Ionics Circuit, Inc..................................... 47,707
----------
Oil Refining & Marketing (0.0%):
14,200 Petron Corp............................................. 1,819
----------
Paper & Related Products (0.0%):
26,000 PICOP Resources, Inc.................................... 1,120
----------
Real Estate (0.3%):
11,053 Ayala Land, Inc. "B".................................... 5,390
49,000 Belle Corp. (b)......................................... 6,420
36,000 Filinvest Land, Inc. (b)................................ 3,930
----------
15,740
----------
Retail (0.0%):
33,000 Uniwide Holdings, Inc. (b).............................. 2,344
----------
Utilities--Electric (0.1%):
170 Philippine Long Distance Telephone Co................... 4,603
----------
Total Philippines 89,954
----------
SINGAPORE (11.8%):
Airlines (1.5%):
11,000 Singapore Airlines Ltd.................................. 81,241
----------
Banks (5.5%):
7,000 Development Bank of Singapore Ltd....................... 71,371
11,438 Overseas Chinese Banking Corp. Ltd...................... 79,243
15,800 Overseas Union Bank Ltd................................. 70,221
10,000 United Overseas Bank Ltd................................ 73,855
----------
294,690
----------
Publishing (1.3%):
5,000 Singapore Press Holdings Ltd............................ 73,528
----------
</TABLE>
Continued
-14-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST ASIA FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
SINGAPORE, CONTINUED:
Real Estate Investment & Management (2.3%):
10,000 City Developments Ltd................................... $ 64,705
25,000 DBS Land Ltd............................................ 60,783
----------
125,488
----------
Textiles (1.2%):
30,000 Wing Tai Holdings Ltd................................... 61,960
----------
Total Singapore 636,907
----------
SOUTH KOREA (0.0%):
Mining--Diversified (0.0%):
99 Yukong--GDR (b)......................................... 920
----------
Utilities--Telecommunication (0.0%):
70 SK Telecom Co. Ltd.--ADR................................ 630
----------
Total South Korea 1,550
----------
THAILAND (0.3%):
Electronics & Electrical (0.3%):
2,300 K.R. Precision plc--Foreign (b)......................... 16,474
----------
Total Thailand 16,474
----------
Total Common Stocks 3,711,287
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------------------------------- ----------
<C> <S> <C>
WARRANTS (0.0%):
INDONESIA (0.0%):
4,592 Bank Internasional Indonesia............................ $ 392
----------
THE PHILIPPINES (0.0%):
9,800 Bell Corp............................................... 0
1,100 Philippine National Bank (b)............................ 160
----------
Total Warrants 552
----------
TIME DEPOSITS (11.7%):
UNITED STATES (11.7%):
$631,657 Union Bank of California, 4.91%,
dated 9/30/97, due 10/1/97............................. 631,657
----------
Total Time Deposits 631,657
----------
Total Investments (Cost--$5,224,426) (a) $4,343,496
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $5,380,388.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......... $ 218,493
Unrealized depreciation......... (1,099,423)
-----------
Net unrealized depreciation..... $ (880,930)
===========
</TABLE>
(b) Represents non-income producing securities.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
plc--Public Limited Company
See notes to financial statements.
-15-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST GLOBAL RESOURCES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (69.5%):
AUSTRALIA (30.3%):
Diversified Minerals (4.9%):
23,475 Rio Tinto Ltd.......................................... $ 352,731
38,500 WMC Ltd................................................ 180,657
-----------
533,388
-----------
Gold Mining (3.5%):
200,000 Centaur Mining & Exploration (b)....................... 189,723
39,600 Delta Gold NL.......................................... 47,315
70,077 Normandy Mining Ltd.................................... 88,804
19,000 Plutonic Resources Ltd................................. 52,145
-----------
377,987
-----------
Metals--Diversified (1.6%):
105,000 Pasminco Ltd........................................... 174,879
-----------
Metals--Fabrication (1.0%):
40,000 RGC Ltd................................................ 111,111
-----------
Mining--Diversified (4.4%):
24,800 The Broken Hill Proprietary Company Ltd................ 288,773
150,000 M.I.M. Holdings Ltd.................................... 183,568
-----------
472,341
-----------
Oil & Gas Production (11.8%):
80,200 Novus Petroleum........................................ 304,316
260,300 Oil Search Ltd......................................... 599,407
39,300 Woodside Petroleum..................................... 374,855
-----------
1,278,578
-----------
Precious Metals (3.1%):
93,200 North Ltd.............................................. 329,011
-----------
Total Australia 3,277,295
-----------
BRITAIN (4.5%):
Diversified Minerals (4.5%):
30,450 Rio Tinto plc.......................................... 487,217
-----------
Total Britain 487,217
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
CANADA (4.2%):
Metal--Diversified (4.2%):
18,400 Cominco Ltd. (b)....................................... $ 460,415
-----------
Total Canada 460,415
-----------
SOUTH AFRICA (1.6%):
Diversified Minerals (1.6%):
40,000 Billiton plc (b)....................................... 153,994
8,000 Gencorp Ltd............................................ 18,874
-----------
Total South Africa 172,868
-----------
UNITED STATES (28.9%):
Gold Mining (9.4%):
11,000 Ashanti Goldfields Co. Ltd............................. 113,850
8,110 Ashanti Goldfields GDR................................. 89,210
20,073 Barrick Gold Corp...................................... 496,807
7,100 Newmont Mining......................................... 319,056
-----------
1,018,923
-----------
Metal--Aluminum (13.6%):
15,070 Alcan Aluminum Ltd..................................... 523,683
7,100 Alumax, Inc. (b)....................................... 290,213
46,280 Kaiser Aluminum Corp. (b).............................. 656,598
-----------
1,470,494
-----------
Metal--Diversified (0.2%):
920 Cominco Ltd............................................ 23,000
-----------
Mining--Diversified (5.7%):
18,700 Freeport McMoRan Copper & Gold......................... 538,792
1,700 Newmont Gold Co........................................ 78,413
-----------
617,205
-----------
Total United States 3,129,622
-----------
Total Common Stock 7,527,417
-----------
</TABLE>
Continued
-16-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
ERNST GLOBAL RESOURCES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
RIGHTS (0.1%):
Australia (0.1%):
30,000 Pasminco Ltd........................................... $ 6,300
-----------
Total Rights 6,300
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
TIME DEPOSITS (30.0%):
United States (30.0%):
$3,253,437 Union Bank of California, 4.91%, dated 9/30/97, due
10/1/97............................................. $ 3,253,437
-----------
Total Time Deposits 3,253,437
-----------
Total Investments (Cost--$10,602,038)(a) $10,787,154
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $10,835,607.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........... $ 957,383
Unrealized depreciation........... (772,267)
---------
Net unrealized appreciation....... $ 185,116
=========
</TABLE>
(b) Represents non-income producing securities.
GDR--Global Depository Receipt.
plc--Public Limited Company
See notes to financial statements.
-17-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. ORGANIZATION:
The Coventry Group (the "Group") was organized on January 8, 1992 as a
Massachusetts business trust, and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Ernst Global Asset Allocation Fund, the
Ernst Asia Fund, and the Ernst Global Resources Fund (individually, a
"Fund"; collectively, the "Funds"), each a series of the Group, commenced
operations July 2, 1996, December 6, 1995, and December 11, 1995,
respectively. Between the date of organization and the date of commencement
of operations, the Funds earned no investment income and had no operations
other than incurring organizational costs. Each Fund seeks long-term capital
appreciation.
The Group is authorized to issue an unlimited number of shares of beneficial
interest with a par value of $0.01 per share. Sales of shares of the Funds
may be made to the general public.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
Portfolio securities for which market quotations are readily available
are valued based on their current available bid prices in the principal
market (closing sales prices if the principal market is an exchange) in
which such securities are normally traded. Unlisted securities for which
market quotations are not readily available, including restricted
securities and securities purchased in private transactions are valued at
their fair market value in the investment adviser's best judgment under
the supervision of the Group's Board of Trustees. Investments in debt
securities with remaining maturity of sixty days or less are valued based
on amortized cost which approximates market value. Investments in
investment companies are valued at their respective net asset values as
reported by such companies. Investments in foreign securities, currency
holdings and other assets and liabilities of the Funds are valued based
on quotations from the primary market in which they are traded and are
translated from the local currency to U.S. dollars using current exchange
rates. The differences between cost and market value of investments held
by the Funds are reflected as either unrealized appreciation or
depreciation.
Continued
-18-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the pro rata amortization
of premium or discount. Dividend income is recorded on the ex-dividend
date. Realized gains or losses from sales of securities are determined by
comparing the identified cost of the security lot sold with the net sales
proceeds.
FOREIGN INVESTMENTS:
Investments in foreign securities are subject to certain risks that
differ in some respects from investments in securities of domestic
issuers. Such risks include trade balances and imbalances, related
economic policies, future adverse political, economic and social
developments, the possible imposition of withholding taxes on interest
and dividends, possible seizure, nationalization or expropriation of
foreign investments or deposits, currency blockage, less stringent
disclosure requirements, the possible establishment of exchange controls
or the adoption of other foreign governmental laws and restrictions.
Additional risks include the difficulty in obtaining or enforcing a court
judgment abroad, restrictions on foreign investment in other
jurisdictions, reduced levels of capital invested abroad, difficulties in
transaction settlement, different accounting and financial standards and
the possibility of price volatility and reduced liquidity in certain
foreign markets.
Certain countries may also impose substantial restrictions on investments
in their capital markets by foreign entities, including restrictions on
investments in issuers of industries deemed sensitive to relevant
national interests. These factors may limit the investment opportunities
available to the Funds and result in a lack of liquidity and a high price
volatility with respect to securities of issuers from developing
countries.
Withholding taxes on foreign dividends have been provided for in
accordance with the Funds' understanding of applicable countries' tax
rules and rates.
The accounting records of the Funds are maintained in U.S. dollars.
Investment securities, other assets and liabilities of the Funds
denominated in a foreign currency are translated into U.S. dollars at the
current exchange rate. Purchases and sales of securities, income receipts
and expense payments are translated to U.S. dollars at the exchange rate
on the dates of the transactions.
The Funds isolate that portion of the results of operations resulting
from changes in currency exchange rates from the fluctuation arising from
changes in market prices of securities held. Reported net realized
foreign exchange gains or losses arise from sales and maturities of
portfolio securities, sales of foreign currencies, currency exchange
fluctuations between the trade and settlement dates of securities
transactions, and the difference between the amounts of assets and
liabilities recorded and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and
losses
Continued
-19-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
arise from changes in the value of assets and liabilities, including
investments in securities, resulting from changes in currency exchange
rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS:
In order to offset the risks associated with trading securities
denominated in foreign currencies, the Funds may enter into forward
foreign currency exchange contracts ("forwards"), which are agreements
between two parties to buy and sell a currency at a set price on a future
date. The market value of the forward fluctuates with the changes in
currency exchange rates. The forward is marked-to-market daily and the
change in market value is recorded by a Fund as unrealized appreciation
or depreciation. When the forward is closed, the Fund records a realized
gain or loss equal to the fluctuation in value during the period the
forward was open. A Fund could be exposed to risk if a counterparty is
unable to meet the terms of a forward or if the value of the currency
changes unfavorably.
The Funds may also purchase foreign currency options which give the
Funds, as the option buyer, the right to buy or sell a stated amount of
foreign currency at the exercise price at a specified date or during the
option period. A call option gives the right, but not the obligation, to
buy the currency, while a put option gives the right, but not the
obligation, to sell the currency. The value of a call option rises if the
underlying currency appreciates while the value of a put option rises if
the underlying currency depreciates. While purchasing a foreign currency
option can protect a Fund against adverse movement in the value of the
foreign currency, it does not limit the gain which might result from a
favorable movement in the value of such currency. If the value of the
foreign currency option depreciated, the Fund would not have to exercise
the option but could acquire or sell the foreign currency needed for
settlement in the spot market.
FUTURES CONTRACTS:
The Funds may enter into contracts for the future delivery of securities
and futures contracts based on a specific security, class of securities
or an index. In addition, the Funds may enter into contracts for the
future delivery of foreign currencies and futures contracts based on a
specific foreign currency. At the time a Fund enters into a futures
contract, an amount of cash, U.S. Government securities or other highly
liquid debt securities equal to the market value of the contract will be
deposited in a segregated account with the Fund's custodian. When writing
futures contracts, the Fund will maintain with its custodian liquid
assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are at least equal to the value
of the instruments underlying the contract, or the Fund may cover its
position by owning the instruments underlying the contract. Futures
contracts are subject to risk that the interest rates, securities prices
or foreign currency exchange rates move in an unanticipated manner.
Continued
-20-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
OPTIONS TRANSACTIONS:
In order to hedge investment positions and facilitate buying and selling
securities, the Funds may purchase call and put options and may write
covered call options on individual securities and futures contracts. By
writing call options, the Funds receive a premium and become obligated
during the term of the option to sell securities at a set price if the
option is exercised. The Funds will write only covered call options,
thereby owning the underlying securities in the case of call options. To
cover put options, the Funds will segregate cash or securities with a
value at least equal to the exercise price. The risk in writing options
is that the market value of the underlying securities could move in the
opposite direction from what is anticipated. The Funds also have the
additional risk of not being able to enter into a closing transaction if
a liquid secondary market does not exist.
Upon writing a covered option, an amount equal to the premium is recorded
by the Funds as an asset or liability. The liability is marked-to-market
each day to reflect the current value of the option, resulting in
unrealized appreciation or depreciation. The Funds will realize a gain or
loss upon expiration or closing of the option transaction. When options
are exercised, the premium amount will be added to the proceeds from
selling call options or subtracted from the cost of purchasing put
options. For the period ended September 30, 1997, the Funds had no option
activity.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS:
The Funds may purchase securities on a when-issued or delayed-delivery
basis. A Fund will engage in when-issued or delayed-delivery transactions
only for purposes of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage. When-
issued securities are purchased for delivery beyond normal settlement
dates at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than those available in
the market when delivery takes place. A Fund will generally not pay for
the securities nor earn income on them until they are received. The
custodian will set aside sufficient cash or liquid securities in a
separate account to make payment for the securities purchased. In when-
issued and delayed-delivery transactions, a Fund relies on the seller to
complete the transaction. The seller's failure to do so may cause a Fund
to miss a price or yield considered to be advantageous.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared and paid quarterly for
each Fund. Distributable net realized capital gains, if any, are declared
and distributed at least annually for each Fund.
Dividends from net investment income and from net realized capital gains
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These
Continued
-21-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
differences are primarily due to differing treatments for foreign
currency transactions, organization costs, expiring capital loss
carryforwards and deferrals of certain losses. Permanent book and tax
basis differences are reflected in the components of net assets.
FEDERAL INCOME TAXES:
It is the policy of each Fund to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or
substantially all, federal income taxes.
OTHER:
Expenses that are directly related to one of the Funds are charged
directly to that Fund. Expenses relating to the Funds collectively are
prorated to the Funds on the basis of each Fund's relative net assets.
Other expenses for the Group are prorated to the Funds and any other
portfolios of the Group on the basis of relative net assets.
ORGANIZATION COSTS:
All expenses in connection with the Funds' organization and registration
under the 1940 Act and the Securities Act of 1933 were paid by the Funds.
Such expenses are being amortized over a period of two years commencing
with the date of the initial public offering.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
period ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Ernst Global Asset Allocation Fund..................... $3,035,072 $3,022,060
Ernst Asia Fund........................................ 4,719,615 4,393,580
Ernst Global Resources Fund............................ -- 2,456,846
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Ernst & Company ("Ernst") serves as investment adviser to the Funds. Under
the terms of the investment advisory agreement, Ernst is entitled to receive
fees computed daily and paid monthly, at an annual rate of 1.10% of the
average daily net assets of the Ernst Global Asset Allocation Fund and 1.00%
of the average
Continued
-22-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
daily net assets of the Ernst Asia Fund and the Ernst Global Resources Fund.
Ernst supervises the investment management activities of the affiliated sub-
advisers, National Mutual Funds Management (Global), Ltd., for the Ernst
Global Asset Allocation Fund and the Ernst Global Resources Fund and
Koeneman Capital Management Pte Ltd., Singapore for the Ernst Asia Fund.
From its fees, Ernst pays to each sub-adviser 0.70% of the average daily net
assets of the Ernst Global Asset Allocation Fund and 0.60% of the average
daily net assets of the Ernst Asia Fund and the Ernst Global Resources Fund.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of the BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves as administrator to the Group. Such officers and trustees are paid no
fees directly by the Funds for serving as officers and trustees of the
Group. Under the terms of the administration agreement, BISYS's fees are
computed based on 0.17% of the average daily net assets up to $500 million
of each Fund. The fees are reduced on a sliding scale to 0.05% of average
daily net assets in excess of $1 billion of each Fund. BISYS is entitled to
a minimum annual fee of $37,500 per Fund.
BISYS Ohio serves as transfer agent to the Funds. Pursuant to a Transfer
Agency Agreement, BISYS Ohio is entitled to a minimum annual fee of $20,000
per Fund plus a specified amount per shareholder account. BISYS Ohio also
serves as fund accountant to the Funds. Pursuant to a Fund Accounting
Agreement, BISYS Ohio receives fees based on 0.03% of average daily net
assets up to $500 million of each Fund. The fees are reduced on a sliding
scale to 0.01% of average daily net assets in excess of $1 billion of each
Fund. BISYS Ohio is entitled to a minimum annual fee of $20,000 per Fund.
The Funds have adopted a Distribution and Shareholder Service Plan in
accordance with Rule 12b-1 of the 1940 Act, pursuant to which each Fund is
authorized to pay or reimburse BISYS, as distributor, a periodic amount,
calculated at an annual rate not to exceed 0.25% of the average daily net
assets of each Fund. BISYS uses the fees to pay banks, broker-dealers and
other institutions, including BISYS and its affiliates, for administrative
and shareholder services and other similar services including distribution
services in connection with the distribution of Fund shares. For the period
ended September 30, 1997, BISYS received $27,443 of commissions from sales
of shares of the Funds all of which BISYS reallowed to dealers of the Funds'
shares including $622 to affiliates of the Funds.
Ernst and BISYS have voluntarily undertaken to reimburse and/or waive all or
a portion of their fees necessary to maintain total annual operating
expenses of no more than 2.00% by fiscal year end 1998.
Continued
-23-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 1997
(UNAUDITED)
Information regarding these transactions is as follows for the six months
ended September 30, 1997:
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY FEES ADMINISTRATION
VOLUNTARILY FEES VOLUNTARILY
REIMBURSED REDUCED
------------- ----------------
<S> <C> <C>
Ernst Global Asset Allocation.................. $37,193 $1,891
Ernst Asia Fund................................ 43,799 1,891
Ernst Global Resources Fund.................... 37,640 1,891
</TABLE>
National Mutual Life, an affiliate of the sub-adviser, National Mutual Funds
Management (Global), Ltd., owns shares as of September 30, 1997, with
aggregate values of $5,881,053, $4,646,416, and $10,202,363 of the Ernst
Global Asset Allocation Fund, Ernst Asia Fund, and Ernst Global Resources
Fund, respectively.
-24-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ERNST GLOBAL
ASSET ALLOCATION
FUND
------------------------
SIX MONTHS JULY 2,
ENDED 1996 TO
SEPTEMBER 30, MARCH 31,
1997 1997 (A)
------------- ---------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $10.62 $10.00
------ ------
INVESTMENT ACTIVITIES
Net investment income (loss)....................... 0.29 --
Net realized and unrealized gains (losses) from
investments and foreign currencies................. 0.94 0.63
------ ------
Total from Investment Activities.................. 1.23 0.63
------ ------
DISTRIBUTIONS
Net investment income.............................. (0.17) --
In excess of net investment income................. -- (0.01)
------ ------
Total Distributions............................... (0.17) (0.01)
------ ------
NET ASSET VALUE, END OF PERIOD...................... $11.68 $10.62
====== ======
Total Return (excludes sales charge)................ 11.65%(b) 6.27%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................. $6,921 $5,880
Ratio of expenses to average net assets............ 2.70%(c) 4.99%(c)
Ratio of net investment income (loss) to average
net assets......................................... 5.15%(c) (0.08%)(c)
Ratio of expenses to average net assets*........... 3.91%(c) --
Ratio of net investment income (loss) to average
net assets*........................................ 3.94%(c) --
Portfolio Turnover................................. 206.62% 77.00%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio of expenses to average net assets
would have been as indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
See notes to financial statements.
-25-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ERNST ASIA FUND
--------------------------------------
SIX MONTHS YEAR DECEMBER 6,
ENDED ENDED 1995 TO
SEPTEMBER 30, MARCH 31, MARCH 31,
1997 1997 1996 (A)
------------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $10.26 $10.98 $10.00
------ ------ ------
INVESTMENT ACTIVITIES
Net investment income (loss).......... 0.06 (0.11) (0.08)
Net realized and unrealized gains
(losses) from
investments and foreign currencies... (1.37) (0.17) 1.06
------ ------ ------
Total from Investment Activities..... (1.31) (0.28) 0.98
------ ------ ------
DISTRIBUTIONS
Net investment income................. (0.07) -- --
In excess of net investment income.... -- (0.11) --
Net realized gains.................... -- (0.33) --
------ ------ ------
Total Distributions.................. (0.07) (0.44) --
------ ------ ------
NET ASSET VALUE, END OF PERIOD......... $ 8.88 $10.26 $10.98
====== ====== ======
Total Return (excludes sales charge)... (12.88%)(b) (2.57%) 9.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..... $5,380 $6,315 $5,865
Ratio of expenses to average net
assets................................ 2.48%(c) 3.38% 3.53%(c)
Ratio of net investment income (loss)
to average net assets................. 1.19%(c) (1.13%) (2.49%)(c)
Ratio of expenses to average net
assets*............................... 3.96%(c) 3.62% 5.41%(c)
Ratio of net investment income (loss)
to average net assets*................ (0.29%)(c) (1.37%) (4.37%)(c)
Portfolio Turnover.................... 94.02% 126.77% 45.83%
Average commission rate paid (d)...... $0.0233 $0.0154 $0.0110
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio of expenses to average net assets
would have been 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.
See notes to financial statements.
-26-
<PAGE>
THE COVENTRY GROUP
ERNST WORLD FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ERNST GLOBAL RESOURCES FUND
---------------------------------------
SIX MONTHS YEAR DECEMBER 11,
ENDED ENDED 1995 TO
SEPTEMBER 30, MARCH 31, MARCH 31,
1997 1997 1996 (A)
------------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $10.40 $10.67 $10.00
------ ------ ------
INVESTMENT ACTIVITIES
Net investment income (loss)......... 0.01 (0.07) (0.02)
Net realized and unrealized gains
(losses) from
investments and foreign currencies.. 0.10 (0.20) 0.69
------ ------ ------
Total from Investment Activities.... 0.11 (0.27) 0.67
------ ------ ------
DISTRIBUTIONS
Net investment income................ (0.02) -- --
------ ------ ------
Total Distributions................. (0.02) -- --
------ ------ ------
NET ASSET VALUE, END OF PERIOD........ $10.49 $10.40 $10.67
====== ====== ======
Total Return (excludes sales charge).. 1.08%(b) (2.53%) 6.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).... $10,836 $10,597 $10,457
Ratio of expenses to average net
assets............................... 2.22%(c) 2.61% 3.54%(c)
Ratio of net investment income (loss)
to average net assets................ 0.19%(c) (0.67%) (1.11%)(c)
Ratio of expenses to average net
assets*.............................. 2.95%(c) 2.87% 5.51%(c)
Ratio of net investment income (loss)
to average net assets*............... (0.54%)(c) (0.93%) (3.08%)(c)
Portfolio Turnover................... 0.00% 7.20% 0.00%
Average commission rate paid (d)..... $0.0202 $0.0267 $0.0128
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio of expenses to average net assets
would have been 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.
See notes to financial statements.
-27-
<PAGE>
EWF340101-997
