<PAGE> 1
As filed with the Securities and Exchange Commission on June 1, 1998
Registration No. 33-44964
Investment Company Act File No. 811-6526
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 37 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 39 [X]
THE COVENTRY GROUP
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 470-8000
--------------
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
----------------------
(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, 1998 pursuant
to paragraph (a) of Rule 485.
<PAGE> 2
CROSS REFERENCE SHEET
REQUIRED BY RULE 495 UNDER THE
SECURITIES ACT OF 1933
The enclosed materials relate only to Brenton U.S. Government Money Market Fund,
Brenton Intermediate U.S. Government Securities Fund and Brenton Value Equity
Fund, which are three separate investment series of The Coventry Group (the
"Group"). Information with respect to other funds in the Group is contained in
other separately filed amendments to the Group's Registration Statement on Form
N-1A.
Items Required by Form N-1A
---------------------------
<TABLE>
<CAPTION>
Item Number in Part A Prospectus Caption
- --------------------- ------------------
<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 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
Item Number in Part B Statement of Additional Information Caption
- --------------------- -------------------------------------------
10. Cover Page.............................. Cover Page
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
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
22. Calculations of Performance
Data.................................. Additional Information - Calculation of
Performance Data
23. Financial Statements.................... Financial Statements
</TABLE>
<PAGE> 4
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
BRENTON VALUE EQUITY FUND
AND
THE CLASS M SHARES OF THE BRENTON U.S. GOVERNMENT
MONEY MARKET 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"). Only the Class M Shares of the Money Market
Fund are offered in this Prospectus.
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
<PAGE> 5
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, 1998.
2
<PAGE> 6
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. (This
Prospectus relates only to the Class M Shares of the Money Market
Fund.)
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>
3
<PAGE> 7
<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>
4
<PAGE> 8
Fee Table
<TABLE>
<CAPTION>
MONEY MARKET INTERMEDIATE
FUND GOVERNMENT EQUITY
(CLASS M SHARES) 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 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% .44% .67%
12b-1 Fees (After Waivers)(4).................. .05% .05% .05%
Other Expenses................................. .52% .52% .54%
Total Fund Operating Expenses
(After Waivers)(5)............................. .72% .97% 1.20%
</TABLE>
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>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund................................ $ $ $ $
Intermediate Government Fund..................... $ $ $ $
Equity Fund...................................... $ $ $ $
</TABLE>
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
5
<PAGE> 9
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 or class, as
applicable, including the Class M Shares in the case of the Money
Market Fund. 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 1.41% 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 1.42% for
Intermediate Government Fund and 1.65% for the Equity Fund.
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.
6
<PAGE> 10
<TABLE>
<CAPTION>
MONEY MARKET FUND
(Class M Shares)
Year Ended Year Ended Year Ended August 10, 1994
March 31, March 31, March 31, to March 31,
1998 1997 1996 1995(a)
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
INVESTMENT ACTIVITIES
Net investment income....................... 0.048 0.046 0.050 0.028
----- ----- ----- -----
Total from Investment Activities......... 0.048 0.046 0.050 0.028
----- ----- ----- -----
DISTRIBUTIONS
Net investment income....................... (0.048) (0.046) (0.050) (0.028)
-------- -------- -------- --------
Total Distributions...................... (0.048) (0.046) (0.050) (0.028)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIODS............. $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
TOTAL RETURN................................ 4.96% 4.67% 5.12% 2.84%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000)........ $42,061 $34,796 $35,436 $27,810
Ratio of expenses to average net assets.. 0.72% 0.77% 0.75% 0.97%(c)
Ratio of net investment income to
average net assets..................... 4.86% 4.57% 4.99% 4.37%(c)
Ratio of expenses to average net assets*. 1.41% 1.47% 1.46% 1.66%(c)
Ratio of net investment income to
average net assets*.................... 4.16% 3.87% 4.28% 3.68%(c)
</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> 11
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND
Year Ended Year Ended Year Ended August 10, 1994
March 31, March 31, March 31, to March 31,
1998 1997 1996 1995(a)
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $9.91 $10.14 $9.99 $10.00
----- ------ ----- ------
INVESTMENT ACTIVITIES
Net investment income......................... 0.59 0.57 0.59 0.35
Net realized and unrealized gains (losses) on
investments................................ 0.40 (0.22) 0.15 (0.02)
------ ------ ------ ------
Total from Investment Activities........... 0.99 0.35 0.74 0.33
------ ------ ------ -----
DISTRIBUTIONS
Net investment income......................... (0.58) (0.57) (0.59) (0.34)
------ ------ ------ ------
Net realized capital gains.................... (0.02) (0.01) -- --
------ ------ ------ -----
Total Distributions........................ (0.60) (0.58) (0.59) (0.34)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIODS............... $10.30 $9.91 $10.14 $9.99
====== ===== ====== =====
TOTAL RETURN.................................. 10.21% 3.51% 7.48% 3.42%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000).......... $26,332 $34,158 $34,390 $16,438
Ratio of expenses to average net assets.... 0.97% 1.02% 1.07% 1.53%(c)
Ratio of net investment income to average
net assets............................... 5.47% 5.64% 5.82% 5.71%
Ratio of expenses to average net assets*... 1.42% 1.47% 1.55% 2.03%
Ratio of net investment income to average
net assets*.............................. 5.02% 5.19% 5.34% 5.21%
Portfolio turnover......................... 61.25% 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.
8
<PAGE> 12
<TABLE>
<CAPTION>
EQUITY FUND
Year Ended Year Ended Year Ended August 10, 1994
March 31, March 31, March 31, to March 31,
1998 1997 1996 1995(a)
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $14.80 $12.95 $10.83 $10.00
------ ------ ------ ------
INVESTMENT ACTIVITIES
Net investment income......................... 0.10 0.13 0.10 0.09
Net realized and unrealized gains (losses) on
investments................................ 5.41 2.11 2.70 0.83
---- ---- ---- ----
Total from Investment Activities........... 5.51 2.24 2.80 0.92
---- ---- ---- ----
DISTRIBUTIONS
Net investment income......................... (0.10) (0.13) (0.10) (0.09)
------ ------ ------ ------
Net realized gains from investments........... -- (0.19) (0.58) --
------ ------ ------ ------
In excess of net realized gains from
investments................................ (0.40) (0.07) -- --
------ ------ ------ ------
Total Distributions........................ (0.50) (0.39) (0.68) (0.09)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIODS............... $19.81 $14.80 $12.95 $10.83
====== ====== ====== ======
Total Return (excludes sales charge).......... 37.59% 17.44% 26.13% 9.25%(b)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (000).......... $56,948 $41,727 $32,353 $15,628
Ratio of expenses to average net assets.... 1.20% 1.28% 1.45% 1.80%(c)
Ratio of net investment income to average
net assets............................... 0.57% 0.88% 0.83% 1.39%
Ratio of expenses to average net assets*... 1.65% 1.73% 1.92% 2.30%(c)
Ratio of net investment income to average
net assets*.............................. 0.12% 0.43% 0.36% 0.89%(c)
Portfolio turnover......................... 33.20% 17.15% 43.80% 18.30%
Average commission rate paid (d)........... $0.0801 $0.0824 -- --
</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.
9
<PAGE> 13
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
10
<PAGE> 14
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 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. 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
11
<PAGE> 15
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, 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
12
<PAGE> 16
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 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
13
<PAGE> 17
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
14
<PAGE> 18
securities that may be developed in the future, provided that adequate
disclosure has first been made in the Prospectus or any supplement thereto.
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.
15
<PAGE> 19
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 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.
16
<PAGE> 20
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.
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%
17
<PAGE> 21
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 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.
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<PAGE> 22
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> 23
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
20
<PAGE> 24
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.
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.
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<PAGE> 25
SALES CHARGES FOR THE EQUITY FUND
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
SALES CHARGE BROKERAGE
AS % OF NET SALES CHARGE COMMISSIONS
AMOUNT AS % OF PUBLIC AS % OF PUBLIC
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING 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>
SALES CHARGES FOR THE INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
SALES CHARGE BROKERAGE
AS % OF NET SALES CHARGE COMMISSIONS
AMOUNT AS % OF PUBLIC AS % OF PUBLIC
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING 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
22
<PAGE> 26
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;
(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.
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<PAGE> 27
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 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
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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.
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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 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
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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 22 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.
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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.
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.
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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
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Group may, under 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.
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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.
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.
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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.
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.
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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.
The following individuals serve as portfolio managers for the Funds and
are primarily responsible for the day-to-day management of each Fund's
portfolio:
Brad Cunningham serves as 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. Cunningham holds a
B.B.A. degree in Finance from the University of New Mexico and has 13 years
of fixed income investment experience. Mr. Cunningham joined the Bank in
January 1998 and since that time he has served as chief investment officer
with the Bank where he is engaged in various investment management
activities. Prior to joining the Bank in January 1998, Mr. Cunningham had
been employed by Boatman's Bank in St. Louis, Missouri since January 1993.
In addition, Douglas L. Brown serves as portfolio manager of the Brenton
Value Equity Fund with primary responsibility for the day-to-day management
of that Fund's investment portfolio. Mr. Brown holds a B.A. degree in
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Economics from St. Ambrose University and he has 14 years of equity
investment experience. Mr. Brown joined the Bank in July 1997. Prior to
joining the Bank Mr. Brown was employed by NationsBank, and certain
predecessor banks acquired by NationsBank, as senior portfolio manager
since January 1989.
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 the Fund's average daily net
assets or such other fee as may be agreed upon in writing by such Fund and the
Administrator.
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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
(and of the Class M Shares assets in the case of the Money Market 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
or a class, as applicable, 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.
35
<PAGE> 39
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.
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).
36
<PAGE> 40
The Intermediate Government Fund and the Equity Fund each currently
offer a single class of shares. The Money Market Fund offers two classes of
shares, Class M Shares and Class S Shares, which have different expenses that
affect performance. Class S Shares are offered only to certain eligible
investors. For further information, telephone the Distributor at (800) 706-FUND.
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 or class 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. A class of shares will vote separately with
respect to matters affecting only that class.
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. 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
37
<PAGE> 41
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
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.
38
<PAGE> 42
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.
39
<PAGE> 43
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
1775 Eye Street, N.W.
Washington, D.C. 20006
AUDITORS
Ernst & Young LLP
10 West Broad Street
Suite 2300
Columbus, Ohio 43215
TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................3
FEE TABLE................................................5
FINANCIAL HIGHLIGHTS.....................................6
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS.........10
OTHER INVESTMENT POLICIES OF THE FUNDS..................12
INVESTMENT RESTRICTIONS.................................17
VALUATION OF SHARES.....................................18
HOW TO PURCHASE AND REDEEM SHARES.......................19
DIVIDENDS AND TAXES.....................................30
MANAGEMENT OF THE GROUP.................................33
GENERAL INFORMATION.....................................36
40
<PAGE> 44
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
INTERMEDIATE U.S. GOVERNMENT SECURITIES
FUND VALUE EQUITY FUND
U.S. GOVERNMENT MONEY MARKET FUND
(CLASS M SHARES)
----------------
PROSPECTUS DATED JULY 31, 1998
----------------
BRENTON BANK LOGO
BRENTON BANK
INVESTMENT ADVISER
BISYS FUND SERVICES, INC.
ADMINISTRATOR AND DISTRIBUTOR
41
<PAGE> 45
BRENTON U.S. GOVERNMENT MONEY MARKET FUND
CLASS S SHARES
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. This Prospectus relates only to the Brenton U.S.
Government Money Market Fund (the "Fund") and its Class S Shares.
The Fund's investment objective is to seek current income consistent
with maintaining liquidity and stability of principal. The 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 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 FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT.
Brenton Bank, Des Moines, Iowa (the "Adviser"), acts as the investment
adviser to the Fund. The Northern Trust Company, Chicago, Illinois, serves as
sub-investment adviser to the Fund.
THE SHARES OF THE FUND 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 FUND ARE SUBJECT TO
INVESTMENT RISKS.
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 Funds.
Additional information about the Fund, 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 Fund at its address or by calling the Fund 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 Fund
that a prospective investor ought to know before investing. Investors should
read this Prospectus and retain it for future reference.
<PAGE> 46
------------------------------------
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, 1998.
2
<PAGE> 47
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Fund.................................. Brenton U.S. Government Money Market Fund (the "Fund"), a diversified
investment portfolio of The Coventry Group, an open-end, management
investment company organized as a Massachusetts business trust.
Shares Offered............................ Class S 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, which the Fund will seek to maintain at $1.00.
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 Fund seeks current income consistent with maintaining liquidity
and stability of principal.
Investment Policy......................... The 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.
Investment Adviser........................ Brenton Bank, Des Moines, Iowa.
Sub-Investment Adviser.................... The Northern Trust Company, Chicago, Illinois.
Dividends................................. The Fund intends to declare dividends from net income daily and pay
such dividends monthly.
Distributor............................... BISYS Fund Services, Inc., Columbus, Ohio.
</TABLE>
3
<PAGE> 48
Fee Table
SHAREHOLDER TRANSACTION EXPENSES (1)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............ None
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage offering
price).......................................... None
Deferred Sales Load (as a percentage
of the amount redeemed)......................... None
Redemption Fees (as a percentage
of amount redeemed, if applicable) (2).......... None
Exchange Fee........................................ None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Waivers)(3).............. .15%
12b-1 Fees(4)................................... .75%
Other Expenses.................................. .52%
Total Fund Operating Expenses (After Waivers)(5)
1.42%
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>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
$ $ $ $
</TABLE>
The purpose of the above table is to assist a potential purchaser of
the Fund's Class S Shares in understanding the various costs and expenses that
an investor in the Fund will bear directly or indirectly. The table has been
restated to reflect the current fees for the Fund. 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 the 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 Fund. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 49
- ---------------
(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 Fund (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%.
(4) The Fund has adopted a Distribution Plan for its Class S Shares (the
"Plan") pursuant to which the Fund is authorized to pay or reimburse
the Distributor a periodic amount calculated at an annual rate not to
exceed .75% of the average daily net assets of the Class S Shares of
the Fund. 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 fees, "Total Fund Operating
Expenses" as a percentage of average daily net assets would have been
1.66%.
5
<PAGE> 50
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund has its own investment objective, policies, and restrictions
which are described below. There is no assurance that the Fund will be
successful in achieving its investment objective. 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 described
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 (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.
The investment objective of the 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 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 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 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 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.
OTHER INVESTMENT POLICIES OF THE FUND
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. Government Obligations invested in by the 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;
6
<PAGE> 51
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. 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.
MASTER DEMAND NOTES
The Fund may 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.
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 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 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 its total assets.
7
<PAGE> 52
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
The Fund may purchase 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 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. 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 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. The Fund does not intend to purchase when-issued securities for
speculative purposes but only in furtherance of its investment objective.
OTHER INVESTMENT POLICIES
The Fund 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. The Fund will incur additional
expenses due to the duplication of expenses as a result of investing in other
mutual funds. Additional restrictions on the Fund's investments in the
securities of other mutual funds are contained in the Statement of Additional
Information.
The Fund 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
The 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 the Fund (as
defined in the Statement of Additional Information).
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,
8
<PAGE> 53
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 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.
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 OBJECTIVES
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 priced as
of 11:00 a.m. (Central Time) and the close of regular trading on the New York
Stock Exchange (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.
The assets in the Fund are valued based upon the amortized cost method,
which the Trustees of the Group believe fairly reflects the market-based net
asset value per Share. Pursuant
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to rules and regulations of the Commission regarding the use of the amortized
cost method, the Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less. Although the Group seeks to maintain the 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 Fund 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 Fund at (800) 706-FUND.
PURCHASES OF SHARES
Shares of the Fund 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 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, but only
if the broker-dealer receives the order prior to the Valuation Time for that day
and transmits it to the Fund 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.
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:
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Brenton Mutual Funds
Department L-1413
Columbus, OH 43260-1413
An Account Application form can be obtained by calling the Fund at
(800) 706-FUND. Subsequent purchases of Shares of Fund may be made at any time
by mailing a check payable to Fund, to the above address.
PURCHASES BY TELEPHONE
Shares of the Fund may be purchased by calling the Fund at (800)
706-FUND, if your Account Application has been previously received by the Fund.
Payment for Shares ordered by telephone is made by wiring funds to the Fund's
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 INFORMATION REGARDING PURCHASES
Shares may also be purchased through procedures established by the Fund
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 the 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 Fund and to deliver funds for the purchase thereof on a
timely basis.
Shares of the Fund are purchased at the net asset value per Share (see
"VALUATION OF SHARES") next determined after receipt by the Fund of an order in
good form to purchase Shares. An order to purchase Shares will be deemed to have
been received by the Fund only if federal funds with respect thereto are
available to the 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 Fund's
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 Fund strongly recommends that
investors of substantial amounts use federal funds to purchase Shares.
Shares of the 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.
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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 the 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
the 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 the 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 Fund will not be issued.
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.
AUTO INVEST PLAN
The Auto Invest Plan enables Shareholders of the Fund 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 the 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
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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 Fund.
EXCHANGE PRIVILEGE
The Fund offers an exchange program whereby Shareholders are entitled
to exchange their Shares for Shares of the other Funds advised by the Adviser.
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 Fund at
(800) 706-FUND or by providing written instructions to the Fund. 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 Fund 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 Fund reserves 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 Fund 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 Fund's 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 Fund and increase transaction costs, the Fund has established
a policy of limiting excessive exchange activity. Exchange activity will not be
deemed excessive if limited to four substantive exchange redemptions from the
Fund during any calendar year.
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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 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 Fund in order
to honor the request. The Fund's 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 Fund 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
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requests in writing. If telephone privileges were not originally selected on the
Account Application, the Shareholder must provide written instructions to the
Fund 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 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 Fund, the shareholder must contact the Fund 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.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of the 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 the 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 Fund of the request for redemption. However, to
the greatest extent possible, the Fund will attempt to honor requests from
Shareholders 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 Fund,
unless it would be disadvantageous to the 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.
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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 intends to
pay cash for all Shares redeemed, but under abnormal conditions which make
payment in cash unwise, the 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 Fund
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 Fund exercises its 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.
The Fund may refuse to open an account or may involuntarily redeem the
shares held by an investor who has failed to provide the Fund with a certified
taxpayer identification number or such other tax-related certifications as may
be required. In addition, the 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 the Fund with a certified social
security or taxpayer identification number within 60 days after opening the
account. Shareholders will receive 30 days' notice of the 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 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 Fund 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 Fund's telephone transaction procedures, upon instructions
believed to be genuine. The Fund will employ procedures designed
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to provide reasonable 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 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 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
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 the 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 Fund 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 Fund. 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.
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 and
substantially all of its net tax-exempt interest income, the Fund generally will
not pay any U.S. federal income or excise tax.
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Dividends that are distributed by the 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 the 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. No portion of the Fund's
income is expected to consist of dividends paid by U.S. corporations, so no
portion of the dividends paid by the 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 the Fund as capital gain dividends are taxable as long-term
capital gains, regardless of the length of time the Shareholder has held the
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 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 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 the 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.
The Fund 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.
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 the Fund qualifies
as a regulated investment company under the Code.
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Fund distributions may be subject to state and local taxes.
Distributions of the 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 the 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 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. 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 Fund 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 Fund. Brenton Bank, is a wholly-owned subsidiary of
Brenton Banks, Inc., with more than __ 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 $____ 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 $___ billion of trust assets.
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 Adviser manages the investments of the Fund, makes decisions with respect to
and places orders for all purchases and
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sales of the Fund's portfolio securities, and maintains 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 Group, the Adviser receives fees computed
daily and paid monthly, at the annual rate of 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. The Adviser may periodically waive all or a portion of its advisory fee
to increase the net income of the 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 the 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 Fund. For the services
provided and expenses assumed pursuant to its sub-investment advisory agreement
with the Adviser in connection with the Fund, the Sub-Adviser receives a fee
computed daily and paid monthly by the Adviser at the annual rate of .08% of the
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 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 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 the Fund's average daily net
assets or such other fee as may be agreed upon in writing by the Fund and the
Administrator. 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 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.
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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 Fund. See "MANAGEMENT OF THE
GROUP--Expenses" in the Statement of Additional Information.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a
Distribution Plan with respect to its Class S Shares (the "Plan"), under which
the Fund may pay a periodic amount calculated at an annual rate not to exceed
seventy-five one-hundredths of one percent (.75%) of the average daily net
assets of the Class S Shares of the Fund. Such distribution fees may be paid to
banks (including Brenton Bank) for distribution 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 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 Fund. Pursuant to the Custodian Agreement with the Group,
the Custodian receives compensation from the 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.
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 for the Fund 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.
21
<PAGE> 66
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 Fund 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 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).
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 or class 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 distribution plan.
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
22
<PAGE> 67
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 Fund also offers Class M Shares which have different expenses that
may affect performance. You may obtain a free copy of the Prospectus which
contains more information about the Class M Shares by calling (800) 706-FUND.
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 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. The yield of the 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 Fund is assumed to be reinvested. The effective yield is
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
Investors may also judge the performance of the 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 the Fund that appears in such publications may be included in
advertisements and in reports to Shareholders.
Yield is a function of the type and quality of instruments held in the
portfolio, operating expenses, and market conditions. Consequently, current
yields will fluctuate and are not 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 Fund 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 Fund
is contained in the annual report of the Fund which may be obtained without
charge by writing or calling the Fund.
23
<PAGE> 68
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 the 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
(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.
Inquiries regarding the Fund may be directed in writing to the Fund at
Department L-1413, Columbus, Ohio 43260-1413, or by calling toll free (800)
706-FUND.
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<PAGE> 69
INVESTMENT ADVISER
Brenton Bank
2840 Ingersoll
Des Moines, Iowa 50312
SUB-INVESTMENT ADVISER
The Northern Trust Company
Chicago, Illinois
ADMINISTRATOR AND
DISTRIBUTOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
AUDITORS
Ernst & Young LLP
10 West Broad Street
Suite 2300
Columbus, Ohio 43215
TABLE OF CONTENTS
PROSPECTUS SUMMARY..................................3
FEE TABLE...........................................4
INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND........................6
OTHER INVESTMENT POLICIES
OF THE FUND.....................................6
INVESTMENT RESTRICTIONS.............................8
VALUATION OF SHARES.................................9
HOW TO PURCHASE AND REDEEM SHARES..................10
DIVIDENDS AND TAXES................................17
MANAGEMENT OF THE GROUP............................19
GENERAL INFORMATION................................22
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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
CLASS S SHARES
----------------
PROSPECTUS DATED JULY 31, 1998
----------------
BRENTON BANK LOGO
BRENTON BANK
INVESTMENT ADVISER
BISYS FUND SERVICES, INC.
ADMINISTRATOR AND DISTRIBUTOR
26
<PAGE> 71
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, 1998
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectuses 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 "Prospectuses"), hereinafter referred to collectively as the "Funds" and
singly, a "Fund". The Funds are 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 Prospectuses.
Copies of the Prospectuses may be obtained by writing the Funds at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 706-FUND.
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE COVENTRY GROUP................................................................................................1
INVESTMENT OBJECTIVE AND POLICIES.................................................................................1
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS................................................................1
INVESTMENT RESTRICTIONS.......................................................................................12
PORTFOLIO TURNOVER............................................................................................13
NET ASSET VALUE..................................................................................................13
VALUATION OF THE MONEY MARKET FUND............................................................................14
VALUATION OF THE INTERMEDIATE GOVERNMENT FUND AND THE EQUITY FUND.............................................14
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................15
MATTERS AFFECTING REDEMPTION..................................................................................15
MANAGEMENT OF THE GROUP..........................................................................................16
TRUSTEES AND OFFICERS.........................................................................................16
INVESTMENT ADVISER AND SUB-ADVISER............................................................................19
PORTFOLIO TRANSACTIONS........................................................................................21
BANKING LAWS..................................................................................................22
ADMINISTRATOR.................................................................................................22
EXPENSES......................................................................................................24
DISTRIBUTOR...................................................................................................24
CUSTODIAN.....................................................................................................27
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES..................................................................27
INDEPENDENT AUDITORS..........................................................................................28
LEGAL COUNSEL.................................................................................................28
ADDITIONAL INFORMATION...........................................................................................28
DESCRIPTION OF SHARES.........................................................................................28
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES..................................................................29
ADDITIONAL TAX INFORMATION....................................................................................29
YIELDS AND TOTAL RETURNS OF THE MONEY MARKET FUND.............................................................35
YIELDS AND TOTAL RETURNS OF THE INTERMEDIATE GOVERNMENT FUND AND THE EQUITY FUND..............................35
PERFORMANCE COMPARISONS.......................................................................................38
PRINCIPAL SHAREHOLDERS........................................................................................39
MISCELLANEOUS.................................................................................................40
FINANCIAL STATEMENTS.............................................................................................40
APPENDIX.........................................................................................................42
</TABLE>
<PAGE> 73
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 three Funds, the Brenton U.S.
Government Money Market Fund (which offers two classes of shares: Class M Shares
and Class S Shares), 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
Prospectuses of the Funds. Capitalized terms not defined herein are defined in
such Prospectuses. No investment in Shares of a Fund should be made without
first reading the Prospectuses.
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.
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<PAGE> 74
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.
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
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<PAGE> 75
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 ("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
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<PAGE> 76
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 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
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<PAGE> 77
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, 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
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<PAGE> 78
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 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
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<PAGE> 79
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).
WHEN-ISSUED SECURITIES. As discussed in the Prospectuses, 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
-7-
<PAGE> 80
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 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
-8-
<PAGE> 81
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 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.
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<PAGE> 82
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 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
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<PAGE> 83
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- 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.
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<PAGE> 84
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 Prospectuses. 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;
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;
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<PAGE> 85
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 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 Prospectuses, 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
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<PAGE> 86
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 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
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<PAGE> 87
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 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.
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<PAGE> 88
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 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,
pages and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name, Address and Age With the Group During Past 5 Years
- --------------------- ---------------------------- ------------------------
<S> <C> <C>
Walter B. Grimm* Chairman, President and From June 1992 to present,
3435 Stelzer Road Trustee employee of BISYS Fund
Columbus, Ohio 43219 Services.
Age: 52
Maurice G. Stark Trustee Retired. Until December 31, 1994, Vice
505 King Avenue President-Finance and Treasurer,
Columbus, Ohio 43201 Battelle Memorial Institute (scientific
Age: 62 research and development service
corporation).
Michael M. Van Buskirk Trustee From June 1991 to present, Executive
37 West Board Street Vice President of The Ohio Bankers'
Suite 1001 Association (trade association); from
Columbus, Ohio 43215-4162 September 1987 to June 1991, Vice
Age: 50 President-Communications, TRW
Information Systems Group
(electronic and space
engineering).
</TABLE>
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<PAGE> 89
<TABLE>
<S> <C> <C>
John H. Ferring IV Trustee From 1979 to present, President and
______________________ Owner of Plaze, Incorporated, St.
St. Louis, Missouri Louis, Missouri
Age: 45
J. David Huber Vice President From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services
Columbus, Ohio 43219
Age: 51
Paul T. Kane Treasurer From ________ to present, employee of
3435 Stelzer Road BISYS Fund Services; from _______ to
Columbus, Ohio 43219 ________, employee of Fidelity Service
Age: 41 Company
George L. Stevens Secretary From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services; from
Columbus, Ohio 43219 September 1995 to September 1996,
Age: 47 Independent 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: 30 Management.
Richard B. Ille Assistant Secretary From July 1990 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, Ohio 43219
Age: 33
</TABLE>
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<PAGE> 90
<TABLE>
<S> <C> <C>
James L. Smith Assistant Secretary From October 1996 to present, employee
3435 Stelzer Road of BISYS Fund Series; from employee of
Columbus, Ohio 43219 BISYS Fund Services; from October 1995
Age: 38 to October 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
Jeffrey C. Cusick Assistant Secretary From _____________ to present, employee
3435 Stelzer Road of BISYS Fund Services; from
Columbus, Ohio 43219 ___________ to _______________
Age: __ _______________
_______________
</TABLE>
- --------------
* Mr. Grimm is considered to be an "interested person" of the Group as
defined in the 1940 Act.
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.
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
-18-
<PAGE> 91
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, 1998, 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 and
Compensation Accrued As Part of Upon Fund Complex
Name of Trustee from the Funds Fund Expenses Retirement Paid to Trustees
- --------------- -------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Walter B. Grimm $0 $0 $0 $0
Maurice G. Stark $__ $0 $0 $__
Michael Van Buskirk $__ $0 $0 $__
Chalmers P. Wylie* $__ $0 $0 $__
John H. Ferring IV** $0 $0
</TABLE>
* Mr. Wylie resigned as a Trustee effective May 14, 1998.
** Mr. Ferring was elected as a Trustee effective May 14, 1998.
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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Money Market Fund - 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; 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; and for the fiscal year ended March 31,
1998, the Adviser earned investment advisory fees of $143,993 and voluntarily
waived investment advisory fees of $85,936.
Intermediate Government Fund - 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; for the fiscal year ended March 31,
1997, the Adviser earned investment advisory fees of $151,209; and for the
fiscal year ended March 31, 1998, the Adviser earned investment advisory fees of
$156,685.
Equity Fund - 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; for the fiscal year ended March 31, 1997, the Adviser
earned investment advisory fees of $257,306; and for the fiscal year ended March
31, 1998, the Adviser earned investment advisory fees of $345,936.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each Fund until February 28, 1999 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 Agreement. For the
services provided pursuant to the Sub-Advisory Agreement, the Adviser pays
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<PAGE> 93
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, 1996, the Sub-Adviser earned
sub-advisory fees of $27,907; for the fiscal year ended March 31, 1997, the
Sub-Adviser earned sub-advisory fees of $_________; and for the fiscal year
ended March 31, 1998, 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
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<PAGE> 94
accounts in order to obtain best execution. As provided by the Investment
Advisory Agreement, 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, 1996, 1997 and 1998, only the
Equity Fund paid any brokerage commissions, which commissions amounted to
$60,705, $28,365.80 and $______, 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
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<PAGE> 95
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 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, 1996 the
Administrator earned administrative fees of $69,756; for the fiscal year ended
March 31, 1997, the Administrator earned administrative fees of $63,625; and for
the fiscal year ended March 31, 1998, the Administrator earned March 31, 1998,
the Administrator earned administrative fees of $70,643.
Intermediate Government Fund - for the fiscal year ended March 31, 1996
the Administrator earned administrative fees of $58,526; for the fiscal year
ended March 31, 1997, the Administrator earned administrative fees of $67,546;
and for the fiscal year ended March 31, 1998, the Administrator earned
administrative fees of $66,728.
Equity Fund - for the fiscal year ended March 31, 1996 the
Administrator earned administrative fees of $46,574; for the fiscal year ended
March 31, 1997, the Administrator earned administrative fees of $74,135; and for
the fiscal year ended March 31, 1998, the Administrator earned administrative
fees of $103,646.
Unless sooner terminated as provided therein, the Administration
Agreement will continue in effect until February 28, 1999. The Administration
Agreement thereafter shall be renewed
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<PAGE> 96
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
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.
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<PAGE> 97
For the fiscal year ended March 31, 1996, the Distributor 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. For the fiscal year ended March 31, 1998, the Distributor received
$_________ in commissions on the Intermediate Government Fund, of which it
retained $_________ after dealer reallowances and it received $_________ in
commissions on the Equity Fund, of which it retained $_________ after dealer
reallowances.
As described in the Prospectuses, 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 (with respect to the Money Market Fund it is in
connection with the Class M Shares only) 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 or
Class, as applicable. 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.
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<PAGE> 98
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, 1998, the Distributor received
$__________ for the Intermediate U.S. Government Fund, $_________ for the U.S.
Government Money Market Fund (Class M Shares), and $__________ for the Value
Equity Fund. None of these fees were retained by the Distributor. All fees were
paid to broker-dealers.
The Money Market Fund has also adopted a separate Distribution Plan
pursuant to Rule 12b-1 for its Class S Shares (the "Class S Plan") under which
the Money Market Fund is 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 distribution service assistance with respect to
the Class S Shares of the Money Market Fund. Payments to such Participating
Organizations may be made pursuant to agreements entered into with BISYS Fund
Services. The Class S Plan authorizes the Money Fund to make payments to the
Distributor in an amount not to exceed, on an annual basis, .75% of the average
daily net assets of the Class S Shares of the Money Market Fund. The Trustees
review quarterly a written report of such costs and the purposes for which such
costs have been incurred. The Class S 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 the 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 the 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 Class S 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 Class S 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 the Fund and its Shareholders.
The Board of Trustees of the Group believes that the Class S Plan is in the best
interests of the Money Market Fund 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, 1998, Class S Shares of the Money Market Fund were not yet
available and accordingly, no payments were paid under the Class S Plan for that
fiscal year.
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<PAGE> 99
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 and records for each Fund, including journals containing an
itemized daily record of all purchases
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<PAGE> 100
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, 1999. 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, 1775 Eye Street, N.W., Washington, D.C. 20006,
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
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<PAGE> 101
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 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").
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<PAGE> 102
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 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.
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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 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
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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 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.
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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 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
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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.
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
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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 Prospectuses under the heading "Performance
Information," the yield of the Money Market Fund for a seven-day period (the
"base period") will be computed by 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, 1998, the yield for the Class
M Shares of the Money Market Fund was _____% and its effective yield was _____%.
(The Class M Shares of the Money Market Fund was the only class of shares of
that Fund then available).
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
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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 6th 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 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.
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For the 30-day period ended March 31, 1998, the yield for the
Intermediate Government Fund and the Equity Fund was ____%, and ____%,
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 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:
ERV
Average Annual 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:
ERV
Aggregate 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.
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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, 1998, 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: ______% for the Intermediate
Government Fund and _____% 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: _____% for the Intermediate
Government Fund and _____% for the Equity Fund.
Based upon the period beginning with each Fund's commencement of
operations (August 10, 1994) through March 31, 1998, 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: ____% for the
Intermediate Government Fund and ____% 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: _____% for the
Intermediate Government Fund and _____% for the Equity Fund.
For the fiscal year ended March 31, 1998, the total return for each
Fund (other than the Money Market Fund), assuming the imposition of the maximum
applicable sales charge, was as follows: ____% for the Intermediate Government
Fund and _____% 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: _____% for the Intermediate Government Fund and _____% 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 BC/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
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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 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, 1998, 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,
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Iowa 50306, which owned of record ____% 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
_____% 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 _____% 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.
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, 1998 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
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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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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.
-42-
<PAGE> 115
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
-43-
<PAGE> 116
more affected by external conditions. Ample alternate
liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability or 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
-44-
<PAGE> 117
total financing requirements, access to capital
markets is good. Risk factors are small.
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.
-45-
<PAGE> 118
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.
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.
-46-
<PAGE> 119
PART C
------
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements
--------------------
Included in Part A:
Financial Highlights
Incorporated by Reference in Part B (and to be filed
by amendment):
Report of Independent Public Accountants
Statement of Assets and Liabilities as of March 31,
1998
Statement of Operations for the year ended March 31,
1998
Statement of Changes in Net Assets for the years
ended March 31, 1997 and March 31, 1998
Schedule of Portfolio Investments as of March 31,
1998
Notes to Financial Statements
(b) Exhibits
--------
(1) Declaration of Trust(1)
(2) (a) By-Laws(2)
(b) 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)(3)
(3) Not Applicable
- ---------------
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. 10 on June 8, 1994.
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<PAGE> 120
(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 Brenton Bank
(with respect to Brenton U.S.
Government Money Market Fund,
Brenton Intermediate U.S. Government
Securities Fund and Brenton Value
Equity Fund)(3)
(b) Sub-Advisory Agreement between
Registrant, Brenton Bank, and The
Northern Trust Company (with respect
to Brenton U.S. Government Money
Market Fund)(3)
(6) Distribution Agreement between Registrant
and BISYS Fund Services(2)
(7) Not Applicable
(8) 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)(3)
(9) (a) 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)(3)
(b) 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)(3)
(c) 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)(3)
C-2
<PAGE> 121
(10) Not Applicable
(11) Consent of Independent Auditors(4)
(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 - Class
M Shares, Brenton Intermediate U.S.
Government Securities Fund and
Brenton Value Equity Fund)(3)
(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)(3)
(c) Distribution Plan (with respect to
Brenton U.S. Government Money Market
Fund - Class S Shares)
(16) Schedules for Computation of Performance
Data(4)
(18) Plan Pursuant to Rule 18f-3
(27) Financial Data Schedules
Item 25. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
Not applicable.
Item 26. Number of Record Holders
- -------- ------------------------
As of April 30, 1998, the number of record holders of each
series of the Registrant was as follows:
Brenton U.S. Government Money Market Fund
Brenton Intermediate U.S. Government Securities
- ------------------
(4) To be filed by amendment.
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<PAGE> 122
Fund
Brenton Value Equity Fund
The Shelby Fund
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 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:
C-4
<PAGE> 123
(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:
(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
C-5
<PAGE> 124
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) 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 2840 Ingersoll Street, Des
Moines, Iowa 50312.
<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
</TABLE>
C-6
<PAGE> 125
<TABLE>
<CAPTION>
Position with
Name the Adviser Principal Occupation
- ---- ----------- --------------------
<S> <C> <C>
Officer
David L. Nagel Executive Vice President Position with Brenton Bank
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
C-7
<PAGE> 126
by reference herein.
Item 29. Principal Underwriter
- -------- ---------------------
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor for Registrant. BISYS Fund
Services also distributes the securities of the American
Performance Funds, the AmSouth Mutual Funds, The ARCH Fund,
Inc., The BB&T Mutual Funds Group, ESC Strategic Funds, Inc.,
Fountain Square Funds, Hirtle Callaghan Trust, HSBC Family of
Funds, INTRUST Funds Trust, The Infinity Mutual Funds, Inc.,
The Kent Funds, Magna Funds, MMA Praxis Mutual Funds, Meyers
Investment Trust, M.S.D.&T Funds, Pacific Capital Funds,
Parkstone Group of Funds, the Parkstone Advantage Funds,
Pegasus 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, Variable Investment Funds, The Time Horizon
Funds and The Victory Portfolios.
(b) Partners of BISYS Fund Services, as of April 30, 1998, 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 Brenton Funds, the accounts, books, and
other documents
C-8
<PAGE> 127
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,
2840 Ingersoll Street, Des Moines, Iowa 50312 (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 meeting to
comply with the shareholders communications
provisions of Section 16(c) of the Investment Company
Act of 1940.
C-9
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 37 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 29th day of May, 1998.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
-----------------------------
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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Walter B. Grimm Chairman, President May 29, 1998
- ----------------------------- and Trustee
Walter B. Grimm** (Principal Executive
Officer)
Trustee May __, 1998
- ----------------------------
John H. Ferring IV
/s/ Maurice G. Stark Trustee May 29, 1998
- ----------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee May 29, 1998
- ----------------------------
Michael M. Van Buskirk*
</TABLE>
<PAGE> 129
<TABLE>
<S> <C> <C>
/s/ Paul T. Kane Treasurer May 29, 1998
- ---------------------------- (Principal
Paul T. Kane*** Financial and
Accounting Officer)
</TABLE>
By: /s/ Jeffrey L. Steele
-----------------------------------
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.
26 on May 1, 1996.
*** Pursuant to power of attorney filed herewith.
<PAGE> 130
POWER OF ATTORNEY
Paul Kane whose signature appears below, does hereby constitute and
appoint Jeffrey L. Steele, Patrick W.D. Turley, Robert L. Tuch and Paul F. Roye,
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable The Coventry
Group (the "Group"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Group's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned, Paul Kane, as Treasurer of the Group, any and all such amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue thereof.
Date: May 28, 1998
/s/ Paul Kane
-------------
Paul Kane
<PAGE> 131
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED
WITH
POST-EFFECTIVE AMENDMENT NO. 37
TO THE
REGISTRATION STATEMENT
OF
THE COVENTRY GROUP
<PAGE> 132
INDEX TO EXHIBITS
(FOR POST-EFFECTIVE AMENDMENT NO. 37)
-------------------------------------
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- ------------ ---------------
15 Distribution Plan
18 Plan Pursuant to Rule 18f-3
27 Financial Data Schedules
<PAGE> 1
EXHIBIT 15
DISTRIBUTION PLAN
<PAGE> 2
THE BRENTON U.S. GOVERNMENT MONEY MARKET FUND
(THE "FUND")
A SERIES OF
THE COVENTRY GROUP
CLASS S SHARES
DISTRIBUTION PLAN
INTRODUCTION: It has been determined that the Fund, which is a series
of The Coventry Group, will pay for certain costs and expenses incurred in
connection with the distribution of its Class S shares and adopts this Class S
Shares Distribution Plan (the "Plan") as set forth herein pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Act").
The Board of Trustees, in considering whether the Fund should implement
the Plan, has requested and evaluated such information as it deemed necessary to
make an informed determination as to whether the Plan should be implemented and
has considered such pertinent factors as it deemed necessary to form the basis
for a decision to use assets of the Fund for such purposes.
In voting to approve the implementation of the Plan, the Trustees have
concluded, in the exercise of their reasonable business judgment and in light of
their respective fiduciary duties, that there is a reasonable likelihood that
the Plan will benefit the Fund and the shareholders of each of its classes of
shares.
THE PLAN: The material aspects of the financing by the Fund of
distribution expenses to be incurred in connection with Class S shares are as
follows:
The Fund will compensate the distributor for services provided and
expenses incurred in connection with the distribution and marketing of Class S
shares of the Fund. Distribution costs and expenses may include (1) printing and
advertising expenses; (2) payments to employees or agents of the distributor who
engage in or support distribution of the Fund's Class S shares, including
salary, commissions, travel and related expenses; (3) the costs of preparing,
printing and distributing prospectuses and reports to prospective investors; (4)
expenses of organizing and conducting sales seminars; (5) expenses related to
selling and servicing efforts, including processing new account applications,
transmitting customer transaction information to the Fund's transfer agent and
answering questions of shareholders; (6) payments of fees to one or more
broker-dealers (which may include the distributor itself), financial
institutions or other industry professionals, such as investment advisers,
accountants and estate planning firms (severally, a "Service Organization"),
based on the average daily value of the Fund's Class S shares owned by
shareholders for whom the Service Organization is the dealer of record or holder
of record, or owned by shareholders with whom the Service Organization has a
servicing relationship; (7) costs and expenses incurred in implementing and
operating the Plan; and (8) such other similar services as the Fund's Board of
Trustees determines to be reasonably calculated to result in the sale of Fund
shares.
<PAGE> 3
Subject to the limitations of applicable law and regulation, including
rules of the National Association of Securities Dealers ("NASD"), the
distributor will be compensated monthly for such costs, expenses or payments at
an annual rate of up to but not more than 0.75% of the average daily net assets
of Class S shares.
The distributor may periodically pay to one or more Service
Organizations (which may include the distributor itself) a fee in respect of the
Fund's Class S shares owned by shareholders for whom the Service Organizations
are the dealers of record or holders of record, or owned by shareholders with
whom the Service Organizations have existing relationships. The payment to a
Service Organization is subject to compliance by the Service Organization with
the terms of a Service Agreement or Dealer Agreement between the Service
Organization and the distributor (the "Agreement"). If a shareholder of the Fund
ceases to be a client of a Service Organization that has entered into an
Agreement with the distributor, but continues to hold shares of the Fund, the
distributor will be entitled to receive a similar payment in respect of the
servicing provided to such investors. For the purposes of determining the fees
payable under the Plan, the average daily net asset value of the Fund's shares
shall be computed in the manner specified in the Declaration of Trust of The
Coventry Group and current prospectus for the computation of the value of the
Fund's net asset value per share.
The Plan will become effective immediately upon approval by a majority
of the Board of Trustees, including a majority of the Trustees who are not
"interested persons" (as defined in the Act) of the Fund and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
entered into in connection with the Plan (the "Plan Trustees"), pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
approval of the Plan, or upon such later date as the Trustees determine.
The Plan shall continue with respect to Class S shares of the Fund for
a period of one year from its effective date, unless earlier terminated in
accordance with its terms, and thereafter shall continue automatically with
respect to the Class S shares of the Fund for successive annual periods,
provided such continuance is approved by a majority of the Board of Trustees,
including a majority of the Plan Trustees pursuant to a vote cast in person at a
meeting called for the purpose of voting on the continuance of the Plan.
The Plan may be amended at any time by the Board of Trustees provided
that (a) any amendment to increase materially the costs which a class may bear
for distribution pursuant to the Plan shall be effective only upon approval by a
vote of a majority of the outstanding voting securities of that class and (b)
any material amendments of the terms of the Plan shall become effective only
upon approval as provided in paragraph 3 hereof.
The Plan is terminable without penalty at any time by (a) vote of a
majority of the Plan Trustees, or (b) vote of a majority of the outstanding
voting securities of the Fund.
Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any agreement entered into in
connection with the Plan shall provide to the Board of Trustees, and the Board
of Trustees shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
<PAGE> 4
While the Plan is in effect, the selection and nomination of Trustees
who are not "interested persons" (as defined in the Act) of the Fund shall be
committed to the discretion of the Trustees who are not "interested persons".
The Fund shall preserve copies of the Plan, any agreement in connection
with the Plan, and any report made pursuant to paragraph 7 hereof, for a period
of not less than six years from the date of the Plan or such agreement or
report, the first two years in an easily accessible place.
Date:
---------------------------
<PAGE> 1
EXHIBIT 18
PLAN PURSUANT TO RULE 18f-3
<PAGE> 2
THE BRENTON U.S. GOVERNMENT MONEY MARKET FUND
(THE "FUND")
A SERIES OF
THE COVENTRY GROUP
(THE "TRUST")
PLAN PURSUANT TO RULE 18f-3
UNDER THE
INVESTMENT COMPANY ACT OF 1940
I. Introduction
------------
As required by Rule 18f-3 under the Investment Company Act of 1940, as
amended ("1940 Act"), this Plan describes the multi-class system for the Fund,
including the separate class arrangements for shareholder services and/or
distribution of shares, as applicable, the method for allocating expenses to
classes and related conversion features or exchange privileges applicable to the
classes.
Upon the effective date of this Plan, the Trust, on behalf of the Fund,
elects to offer multiple classes of shares of the Fund, as described herein,
pursuant to Rule 18f-3 and this Plan.
II. The Multi-Class System
----------------------
The Fund shall offer two classes of shares, Class M and Class S. Shares
of each class of the Fund shall represent an equal PRO RATA interest in the Fund
and, generally, shall have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications and terms
and conditions, except that: (a) each class shall have a different designation;
(b) each class of shares shall bear any Class Expenses, as defined in Section C,
below; (c) each class shall have exclusive voting rights on any matter submitted
to shareholders that relates solely to its distribution arrangement; and (d)
each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, Class M and Class S shares shall have the features
described in Sections A, B, C and D, below.
A. Sales Charge Structure
----------------------
1. CLASS M SHARES. Class M shares of the Fund shall
be offered without the imposition of either a front-end sales charge or a
contingent deferred sales charge provided, however, that such charges may be
imposed in such cases as the Board may approve and as disclosed in a future
prospectus or prospectus supplement for the Fund, and Class M shares include,
but are not limited to, the shares of the Fund that were outstanding on the date
that this Plan became effective. Class M shares shall be distinguished from
Class S shares by the relative rates of fees under the distribution plans (see
below) applicable to each class.
2. CLASS S SHARES. Class S shares of the Fund shall
be offered without the imposition of either a front-end sales charge or a
contingent deferred sales charge provided,
<PAGE> 3
however, that such charges may be imposed in such cases as the Board may approve
and as disclosed in a future prospectus or prospectus supplement for the Fund.
Class S shares shall be distinguished from Class M shares by the relative rates
of fees under the distribution plans (see below) applicable to each class.
B. Distribution Plans
------------------
The Trust has adopted distribution plans pursuant to Rule 12b-1 with
respect to the Fund and each class of shares, containing the following terms:
1. CLASS M SHARES. Class M shares of the Fund shall
reimburse the Distributor for costs and expenses incurred in connection with
distribution, servicing and marketing of shares of the Fund, as provided in the
distribution plan, subject to an annual limit of 0.50% of the average daily net
assets of the Fund attributable to its Class M shares, provided that up to 0.25%
of such average daily net assets may be designated out of such reimbursements as
a "service fee," as defined in rules and policy statements of the National
Association of Securities Dealers.
2. CLASS S SHARES. Class S shares of the Fund shall
reimburse the Distributor for costs incurred in connection with the
distribution, servicing and marketing of shares of the Fund as provided in the
Class S distribution plan, subject to an annual limit of 0.75% of the average
daily net assets of the Fund attributable to its Class S shares.
C. Allocation of Income and Expenses
---------------------------------
1. General
The gross income, realized and unrealized capital
gains and losses and expenses (other than Class Expenses, as defined below) of
the Fund shall be allocated to each class on the basis of its net asset value
relative to the net asset value of the Fund unless the Trustees determine to use
another method that (a) is specifically permitted by Rule 18f-3 or (b) is
appropriate and is determined by the Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust ("Independent Trustees"), to be fair to the shareholders of each class and
to provide an annualized rate of return for each class that generally differs
from that of any other class only by the expense differentials among the
classes. Expenses to be so allocated also include expenses of the Trust that are
allocated to the Fund and are not attributable to another fund in the Trust
("Trust Expenses") and expenses of the Fund that are not attributable to a
particular class of the Fund ("Fund Expenses"). Trust Expenses include, but are
not limited to, certain Trustees' fees, insurance costs and certain legal fees
incurred generally on behalf of the Trust. Fund Expenses include, but are not
limited to, certain registration and notice filing fees, advisory fees,
custodial fees, and other expenses relating to the management of the Fund's
assets.
2. Class Expenses
--------------
Expenses attributable to a particular class ("Class Expenses") shall be
limited to: (a) payments pursuant to the distribution plan by that class; (b)
transfer agent fees attributable to that
<PAGE> 4
class; (c) printing and postage expenses related to preparing and distributing
material such as shareholder reports, prospectuses and proxy materials to
current shareholders of that class; (d) registration and notice filing fees for
shares of that class; (e) the expense of administrative personnel and services
as required to support the shareholders of that class; (f) litigation or other
legal expenses relating solely to that class; and (g) Trustees' fees incurred as
a result of issues relating to that class. Expenses described in (a) of this
paragraph must be allocated to the class for which they are incurred. All other
expenses described in this paragraph may be allocated as Class Expenses only if
they are actually incurred in a different amount by a class, or if a class
receives services of a different kind or to a different degree than another
class. It is intended that expenses will be allocated as Class Expenses only to
the extent consistent with applicable legal principles under the 1940 Act and
the Internal Revenue Code of 1986, as amended.
In the event a particular expense is no longer reasonably or legally
allocable by class or to a particular class, it shall be treated as a Trust
Expense, or Fund Expense, and in the event a Trust Expense or Fund Expense
becomes allocable at a different level, including as a Class Expense, it shall
be so allocated, subject to compliance with Rule 18f-3 and to approval or
ratification by the Board of Trustees.
The initial determination of expenses that will be allocated as Class
Expenses and any subsequent changes thereto shall be reviewed by the Board of
Trustees and approved by such Board and by a majority of the Trustees who are
not "interested persons" of the Fund, as defined in the 1940 Act.
3. Waivers or Reimbursements of Expenses
-------------------------------------
Expenses may be waived or reimbursed by the Adviser, the Sub-Adviser,
the Distributor or any other provider of services to the Trust or the Fund
without the prior approval of the Board of Trustees.
D. Exchange Privileges
-------------------
Shareholders of the Fund may exchange shares of a particular class for
shares of the same class in the other Brenton Mutual Funds, as applicable, at
relative net asset value, provided the shares to be acquired in the exchange are
permitted to be sold in the shareholder's state of residence and subject to the
applicable requirements as to minimum amount.
E. Board Review
------------
1. Initial Approval
----------------
The Board of Trustees, including a majority of the Independent
Trustees, at a meeting held May 13, 1998, initially approved the Plan based on a
determination that the Plan, including the expense allocation, is in the best
interests of each class and the Fund. Their determination was based on their
review of information furnished to them which they deemed reasonably necessary
and sufficient to evaluate the Plan.
<PAGE> 5
2. Approval of Amendments
----------------------
The Plan may not be amended materially unless the Board of Trustees,
including a majority of the Independent Trustees, have found that the proposed
amendment, including any proposed related expense allocation, is in the best
interests of each class and the Fund. Such finding shall be based on information
requested by the Board and furnished to them which the Board deems reasonably
necessary to evaluate the proposed amendment.
3. Periodic Review
---------------
The Board shall review reports of expense allocations and such other
information as they request at such times, or pursuant to such schedule, as they
may determine consistent with applicable legal requirements.
F. Contracts
---------
Any agreement related to the Multi-Class System shall require the
parties thereto to furnish to the Board of Trustees, upon their request, such
information as is reasonably necessary to permit the Trustees to evaluate the
Plan or any proposed amendment.
G. Effective Date
--------------
The Plan, having been reviewed and approved by the Board of Trustees
and by a majority of the Independent Trustees as indicated in Section E1 of the
Plan, shall take effect as of July 31, 1998.
H. Amendments
----------
The Plan may not be amended to modify materially its terms unless such
amendment has been approved in the manner specified in Section E2 of the Plan.
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