<PAGE> 1
As filed with the Securities and Exchange Commission on October 23, 1998
Registration No. 33-44964
Investment Company Act File No. 811-6526
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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. 42 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
--
Amendment No. 44 [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 October 23, 1998
pursuant to paragraph (b) of Rule 485.
<PAGE> 2
CROSS REFERENCE SHEET
REQUIRED BY RULE 495 UNDER THE
SECURITIES ACT OF 1933
The enclosed materials relate only to 1st Source Monogram Income Equity Fund,
1st Source Monogram Diversified Equity Fund, 1st Source Monogram Special Equity
Fund and 1st Source Monogram Income Fund, which are four separate investment
series being added to The Coventry Group (the "Group") by this filing.
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>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Fee Table
3. Condensed Financial
Information.............................. Financial Highlights
4. General Description of
Registrant............................... Investment Objectives 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
- --------------------- -------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and
History.................................. The Coventry Group; Additional
Information
13. Investment Objectives and
Policies................................. Investment Objectives 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 - Yield -
Calculation of Total Return - Performance
Comparisons
23. Financial Statements....................... Financial Statements
</TABLE>
<PAGE> 4
1ST SOURCE MONOGRAM INCOME EQUITY FUND
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
1ST SOURCE MONOGRAM INCOME FUND LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase, and redemption information, call (800) 766-8938.
- --------------------------------------------------------------------------------
The Coventry Group (the "Group") is an open-end management investment company.
The Group includes the 1st Source Monogram Income Equity Fund (the "Income
Equity Fund"), the 1st Source Monogram Diversified Equity Fund (the "Diversified
Equity Fund"), the 1st Source Monogram Special Equity Fund (the "Special Equity
Fund") and the 1st Source Monogram Income Fund (the "Income Fund"), each of
which is a diversified investment fund of the Group (the Income Equity,
Diversified Equity, Special Equity and Income Funds are hereinafter collectively
referred to as the "Funds" and individually as a "Fund"). The Trustees of the
Group have divided each Fund's beneficial ownership into an unlimited number of
transferable shares (the "Shares").
1st Source Bank, South Bend, Indiana (the "Adviser"), which is a wholly owned
subsidiary of 1st Source Corporation ("FSC"), acts as the investment adviser to
each of the Funds. In addition, with respect to the Diversified Equity Fund, the
Adviser has retained Miller Anderson & Sherrerd LLP, Loomis Sayles & Company,
L.P. and Standish, Ayer & Wood, Inc. to provide sub-investment advisory
services. The Securities and Exchange Commission maintains an Internet website
(http://www.sec.gov) that contains the Statement of Additional Information,
material that is incorporated by reference and other information about the
Funds.
Additional information about the Funds, contained in a Statement of Additional
Information, has been filed with the Securities and Exchange 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 should know before investing. Investors should read this
Prospectus and retain it for future reference.
Each Fund's net asset value per share will fluctuate as the value of its
portfolio changes in response to changing market prices, market rates of
interest and/or other factors.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
Columbus, Ohio, acts as the Funds' administrator and distributor. BISYS Fund
Services, Inc., Columbus, Ohio, an affiliate of BISYS, acts as the Funds'
transfer agent (the "Transfer Agent") and performs certain fund accounting
services for each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE ADVISER, FSC OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND AN INVESTMENT IN A FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is October 23, 1998.
<PAGE> 5
PROSPECTUS SUMMARY
SHARES OFFERED: Shares of beneficial interest ("Shares") of the Income Equity
Fund, the Diversified Equity Fund, the Special Equity Fund and the Income Fund,
four separate investment funds (collectively, the "Funds") of The Coventry
Group, a Massachusetts business trust (the "Group").
OFFERING PRICE: The public offering price of each of the Funds is equal to the
net asset value per share plus a sales charge of 5.00% (with respect to the
Income Equity, Diversified Equity and Special Equity Funds) and 4.00% (with
respect to the Income Fund) of the public offering price, reduced on investments
of $50,000 or more (See "HOW TO PURCHASE AND REDEEM SHARES--Sales Charges").
Under certain circumstances, the sales charge may be eliminated (See "HOW TO
PURCHASE AND REDEEM SHARES--Sales Charge Waivers").
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial and subsequent investments are
reduced for investors using the Auto Invest Plan described herein and for
employees of the Adviser or one of its affiliates.
TYPE OF COMPANY: Each Fund is a diversified series of an open-end, management
investment company.
INVESTMENT OBJECTIVES: For the INCOME EQUITY FUND, capital appreciation with
current income as a secondary objective.
For the DIVERSIFIED EQUITY FUND and the SPECIAL EQUITY FUND, capital
appreciation.
For the INCOME FUND, current income consistent with preservation of capital.
INVESTMENT POLICIES: Under normal market conditions, the INCOME EQUITY FUND
will invest substantially all, but in no event less than 65%, of its total
assets in common stocks and securities convertible into common stocks.
Under normal market conditions, the DIVERSIFIED EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks--of that amount 25% to 40%
will be committed to each of the following styles, representing the three
different styles of the Sub-Advisers: (1) investing in companies believed to
have strong value measures whose stock is traded at a price below its perceived
value, (2) investing in companies believed to have growth potential, and (3)
investing in companies believed to be in a position to take advantage of
political, economic, industrial or secular trends or developments.
Under normal market conditions, the SPECIAL EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in equity
securities issued by companies with market capitalizations ranging on average
between $100 million and $2 billion and which are considered to have growth
potential.
Under normal market conditions, the INCOME FUND will invest substantially all,
but in no event less than 65%, of its total assets in debt securities of all
types, including high grade corporate bonds and U.S. Government bonds.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in any of the Funds is
subject to certain risks, including market risk and interest rate risk, as set
forth in detail under "INVESTMENT OBJECTIVES AND POLICIES--Risk Factors And
Investment Techniques." As with other mutual funds, there can be no assurance
that any of the Funds will achieve its investment objectives. The Funds, to the
extent set forth under "INVESTMENT OBJECTIVES AND POLICIES," may engage in the
following
2
<PAGE> 6
practices: the use of repurchase agreements and reverse repurchase agreements,
purchasing futures contracts, foreign securities and restricted securities,
entering into option transactions on securities in which the Funds may invest
directly and the purchase of securities on a when-issued or delayed-delivery
basis.
INVESTMENT ADVISER: 1st Source Bank (the "Adviser").
SUB-ADVISERS: With respect to the Diversified Equity Fund only, Miller
Anderson & Sherrerd LLP, Loomis, Sayles & Company, L.P. and Standish, Ayer &
Wood, Inc. (collectively, the "Sub-Advisers").
DIVIDENDS: For each of the Funds, other than the Special Equity Fund,
dividends from net income are declared and generally paid monthly. For the
Special Equity Fund, dividends from net income are declared and generally paid
quarterly. Net realized capital gains, if any, for each of the Funds are
distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS").
3
<PAGE> 7
FEE TABLE
<TABLE>
<CAPTION>
INCOME DIVERSIFIED
EQUITY EQUITY
FUND FUND
------ -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................... 5.00% 5.00%
Exchange Fee................................................ $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................. .80% .99%
12b-1 Fees After Fee Waivers(1)............................. .00% .00%
Other Expenses.............................................. .41% .38%
----- -----
Total Fund Operating Expenses After Fee Waivers(1).......... 1.21% 1.37%
===== =====
</TABLE>
<TABLE>
<CAPTION>
SPECIAL
EQUITY INCOME
FUND FUND
------- ------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................... 5.00% 4.00%
Exchange Fee................................................ $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................. .80% .55%
12b-1 Fees After Fee Waivers(1)............................. .00% .00%
Other Expenses.............................................. .47% .37%
----- -----
Total Fund Operating Expenses After Fee Waivers(1).......... 1.27% 0.92%
===== =====
</TABLE>
- ---------------
1. BISYS has agreed with the Group to waive a portion of each Fund's Rule 12b-1
Fees until on or about October 31, 1999 so that such fees will not exceed
during that period, on an annual basis, 0.03% of any Fund's average daily net
assets. Absent such Fee Waivers, 12b-1 Fees for each of the Funds would have
been 0.25% and Total Fund Operating Expenses would have been 1.46%, 1.62%,
1.52% and 1.17% for the Income Equity Fund, Diversified Equity Fund, Special
Equity Fund and Income Fund, respectively.
4
<PAGE> 8
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>
Income Equity Fund.......................................... $ 62 $ 86 $113 $189
Diversified Equity Fund..................................... 63 91 121 206
Special Equity Fund......................................... 62 88 116 196
Income Fund................................................. 49 69 90 154
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
any of the Funds in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. The expense information for
the Diversified Equity Fund only has been restated to reflect the current fees
for that Fund. Such expenses do not include any fees charged by the Adviser or
any of its affiliates to its customer accounts which may have invested in Shares
of the Funds. See "MANAGEMENT OF THE GROUP" and "GENERAL INFORMATION" for a more
complete discussion of the Shareholder transaction expenses and annual operating
expenses of each Fund. As a result of the payment of sales loads and Rule 12b-1
Fees, long-term Shareholders may pay more than the maximum front-end sales
charge permitted by the Rules of the National Association of Securities Dealers,
Inc. (the "NASD"). THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Each Fund is one separate fund of the Group. The table below sets forth
certain information concerning the investment results of the Funds for the
periods ended June 30, 1997 and for the fiscal year ended June 30, 1998. Further
financial information is included in the Statement of Additional Information.
The Financial Highlights contained in the following table have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants for the
Funds, whose report on the
5
<PAGE> 9
fiscal year ended June 30, 1998, is incorporated by reference in the Statement
of Additional Information and which may be obtained by shareholders.
<TABLE>
<CAPTION>
INCOME EQUITY DIVERSIFIED EQUITY
-------------------------- --------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 (a) 1998 1997 (a)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD.... $ 12.28 $ 10.00 $ 11.80 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income................ 0.27 0.20 (0.02) (0.01)
Net realized and unrealized gains
(losses) on investments............ 1.79 2.32 3.00 2.03
------- ------- ------- -------
Total from Investment Activities... 2.06 2.52 2.98 2.02
------- ------- ------- -------
DISTRIBUTIONS
Net investment income................ (0.27) (0.19) -- --
Net realized gains................... (1.47) (0.05) (1.47) (0.22)
In excess of realized gains.......... -- -- -- --
------- ------- ------- -------
Total Distributions................ (1.74) (0.24) (1.47) (0.22)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD......... $ 12.60 $ 12.28 $ 13.31 $ 11.80
======= ======= ======= =======
Total Return (excludes sales charge)... 18.15% 25.58%(b) 27.85% 20.42%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)... $52,450 $39,196 $98,083 $74,990
Ratio of expenses to average net
assets............................. 1.21% 1.37%(c) 1.48% 1.62%(c)
Ratio of net investment income to
average net assets................. 2.16% 2.38%(c) (0.18)% (0.10)%(c)
Ratio of expenses to average net
assets*............................ 1.46% 1.62%(c) 1.73% 1.87%(c)
Ratio of net investment income to
average net assets*................ 1.91% 2.13%(c) (0.43)% (0.35)%(c)
Portfolio Turnover Rate.............. 70.46% 38.49% 95.13% 76.54%
</TABLE>
- ---------------
* During the period distribution fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Commencement of the Funds began September 25, 1996 and September 23, 1996,
respectively.
(b) Not annualized.
(c) Annualized.
6
<PAGE> 10
<TABLE>
<CAPTION>
SPECIAL EQUITY INCOME
-------------------------- --------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 (a) 1998 1997 (a)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD............ $ 9.59 $ 10.00 $ 10.13 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........................ -- -- 0.60 0.44
Net realized and unrealized gains (losses) on
investments................................ 0.17 (0.10)(d) 0.21 0.12
------- ------- ------- -------
Total from Investment Activities........... 0.17 (0.10) 0.81 0.56
------- ------- ------- -------
DISTRIBUTIONS
Net investment income........................ -- -- (0.60) (0.43)
Net realized gains........................... (0.13) -- -- --
In excess of realized gains.................. -- (0.31) -- --
------- ------- ------- -------
Total Distributions........................ (0.13) (0.31) (0.60) (0.43)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD................. $ 9.63 $ 9.59 $ 10.34 $ 10.13
Total Return (excludes sales charge)........... 1.86% (1.03)%(b) 8.24% 5.71%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)........... $35,441 $30,524 $65,975 $54,789
Ratio of expenses to average net assets...... 1.27% 1.39%(c) 0.92% 1.05%(c)
Ratio of net investment income to average net
assets..................................... 0.04% 0.05%(c) 5.90% 5.71%(c)
Ratio of expenses to average net assets*..... 1.52% 1.65%(c) 1.17% 1.30%(c)
Ratio of net investment income to average net
assets*.................................... (0.21)% (0.21)%(c) 5.65% 5.46%(c)
Portfolio Turnover Rate...................... 124.55% 152.81% 208.32% 118.33%
</TABLE>
- ---------------
* During the period distribution fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Commencement of the Funds began September 20, 1996 and September 24, 1996,
respectively.
(b) Not annualized.
(c) Annualized.
(d) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio of
securities during the period because of the timing of sales and purchases of
Fund shares in relation to fluctuating market values during the period.
7
<PAGE> 11
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual total return and yield may be presented in advertisements, sales
literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL PERFORMANCE AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. Average annual total return will be calculated for the period
since commencement of operations for a Fund (or its respective predecessor
collective investment fund) and will reflect the imposition of the maximum sales
charge. Average annual total return is measured by comparing the value of an
investment in such Fund at the beginning of the relevant period to the
redeemable value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions), which figure is
then annualized. Yield will be computed by dividing a Fund's net investment
income per share earned during a recent one-month period by that 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. Each of the Funds may also present its average annual total return
and yield, as the case may be, excluding the effect of a sales charge.
Each of the Funds was initially funded in part by the transfer of all of the
assets of a corresponding collective investment fund (the "CIFs")managed by the
Adviser and, in the case of the Diversified Equity Fund, the Sub-Advisers.
Because the management of the Funds is substantially the same as the
corresponding CIF, the quoted performance of those Funds includes the
performance of the CIFs for periods prior to the effectiveness of the Group's
registration statement as it relates to the Funds. The CIFs were not registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
therefore were not subject to certain investment restrictions that are imposed
by the 1940 Act. If the CIFs had been so registered, their performance might
have been adversely affected.
For the one year, five year and ten year periods ended June 30, 1998, and the
respective periods from commencement of operations to June 30, 1998, the average
annual total returns for the Income Equity Fund, the Diversified Equity Fund,
the Special Equity Fund and the Income Fund are set forth in the following
table. Such performance information includes the prior performance of the
respective CIFs for such Funds during those periods which has been restated to
reflect the estimated fees for those Funds.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------------------------------------------
WITH MAXIMUM SALES LOAD(1) WITHOUT SALES LOAD
------------------------------------- -------------------------------------
SINCE SINCE
FUND 1 YEAR 5 YEAR 10 YEAR INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
---- ------ ------ ------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Equity(2)....................... 12.21% 15.98% 13.81% 13.76% 18.15% 17.16% 14.38% 14.24%
Diversified Equity(3).................. 21.46% 17.24% 15.51% 12.95% 27.85% 18.46% 16.10% 13.41%
Special Equity(2)...................... (3.18)% 9.90% 12.45% 11.97% 1.86% 11.01% 13.04% 12.43%
Income(3).............................. 3.94% 4.71% 7.09% 7.30% 8.24% 5.56% 7.52% 7.63%
</TABLE>
- ---------------
1. The maximum sales load for the Income Equity, Diversified Equity and Special
Equity Funds is 5.00%. For the Income Fund, the maximum sales load is 4.00%.
2. Commenced operations November 30, 1985.
3. Commenced operations June 30, 1985.
Of course, past performance is no guarantee as to future performance. In
addition, from time to time the Funds may also present their distribution rates
in supplemental sales literature and in shareholder reports, both of which must
be accompanied or preceded by a prospectus. Distri-
8
<PAGE> 12
bution rates will be computed by dividing the distribution per share made by a
Fund over a twelve-month period by the maximum offering price per share at the
end of that period. The calculation of income in the distribution rate includes
both income and capital gain dividends and does not reflect unrealized gains or
losses, although each Fund may also present a distribution rate excluding the
effect of capital gains and/or a sales charge. The distribution rate differs
from the yield because it includes capital gain dividends which are often
non-recurring in nature, whereas yield does not include such items.
Investors may also judge the performance of each Fund by comparing or
referencing it 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 indices or data may be published
by such services or by other services or publications. In addition to
performance information, general information about these Funds that appears in
such publications may be included in advertisements, sales literature and
reports to Shareholders.
Yield and total return are generally functions of market conditions, interest
rates, types of investments held, and operating expenses. Consequently, current
yields and total return will fluctuate and are not necessarily representative of
future results. Any fees charged by FSC or by any of its affiliated or
correspondent banks, including the Adviser, to its customer accounts which may
have invested in Shares of a Fund will not be included in performance
calculations; such fees, if charged, will reduce the actual performance from
that quoted. In addition, if the Adviser or BISYS voluntarily reduces all or
part of its fees for a Fund, as discussed below, the yield and total return for
that Fund will be higher than they would otherwise be in the absence of such
voluntary fee reductions.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objectives of the Income Equity Fund are capital appreciation
with current income as a secondary objective. The investment objective for each
of the Diversified Equity Fund and the Special Equity Fund is capital
appreciation. The investment objective of the Income Fund is current income
consistent with preservation of capital.
The investment objectives with respect to a Fund are non-fundamental policies
and as such may be changed by the Group's Trustees without a vote of the holders
of a majority of the outstanding Shares of that Fund (as defined below under
"GENERAL INFORMATION-- Miscellaneous"). There can be no assurance that the
investment objectives of any Fund will be achieved.
THE INCOME EQUITY FUND
Under normal market conditions, the Income Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalization of at least $100 million which the Adviser believes pay above
average dividends or interest. For purposes of the foregoing, securities
convertible into common stocks include convertible bonds, convertible preferred
stock, options and rights. The securities purchased by the Income Equity Fund
are those considered by the Adviser to be generally undervalued by the market.
Under normal market conditions, the Income Equity Fund may also invest up to
35% of its total assets in warrants, sponsored and unsponsored American
Depositary Receipts ("ADRs"), as described more fully below, preferred stock,
securities of other investment companies and real estate investment trust
("REITs"), cash and short-term obligations (with maturities of 12 months or
less) (collectively, "Short-Term Obligations") such as commercial paper,
bankers' acceptances, certificates of deposit, obligations of
9
<PAGE> 13
the U.S. Government or its agencies or instrumentalities, demand and time
deposits of domestic banks and savings and loan associations and repurchase
agreements secured by such Short-Term Obligations. Commercial paper which is
included within "Short-Term Obligations" is that which is rated at the time of
purchase within the two highest rating groups assigned by one or more
appropriate nationally recognized statistical rating organizations ("NRSROs")
(e.g., Standard & Poor's Corporation and Moody's Investors Service, Inc.), or,
if unrated, which the Adviser or the Sub-Adviser, as the case may be, deems to
be of comparable quality. For a description of the rating symbols of the NRSROs,
see the Appendix to the Statement of Additional Information. The Income Equity
Fund may engage in other investment techniques described on page .
THE DIVERSIFIED EQUITY FUND
Under normal market conditions, the Diversified Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalizations of $100 million or greater--of that amount, 25% to 40% will be
committed to each of the following styles, representing the three different
styles of the Sub-Advisers: (1) investing in companies believed to have strong
value measures whose stock is traded at a price below its perceived value, (2)
investing in companies believed to have growth potential, and (3) investing in
companies that have accelerating earnings but whose valuations do not yet
reflect this positive trend. For purposes of the foregoing, securities
convertible into common stocks include convertible bonds, convertible preferred
stock, options and rights. To the extent the Diversified Equity Fund invests in
options or rights, such investments may contribute to its investment objective
of capital appreciation.
Miller Anderson & Sherrerd LLP, one of the Sub-Advisers ("Miller Anderson"),
manages its portion of the Diversified Equity Fund's portfolio with an emphasis
on equity securities of companies it believes have traditional value
characteristics, i.e., high yield, low price to earnings ratios and low price to
book value ratios, which Miller Anderson believes have unrecognized potential
for earnings improvement.
Loomis, Sayles & Company, L.P., another of the Sub-Advisers ("Loomis"),
manages its portion of the Diversified Equity Fund's portfolio with an emphasis
on equity securities of companies Loomis believes are entering into a phase of
accelerating earnings growth. The criteria used by Loomis to select such
securities are historic and current relative price to earnings ratios, and the
extent to which Loomis believes that the market has recognized the accelerating
growth of such company.
Standish, Ayer & Wood, Inc., the third Sub-Adviser ("Standish") manages its
portion of the Diversified Equity Fund's portfolio by using both quantitative
and fundamental investment analysis to identify stocks with improving business
momentum as characterized by accelerating earnings growth but which still have
reasonable valuations because their accelerating growth trends have not yet been
fully recognized.
Under normal market conditions, the Diversified Equity Fund may also invest up
to 35% of its total assets in ADRs, preferred stock, securities of other
investment companies, units of REITs, warrants, cash and Short-Term Obligations.
The Diversified Equity Fund may also engage in other investment techniques
described on page .
THE SPECIAL EQUITY FUND
Under normal market conditions, the Special Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks (i.e., convertible bonds,
convertible preferred stock, options, warrants and rights), traded in U.S.
markets, and issued by companies believed by the Adviser to exhibit an
attractive outlook for growth in sales and earnings, with market capitalizations
between $100 million and $2 billion and which are considered to have
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growth potential. Such companies may include "unseasoned" companies, i.e.,
companies that, together with any predecessor, have less than three years of
continuous operation. The Special Equity Fund will not invest more than 25% of
its total assets in the securities of unseasoned companies.
The Special Equity Fund may also invest up to 35% of its total assets in
warrants, ADRs, securities of other investment companies and REITs, cash and
Short-Term Obligations and may engage in other investment techniques described
on page .
THE INCOME FUND
Under normal market conditions, the Income Fund will invest substantially all,
but in no event less than 65%, of its total assets in debt securities of all
types, including variable and floating rate securities, although up to 35% of
its total assets may be invested in securities of other investment companies and
in preferred stock and dividend paying common stocks. Debt securities include
bonds, debentures, notes, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed as to principal and
interest by the U.S. Government or its agencies or instrumentalities
("Government Obligations") and fixed-income securities convertible into, or
exchangeable for, common stocks. In addition, a portion of the Income Fund may
from time to time be invested in participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Under normal market conditions, the Income Fund expects to
invest primarily in Government Obligations and in debt obligations of United
States corporations. The Income Fund also intends that, under normal market
conditions, its portfolio will maintain a dollar-weighted average maturity of no
more than 18 years.
The Income Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
Government Obligations. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association
("GNMA") 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 ("FNMA"), 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 or the Federal Home Loan Mortgage Corporation ("FHLMC"), 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 Income 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 Income Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
The Income Fund will invest only in corporate debt securities which are rated
at the time of purchase within the three highest rating groups assigned by one
or more appropriate NRSROs or, if unrated, which the Adviser deems to be of
comparable quality. In the event that a security's rating falls below "A" by an
appropriate NRSRO, the Adviser will re-evaluate the security in order to
determine whether to sell. In no event, however, will the Income Fund be
required to liquidate such security if it would suffer a loss on the sale of
such security or so long as one appropriate NRSRO has rated such security within
its three highest rating groups. For a description of the rating symbols of the
NRSROs, see the Appendix to the Statement of Additional Information.
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The Income Fund may hold some Short-Term Obligations and securities of other
investment companies for cash management purposes.
The Income Fund may also invest in U.S. dollar denominated international bonds
for which the primary trading market is in the United States ("Yankee Bonds"),
or for which the primary trading market is abroad ("Eurodollar Bonds"), and in
Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
The Income Fund may invest up to 25% of its total assets in mortgage-related
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or by nongovernmental entities which are rated, at the time of
purchase, within the three highest bond rating categories assigned by one or
more appropriate NRSROs, or, if unrated, which the Adviser deems to be of
comparable quality. Such mortgage-related securities have mortgage obligations
backing such securities, including among others, conventional thirty year fixed
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. In addition, prepayment rates will be used to determine a security's
estimated average life and the Income Fund's average portfolio duration and its
dollar-weighted average portfolio maturity. Accelerated prepayments have an
adverse impact on yields for pass-through securities purchased at a premium
(i.e., a price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized at the
time the obligations are repaid. The opposite is true for pass-through
securities purchased at a discount. The Income Fund may purchase
mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates. The term "mortgage-related
securities" does not include obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities that are not backed by mortgage
obligations. The Income Fund may also acquire collateralized mortgage
obligations or "CMOs." CMOs are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized by
GNMA, FNMA or FHLMC certificates, but also may be collateralized by whole loans
or private mortgage pass-through securities (such collateral collectively
referred to as "Mortgage Assets"). Payments of principal or interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs. CMOs may be issued by agencies or instrumentalities of
the U.S. Government or by private originators of, or investors in, mortgage
loans.
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Asset-backed securities are similar to mortgage-backed securities except that
instead of using mortgages to collateralize the obligations, a broad range of
other assets may be used as collateral, primarily automobile and credit card
receivables and home equity loans. Such receivables and loans are securitized in
pass-through structures similar to the mortgage pass-through or pay-through
structures described above.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs, 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 Income Fund's dollar-weighted average
maturity, the effective maturity of such securities will be used.
An increase in interest rates will generally reduce the value of the
investments in the Income Fund, and a decline in interest rates will generally
increase the value of those investments. Depending upon the prevailing market
conditions, the Adviser may purchase debt securities at a discount from face
value, which produces a yield greater than the coupon rate. Conversely, if debt
securities are purchased at a premium over face value, the yield will be lower
than the coupon rate. In making investment decisions, the Adviser will consider
many factors other than current yield, including the preservation of capital,
maturity, and yield to maturity.
IN GENERAL
Each of the Funds may purchase securities of other investment companies which
in the opinion of the Adviser or Sub-Adviser, as the case may be, will assist
such Fund in achieving its investment objective and/or for cash management
purposes, may enter into repurchase and reverse repurchase agreements, and may
enter into options and futures transactions and write covered call options on
securities that such Fund could otherwise purchase directly. In addition, the
Income Fund may purchase securities on a when-issued basis.
The securities purchased by the Funds are generally traded on U.S. markets,
including the New York Stock Exchange, the American Stock Exchange and NASDAQ,
although each Fund may purchase securities which are restricted as to their
disposition, including those eligible for resale under Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities").
During temporary defensive periods as determined by the Adviser or the
appropriate Sub-Adviser, as the case may be, based upon current or anticipated
market conditions, each Fund may hold up to 100% of its total assets in
Short-Term Obligations as described above or in cash. However, to the extent
that a Fund is so invested, it may not achieve its investment objective or
objectives.
Each of the Funds may invest in certain types of securities which are
considered to be "derivative" securities, such as certain variable or floating
rate securities, options and futures. A derivative is generally defined as an
instrument whose value is based upon, or derived from, some underlying index,
reference rate (e.g., interest rates), security, commodity or other asset. The
Income Equity Fund, the Diversified Equity Fund, and the Special Equity Fund
each will not invest more than 25% of its total assets in such derivatives. With
respect to the Income Fund, such Fund may invest up to 35% of its total assets
in CMOs and asset-backed securities and up to 25% of its total assets in any
other derivatives. Notwithstanding the foregoing, with respect to the Income
Fund, there is no limitation on the amount of its total assets which may be
invested in variable or floating rate obligations regardless of whether or not
such obligations are deemed to be "derivatives."
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RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in any of the Funds entails certain
risks. Equity securities such as those in which the Income Equity, Diversified
Equity and Special Equity Funds may invest are more volatile and carry more risk
than some other forms of investment, including investments in high grade fixed
income securities. Therefore, such Funds are subject to stock market risk, i.e.,
the possibility that stock prices in general will decline over short or even
extended periods of time.
Depending upon the performance of each Funds' investments, the net asset value
per share of a Fund may decrease instead of increase.
The Special Equity Fund is intended for investors who can accept the higher
risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Special Equity Fund does not anticipate any
significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Special Equity Fund. The securities of less
seasoned companies may have limited marketability, and therefore may be less
liquid, and may be subject to more abrupt or erratic market movements over time
than securities of more seasoned companies or the market as a whole.
Since the Income Fund invests in bonds, investors in such Fund, to the extent
so invested, are exposed to bond market risk, i.e., fluctuations in the market
value of bonds. Bond prices are influenced primarily by changes in the level of
interest rates. When interest rates rise, the prices of bonds generally fall;
conversely, when interest rates fall, bond prices generally rise. While bonds
normally fluctuate less in price than stocks, there have been in the recent past
extended periods of cyclical increases in interest rates that have caused
significant declines in bond prices and have caused the effective maturity of
securities with pre-payment features to be extended, thus effectively converting
short or intermediate term securities into longer term securities which are
generally more volatile in price.
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, in exchange for cash from banks and/or registered
broker-dealers which the Adviser or Sub-Adviser, as the case may be, deems
creditworthy under guidelines approved by the Group's Board of Trustees. The
seller agrees to repurchase such securities at a mutually agreed date and price.
The repurchase price generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. Securities subject to
repurchase agreements must be of the same type and quality as those in which
such Fund may invest directly. For further information about repurchase
agreements and the related risks, see "INVESTMENT OBJECTIVES AND POLICIES--
Additional Information on Portfolio Instruments--Repurchase Agreements" in the
Statement of Additional Information.
Reverse Repurchase Agreements. Each Fund may borrow funds by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
securities consistent with such Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will continually
monitor the account to ensure that such equivalent value is maintained at all
times. Reverse repurchase
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agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings by
a Fund under the 1940 Act and therefore a form of leverage. A Fund may
experience a negative impact on its net asset value if interest rates rise
during the term of a reverse repurchase agreement. A Fund generally will invest
the proceeds of such borrowings only when such borrowings will enhance the
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about, and limitations on
the use of, reverse repurchase agreements, see investment restriction Number 3
under "INVESTMENT RESTRICTIONS" below and "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Reverse Repurchase
Agreements" in the Statement of Additional Information.
Except as otherwise disclosed to the Shareholders of the Funds, the Group 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, BISYS, or their affiliates, and will not give
preference to the Adviser's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, and reverse repurchase
agreements.
Variable and Floating Rate Obligations. A variable rate obligation is one
whose terms provide for the adjustment 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 obligation is one whose terms provide for the adjustment 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 obligations are frequently not rated by credit rating agencies; however,
unrated variable and floating rate obligations purchased by the Income Fund will
be determined by the Adviser to be of comparable quality at the time of purchase
to rated instruments eligible for purchase under the Income 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 obligations
and will continuously monitor their financial condition. Although there may be
no active secondary market with respect to a particular variable or floating
rate obligation purchased by the Income Fund, the Income Fund may attempt to
resell the obligation at any time to a third party. The absence of an active
secondary market, however, could make it difficult for the Income Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations and the Income Fund could, as a
result or for other reasons, suffer a loss to the extent of the default.
Variable or floating rate obligations may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value.
Variable and floating rate obligations for which no readily available market
exists will be purchased in an amount which, together with other illiquid
securities, exceeds 15% of the Income Fund's net assets only if such obligations
are subject to a demand feature that will permit the Income Fund to receive
payment of the principal within seven days after demand by the Income Fund.
Options. Each Fund may also purchase put and call options for hedging
purposes. The Funds anticipate that options will be exchange traded options,
meaning that such options are generally
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standardized and are guaranteed by a clearing agency, which is in contrast to
over-the-counter (OTC) traded options. A put option gives the purchaser of the
option the right to sell, and obligates the writer (seller) of the option to
buy, 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. 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. Purchasing options is a
specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to writers of options.
For hedging purposes, each of the Funds may also engage in writing call
options as the Adviser or the Sub-Adviser, as the case may be, deems
appropriate. A Fund will write only covered call options (options on securities
owned by that Fund). When a Fund writes a covered call option and such option is
exercised, that Fund will forego 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, a Fund will 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 that Fund previously wrote on any
particular securities. When a portfolio security subject to a call option is
sold, the Fund which wrote the call will effect a closing purchase transaction
to close out any existing call option on that security. There is no assurance of
liquidity in the secondary market for purposes of closing out option positions.
If that Fund is unable to effect a closing purchase transaction, it will not be
able to sell the underlying security until the option expires or such Fund
delivers the underlying security upon exercise.
Each of the Funds, as part of its option transactions, also may purchase index
put and call options and write index options. Through the writing or purchase of
index options, a Fund can achieve many of the same objectives as through the use
of options on individual securities. Options on indices are similar to options
on a security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option.
A Fund may lose the expected benefit of option transactions if interest rates
or security prices move in an unanticipated manner. In addition, the value of a
Fund's option positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting such Fund's ability to
hedge effectively against market or interest rate risk. Because index options
are settled in cash, a call writer cannot determine the amount of its settlement
obligations in advance and, unlike call writing on specific securities, cannot
provide in advance for, or cover, its potential settlement obligations by
acquiring and holding the underlying securities. A Fund may be required to
segregate assets or provide an initial margin to cover index options that would
require it to pay cash upon exercise. Under normal conditions, it is not
expected that any such Fund would permit the underlying value of its portfolio
securities subject to such options to exceed 25% of its net assets.
Futures Contracts. Each Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities, interest rate or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index or based on an interest rate is an agreement obligating
either party to pay, and entitling the other party to receive, while the
contract is outstanding, cash payments based on the level of a specified
securities index or interest rate, as the case may be. A Fund may use this
investment technique as a substitute for a comparable market position in the
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underlying securities or to hedge against anticipated future changes in market
prices or interest rates, which otherwise might adversely affect either the
value of such Fund's securities or the prices of securities which the Fund
intends to purchase at a later date. Alternatively, a Fund may purchase or sell
futures contracts to hedge against changes in market interest rates which may
result in the premature call at par value of certain securities which the Fund
has purchased at a premium.
Each Fund may engage in such futures contracts in an effort to hedge against
market risks. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, a Fund can seek through the
sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for such Fund than might later be available in the
market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period. A Fund may also sell options
on futures contracts as part of closing purchase transactions to terminate its
option positions. No assurance can be given that such closing transactions can
be effected, that there will be a correlation between price movements in the
Fund's portfolio securities which are the subject of the hedge or of liquidity
in the secondary market for purposes of closing out futures positions. In
addition, a Fund's purchase of such options will be based upon predictions as to
anticipated interest rate or other market trends, which could prove to be
inaccurate.
In general, the value of futures contracts sold by a Fund to offset declines
in its portfolio securities will not exceed the total market value of the
portfolio securities to be hedged, and futures contracts purchased by a Fund
will be covered by a segregated account consisting of cash or liquid securities
in an amount equal to the total market value of such futures contracts, less the
initial margin deposited therefore.
When buying futures contracts and when writing put options, a Fund will be
required to segregate in a separate account cash and/or liquid securities in an
amount sufficient to meet its obligations. When writing call options, a Fund
will be required to own the financial instrument or futures contract underlying
the option or segregate cash and/or liquid securities in an amount sufficient to
meet its obligations under written calls.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualifications as a regulated investment company.
A Fund may lose the expected benefit of futures transactions if interest rates
or securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of a Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities, limiting such Fund's ability to hedge effectively
against interest rate and/or market risk and giving rise to additional risks.
For futures contracts based on indices, the risk of imperfect correlation
increases as the composition of the Fund's portfolio varies from the composition
of the index. In an effort to compensate for the imperfect correlation of
movements in the price of the securities being hedged and movements in the price
of futures contracts, a Fund may buy or sell futures contracts in a greater or
lesser dollar amount
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than the dollar amount of the securities being hedged if the historical
volatility of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect the
Fund's net investment results if the market does not move as anticipated when
the hedge is established.
Foreign Investments. As described above, each of the Income Equity,
Diversified Equity and Special Equity Funds may invest in sponsored and
unsponsored ADRs. ADRs are receipts typically issued by a United States bank or
trust company evidencing ownership of the underlying foreign securities and are
denominated in U.S. dollars. Unsponsored ADRs may be less liquid than sponsored
ADRs, and there may be less information available regarding the underlying
foreign issuer for unsponsored ADRs.
Investments in foreign securities, including ADRs, may subject a Fund to
investment risks that differ in some respects from those related to investments
in securities of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of withholding
taxes on interest or other investment income, fluctuations in exchange rates,
possible seizure, nationalization, or expropriation of foreign deposits or
investments, the possible establishment of exchange controls or taxation at the
source, less stringent disclosure requirements, less liquid or developed
securities markets or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal, interest or dividends on
such securities or the purchase or sale thereof. In addition, foreign branches
of U.S. banks and foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting, and recordkeeping
standards than those applicable to domestic branches of U.S. banks. A Fund will
acquire securities issued by foreign branches of U.S. banks, foreign banks, or
other foreign issuers only when the Adviser believes that the risks associated
with such instruments are minimal.
Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Adviser or the Sub-Adviser, as the case may be. Should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to that Fund. During the time portfolio securities are on loan, the
borrower pays that Fund any dividends or interest received on such securities.
Loans are subject to termination by such Fund or the borrower at any time. While
a Fund does not have the right to vote securities on loan, each Fund intends to
terminate the loan and regain the right to vote if that is considered important
with respect to the investment. In the event the borrower would default on its
obligations, the Fund bears the risk of delay in recovery of the portfolio
securities and the loss of rights in the collateral. A Fund will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Adviser or the Sub-Adviser, as the case may be, has determined are creditworthy
under guidelines established by the Group's Board of Trustees.
When-Issued and Delayed Delivery Transactions. The Income Fund may purchase
securities on a when-issued or delayed-delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. The Income Fund will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with and in furtherance of its investment objective and
policies, not for investment leverage, although such transactions represent a
form of leveraging. 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
18
<PAGE> 22
or start earning interest on them until they are received on the settlement
date. When a Fund agrees to purchase such securities, however, its 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 such Fund to miss a price or yield
considered to be advantageous.
Restricted Securities. Securities in which the Funds may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), such as securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold, if at all, to other
institutional investors through or with the assistance of the issuer or
investment dealers who facilitate the resale of such Section 4(2) securities,
thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser, or the Sub-Adviser, as the case may be, may determine Section 4(2)
Securities to be liquid if such securities are eligible for resale under Rule
144A under the 1933 Act and are readily saleable. Rule 144A permits a Fund to
purchase securities which have been privately placed and resell such securities
to certain qualified institutional buyers without restriction. For purposes of
determining whether a Rule 144A security is readily saleable, and therefore
liquid, the Adviser or the Sub-Adviser, as the case may be, must consider, among
other things, the frequency of trades and quotes for the security, the number of
dealers willing to purchase or sell the security and the number of potential
purchasers, dealer undertakings to make a market in the security, and the nature
of the security and marketplace trades of such security. However, investing in
Rule 144A securities, even if such securities are initially determined to be
liquid, could have the effect of increasing the level of the Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.
Investment Company Securities. Each Fund may also invest in the securities of
other investment companies in accordance with the limitations of the 1940 Act
and any exemptions therefrom. Each Fund intends to invest in the securities of
other investment companies which, in the opinion of the Adviser or the
Sub-Adviser, as the case may be, will assist such Fund in achieving its
investment objectives and in money market mutual funds for purposes of
short-term cash management. A Fund will incur additional expenses due to the
duplication of fees and expenses as a result of investing in mutual funds.
Additional restrictions on the Funds' investments in the securities of other
mutual funds are described in the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund 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 Commission requires that
the calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. The portfolio turnover rate for each of the
Funds may vary greatly from year to year, as well as within a particular year,
and may also be affected by cash requirements for redemptions of Shares. High
portfolio turnover rates will generally result in higher transaction costs,
including brokerage commissions, to a Fund and may result in additional tax
consequences to a Fund's share-
19
<PAGE> 23
holders. Portfolio turnover will not be a limiting factor in making investment
decisions. Portfolio turnover information is set forth above under "FINANCIAL
HIGHLIGHTS."
INVESTMENT RESTRICTIONS
Each 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 that Fund (as
defined under "GENERAL INFORMATION--Miscellaneous" herein).
Each of the Funds will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements secured by such obligations, if, immediately after such
purchase, more than 5% of such Fund's total assets would be invested in such
issuer, or such Fund would hold more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of a Fund's total assets may
be invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements secured by such obligations.
2. Purchase any securities which would cause more than 25% of such 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, its agencies or instrumentalities
and repurchase agreements secured by such obligations; (b) 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 (c) 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 as and to the extent
permitted by the 1940 Act or any rule, order or interpretation thereunder.
4. Make loans, except that each Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions, and enter into
repurchase agreements.
The following additional investment restriction may be changed without the
vote of a majority of the outstanding Shares of a Fund: Each of the Funds will
not purchase or otherwise acquire any security, if, as a result, more than 15%
of its net assets would be invested in securities that are illiquid. For
purposes of this investment restriction, illiquid securities include securities
which cannot be sold at approximately the value assessed by the Fund within
seven days.
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 Funds' Statement of Additional
Information.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(usually 4:00 p.m. Eastern time) on each Business Day of such Fund. The time at
which the Shares of a Fund are priced is hereinafter referred to as the
"Valuation Time." A "Business Day" of a Fund is a day on which the Exchange is
open for trading and any other day (other than a day on which no Shares of that
Fund are tendered for redemption and no order to purchase any Shares of that
Fund is received) during which there is sufficient trading in portfo-
20
<PAGE> 24
lio instruments such that such Fund's net asset value per share might be
materially affected. The Exchange will not be open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Net asset value per share for purposes of pricing purchases and
redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund, less the liabilities charged to that Fund, by the
number of that Fund's outstanding Shares.
The net asset value per share for each of the Funds will fluctuate as the
value of the underlying securities in the investment portfolio of a Fund
changes.
The portfolio securities in each of the Funds for which market quotations are
readily available are valued based upon their current available prices in the
principal market in which such securities are normally traded. Unlisted
securities for which market quotations are readily available are valued at such
market values. Other securities, including restricted securities and other
securities for which market quotations are not readily available, and other
assets are valued at fair value by the Adviser under procedures established by,
and under the supervision of the Group's Board of Trustees. Securities may be
valued by an independent pricing service approved by 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. For further information
about valuation of investments, see "NET ASSET VALUE" in the Statement of
Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by the Group's distributor,
BISYS (the "Distributor"). The principal office of the Distributor is 3435
Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, telephone
the Group at (800) 766-8938.
PURCHASES OF SHARES
Shares may be purchased through procedures established by the Distributor in
connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by the Adviser or its correspondent or
affiliated banks (collectively, the "Banks").
Shares of the Funds sold to the Banks acting in a fiduciary, advisory,
custodial, agency, or other similar capacity on behalf of Customers will
normally be held of record by the Banks. With respect to Shares of the Funds so
sold, it is the responsibility of the particular Bank to transmit purchase or
redemption orders to the Distributor and to deliver federal funds for purchase
on a timely basis. Beneficial ownership of Shares will be recorded by the Banks
and reflected in the account statements provided by the Banks to Customers. A
Bank will exercise voting authority for those Shares for which it is granted
authority by the Customer.
Investors may also purchase Shares of a Fund by completing and signing an
Account Registration Form and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, payable to the appropriate Fund, to the 1st Source Monogram Funds, P.O.
Box 182084, Columbus, Ohio 43218-2084. Subsequent purchases of Shares of that
Fund may be made at any time by mailing a check (or other negotiable bank draft
or money order) payable to the Group to the above address.
If an Account Registration Form has been previously received by the Group,
investors may also purchase Shares by wiring funds to the Funds' custodian.
Prior to wiring any such funds and in order to ensure that wire orders are
invested promptly, investors must call the Group at (800) 766-8938 to obtain
instructions regarding the bank account number into which the funds
21
<PAGE> 25
should be wired and other pertinent information.
Shares of each Fund are purchased at the net asset value per share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares plus any applicable sales charge as described below.
Purchases of Shares of a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES") of that Fund.
For orders for the purchase of Shares of any of the Funds placed through a
broker-dealer, the applicable 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 and transmits it to the Distributor prior to
the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. 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.
Depending upon the terms of a particular Customer's account, the Banks or
their affiliates may charge a Customer account fees for automatic investment and
other cash management services provided in connection with an investment 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 received from the Banks or their affiliates.
Each Fund reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in his or
her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by Banks on behalf of their Customers will be sent by the Banks to
their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
1ST SOURCE MONOGRAM INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A 1st Source Monogram IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
1st Source Monogram 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 earn income on a tax-deferred basis.
All 1st Source Monogram IRA distribution requests must be made in writing to
the Distributor. Any deposits to a 1st Source Monogram IRA must identify the
type and year of the contributions.
For more information on the 1st Source Monogram IRAs call the Group at (800)
766-8938. The rules relating to IRA eligibility, contributions and distributions
are complex and change from time to time. Therefore, shareholders are advised to
consult a tax adviser on 1st Source Monogram IRA contribution and withdrawal
requirements and restrictions.
AUTO INVEST PLAN
The 1st Source Monogram Funds Auto Invest Plan enables Shareholders to make
regular semi-monthly, monthly or quarterly purchases of Shares of a Fund through
automatic deduction from their bank accounts, provided that the
22
<PAGE> 26
Shareholder's bank is a member of the Federal Reserve and the Automated Clearing
House (ACH) system. With Shareholder authorization, the Transfer Agent will
deduct the amount specified (subject to the applicable minimums described below)
from the Shareholder's bank account which will automatically be invested in
Shares of the designated Fund at the public offering price next determined after
receipt of payment by the Transfer Agent. To participate in the Auto Invest
Plan, Shareholders should complete the appropriate section of the Account
Registration Form or a supplemental sign-up form which can be acquired by
calling the Group at (800) 766-8938. For a Shareholder to change the Auto Invest
instructions, the request must be made in writing to the Group at: 3435 Stelzer
Road, Columbus, Ohio 43219.
The Group may eliminate or change the Auto Invest Plan at any time or from
time to time without notice thereof.
MINIMUM INVESTMENT
The following table sets forth the minimum requirements for initial purchases
of a Fund's Shares and any subsequent purchases made thereafter. As the table
shows, these requirements may vary depending upon the method or methods used by
the purchaser to invest in the Funds.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
REQUIREMENTS REQUIREMENTS
FOR FOR
INITIAL SUBSEQUENT
METHOD OF PURCHASE PURCHASES PURCHASES
------------------ --------------- ------------
<S> <C> <C>
For purchases other
than through the Auto
Invest Plan:
Non-IRA............ $1,000 per Fund $25 per Fund
IRAs............... $1,000 per Fund $25 per Fund
For purchases made
through the Auto
Invest Plan:
Non-IRA............ $ 25 per Fund $25 per Fund
IRAs............... $ 250 per Fund $25 per Fund
</TABLE>
SPECIAL PURCHASE PROGRAMS
For Employees of the Adviser or one of its Affiliates. The Adviser has
arranged for lower minimum requirements for its employees and the employees of
its affiliates (collectively, "Employees") to invest in the Funds. Regardless of
the method chosen by an Employee to purchase Shares (e.g., whether or not for an
IRA and whether or not through the Auto Invest Plan), all initial purchases of
Shares in a Fund must be for a dollar amount of not less than $10 and all
subsequent purchases of Shares in that Fund must be for a dollar amount of not
less than $10.
Employees should note that regardless of the amount that they use to open a
1st Source Monogram IRA, the annual fee of $10 will be deducted from their IRA
account each December. Therefore, if an Employee opens a 1st Source Monogram IRA
account with only the minimum investment and does not add to it during that
year, the annual fee may reduce the Employee's IRA account balance to $0.
For Payroll Deduction Plans. Lower minimum requirements are also available for
people investing in the Funds through a payroll deduction plan offered by their
employer. For purchases of Shares of a Fund through such a plan all initial
purchases must be for a dollar amount of not less than (1) $10 and all
subsequent purchases of Shares in that Fund must be for a dollar amount of not
less than $10 per payroll deduction if you are paid at least twice a month or
(2) $25 and all subsequent purchases of Shares in that Fund must be for a dollar
amount of not less than $25 per payroll deductions if you are paid less than
twice a month.
IN-KIND PURCHASES
Payment for Shares of a Fund may, in the discretion of the Adviser, be made in
the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-
23
<PAGE> 27
kind securities payment, a Fund will require, among other things, that the
securities be valued on the date of purchase in accordance with the pricing
methods used by the Fund and that the Fund receive satisfactory assurances that
it will have good and marketable title to the securities received by it; that
the securities be in proper form of transfer to the Fund; and that adequate
information be provided concerning the basis and other tax matters relating to
the securities.
SALES CHARGES
The public offering price of Shares of each of the Funds equals net asset
value plus a sales charge calculated in accordance with the tables below. BISYS
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. The 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
1933 Act.
SALES CHARGES FOR THE
INCOME EQUITY, DIVERSIFIED EQUITY
AND SPECIAL EQUITY FUNDS
<TABLE>
<CAPTION>
DEALER DISCOUNTS
AND BROKERAGE
SALES CHARGE COMMISSIONS
AS % OF NET SALES CHARGE AS % OF
AMOUNT AS % OF PUBLIC PUBLIC
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING PRICE
------------------ ------------ -------------- ----------------
<S> <C> <C> <C>
Less than $50,000.... 5.26% 5.00% 4.50%
$50,000 but less than
$100,000............ 4.17 4.00 3.60
$100,000 but less
than $250,000....... 3.09 3.00 2.70
$250,000 but less
than $500,000....... 2.04 2.00 1.80
$500,000 but less
than $1,000,000..... 1.52 1.50 1.35
$1,000,000 or more... 0 0 0
</TABLE>
SALES CHARGE FOR THE
INCOME FUND
<TABLE>
<CAPTION>
DEALER DISCOUNTS
AND BROKERAGE
SALES CHARGE SALES CHARGE COMMISSIONS
AS % OF AS % OF AS % OF
NET AMOUNT PUBLIC PUBLIC
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING PRICE
------------------ ------------ -------------- ----------------
<S> <C> <C> <C>
Less than $50,000.... 4.17% 4.00% 3.60%
$50,000 but less than
$100,000............ 3.63 3.50 3.15
$100,000 but less
than $250,000....... 3.09 3.00 2.70
$250,000 but less
than $500,000....... 2.04 2.00 1.80
$500,000 but less
than $1,000,000..... 1.52 1.50 1.35
$1,000,000 or more... 0 0 0
</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 own expense, will also provide additional compensation to
dealers in connection with sales of Shares of the Funds. 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 funds of the Group, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of such Shares. Compensation will 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 sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging at luxury resorts at an exotic location, (2)
tickets for entertainment events (such as concerts, cruises and sporting events)
and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may
not use sales of a
24
<PAGE> 28
Fund's 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
NASD. None of the aforementioned compensation is paid for by any Fund or its
Shareholders.
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Shares of a Fund
by or on behalf of:
(1) Accounts for which FSC, the Adviser, banks and trust companies or one of
their affiliates acts in a fiduciary, advisory, agency, custodial (other than
for individual retirement accounts), or similar capacity;
(2) Officers, trustees, directors, employees and retired employees (including
spouses and children under the age of 21 of the foregoing) of FSC, the Adviser,
the Group, BISYS and any affiliates thereof;
(3) Purchasers pursuant to the terms of a payroll deduction plan, a 401(k)
plan or a 403(b) plan which by its terms permits purchases of Shares of the
Funds;
(4) Purchasers using solely the proceeds from a distribution from an account
for which the Adviser or an affiliate serves in a trust, fiduciary or agency
capacity (this waiver only applies to the initial purchase of Shares with such
proceeds);
(5) Brokers, dealers and agents for their own account, who have a sales
agreement with the Distributor, and their employees (and their spouses and
children under the age of 21);
(6) Orders placed on behalf of other investment companies distributed by The
BISYS Group, Inc. or its affiliated companies, including the Distributor;
(7) Investment advisers or financial planners regulated by a federal or state
governmental authority who are purchasing Shares for their own account or for an
account for which they are authorized to make investment decisions (i.e., a
discretionary account) and who charge a management, consulting or other fee for
their services, and clients of such investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of a broker or agent; and
(8) Investors purchasing Shares with proceeds from a redemption of shares of
another open-end investment company (other than the Group) on which a sales
charge was paid if (i) such redemption occurred with sixty (60) days prior to
the date of the purchase order and (ii) satisfactory evidence of the purchaser's
eligibility is provided to the Distributor at the time of purchase (e.g., a
confirmation of the redemption).
The Distributor may change or eliminate the foregoing waivers at any time or
from time to time without notice thereof. The Distributor may also periodically
waive all or a portion of the sales charge for all investors with respect to a
Fund.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of a Fund and one or more of the
other Funds. For example, if a Shareholder concurrently purchases Shares in the
Diversified Equity Fund at the total public offering price of $25,000 and Shares
in the Income Fund at the total public offering price of $30,000, the sales
charge on the Shares of the Funds so sold would be that applicable to a $55,000
purchase as shown in the tables above, i.e., 4.00% for the Shares of the
Diversified Equity Fund and 3.50% for Shares of the Income Fund. This privilege,
however, may be modified or eliminated at any time or from time to time by the
Group without notice thereof.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Shares of a
Fund at a designated total public offering price within a designated 13-month
pe-
25
<PAGE> 29
riod. Each purchase of Shares under a Letter of Intent will be made at the net
asset value plus the sales charge applicable at the time of such purchase to a
single transaction of the total dollar amount indicated in the Letter of Intent.
A Letter of Intent may include purchases of Shares made not more than 90 days
prior to the date such investor 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. This program may be modified or eliminated
at any time or from time to time by the Group without notice. For further
information about letters of intent, interested investors should contact the
Group at (800) 766-8938. A Letter of Intent is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial investment
under a Letter of Intent is 5% of such 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 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 investor 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 has been purchased, the escrow will be released.
An adjustment will be made to reflect any reduced sales charge applicable to
Shares purchased during the 90-day period prior to the date the Letter of Intent
was entered into at the conclusion of the 13-month period and in the form of
additional Shares credited to the Shareholder's account at the then current
public offering price applicable to a single purchase of the total amount of the
total purchases. Additionally, if the total purchases within the 13-month period
exceed the amount specified, a similar adjustment will be made to reflect
further reduced sales charges applicable to such purchases.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Shares of a Fund at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the Fund then being purchased plus
(b) an amount equal to the then current net asset value of the purchaser's
combined holdings of the Shares of all of the Funds. For example, if a
Shareholder held Shares of the Special Equity Fund and the Income Fund with a
total net asset value of $200,000 and wanted to invest $60,000 in the Income
Equity Fund, the sales charge applicable to such $60,000 investment in the
Income Equity Fund would be 2.00%. The "purchaser's combined holdings" described
in the preceding sentence shall include the combined 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, at the time of
purchase, give the Transfer Agent sufficient information to permit confirmation
of qualification. This right of accumulation, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for Shares of any of the other Funds at
respective net asset values upon the payment of a sales charge equal to the
difference, if any, between the sales charge payable upon purchase of Shares of
such Fund and the sales charge previously paid on the Fund Shares to be
exchanged. With respect to every exchange, the amount to be exchanged must meet
the applicable minimum investment requirements and the exchange must be made in
states where it is legally authorized.
An exchange is considered a sale of Shares for federal income tax purposes.
However, a Share-
26
<PAGE> 30
holder may not include any sales charge on Shares of a Fund as a part of the
cost of those Shares for purposes of calculating the gain or loss realized on an
exchange of those Shares within 90 days of their purchase.
The Group may at any time modify or terminate the foregoing exchange
privileges. The Group, however, will give shareholders 60 days' advance written
notice of any such modification.
A Shareholder wishing to exchange his or her Shares may do so by contacting
the Group at (800) 766-8938 or by providing written instructions to the Group.
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. For a discussion of risks associated with unauthorized telephone
exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at a Bank. For example, if a
Customer has agreed with a Bank to maintain a minimum balance in his or her
account with the Bank, and the balance in that account falls below that minimum,
the Customer may be obliged to redeem, or the Bank may redeem on behalf of the
Customer, all or part of the Customer's Shares of a Fund to the extent necessary
to maintain the required minimum balance.
Redemption by Mail
A written request for redemption must be received by the Group, at the address
shown on the front page of this Prospectus, in order to honor the request. The
Transfer Agent will require a signature guarantee by an eligible guarantor
institution. The signature guarantee requirement will be waived if 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 mailed or wired to a commercial bank account previously
designated on the Account Registration Form. There is no charge for having
redemption proceeds mailed to a designated bank account. To change the address
to which a redemption check is to be mailed, a written request therefore must be
received by the Transfer Agent. In connection with such request, the Transfer
Agent will 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 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.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Group and having the payment of redemption requests sent electronically directly
to a domestic commercial bank account previously designated by the Shareholder
on the Account Registration Form or mailed directly to the Shareholder at the
Shareholder's address as recorded by the Transfer Agent. Under most
circumstances, such payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. The Group may reduce the
amount of a wire redemption payment by the then-current wire redemption charge
of the Funds' custodian. There is currently no charge for having payment of
redemption requests mailed or sent electronically to a designated bank
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<PAGE> 31
account. For telephone redemptions, call the Group at (800) 766-8938.
Neither the Group, the Funds nor their service providers will be liable for
any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with a Fund's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. Each Fund will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, such Fund or its
service providers 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. If, due to temporary adverse
conditions, Shareholders are unable to effect telephone transactions,
Shareholders may also mail the redemption request to the Group at the address
shown on the front page of this Prospectus.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund, with an account
balance in such Fund of $5,000 or more, 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 have a check in the amount specified mailed to the Shareholder.
The required minimum withdrawal is $25 monthly. To participate in the Auto
Withdrawal Plan, Shareholders should call (800) 766-8938 for more information.
Purchases of additional Shares concurrent with withdrawals may be
disadvantageous to certain Shareholders because of tax liabilities and sales
charges. For a Shareholder to change the Auto Withdrawal instructions, the
request must be made in writing to the Group.
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. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, each Fund 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 on a
Business Day or, if the request for redemption is received after the Valuation
Time, to honor requests for payment on the second Business Day. Each Fund will
attempt to so honor redemption requests unless it would be disadvantageous to
that Fund or the Shareholders of that Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner.
At various times, the Group may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds for up to 10 days or more until payment has been
collected for the purchase of such Shares. The Group intends to pay cash for all
Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Group may make payment wholly or partly in portfolio securities at
their then 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, each Fund
reserves the right to redeem, at net asset value, the Shares of that Fund 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 deduction of any sales charge or the establishment of an account by
an employee of the Adviser or one of its affiliates, by using the Auto Invest
Plan or by participating in a payroll deduction plan), the account
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of such Shareholder has a value of less than $1,000. Accordingly, an investor
purchasing Shares of a Fund in only the minimum investment amount may be subject
to such involuntary redemption if he or she thereafter redeems some of his or
her Shares. In addition, a former employee of the Adviser or a person who
established an account by payroll deduction but stops making investments in that
Fund under that plan may be subject to such involuntary redemption if the value
of his or her account is below $1,000.
Before a 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 not less than 60 days to make an additional investment in an amount
which will increase the value of the account to at least $1,000.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and "NET ASSET VALUE" in
the Statement of Additional Information for examples of when the Group may
suspend the right of redemption.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for each of the Funds, other than the Special Equity Fund, is
declared monthly at the close of business on the day of declaration and is
generally paid monthly. A dividend for the Special Equity Fund is declared
quarterly at the close of business on the day of declaration and is generally
paid quarterly. Each such dividend consists of an amount of accumulated
undistributed net income of that Fund as determined necessary or appropriate by
the appropriate officers of the Group.
Shareholders will automatically receive all income dividends and capital gains
distributions in additional full and fractional Shares of that particular Fund
at the net asset value as of the date of payment, unless the Shareholder elects
to receive dividends or distributions in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent at 3435 Stelzer Road,
Columbus, Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Distributable net realized capital gains for each Fund are distributed at
least annually. Dividends are paid in cash not later than seven Business Days
after a Shareholder's complete redemption of his or her Shares in a Fund.
If a Shareholder elects to receive distributions in cash, and checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in that 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 that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
Each of the Funds is treated as a separate entity for federal income tax
purposes and intends each year to qualify and elect to be treated as a
"regulated investment company" under the Internal Revenue Code of 1986 (the
"Code") for so long as such qualification is in the best interest of that Fund's
Shareholders. Qualification as a regulated investment company under the Code
requires, among other things, that the regulated investment company distribute
to its shareholders at least 90% of its investment company taxable income. Each
Fund contemplates declaring as dividends all or substantially all of that Fund's
investment company taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies
that do not dis-
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tribute in each calendar year (regardless of whether they otherwise have a
non-calendar taxable year) an amount equal to 98% of their ordinary income for
the calendar year plus 98% of their capital gain net income for the one-year
period ending on October 31 of such calendar year. If distributions during a
calendar year were less than the required amount, that Fund would be subject to
a nondeductible 4% excise tax on the deficiency.
A distribution will be treated as paid on December 31 of a calendar year if it
is declared in October, November or December with a record date in such 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.
It is expected that each Fund will distribute annually to Shareholders all or
substantially all of that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to Shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by the Fund
bear to its gross income. Since all of the Income Fund's net investment income
is expected to be derived from earned interest and short-term capital gains, it
is anticipated that no part of any distribution from such Fund will be eligible
for the dividends received deduction for corporations.
The excess of net long-term capital gains over short-term capital losses
realized and distributed by a Fund and designated as capital gain dividends,
whether paid in cash or reinvested in Fund shares, will be taxable to
Shareholders. Capital gain dividends paid from the proceeds of sales of assets
held by a Fund for more than one year will generally be taxed at a maximum
federal income tax rate of 20%. Net capital gains from assets held for one year
or less will be taxed as ordinary income. Distributions will be subject to these
capital gains rates regardless of how long a Shareholder has held Fund shares.
Prior to purchasing Shares, investors should carefully consider the effect of
dividends or capital gains distributions which are expected to be declared or
have been declared, but have not been paid. Any such dividends or capital gains
distributions paid shortly after a purchase of Shares prior to the record date
will have the effect of reducing the per share net asset value of the Shares by
the amount of the dividends or distributions. All or a portion of such dividends
or distributions, although in effect a return of capital, is subject to tax.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "ADDITIONAL INFORMATION--Additional
Tax Information." However, the information contained in this Prospectus and the
additional material in the Statement of Additional Information are only brief
summaries of some of the important tax considerations generally affecting the
Funds and their Shareholders. Accordingly, potential investors are urged to
consult their tax advisers concerning the application of federal, state and
local taxes as such laws and regulations affect their own tax situation.
Shareholders will be advised at least annually as to the federal and state
income tax consequences of distributions made to them during the year.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees. At any given time all Trustees of the Group may not have been elected
by shareholders of the Group. The Group will be managed by the Trustees in
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accordance with the laws of Massachusetts governing business trusts. The
Trustees, in turn, elect the officers of the Group to supervise its day-to-day
operations.
The Trustees of the Group receive fees and are reimbursed for their expenses
in connection with each meeting of the Board of Trustees they attend. However,
no officer or employee of BISYS or BISYS Fund Services Inc., the sole general
partner of BISYS, receives any compensation from the Group for acting as a
Trustee of the Group. The officers of the Group receive no compensation directly
from the Group for performing the duties of their offices. BISYS receives fees
from the Group for acting as Administrator and under the Distribution Plan
discussed below, may receive fees under the Administrative Services Plan
discussed below, and may retain all or a portion of any sales load imposed upon
purchases of Shares. BISYS Fund Services, Inc. receives fees from each of the
Funds for acting as Transfer Agent and for providing certain fund accounting
services.
INVESTMENT ADVISER
1st Source Bank, 100 North Michigan Street, South Bend, Indiana 46634, is the
investment adviser of each Fund. The Adviser is a wholly owned subsidiary of 1st
Source Corporation, a publicly held bank holding company ("FSC"). The Adviser,
which was founded in 1936, and its affiliates administer and manage, on behalf
of their clients, trust assets which as of September 30, 1998, totalled
approximately $1.6 billion. Of such amount, approximately $947 million are
managed on behalf of personal trust customers and approximately $695 million are
managed on behalf of employee benefit plans. The Adviser has over 60 years of
banking experience and as of September 30, 1998, had, on a consolidated basis
with FSC, over $2.5 billion in assets.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with the investment objectives and restrictions of the Funds, the
Adviser manages, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for the Income Equity Fund, the
Special Equity Fund and the Income Fund, and, through the Sub-Advisers, the
Diversified Equity Fund.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Group, the Adviser receives a fee from each of the
Funds, computed daily and paid monthly, at the following rates: with respect to
the Income Equity Fund, the annual rate of eighty one-hundredths of one percent
(0.80%) of such Fund's average daily net assets; with respect to the Diversified
Equity Fund, the annual rate of ninety-nine one-hundredths of one percent
(0.99%) of such Fund's average daily net assets; with respect to the Special
Equity Fund, the annual rate of eighty one-hundredths of one percent (0.80%) of
such Fund's average daily net assets; and with respect to the Income Fund, the
annual rate of fifty-five one-hundredths of one percent (0.55%) of such Fund's
average daily net assets.
The Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends. The Adviser may not seek reimbursement
of such voluntarily reduced fees after the end of the fiscal year in which the
fees were reduced. The reduction of such fee will cause the yield and total
return of that Fund to be higher than they would otherwise be in the absence of
such a reduction.
Ralph Shive is the portfolio manager of the Income Equity Fund. Mr. Shive has
served as Vice President and an Investment Officer of the Adviser since
September, 1989. Generally, Mr. Shive has worked as an analyst and portfolio
manager for 20 years after receiving his BBA from Southern Methodist University.
Prior to joining the Adviser, he was employed by a brokerage firm and a private
investment partnership in Dallas, Texas. He is a Chartered Financial Analyst and
manages
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the Income Equity Fund as well as individual
portfolios with a focus on "value" investing.
Brian A. Bythrow is the portfolio manager of the Special Equity Fund. Mr.
Bythrow joined the Adviser as an Investment Officer on April 3, 1998 as a
portfolio manager and became primarily responsible for the day-to-day management
of the Special Equity Fund. Prior thereto and since May, 1996, Mr. Bythrow
served as an equity analyst with First of America Investment Corp. From January,
1995 to May, 1996, Mr. Bythrow worked as a credit analyst with Shoreline Bank,
and from July, 1994 to December, 1994, Mr. Bythrow was a financial adviser with
Pentad Securities. Prior thereto, Mr. Bythrow served as an officer in the United
States Air Force. Mr. Bythrow received his BS from the U.S. Air Force Academy
and MBA from California State University Sacramento and is currently working on
his Chartered Financial Analyst certification.
Pascal M. Romano is the portfolio manager of the Income Fund. Mr. Romano
became the portfolio manager of the Income Fund effective January 26, 1998.
Prior to that date, Mr. Romano had served as Assistant Vice President, Trust
Officer and a portfolio manager with Citizens Banking Corporation since
January,1996. From 1985 to December, 1995, Mr. Romano was employed by Alexander
Hamilton Life Insurance Company, where for the last three years he served as
Assistant Vice President and a portfolio manager. Mr. Romano is a Chartered
Financial Analyst and has over 13 years of investment management experience with
an emphasis on fixed income securities.
THE SUB-ADVISERS
Pursuant to the terms of its Investment Advisory Agreement with the Group, the
Adviser has entered into Sub-Investment Advisory Agreements with each of: Miller
Anderson, One Tower Bridge, Suite 1100, West Conshohocken, Pennsylvania 19428;
Loomis, 3 First National Plaza, Suite 5450, Chicago, Illinois 60600; and
Standish, One Financial Center, Boston, Massachusetts 02111. Pursuant to the
terms of such Sub-Investment Advisory Agreements, each of the Sub-Advisers has
been retained by the Adviser to manage the day-to-day investment and
reinvestment of a designated portion of the assets of the Diversified Equity
Fund, subject to the direction and control of the Group's Board of Trustees, and
the Adviser is responsible for selecting and monitoring each Sub-Adviser and
reporting the activities of each Sub-Adviser to the Company's Board of Trustees.
Miller Anderson was founded in 1969 and is a wholly owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. Miller Anderson provides advice primarily
to institutions, including other investment companies, and currently has
approximately $65.6 billion in assets under management, of which approximately
$6.8 billion is managed using Miller Anderson's value style as described above.
Robert J. Marcin, CFA, is primarily responsible for the day-to-day management of
that portion of the Diversified Equity Fund's portfolio managed by Miller
Anderson. Mr. Marcin has been a Partner with Miller Anderson since 1994, and has
had more than 14 years of investment experience.
Loomis is a limited partnership, the sole general partner of which is Loomis,
Sayles & Company, Incorporated, One Financial Center, Boston, Massachusetts
02111. All of the outstanding shares of Loomis, Sayles & Company, Incorporated
are owned by New England Investment Companies, L.P., a publicly-traded limited
partnership ("NEIC"). As a result of the merger of New England Mutual Life
Insurance Company with and into Metropolitan Life Insurance Company ("MET") on
August 30, 1996, MET holds approximately 55% of the outstanding limited
partnership units of NEIC. Loomis was founded in 1926 and has approximately $69
billion in assets under management. The Chicago office of Loomis was founded in
1952, and has currently approximately 72 clients and $3.9 billion in assets
under management. Jerry Castellini is primarily responsible for the day-to-day
management of that portion of the Diversified Equity Fund's portfolio managed by
Loomis. Mr. Castellini has been
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Managing Partner of Loomis since January, 1994, a Director since February, 1995
and has had more than 16 years of investment experience.
Standish is a Massachusetts corporation founded in 1933 that is owned and
operated by its Directors. Standish currently manages over $44 billion for more
than 450 clients including individuals, endowments, pension plans, insurance
companies, banks and other registered investment companies. Ralph S. Tate is
primarily responsible for the day-to-day management of that portion of the
Diversified Equity Fund's portfolio managed by Standish. Mr. Tate has been a
Managing Director of Standish since 1995. Mr. Tate is also President of Standish
International Management Company, L.P.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with the Adviser, each of Miller Anderson, Loomis and
Standish receives from the Adviser a fee (computed daily and paid quarterly as a
percentage of that portion of the Diversified Equity Fund's average daily net
assets managed by that Sub-Adviser) at the following annual rates: for Miller
Anderson, 0.625% up to $25,000,000 and 0.375% of the excess over $25,000,000;
for Loomis, 0.40% of average daily net assets managed; and for Standish, 0.45%
of average daily net assets managed.
PROPOSED "MULTI-MANAGER" ARRANGEMENT FOR THE DIVERSIFIED EQUITY FUND
The Adviser is currently seeking to implement a "multi-manager" arrangement
with respect to the Diversified Equity Fund, which, if implemented, would permit
the Adviser, subject to the approval of the Board of Trustees, to add, replace
or terminate one or more sub-advisers and appoint additional sub-advisers,
without receiving shareholder approval. Such a "multi-manager" arrangement is
intended to facilitate the efficient operation of the Diversified Equity Fund by
giving the Adviser the flexibility to add new sub-advisers without incurring the
considerable time and expense of shareholder meetings convened solely for the
purpose of approving such changes. At a meeting held on October 16, 1998,
shareholders of the Diversified Equity Fund approved the adoption of the
"multi-manager" arrangement. Before initiating the "multi-manager" arrangement,
it is also necessary for the Fund to obtain exemptive relief from the SEC from
the provisions of the 1940 Act that require shareholder approval of any
sub-advisory agreements and any material amendments thereto. The Group has
submitted an exemptive application to the SEC seeking such exemptive relief,
however, there can be no guarantee that this exemptive relief will be granted.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as each Fund's
principal underwriter and distributor (the "Administrator" or the "Distributor,"
as the context indicates). BISYS and its affiliated companies, including BISYS
Fund Services, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banks and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's administration
and operation. For expenses assumed and services provided as administrator
pursuant to its management and administration agreement with the Group, 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 twenty
one-hundredths of one percent (0.20%) of that Fund's average daily net assets or
such other fee as may be agreed upon in writing by the Group and the
Administrator. The Administrator may periodically voluntarily reduce all or a
portion of its administration fee with respect to a Fund to increase the net
income of such Fund available for distribution as dividends. The Administrator
may not seek reimbursement of such reduced fees at a later date. The voluntary
reduc-
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tion of such fee will cause the yield and total return of that Fund to be higher
than they would otherwise be in the absence of such fee reduction.
The Distributor acts as agent for each of 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. The Distributor receives no compensation under its
Distribution Agreement with the Group, but receives compensation under the
Distribution and Shareholder Service Plan described below and may retain all or
a portion of any sales charge imposed upon the purchase of Shares. See "HOW TO
PURCHASE AND REDEEM SHARES -- Sales Charges."
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, if any) purchased for a Fund. Each Fund will bear the following
expenses relating to its operations: organizational expenses, taxes, interest,
any brokerage fees and commissions, fees and expenses of the Trustees of the
Group, Commission fees, state securities notification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to the
Fund's current shareholders, outside auditing and legal expenses, advisory fees,
fund accounting fees, fees and out-of-pocket expenses of the custodian and
Transfer Agent, costs for independent pricing services, certain insurance
premiums, costs of maintenance of the Group's existence, costs of shareholders'
reports and meetings, distribution expenses incurred pursuant to the
Distribution and Shareholder Service Plan described below, administrative
services expenses incurred pursuant to the Administrative Services Plan
described below and any extraordinary expenses incurred in the Fund's operation.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which each Fund is
authorized to pay BISYS, as Distributor, a fee in an amount not to exceed on an
annual basis 0.25% of the average daily net asset value of that Fund (the "12b-1
Fee"). Payments of the 12b-1 Fee to BISYS pursuant to the Plan will be used (i)
to compensate Participating Organizations (as defined below) for providing
distribution assistance relating to Shares of a Fund, (ii) for promotional
activities intended to result in the sale of Shares of the Funds such as to pay
for the preparation, printing and distribution of prospectuses to other than
current shareholders, and (iii) to compensate Participating Organizations for
providing shareholder services with respect to their customers who are, from
time to time, beneficial and record holders of Shares of the Fund.
Participating Organizations include banks, broker-dealers and other financial
institutions (including BISYS, FSC, the Adviser and their affiliates). Such fee
paid to BISYS may exceed the actual costs incurred by BISYS in providing such
services and/or compensating such Participating Organizations. In addition, from
time to time, BISYS may periodically voluntarily reduce all or a portion of its
fee under the Plan with respect to a Fund to increase the net income of that
Fund available for distribution as dividends. BISYS may not seek reimbursement
of such reduced fees after the end of the fiscal year in which the fees were
reduced. The voluntary reduction of such fee will cause the yield and total
return of that Fund to be higher than they would otherwise be in the absence of
such a fee reduction.
BISYS may enter into, from time to time, other Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares such as those described
above.
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ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan (the "Services Plan")
pursuant to which each Fund is authorized to pay compensation to banks and other
financial institutions (each a "Service Organization"), which may include the
Adviser, its correspondent and affiliated banks, and BISYS, which agree to
provide certain ministerial, record keeping and/or administrative support
services for their customers or account holders (collectively, "customers") who
are the beneficial or record owner of Shares of that Fund. In consideration for
such services, a Service Organization receives a fee from a Fund, computed daily
and paid monthly, at an annual rate of up to 0.25% of the average daily net
asset value of Shares of that Fund owned beneficially or of record by such
Service Organization's customers for whom the Service Organization provides such
services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, record keeping and/or administrative support
services with respect to the beneficial or record owners of Shares of the Funds,
such as processing dividend and distribution payments from the Fund on behalf of
customers, providing periodic statements to customers showing their positions in
the Shares of the Fund, providing sub-accounting with respect to Shares
beneficially owned by such customers and providing customers with a service that
invests the assets of their accounts in Shares of the Fund pursuant to specific
or pre-authorized instructions. As of the date hereof, no such servicing
agreements have been entered into by the Group with respect to the Funds.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for each Fund contemplated by its investment
advisory agreement with the Group, as described in this Prospectus, without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Group. 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. See "MANAGEMENT OF THE
GROUP--Glass-Steagall Act" 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 the fund as are declared at the
discretion of the Trustees (see "Miscellaneous" below).
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held, and will vote in
the aggregate and not by series except as otherwise expressly required by law.
For example, Shareholders of each Fund will vote in the aggregate with other
shareholders of the Group with respect to the election of Trustees. However,
Shareholders of a Fund will vote as a fund, and not in the aggregate with other
shareholders of the Group, for purposes of approval of the Group's investment
advisory agreement with respect to that Fund and the Plan.
Overall responsibility for the management of the Funds is vested in the Board
of Trustees of the Group. See "MANAGEMENT OF THE GROUP--Trustees of the Group."
Individual
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Trustees are elected by the shareholders of the Group, although Trustees may,
under certain circumstances, fill vacancies, including vacancies created by
expanding the size of the Board. Trustees 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.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, the investment advisory agreement, the Plan or a Fund's fundamental
policies and to satisfy certain other requirements. To the extent that such a
meeting is not required, the Group does not intend 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 therefore 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.
As of September 30, 1998, the Adviser possessed, on behalf of its underlying
accounts, voting or investment power with respect to more than 25% of the
outstanding Shares of each Fund.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, serves
as the custodian for each of the Funds.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Funds' transfer agent pursuant to a Transfer Agency Agreement with
the Group and receives a fee for such services. BISYS Fund Services, Inc. also
provides certain accounting services for each Fund pursuant to a Fund Accounting
Agreement and receives a fee for such services equal to the greater of (a) a fee
computed at an annual rate of 0.03% of the Fund's average daily net assets or
(b) $50,000 minus the fee paid by such Fund under its Management and
Administration Agreement with BISYS. See "Management of the Group--Transfer
Agency and Fund Accounting Services" in the Statement of Additional Information
for further information.
While BISYS Fund Services, Inc. is a distinct legal entity from BISYS (the
Group's administrator and distributor), BISYS Fund Services, Inc. is considered
to be an affiliated person of BISYS under the 1940 Act due to, among other
things, the fact that BISYS Fund Services, Inc. is the general partner of BISYS.
THE YEAR 2000 ISSUE
The Funds rely extensively on various computer systems in carrying out their
business activities, including the computer systems employed by the Adviser, the
Sub-Advisers, the Administrator and Distributor, the Transfer Agent and the
Custodian (collectively, the "Service Providers"). In this connection, the Funds
are aware of the so-called "Year 2000 Issue" which involves the potential
problems that may be confronted by computer systems users the day after December
31, 1999, when computers using date-sensitive software must be able to properly
identify the Year 2000 in their systems. In the event that a computer system
fails to make the proper identification of the Year 2000, this could result in a
system failure or miscalculations causing disruptions of operations such as
pricing errors and account maintenance failures. The Funds are working with the
Service Providers to take steps
36
<PAGE> 40
that are reasonably designed to address the Year 2000 Issue with respect to the
computer systems relied upon by the Funds. The Funds have no reason to believe
that these steps will not be sufficient to avoid any material adverse impact on
the Funds, although there can be no assurances of this. The costs or
consequences of incomplete or untimely resolution of the Year 2000 Issue are
unknown to the Funds and the Service Providers at this time but could have a
material adverse impact on the operations of the Funds and the Service
Providers.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to the 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 a 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 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.
Inquiries regarding any of the Funds may be directed in writing to the Group
at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
766-8938.
37
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<PAGE> 43
INVESTMENT ADVISER
1st Source Bank
100 North Michigan Street
South Bend, Indiana 46634
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
AUDITORS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 2
FEE TABLE............................ 4
FINANCIAL HIGHLIGHTS................. 5
PERFORMANCE INFORMATION.............. 8
INVESTMENT OBJECTIVES AND POLICIES... 9
INVESTMENT RESTRICTIONS.............. 20
VALUATION OF SHARES.................. 20
HOW TO PURCHASE AND REDEEM SHARES.... 21
DIVIDENDS AND TAXES.................. 29
MANAGEMENT OF THE GROUP.............. 30
GENERAL INFORMATION.................. 35
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
ANY FUND OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
LOGO
INCOME EQUITY FUND
DIVERSIFIED EQUITY FUND
SPECIAL EQUITY FUND
INCOME FUND
1ST SOURCE BANK
Investment Adviser
Prospectus dated
October 23, 1998
<PAGE> 44
1st Source Monogram Income Equity Fund
1st Source Monogram Diversified Equity Fund
1st Source Monogram Special Equity Fund
1st Source Monogram Income Fund
Each an Investment Portfolio of
The Coventry Group
Statement of Additional Information
October 23, 1998
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the prospectus for the 1st Source Monogram Income Equity
Fund, 1st Source Monogram Diversified Equity Fund, 1st Source Monogram Special
Equity Fund and 1st Source Monogram Income Fund dated the same date as the date
hereof (the "Prospectus"), 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
Prospectus. Copies of the Prospectus may be obtained by writing the Funds at
3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning toll free (800)
766-8938.
<PAGE> 45
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which currently offers its shares in separate series. This Statement of
Additional Information deals with four of such portfolios, 1st Source Monogram
Diversified Equity Fund (the "Diversified Equity Fund"), 1st Source Monogram
Income Equity Fund (the "Income Equity Fund"), 1st Source Monogram Special
Equity Fund (the "Special Equity Fund") and 1st Source Monogram Income Fund (the
"Income Fund"). Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectus.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of a Fund should be made without first reading the
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives and
policies of each Fund as set forth in the Prospectus.
BANK OBLIGATIONS. Each of the Funds may invest in bank obligations such
as bankers' acceptances, certificates of deposit, and demand 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 demand 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> 46
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 Funds will purchase commercial paper consisting of issues rated at
the time of purchase by one or more appropriate nationally recognized
statistical rating organizations ("NRSRO") (e.g., Standard & Poor's Corporation
and Moody's Investors Service, Inc.) in one of the two highest rating categories
for short-term debt obligations. The Funds may also invest in commercial paper
that is not rated but that is determined by the Adviser or the applicable
Sub-Adviser, as the case may be, to be of comparable quality to instruments that
are so rated by an NRSRO that is neither controlling, controlled by, or under
common control with the issuer of, or any issuer, guarantor, or provider of
credit support for, the instruments. For a description of the rating symbols of
the NRSROs, see the Appendix.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Income Fund may invest, are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. 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 within 30
days. While such notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns), must satisfy, for
purchase by the Income Fund, the same criteria as set forth above for commercial
paper for such Fund. 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 average weighted 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 adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
FOREIGN INVESTMENT. Investments in securities issued by foreign
issuers, including ADRs, may subject the Funds to investment risks that differ
in some respects from those related to investment in obligations of U.S.
domestic issuers or in U.S. securities markets. Such risks include future
adverse political and economic developments, possible seizure, nationalization,
or expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, or
the adoption of other foreign governmental restrictions. A Fund will acquire
such securities only when the Adviser or the applicable Sub-Adviser, as the case
may be, believes the risks associated with such investments are minimal.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of
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<PAGE> 47
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.
VARIABLE AND FLOATING RATE SECURITIES. The Income Fund may acquire
variable and floating rate securities, subject to such Fund's investment
objectives, policies and restrictions. A variable rate security is one whose
terms provide for the adjustment 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 security is one whose terms provide
for the adjustment 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 securities are frequently not rated
by credit rating agencies; however, unrated variable and floating rate
securities purchased by the Income Fund will be determined by the Adviser to be
of comparable quality at the time of purchase to rated instruments eligible for
purchase under such 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 will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate security purchased by the
Income Fund, the Income Fund may resell the security at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Income Fund to dispose of a variable or floating rate security
in the event the issuer of the security defaulted on its payment obligations and
the Income Fund could, as a result or for other reasons, suffer a loss to the
extent of the default. To the extent that there exists no readily available
market for such security and the Income Fund is not entitled to receive the
principal amount of a note within seven days, such a security will be treated as
an illiquid security for purposes of calculation of such Fund's limitation on
investments in illiquid securities, as set forth in the Income Fund's investment
restrictions. Variable or floating rate securities may be secured by bank
letters of credit.
RESTRICTED SECURITIES. Securities in which the Funds may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), such as securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the Federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
make a market in such Section 4(2) securities, thus providing liquidity. Any
such restricted securities will be considered to be illiquid for purposes of a
Fund's limitations on investments in illiquid securities unless, pursuant to
procedures adopted by the
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<PAGE> 48
Board of Trustees of the Group, the Adviser or Subadviser, as the case may be,
has determined such securities to be liquid because such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable. Each
Fund will limit its investment in Section 4(2) securities to not more than 10%
of its net assets.
OPTIONS TRADING. Each Fund may purchase and write (sell) put and call
options. A put option gives the purchaser the right 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. A call option
gives the purchaser of the option the right to buy, and a writer has the
obligation to sell, the underlying security at the stated exercise price at any
time prior to the expiration of the option, regardless of the market price of
the security. The premium paid to the writer is consideration for undertaking
the obligations under the option contract. Put and call options purchased by the
Funds will be valued at the last sale price, or in the absence of such a price,
at the mean between bid and asked price.
When a Fund writes a call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the mean between bid and asked price. If an option expires on the stipulated
expiration date or if the Fund enters into a closing purchase transaction, it
will realize a gain (or a loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If a call option is exercised,
the Fund may deliver the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received and the Fund will realize a gain or loss.
Each Fund may also purchase or sell (write) index options. Index
options (or options on securities indices) are similar in many respects to
options on securities except that an index option gives the holder the right to
receive, upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
FUTURES CONTRACTS. As discussed in the Prospectus, each of the Funds
may enter into futures contracts. This investment technique is designed
primarily to hedge against anticipated future changes in market conditions which
otherwise might adversely affect the value of securities which a Fund holds or
intends to purchase. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
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<PAGE> 49
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid securities, to cover its performance under such contracts. A Fund may
lose the expected benefit of futures transactions if interest rates, securities
prices or foreign exchange rates move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting the Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will maintain in a segregated
account cash or liquid securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. A Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, the Income Fund
may purchase securities on a "when-issued" basis (i.e., for delivery beyond the
normal settlement date at a stated price and yield). When such Fund agrees to
purchase securities on a "when-issued" basis, the Fund's custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the Income Fund's custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such a case,
such 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 Income Fund's commitment. It may be expected that the
Income Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. In addition, because the Income Fund will set aside cash or liquid
portfolio securities to satisfy its purchase commitments in the manner described
above, such 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. Under normal market
conditions, however, the
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<PAGE> 50
Income Fund's commitment to purchase "when-issued" or "delayed-delivery"
securities will not exceed 25% of the value of its total assets.
When the Income 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 Income Fund's incurring a loss or missing the opportunity to obtain a
price considered to be advantageous. The Income Fund will engage in
"when-issued" delivery transactions only for the purpose of acquiring portfolio
securities consistent with such Fund's investment objectives and policies and
not for investment leverage.
MORTGAGE-RELATED SECURITIES. The Income Fund may, consistent with its
investment objective and policies, invest in mortgage-related securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or
issued by nongovernmental entities.
Mortgage-related securities, for purposes of the Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by nongovernmental issuers such as commercial banks,
savings and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If the Income 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 the Income 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 the Income Fund will receive when these
amounts are reinvested.
The Income Fund may also invest in mortgage-related securities which
are collateralized mortgage obligations structured on pools of mortgage
pass-through certificates or mortgage loans. Mortgage-related securities will be
purchased only if rated in the three highest bond rating
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<PAGE> 51
categories assigned by one or more appropriate NRSROs, or, if unrated, which the
Adviser deems to be of comparable quality.
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. 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"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When 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.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from banks and registered broker-dealers which the
Adviser or the applicable Sub-Adviser, as the case may be, 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). This requirement will be continually
monitored by the Adviser. 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
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<PAGE> 52
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. As discussed in the Prospectus, each of
the Funds may borrow funds by entering into reverse repurchase agreements in
accordance with that Fund's investment restrictions. Pursuant to such
agreements, a Fund would sell portfolio securities to financial institutions
such as banks and broker-dealers, and agree to repurchase the securities at a
mutually agreed-upon date and price. Each Fund intends to enter into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. 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 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.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends 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 investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by such Fund. 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 such Fund bears directly in connection with its own operations.
Investment companies in which the Funds may investment 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 such Fund and, therefore, will be borne directly by shareholders.
-9-
<PAGE> 53
INVESTMENT RESTRICTIONS
Each Fund's investment objective is a non-fundamental policy and may be
changed without a vote of the holders of a majority of such Fund's outstanding
Shares. In addition to the fundamental investment policies listed in the
Prospectus, the following investment restrictions may be changed with respect to
a particular Fund only by a vote of the majority of the outstanding Shares of
that Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares").
In addition to the investment restrictions set forth in the Prospectus,
each of the Funds may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities;"
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); and
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of a Fund. Each Fund may not:
1. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act, or pursuant to any exemptions
therefrom;
2 Engage in any short sales; and
3. Mortgage or hypothecate the Fund's assets in excess of one-third of
the Fund's total assets.
If any percentage restriction or requirement 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 or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase
-10-
<PAGE> 54
agreements with maturities in excess of seven days and other instruments in such
Fund which are not readily marketable to exceed the limit set forth in such
Fund's Prospectus for its investment in illiquid securities, the Fund will act
to cause the aggregate amount of such securities to come within such limit as
soon as reasonably practicable. In such an event, however, such Fund would not
be required to liquidate any portfolio securities where the Fund would suffer a
loss on the sale of such securities.
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.
The portfolio turnover rates for each of the Diversified Equity Fund,
the Income Equity Fund, the Special Equity Fund, and the Income Fund for the
fiscal period ended June 30, 1998, were 95.13%, 70.46%, 124.55% and 208.32%,
respectively.
The portfolio turnover rate may vary greatly from year to year as well
as within a particular year, and may also be affected by cash requirements for
redemptions of Shares. High portfolio turnover rates will generally result in
higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's Shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Time on
each Business Day of that Fund. A "Business Day" of a Fund is a day on which the
New York Stock Exchange is open for trading and any other day (other than a day
on which no Shares of that Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which there is sufficient
trading in portfolio instruments that such Fund's net asset value per share
might be materially affected. The New York Stock Exchange will not open in
observance of the following holidays: New Year's Day, Martin Luther King, Jr.'s
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas.
Investments in securities for which market quotations are readily
available are valued based upon their current available prices in the principal
market in which such securities are normally traded. Unlisted securities for
which market quotations are readily available are valued at such market value.
Securities and other assets for which quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Trustees of the Group. Short-term
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<PAGE> 55
securities (i.e., with maturities of 60 days or less) are valued at either
amortized cost or original cost plus accrued interest, which approximates
current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each of the Funds are sold on a continuous basis by BISYS,
and BISYS has agreed to use appropriate efforts to solicit all purchase orders.
In addition to purchasing Shares directly from BISYS, Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at the Adviser or the Adviser's affiliated entities (collectively,
"Entities"). Customers purchasing Shares of the Funds may include officers,
directors, or employees of the Adviser or the Entities.
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, or
(d) 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.
MANAGEMENT OF THE GROUP
TRUSTEES AND OFFICERS
Overall responsibility for management of the Group rests with its Board
of Trustees. 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 Services.
Columbus, Ohio 43219
Age: 52
</TABLE>
-12-
<PAGE> 56
<TABLE>
<S> <C> <C>
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).
John H. Ferring IV Trustee From 1979 to present, President and
105 Bolte Lane Owner of Plaze, Incorporated, St.
St. Clair, Missouri Clair, 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
Jeffrey C. Cusick Vice President From July 1995 to present,
3435 Stelzer Road employee of BISYS Fund Services; from
Columbus, Ohio 43219 October 1981 to July 1995, employee of
Age: 38 Federated Administrative Services.
Paul T. Kane Treasurer From December 1997 to present, employee
3435 Stelzer Road of BISYS Fund Services; from March 1985
Columbus, Ohio 43219 to December 1997, employee of Fidelity
Age: 41 Investments.
</TABLE>
-13-
<PAGE> 57
<TABLE>
<S> <C> <C>
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
<FN>
- --------------
* Mr. Grimm is considered to be an "interested person" of the Group as defined in the 1940 Act.
</TABLE>
As of the date of this Statement of Additional Information, the Group's
Officers and Trustees, as a group, own less than 1% of the Funds' outstanding
Shares.
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services receives
fees from the Funds for acting as Administrator. BISYS Fund Services Ohio, Inc.
receives fees from the Funds for acting as transfer agent and for providing
certain fund accounting services. Messrs. Huber, Kane Stevens, Grimm, Ille and
Cusick and Ms. Metz are employees of BISYS Fund Services.
Trustees of the Group not affiliated with BISYS Fund Services receive
from the Group an annual fee of $1,000, plus $2,250 for each regular meeting of
the Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
-14-
<PAGE> 58
For the twelve-month period ended June 30, 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 Total Compensation
Aggregate Retirement Benefits Est. Annual From Registrant and
Compensation Accrued As Part of Benefits 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 $0 $11,500
Michael Van Buskirk $0 $0 $0 $11,500
Chalmers P. Wylie* $0 $0 $0 $ 9,000
John H. Ferring IV** $0 $ 2,500
<FN>
* Mr. Wylie resigned as a Trustee effective May 14, 1998.
** Mr. Ferring was elected as a Trustee effective May 14, 1998.
</TABLE>
INVESTMENT ADVISER
Investment advisory and management services are provided to the Funds
by 1st Source Bank (the "Adviser"), pursuant to an Investment Advisory Agreement
dated as of October 23, 1998. Under the terms of the Investment Advisory
Agreement, the Adviser has agreed to provide, either directly or through one or
more subadvisers, investment advisory services as described in the Prospectus of
the Funds. For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, each Fund pays the Adviser a fee, computed daily
and paid monthly, at the following annual rates: (1) for the Diversified Equity
Fund, ninety-nine one-hundredths of one percent (0.99%) of such Fund's average
daily net assets; (2) for both the Income Equity Fund and the Special Equity
Fund, eighty one-hundredths of one percent (0.80%) of such Fund's average daily
net assets; and (3) for the Income Fund, fifty-five one-hundredths of one
percent (0.55%) of such Fund's average daily net assets. The Adviser may from
time to time voluntarily reduce all or a portion of its advisory fee with
respect to a Fund to increase the net income of that Fund available for
distribution as dividends.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Adviser earned the amounts indicated below with respect to
its investment advisory services to the indicated Funds pursuant to the
Investment Advisory Agreement.
-15-
<PAGE> 59
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
June 30, 1998 June 30, 1997(1)
<S> <C> <C>
Diversified Equity Fund $ 970,429 $ 579,272
Income Equity Fund 374,402 207,742
Special Equity Fund 272,600 166,740
Income Fund 334,179 210,181
<FN>
- ----------------------
1 Commenced operations September 23, 1996, September 25, 1996, September 20,
1996 and September 24, 1996, respectively.
</TABLE>
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect until October 23, 2000, and year to year thereafter for
successive annual periods if, as to each Fund, 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 Adviser has licensed the name "1st Source Monogram" to the Funds on
a royalty-free basis, and the Adviser has reserved to itself the right to grant
the non-exclusive right to use the name "1st Source Monogram" to any other
person. At such time as the Investment Advisory Agreement is no longer in
effect, the Adviser may require the Funds to cease using the name "1st Source
Monogram."
-16-
<PAGE> 60
SUB-ADVISERS
Pursuant to the terms of the Investment Advisory Agreement, the
Adviser has entered into three separate Sub-Investment Advisory Agreements each
dated as of October 23, 1998 (collectively, the "Sub-Advisory Agreements"). The
first Sub-Advisory Agreement is with Miller Anderson & Sherrerd LLP, One Tower
Bridge, Suite 1100, West Conshohocken, Pennsylvania 19428 ("Miller Anderson").
The second Sub-Advisory Agreement is with Loomis, Sayles & Company, L.P., 3
First National Plaza, Suite 5450, Chicago, Illinois 60600 ("Loomis"). The third
Sub-Advisory Agreement is with Standish, Ayer & Wood, Inc., One Financial
Center, Boston, Massachusetts 02111 ("Standish"). Pursuant to the terms of such
Sub-Investment Advisory Agreements, Miller Anderson, Loomis and Standish have
each been retained by the Adviser to manage the investment and reinvestment of a
portion of the assets of the Diversified Equity Fund, subject to the direction
and control of the Adviser and the Group's Board of Trustees.
Under this arrangement, the Sub-Advisers are responsible for the
day-to-day management of the Diversified Equity Fund's assets, investment
performance, policies and guidelines, and maintaining certain books and records,
and the Adviser is responsible for selecting and monitoring the performance of
each of the Sub-Advisers, and for reporting the activities of the Sub-Advisers
in managing the Diversified Equity Fund to the Group's Board of Trustees. For
their services provided and expenses assumed pursuant to their respective
Sub-Investment Advisory Agreement with the Adviser, the Sub-Advisers receive
from the Adviser a fee (computed daily and paid quarterly as a percentage of the
Diversified Equity Fund's average daily net assets managed by that Sub-Adviser)
at the following annual rates: for Miller Anderson, 0.625% up to $25,000,000 and
0.375% of the excess over $25,000,000; for Loomis, 0.40% of average daily net
assets managed; and for Standish, 0.45% of average daily net assets managed.
Miller Anderson was founded in 1969 and is wholly owned by Morgan
Stanley, Dean Witter, Discover & Co.
Loomis was founded in 1926 and established its Chicago office in 1952.
Loomis' sole general partner is Loomis, Sayles & Company, Incorporated.
Standish was founded in 1933 and is owned and operated by its
Directors.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Sub-Advisers earned the amounts indicated below with respect
to their subinvestment advisory services to the Diversified Equity Fund pursuant
to the Sub-Investment Advisory Agreements:
-17-
<PAGE> 61
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
----------------- -------------------
Sub-Adviser June 30, 1998 June 30, 1997(1)
----------- ------------- ----------------
<S> <C> <C>
Miller Anderson $ 109,119
Loomis 89,219
Columbus Circle 121,527
Investors(2)
Standish(3) N/A N/A
<FN>
- ----------------------
1 Commenced operations September 23, 1996.
2 Columbus Circle Investors ceased serving as a sub-investment adviser
effective October 23, 1998.
3 Standish began serving as a sub-investment adviser effective October 23,
1998.
</TABLE>
Unless sooner terminated, each of the Sub-Investment Advisory
Agreements continue in effect as to the Diversified Equity Fund until October
23, 2000, and thereafter for successive one-year periods 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 such Fund (as defined under "GENERAL
INFORMATION -- Miscellaneous" in the Funds' Prospectus), and a majority of the
Trustees who are not parties to the Sub-Investment Advisory Agreements or
interested persons (as defined in the 1940 Act) of any party to the
Sub-Investment Advisory Agreements by votes cast in person at a meeting called
for such purpose. Each of the Sub-Investment Advisory Agreements are terminable
as to the Diversified Equity Fund at any time on 60 days' written notice without
penalty by the Fund, by vote of a majority of the outstanding shares of that
Fund, or on 60 days' prior written notice from the Sub-Adviser. Such Agreements
also terminate automatically in the event of any assignment, as defined in the
1940 Act.
Each of the Sub-Investment Advisory Agreements provide that the
respective Sub-Advisers shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Group in connection with the performance
of their duties, 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
respective Sub-Advisers in the performance of their duties, or from reckless
disregard of their duties and obligations thereunder.
PROPOSED "MULTI-MANAGER" ARRANGEMENT FOR THE DIVERSIFIED EQUITY FUND
The Adviser is currently seeking to implement a "multi-manager"
arrangement with respect to the Diversified Equity Fund, which, if implemented,
would permit the Adviser, subject
-18-
<PAGE> 62
to the approval of the Board of Trustees, to add, replace or terminate one or
more sub-advisers and appoint additional sub-advisers, without receiving
shareholder approval. Such a "multi-manager" arrangement is intended to
facilitate the efficient operation of the Diversified Equity Fund by giving the
Adviser the flexibility to add new sub-advisers without incurring the
considerable time and expense of shareholder meetings convened solely for the
purpose of approving such changes. At a meeting held on October 16, 1998,
shareholders of the Diversified Equity Fund approved the adoption of the
"multi-manager" arrangement. Before initiating the "multi-manager" arrangement,
it is also necessary for the Fund to obtain exemptive relief from the SEC from
the provisions of the 1940 Act that require shareholder approval of any
sub-advisory agreements and any material amendments thereto. The Group has
submitted an exemptive application to the SEC seeking such exemptive relief,
however, there can be no guarantee whether this exemptive relief will be
granted.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement with respect to each
Fund, other than the Diversified Equity Fund, the Adviser determines, subject to
the general supervision of the Board of Trustees of the Group and in accordance
with each such 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. Pursuant to the Sub-Investment
Advisory Agreements, the Sub-Advisers determine, subject to the supervision of
the Adviser and the overall general supervision of the Group's Board of Trustees
and in accordance with the Diversified Equity Fund's investment objectives and
policies, which securities are to be purchased and sold by such 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 Income
Fund usually are principal transactions in which portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
generally include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include the
spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. Transactions in the over-the-counter market are generally
principal transactions with dealers. With respect to the over-the-counter
market, the Group, 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.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser or the applicable Sub-Adviser,
as the case may be, in its best judgment and in a manner deemed fair and
reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, brokers and dealers who provide supplemental investment research
to the Adviser
-19-
<PAGE> 63
or the applicable Sub-Adviser, as the case may be, may receive orders for
transactions on behalf of the Funds. The Adviser and each Sub-Adviser are
authorized to pay a broker-dealer who provides such brokerage and research
services a commission for executing each such Fund's brokerage transactions
which is in excess of the amount of commission another broker would have charged
for effecting that transaction if, but only if, the Adviser or Sub-Adviser, as
the case may be, determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of that particular transaction or in terms of all of the
accounts over which it exercises investment discretion. Any such research and
other statistical and factual information provided by brokers to a Fund or to
the Adviser or Sub-Adviser, as the case may be, is considered to be in addition
to and not in lieu of services required to be performed by such Adviser or
Sub-Adviser under its respective agreement regarding management of the Fund. The
cost, value and specific application of such information are indeterminable and
hence are not practicably allocable among the Funds and other clients of the
Adviser or Sub-Adviser, as the case may be, who may indirectly benefit from the
availability of such information. Similarly, the Funds may indirectly benefit
from information made available as a result of transactions effected for such
other clients. Under the Investment Advisory Agreement and Sub-Advisory
Agreements, the Adviser and Sub-Advisers are permitted to pay higher brokerage
commissions for brokerage and research services in accordance with Section 28(e)
of the Securities Exchange Act of 1934. In the event the Adviser and/or the
Sub-Advisers do follow such a practice, they will do so on a basis which is fair
and equitable to the Group and the Funds.
While the Adviser and the Sub-Advisers generally seek competitive
commissions, the Group may not necessarily pay the lowest commission available
on each brokerage transaction, for reasons discussed above. For the fiscal year
ended June 30, 1998, the Funds paid the following brokerage commissions in
connection with their respective portfolio transactions:
<TABLE>
<CAPTION>
Fund Brokerage Commissions
---- ---------------------
<S> <C>
Diversified Equity Fund $147,712
Income Equity Fund 149,674
Special Equity Fund 97,013
Income Fund 0
</TABLE>
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of the Funds, 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-Advisers, BISYS, or
their affiliates, and will not give preference to the Adviser's correspondents
with
-20-
<PAGE> 64
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, other funds of the Group or any other investment company or
account managed by the Adviser or any of the Sub-Advisers. 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 a Fund and another fund of the
Group, 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 or the Sub-Adviser, as the case may be, believes to be equitable to
the Fund and such other fund, 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 and the Sub-Advisers may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for the other Funds or
for other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement and the Sub- Advisory Agreements,
in making investment recommendations for the Funds, neither the Adviser nor any
Sub-Adviser will inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Group is a customer of the
Adviser, any Sub-Adviser, any of their parents or subsidiaries or affiliates
and, in dealing with its customers, the Adviser, the Sub-Advisers, their
respective parents, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Funds or any
other fund of the Group.
For the fiscal year ended June 30, 1998, the Diversified Equity Fund
held securities of its regular brokers or dealers, as defined in Rule 10b-1
under the 1940 Act, or their parent companies. As of June 30, 1998, such Fund
held $498,150 of common stock of Merrill, Lynch, Pierce, Fenner & Smith.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act
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<PAGE> 65
when it adopted its regulation and interpretation authorizing bank holding
companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies. In the BOARD OF GOVERNORS case, the
Supreme Court also stated that if a national bank complied with the restrictions
imposed by the Board in its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
investment companies, a national bank performing investment advisory services
for an investment company would not violate the Glass-Steagall Act.
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 and the Investment Advisory Agreement without violation
of applicable statutes and regulations. 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 Group. In addition,
current state securities laws on the issue of the registration of banks as
brokers or dealers may differ from the interpretation of federal law, and banks
and financial institutions may be required to register as dealers pursuant to
the laws of a specific state. 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 Group's 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 the Adviser's
affiliated and correspondent banks in connection with Customer purchases of
Shares of any 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 serves as administrator (the "Administrator") to the Funds
pursuant to a Management and Administration Agreement dated as of October __,
1998 (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, by the Sub-Advisers under the Sub-Advisory
Agreements, by The Fifth Third Bank under the Custody Agreement and by BISYS
Fund Services, Inc. under the Transfer Agency Agreement and Fund Accounting
Agreement). The Administrator is a broker-dealer registered with the Commission,
and is a member of the National Association of Securities Dealers, Inc. The
Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery
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<PAGE> 66
and office supplies; prepare the periodic reports to the Commission on Form
N-SAR or any replacement forms therefor; compile data for, assist the Group or
its designee in the preparation of, 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 Group with the Group's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statement (on Form N-1A
or any replacement therefor); 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 assist in all aspects of the Funds'
operations other than those performed by the Adviser under the Investment
Advisory Agreement, by the Sub-Advisers under the Sub-Investment Advisory
Agreements, by The Fifth Third Bank under the Custody Agreement and by BISYS
Fund Services, Inc. under the Transfer Agency and Fund Accounting Agreements.
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,
equal to a fee calculated daily and paid periodically, at the annual rate equal
to twenty one-hundredths of one percent (.20%) of that Fund's average daily net
assets.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Administrator earned and voluntarily waived the amounts
indicated below with respect to its services to the indicated Funds pursuant to
the Administration Agreement:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
----------------- -------------------
June 30, 1998 June 30, 1997(1)
------------- ----------------
Fees Fees Fees Fees
Earned Waived Earned Waived
------ ------ ------ ------
<S> <C> <C> <C> <C>
Diversified Equity Fund $176,443 -- $105,323 --
Income Equity Fund 93,601 -- 51,936 --
Special Equity Fund 68,151 -- 41,685 $2,171
Income Fund 121,521 -- 76,430 --
<FN>
- ------------------
1 Commenced operations September 23, 1996, September 25, 1996, September 20,
1996 and September 24, 1996, respectively.
</TABLE>
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<PAGE> 67
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on October 23, 2001. The Administration
Agreement thereafter shall be renewed automatically for successive one-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 Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
DISTRIBUTOR
BISYS serves as agent for each of the Funds in the distribution of its
Shares pursuant to a Distribution Agreement dated as of October 23, 1998 (the
"Distribution Agreement"). Unless otherwise terminated, the Distribution
Agreement will continue in effect for successive annual periods if, as to each
Fund, such continuance is approved at least annually by (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding shares of that Fund,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group, but may retain all or a portion of the
sales charge imposed upon sales of Shares of each of the Funds.
For the fiscal year ended June 30, 1998, BISYS as distributor received
the following amounts in commissions for sales of shares of the Funds and
reallowed the indicated amounts to other dealers:
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<PAGE> 68
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30, 1998
-------------
Commissions Amounts Reallowed
Received to Dealers
-------- ----------
<S> <C> <C>
Diversified Equity Fund $1,448.60 $247.44
Income Equity Fund 933.63 480.10
Special Equity Fund 551.23 454.83
Income Fund 32.66 28.20
</TABLE>
As described in the Prospectus, the Group has adopted a Distribution
and Shareholder Service Plan (the "Plan") with respect to the Funds pursuant to
Rule 12b-1 under the 1940 Act under which each Fund is authorized to pay BISYS
in an amount not in excess, on an annual basis, of 0.25% of the average daily
net asset value of the Shares of that Fund (the "12b-1 Fee"). Payments of the
12b-1 Fee to BISYS will be used (i) to compensate Participating Organizations
(as defined below) for providing distribution assistance relating to a Fund's
Shares, (ii) for promotional activities intended to result in the sale of Shares
and distribution of prospectuses to other than current shareholders, and (iii)
to compensate Participating Organizations for providing shareholder services
with respect to their customers who are, from time to time, beneficial and
record holders of Shares. Participating Organizations include banks (including
affiliates of the Adviser), broker-dealers, the Adviser, BISYS and other
institutions. Payments to such Participating Organizations may be made pursuant
to agreements entered into with BISYS.
As required by Rule 12b-1, the Plan was approved by the initial
Shareholder of each of the Funds and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of any 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 as to a Fund by vote of
a majority of the Independent Trustees, or by vote of majority of the
outstanding Shares of that Fund. Any change in the Plan that would materially
increase the distribution cost to a Fund requires Shareholder approval. 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. For so long as the Plan is in effect, selection
and nomination of those Trustees who are not interested persons of the Group
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 at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of the
majority of the outstanding Shares of the Fund. The Plan will continue in effect
for successive one-year periods, provided that each such
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<PAGE> 69
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees, and (ii) by a 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 them to make an informed determination of whether the
Plan should be implemented or continued. In addition the Trustees in approving
the Plan must determine that there is a reasonable likelihood that the Plan will
benefit each Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests of each Fund since it encourages Fund growth and maintenance of
Fund assets. 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.
BISYS may enter into, from time to time, Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares including, but not limited
to, those discussed above.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Funds incurred the following amounts pursuant to the Plan for
payments to have been made to BISYS for certain distribution and shareholder
services described above, all of which were voluntarily waived by BISYS:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
----------------- -------------------
June 30, 1998 June 30, 1997(1)
------------- ----------------
Fees Incurred
<S> <C> <C>
Diversified Equity Fund $220,552 $131,653
Income Equity Fund 117,001 64,713
Special Equity Fund 85,188 52,106
Income Fund 151,899 95,550
<FN>
- ------------------
1 Commenced operations September 23, 1996, September 25, 1996, September 20,
1996 and September 24, 1996, respectively.
</TABLE>
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<PAGE> 70
ADMINISTRATIVE SERVICES PLAN
As described in the Prospectus, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
correspondent and affiliated banks, and BISYS (a "Service Organization"), to
provide certain ministerial, record keeping, and administrative support services
to their customers who own of record or beneficially Shares in a Fund. Payments
to such Service Organizations are made pursuant to Servicing Agreements between
the Group and the Service Organization. The Services Plan authorizes each Fund
to make payments to Service Organizations in an amount, on an annual basis, of
up to 0.25% of the average daily net asset value of that Fund. The Services Plan
has been approved by the Board of Trustees of the Group, including a majority of
the Trustees who are not interested persons of the Group (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Services Plan or in any Servicing Agreements thereunder (the "Disinterested
Trustees"). The Services Plan may be terminated as to a Fund by a vote of a
majority of the Disinterested Trustees. The Trustees review quarterly a written
report of the amounts expended pursuant to the Services Plan and the purposes
for which such expenditures were made. The Services Plan may be amended by a
vote of the Trustees, provided that any material amendments also require the
vote of a majority of the Disinterested Trustees. For so long as the Services
Plan is in effect, selection and nomination of those Disinterested Trustees
shall be committed to the discretion of the Group's Disinterested Trustees. All
Servicing Agreements may be terminated at any time without the payment of any
penalty by a vote of a majority of the Disinterested Trustees. The Services Plan
will continue in effect for successive one-year periods, provided that each such
continuance is specifically approved by a majority of the Board of Trustees,
including a majority of the Disinterested Trustees. As of the date hereof, the
Group has not entered into any such servicing agreements.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263
(the "Custodian"), has been selected to serve as the Funds' custodian pursuant
to the Custody Agreement dated as of October 23, 1998. The Custodian's
responsibilities include safeguarding and controlling the Funds' cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Funds' investments.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc. serves as transfer agent and dividend
disbursing agent (the "Transfer Agent") for all of the Funds pursuant to the
Transfer Agency Agreement dated as of October 23, 1998. Pursuant to such
Agreement, the Transfer Agent, among other things, performs the following
services in connection with each Fund's 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
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<PAGE> 71
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, Inc. provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement dated as of
October 23, 1998. BISYS Fund Services, Inc. receives a fee from each Fund for
such services equal to the greater of (a) a fee computed at an annual rate of
three one-hundredths of one percent (.03%) of that Fund's average daily net
assets, or (b) $50,000 minus the fee paid by such Fund under its Management and
Administration Agreement with BISYS of the same date. Under such Agreement,
BISYS Fund Services, Inc. maintains the accounting books and records for each
Fund, including journals containing an itemized daily record of all purchases
and sales of portfolio securities, all receipts and disbursements of cash and
all other debits and credits, general and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Fund, including calculation of the net asset
value per share, calculation of the dividend and capital gain distributions, if
any, and of yield, reconciliation of cash movements with the Fund's custodian,
affirmation to the Fund's custodian of all portfolio trades and cash
settlements, verification and reconciliation with the Fund's 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.
AUDITORS
PricewaterhouseCoopers LLP, 100 East Broad Street, Columbus, Ohio
43215, has been selected as independent auditors for the Funds for their current
fiscal year. PricewaterhouseCoopers LLP performs an annual audit of the Funds'
financial statements and provides other related services. 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.
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<PAGE> 72
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 powers, 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 Prospectus and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each 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 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
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<PAGE> 73
circumstances in which the Group itself would be unable to meet its obligations,
and thus should be considered remote.
As of October 7, 1998, the following is the only entity known to the
Group who owns of record or beneficially 5% or more of the outstanding Shares of
any Fund: 1st Source Bank, P. O. Box 1602, South Bend, Indiana 46634 owned of
record and beneficially 95.95% of the issued and outstanding Shares of the
Income Fund, 95.18% of the issued and outstanding Shares of the Income Equity
Fund, 96.96% of the issued and outstanding Shares of the Diversified Equity Fund
and 95.06% of the issued and outstanding Shares of the Special Equity Fund.
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
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to Shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
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<PAGE> 74
Each of the Funds is treated as a separate entity for federal income
tax purposes and intends each year to qualify and elect to be treated as a
"regulated investment company" under the Code, for so long as such qualification
is in the best interest of that Fund's shareholders. To qualify as a regulated
investment company, each Fund must, among other things: diversify its
investments within certain prescribed limits; derive 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 securities or foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities, or currencies; and, distribute to its Shareholders at least 90% of
its investment company taxable income for the year. In general, a Fund's
investment company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net mid-term or net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, a Fund
would be subject to a non-deductible excise tax equal to 4% of the deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and thus to be relieved of all or substantially all of its federal
income tax liability, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, a Fund may be subject to the tax laws of such states or
localities. In addition, if for any taxable year a Fund does not qualify for the
special tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal tax at regular corporate rates
(without any deduction for distributions to its Shareholders). In such event,
dividend distributions would be taxable to Shareholders to the extent of
earnings and profits, and would be eligible for the dividends received deduction
for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
The excess of net long-term capital gains over short-term capital
losses realized and distributed by a Fund and designated as capital gain
dividends, whether paid in cash or reinvested in Fund shares, will be taxable to
Shareholders. Capital gain dividends paid from the proceeds of sales of assets
held by a Fund for more than one year will generally be taxed at a maximum
federal income tax rate of 20%. Net capital gains from assets held for one year
or less will be taxed as
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<PAGE> 75
ordinary income. Distributions will be subject to these capital gains rates
regardless of how long a Shareholder has held Fund shares.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by the
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Income Fund's net investment income is expected to be derived
from earned interest, it is anticipated that no distributions from that Fund
will qualify for the 70% dividends received deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities, if any. It is expected that,
because less than 50% in value of each Fund's total assets at the end of its
fiscal year will be invested in stocks or securities of foreign corporations,
none of the Funds will be entitled under the Code to pass through to its
Shareholders their pro rata share of the foreign taxes paid by the Fund. Any
such taxes will be taken as a deduction by such Fund.
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of a Fund by the Shareholder, if such Shareholder (1) fails
to furnish the Group with a correct taxpayer identification number, (2)
under-reports dividend or interest income, or (3) fails to certify to the Group
that he or she is not subject to such withholding. An individual's taxpayer
identification number is his or her Social Security number.
Information as to the Federal income tax status of all distributions
will be mailed annually to each Shareholder.
MARKET DISCOUNT. If a Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously
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<PAGE> 76
taken into account) or (ii) the amount of the principal payment with respect to
such period. Generally, market discount accrues on a daily basis for each day
the debt security is held by a Fund at a constant rate over the time remaining
to the debt security's maturity or, at the election of the Fund, at a constant
yield to maturity which takes into account the semi-annual compounding of
interest. Gain realized on the disposition of a market discount obligation must
be recognized as ordinary interest income (not capital gain) to the extent of
the "accrued market discount."
ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by a Fund may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts
and certain options (namely, nonequity options and dealer equity options) in
which a Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by a
Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund, and
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that a Fund may make with respect to
its straddle positions may also affect the amount, character and timing of the
recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to a Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
Shareholders. Because application of 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 must be
distributed to Shareholders as ordinary
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<PAGE> 77
income or long-term capital gain may be increased or decreased substantially as
compared to a fund that did not engage in such transactions.
CONSTRUCTIVE SALES. Certain Code provisions may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If a Fund enters
into certain transactions in property while holding substantially identical
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code.
SECTION 988 GAINS OR LOSSES. Gains or losses attributable to
fluctuations in exchange rates which occur between the time a Fund accrues
income or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
and certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its Shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to Shareholders, rather than as an
ordinary dividend, reducing each Shareholder's basis in his or her Fund shares.
PASSIVE FOREIGN INVESTMENT COMPANIES. A Fund may invest in shares of
foreign corporations that 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 a 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
will itself 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.
-34-
<PAGE> 78
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund 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 were 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 would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains would be treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
YIELD
As summarized in the Prospectus under the heading "Performance
Information," yields of the Funds will be computed by annualizing net investment
income per share for a recent 30-day period and dividing that amount by a Fund
Share's maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value premium or
discount of fixed income securities (except for obligations backed by mortgages
or other assets) and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The yield will vary from
time to time depending upon market conditions, the composition of the particular
Fund's portfolio and operating expenses of the Group allocated to each Fund.
These factors and possible differences in the methods used in calculating yield
should be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's Shares and to the
relative risks associated with the investment objectives and policies of each of
the Funds.
For the 30-day period ended June 30, 1998, the yields for the Income
Equity Fund and the Income Fund were 2.13% and 5.02%, respectively, assuming the
imposition of the maximum sales charge, and 2.24% and 5.23%, respectively,
excluding the effect of any sales charge.
CALCULATION OF TOTAL RETURN
As summarized in the Prospectus 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. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in that Fund all additional Shares which would have been purchased if
all dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $1,000 as of the end of the period by multiplying the total number
of Shares owned at the end of the period by the net asset value per
-35-
<PAGE> 79
share on the last trading day of the period; (3) assuming redemption at the end
of the period; and (4) dividing this account value for the hypothetical investor
by the initial $1,000 investment and annualizing the result for periods of less
than one year.
For the one year, five year and ten year periods ended June 30, 1998,
and the respective periods from commencement of operations to June 30, 1998, the
average annual total returns for the Diversified Equity Fund, the Income Equity
Fund, the Special Equity Fund and the Income Fund are set forth in the following
table. Such performance information includes the prior performance of the
respective collective investment funds ("CIFs") for such Funds during those
periods which had been restated to reflect the current fees for those Funds.
These CIFs were operated with the same investment objective and used investment
strategies and techniques that are in all material respects equivalent to those
used for the Funds. During the time period of their existence the CIFS were not
registered under the 1940 Act and therefore were not subject to certain
investment restrictions that are imposed under the 1940 Act. If the CIFs had
been registered under the 1940 Act, their performance may have been adversely
affected.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
With Maximum Sales Load (1) Without Sales Load
Since 1 Year 5 Years 10 Years Since 1 year 5 Years 10 Years
Fund Inception Inception
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified
Equity(2) 12.95% 21.46% 17.24% 15.51% 13.41% 27.85% 18.46% 16.10%
Income Equity(3) 13.76% 12.21% 15.98% 13.81% 14.24% 18.15% 17.16% 14.38%
Special Equity(3) 11.97% (3.18%) 9.90% 12.45% 12.43% 1.86% 11.01% 13.04%
Income(2) 7.30% 3.94% 4.71% 7.09% 7.63% 8.24% 5.56% 7.52%
<FN>
- -------------
1 The maximum sales load for the Diversified Equity, Income Equity and
Special Equity Funds is 5.00%. For the Income Fund, the maximum sales
load is 4.00%.
2 Commenced operations June 30, 1985.
3 Commenced operations November 30, 1985.
</TABLE>
Of course, past performance is no guarantee as to future performance.
DISTRIBUTION RATES
Each of the Funds may from time to time advertise current distribution
rates which are calculated in accordance with the method disclosed in the
Prospectus.
-36-
<PAGE> 80
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.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson
Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today
and local periodicals. In addition to performance information, general
information about these Funds that appears in a publication such as those
mentioned above may be included in advertisements, sales literature and reports
to shareholders. The Funds may also include in advertisements and reports to
shareholders information discussing the performance of the Adviser in comparison
to other investment advisers and to other banking institutions.
From time to time, the Group 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 one or more of the Funds within the Group;
(5) descriptions of investment strategies for one or more of such Funds; (6)
descriptions or comparisons of various investment products, 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; (8)
discussions of fund rankings or ratings by recognized rating organizations; and
(9) testimonials describing the experience of persons that have invested in one
or more of the Funds. The Group 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.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and total
return are functions of a Fund's quality, composition and maturity, as well as
expenses allocated to such 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 and total return to Customers.
-37-
<PAGE> 81
MISCELLANEOUS
Individual Trustees are generally 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.
Generally, shareholders owning not less than 20% of the outstanding shares of
the Group entitled to vote may cause the Trustees to call a special meeting.
However, the Group has represented to the Commission that the Trustees will call
a special meeting for the purpose of considering the removal of one or more
Trustees upon written request therefor from shareholders owning not less than
10% of the outstanding votes of the Group entitled to vote. 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.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesperson, dealer, or other person is authorized
to give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements of the Funds appearing in the Annual Report to
Shareholders for the fiscal year ended June 30, 1998 have been audited by
PricewaterhouseCoopers LLP, and are incorporated by reference herein.
-38-
<PAGE> 82
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.............................................2
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS.............................2
INVESTMENT RESTRICTIONS....................................................10
PORTFOLIO TURNOVER.........................................................11
NET ASSET VALUE...............................................................11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................12
MANAGEMENT OF THE GROUP.......................................................12
TRUSTEES AND OFFICERS......................................................12
INVESTMENT ADVISER.........................................................15
SUBADVISERS................................................................17
PORTFOLIO TRANSACTIONS.....................................................19
GLASS-STEAGALL ACT.........................................................21
ADMINISTRATOR..............................................................22
DISTRIBUTOR................................................................24
ADMINISTRATIVE SERVICES PLAN...............................................27
CUSTODIAN..................................................................27
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES...............................27
AUDITORS...................................................................28
LEGAL COUNSEL..............................................................28
ADDITIONAL INFORMATION........................................................29
DESCRIPTION OF SHARES......................................................29
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES...............................30
ADDITIONAL TAX INFORMATION.................................................30
YIELD......................................................................35
CALCULATION OF TOTAL RETURN................................................35
DISTRIBUTION RATES.........................................................36
PERFORMANCE COMPARISONS....................................................37
MISCELLANEOUS..............................................................38
FINANCIAL STATEMENTS.......................................................38
</TABLE>
-39-
<PAGE> 83
PART C
------
OTHER INFORMATION
-----------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Included in Part A:
Financial Highlights of the Funds
Incorporated by Reference in Part B:
Report of Independent Accountants dated August 11, 1998
Statements of Assets and Liabilities at June 30, 1998
Statements of Operations for the year ended June 30, 1998
Statements of Changes in Net Assets for the period ended June
30, 1997 and the year ended June 30, 1998
Schedules of Portfolio Investments as of June 30, 1998
Notes to Financial Statements
Financial Highlights for the period from commencement of
operations to June 30, 1997 and for the year ended June 30,
1998
(b) EXHIBITS
(1) Declaration of Trust(1)
(2) (a) By-Laws(2)
- ----------
1 Filed with initial Registration Statement on January 8, 1992.
2 Filed with Post-Effective Amendment No. 2 on September 4, 1992.
C-1
<PAGE> 84
(b) Establishment and Designation of Series of
Shares (1st Source Monogram Income Equity
Fund; 1st Source Monogram Diversified Equity
Fund; 1st Source Monogram Special Equity Fund
and 1st Source Monogram Income Fund)
(3) Not Applicable
(4) Certificates for Shares are not issued. Articles IV,
V, VI and VII of the Declaration of Trust, previously
filed as Exhibit 1 hereto, define rights of holders
of Shares.
(5) (a) Investment Advisory Agreement between
Registrant and 1st Source Bank (with respect
to the 1st Source Monogram Funds)
(b) Sub-Investment Advisory Agreement between 1st
Source Bank and Miller Anderson & Sherrerd
LLP (with respect to 1st Source Monogram
Diversified Equity Fund)
(c) Sub-Investment Advisory Agreement between 1st
Source Bank and Loomis, Sayles & Company,
L.P. (with respect to 1st Source Monogram
Diversified Equity Fund)
(d) Sub-Investment Advisory Agreement between 1st
Source Bank and Standish, Ayer & Wood, Inc.
(with respect to 1st Source Monogram
Diversified Equity Fund)
(6) Distribution Agreement between Registrant and BISYS
Fund Services
(7) Not Applicable
(8) Custody Agreement between Registrant and The Fifth
Third Bank (with respect to the 1st Source Monogram
Funds)
(9) (a) Management and Administration Agreement
between the Registrant and BISYS Fund
Services (with respect to the 1st Source
Monogram Funds)
C-2
<PAGE> 85
(b) Fund Accounting Agreement between the
Registrant and BISYS Fund Services Ohio, Inc.
(with respect to the 1st Source Monogram
Funds)
(c) Transfer Agency Agreement between the
Registrant and BISYS Fund Services Ohio, Inc.
(with respect to the 1st Source Monogram
Funds)
(10) Not Applicable
(11) Consent of Independent Accountants
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Distribution and Shareholder Services Plan
(with respect to the 1st Source Monogram
Funds)
(16) Not Applicable
(18) Not Applicable
(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 September 30, 1998, the number of record holders of each
series of the Registrant was as follows:
<TABLE>
<S> <C>
Brenton U.S. Government Money Market Fund 724
Brenton Intermediate U.S. Government Securities 51
Fund 495
Brenton Value Equity Fund
</TABLE>
C-3
<PAGE> 86
<TABLE>
<S> <C>
The Shelby Fund 25
The Willamette Value Fund 1,167
1st Source Monogram Income Equity Fund 64
1st Source Monogram Diversified Equity Fund 76
1st Source Monogram Special Equity Fund 69
1st Source Monogram Income Fund 17
</TABLE>
ITEM 27. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust states as follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof; and
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative or other, including appeals),
actual or threatened; and the words "liability" and "expenses"
shall 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> 87
(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 aware that in the opinion of the Securities and
Exchange Commission, such
C-5
<PAGE> 88
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) 1st Source Bank, South Bend, Indiana ("FSB"), is the
investment adviser for 1st Source Monogram Special Equity
Fund, 1st Source Monogram Income Fund, 1st Source Monogram
Diversified Equity Fund and 1st Source Monogram Income Equity
Fund. FSB is a wholly-owned subsidiary of 1st Source
Corporation. To the knowledge of the Registrant, none of the
directors or officers of FSB, except those set forth below, is
or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain
officers and directors of FSB also hold positions with FSB's
parent, First Source Corporation. Set forth below are the
names and principal businesses of the directors of FSB who are
engaged in any other business, profession, vocation, or
employment of a substantial nature.
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
<S> <C> <C>
Rev. E. William Beauchamp Director Executive Vice President University
of Notre Dame South Bend, IN 46556
Paul R. Bowles Director Former Senior Vice President-Clark
Equipment Company 1202 East Jefferson
South Bend, IN 46617 (off-highway
components and construction
machinery manufacturing)
Philip J. Faccenda Director President
Bear Financial, Inc.
</TABLE>
C-6
<PAGE> 89
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
<S> <C> <C>
1222 E. Erskine Manor Hill
South Bend, IN 46617
(venture capital)
Chairman, President, Chief Executive
Daniel B. Fitzpatrick Director Officer and Director
Quality Dining, Inc.
P.O. Box 416
South Bend, IN 46624
(quick service and casual dining
restaurant operator)
Terry L. Gerber Director President and Chief Executive
Officer
Gerber Manufacturing Company, Inc.
1417 Olivia Circle
South Bend, IN 46614
(manufacturer of police and
emergency outerwear)
Lawrence E. Hiler Director President
Hiler Industries
P.O. Box 639
La Porte, IN 46350
(metal casting)
Anne M. Hillman Director Civic Leader
3904 Nall Court
South Bend, IN 46614
Hollis E. Hughes, Jr. Director Executive Director
United Way of
St. Joseph County
3517 E. Jefferson
P.O. Box 6396
South Bend, IN 46660
H. Thomas Jackson Director Chairman
Bornemann Coated Fabrics
Bornemann Products
P.O. Box 208
</TABLE>
C-7
<PAGE> 90
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
<S> <C> <C>
Bremen, IN 46506
(vinyl sales)
William P. Johnson Director Chairman & CEO
Goshen Rubber Co., Inc.
1525 S. 10th
Goshen, IN 46527
(manufacturer of automotive rubber
parts)
Craig A. Kapson Director President
Jordan Ford, Toyota, Volvo, Lincoln
Mercury
609 E. Jefferson
Mishawaka, IN 46545
(automobile sales)
David L. Lerman Director President
Steel Warehouse Company, Inc.
2722 West Tucker Drive
South Bend, IN 46624
(warehouse storage)
Richard J. Pfeil Director Chairman and President
Koontz-Wagner Electric Co.
3801 Voorde Drive
South Bend, IN 46628
(electrical equipment repair,
construction and installation)
John T. Phair Director Vice President
The Holladay Corporation
220 Colfax, Suite 200
South Bend, IN 46601
(property management)
Mark D. Schwabero Director Executive Vice President
Bosch Braking Systems Corp.
401 N. Bendix Drive
South Bend, IN 46634
(manufacturers of automotive brakes
and brake
</TABLE>
C-8
<PAGE> 91
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
components)
<S> <C> <C>
Elmer H. Tepe Director President
E.H. Tepe Co.
c/o 1st Source Corporation
100 North Michigan Street
South Bend, IN 46634
(holding company)
</TABLE>
(b) Miller Anderson and Sherrerd LLP, West Conshohocken,
Pennsylvania ("Miller Anderson") is a sub-investment adviser
for 1st Source Monogram Diversified Equity Fund. Miller
Anderson is wholly owned by Morgan Stanley, Dean Witter,
Discover & Co., 1585 Broadway, New York, New York 10036. The
business and other connections of Miller Anderson's Officers
and Directors are set forth in the Uniform Application for
Investment Adviser Registration ("Form ADV") of Miller
Anderson as currently on file with the Commission and which is
incorporated by reference herein.
(c) Loomis Sayles & Company, L.P., Chicago, Illinois ("Loomis") is
a sub-investment adviser for 1st Source Monogram Diversified
Equity Fund. The sole general partner of Loomis is Loomis
Sayles & Company, Incorporated, One Financial Center, Boston,
Massachusetts 02111. The business and other connections of the
Officers and Directors of Loomis are set forth in the Form ADV
of Loomis as currently on file with the Commission and which
is incorporated by reference herein.
(d) Standish, Ayer & Wood, Inc., One Financial Center, Boston,
Massachusetts 02111 ("Standish") is a sub-investment adviser
for 1st Source Monogram Diversified Equity Fund. The business
and other connections of the Officers and Directors of
Standish are set forth in the Form ADV of Standish as
currently on file with the Commission and which is
incorporated 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 Alpine Equity
Trust, the American Performance Funds, the AmSouth Mutual
Funds, The ARCH Fund, Inc., The BB&T Mutual Funds Group, ESC
Strategic
C-9
<PAGE> 92
Funds, Inc., the Eureka Funds, 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, Puget Sound Asset
Management, 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 Insurance Funds, The Victory
Portfolios, The Victory Variable Funds and The Vintage Funds,
Inc.
(b) Partners of BISYS Fund Services, as of September 30, 1998,
were as follows
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Bisys Fund Services Registrant
- ---------------- ------------------- ----------
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
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(a) In connection with the 1st Source Monogram Funds, the
accounts, books, and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and rules promulgated thereunder are in
the possession of 1st Source Bank, 100 North Michigan Street,
South Bend, Indiana 46634 (records relating to its function as
investment adviser for the 1st Source Monogram Funds); Miller
Anderson & Sherrerd LLP, One Tower Bridge, Suite 1100, West
Conshohocken, Pennsylvania 19428 (records relating to its
functions as a sub-investment adviser to 1st Source Monogram
Diversified Equity
C-10
<PAGE> 93
Fund); Loomis Sayles & Company, L.P., 3 First National Plaza,
Suite 5450, Chicago, Illinois 60600 (records relating to its
functions as a sub-investment adviser to 1st Source Monogram
Diversified Equity Fund); Standish, Ayer & Wood, Inc., One
Financial Center, Boston, Massachusetts 02111 (records
relating to its functions as a sub-investment adviser to 1st
Source Monogram Diversified Equity 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-11
<PAGE> 94
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. 42 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 23rd day of October, 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:
Signature Title Date
- --------- ----- ----
/s/ Walter B. Grimm Chairman, President October 23, 1998
- ---------------------------- and Trustee
Walter B. Grimm** (Principal Executive
Officer)
/s/ John H. Ferring IV Trustee October 23, 1998
- ----------------------------
John H. Ferring IV****
/s/ Maurice G. Stark Trustee October 23, 1998
- ----------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee October 23, 1998
- ----------------------------
Michael M. Van Buskirk*
<PAGE> 95
/s/ Paul T. Kane Treasurer October 23, 1998
- ---------------------------- (Principal
Paul T. Kane*** Financial and
Accounting Officer)
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 with Post-Effective Amendment No. 37 on
June 1, 1998.
**** Pursuant to power of attorney filed with Post-Effective Amendment No. 39 on
July 31, 1998.
<PAGE> 96
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED
WITH
POST-EFFECTIVE AMENDMENT NO. 42
TO THE
REGISTRATION STATEMENT
OF
THE COVENTRY GROUP
<PAGE> 97
INDEX TO EXHIBITS
(FOR POST-EFFECTIVE AMENDMENT NO. 42)
-------------------------------------
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- ------------ ---------------
2(b) Establishment and Designation of the 1st Source Funds
5(a) Investment Advisory Agreement between Registrant and 1st
Source Bank
5(b) Sub-Investment Advisory Agreement between 1st Source Bank
and Miller Anderson & Sherrerd LLP (with respect to 1st
Source Monogram Diversified Equity Fund)
5(c) Sub-Investment Advisory Agreement between 1st Source Bank
and Loomis, Sayles & Company, L.P. (with respect to 1st
Source Monogram Diversified Equity Fund)
5(d) Sub-Investment Advisory Agreement between 1st Source Bank
and Standish, Ayer & Wood, Inc. (with respect to 1st
Source Monogram Diversified Equity Fund)
6 Distribution Agreement between Registrant and BISYS Fund
Services
8 Custody Agreement between Registrant and The Fifth Third
Bank (with respect to the 1st Source Monogram Funds)
9(a) Management and Administration Agreement between the
Registrant and BISYS Fund Services (with respect to the
1st Source Monogram Funds)
9(b) Fund Accounting Agreement between the Registrant and BISYS
Fund Services Ohio, Inc. (with respect to the 1st Source
Monogram Funds)
9(c) Transfer Agency Agreement between the Registrant and BISYS
Fund Services Ohio, Inc. (with respect to the 1st Source
Monogram Funds)
11 Consent of Independent Accountants
15 Distribution and Shareholder Services Plan (with respect
to the 1st Source Monogram Funds)
27 Financial Data Schedules
<PAGE> 1
THE COVENTRY GROUP
Establishment and Designation of four Series of Shares
of Beneficial Interest, Par Value $0.01 Per Share
RESOLVED, that pursuant to Section 5.11 of the Declaration of Trust of The
Coventry Group (the "Trust") dated January 8, 1992, ("Declaration"), four
separate series of the shares of beneficial interest of the Trust shall hereby
be established, relating to the Trust's new investment portfolios (the "Funds");
FURTHER RESOLVED, that the Funds shall have the following special and
relative rights:
1. The Funds shall be designated the "1st Source Monogram Income Equity
Fund"; "1st Source Monogram Diversified Equity Fund"; "1st Source Monogram
Special Equity Fund"; and "1st Source Monogram Income Fund".
2. The Funds shall be authorized to invest in cash, securities, instruments
and other property as from time to time described in each Fund's then currently
effective prospectus and registration statement under the Securities Act of
1933. Each share of beneficial interest of a Fund ("Share") shall be redeemable,
shall be entitled to one vote (or fraction thereof in respect of a fractional
Share) on matters on which Shares of a Fund shall be entitled to receive its pro
rata share of net assets of the Fund upon liquidation of the Fund, all as
provided in the Declaration.
3. Shareholders of each series of shares of the Trust shall vote separately
as a class on any matter, except, consistent with the Investment Company Act of
1940, as amended ("the Act"), and the rules thereunder, and the Trust's
registration statement, with respect to (i) the election of Trustees, (ii) any
amendment of the Declaration, unless the amendment affects fewer than all
classes of shares, in which case only shareholders of the affected classes shall
vote, and (iii) ratification of the selection of auditors. In each case of
separate voting, the Trustees shall determine whether, for the matter to be
effectively acted upon within the meaning of Rule 18f-2 under the Act (or any
successor rule) as to a series, the applicable percentage (as specified in the
Declaration, or the Act and the rules thereunder) of the shares of that series
alone must be voted in favor of the matter, or whether the favorable vote of
such applicable percentage of the shares of each series entitled to vote on the
matter is required.
4. The assets and liabilities of the Trust shall be allocated among the
series of the Trust as set forth in Section 5.11(d) of the Declaration; except
that costs of establishing the Funds and of the registration and public offering
of the Funds' Shares shall be amortized for the Funds over the period beginning
on the date such costs become payable and ending sixty months thereafter.
<PAGE> 2
5. The Trustees shall have the right at any time and from time to time to
reallocate assets and expenses or to change the designation of the Funds hereby
created, or to otherwise change the special and relative rights of each such
Fund, provided that such change shall not adversely affect the rights of the
Shareholders of each such Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 23rd
day of July, 1998.
/s/ Walter B. Grimm
-----------------------
Walter B. Grimm
/s/ Maurice G. Stark
-----------------------
Maurice G. Stark
-----------------------
Michael M. Van Buskirk
/s/ John H. Ferring IV
-----------------------
John H. Ferring IV
<PAGE> 1
EXHIBIT(5)(a)
INVESTMENT ADVISORY AGREEMENT
This Agreement is made as of October 23rd, 1998 between THE COVENTRY
GROUP, a Massachusetts business trust (the "Trust"), and 1st Source Bank, an
Indiana banking corporation (the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to provide,
or to arrange for the provision of, investment advisory services to certain
investment portfolios of the Trust and may retain the Investment Adviser to
serve in such capacity to certain additional investment portfolios of the Trust,
all as now or hereafter may be identified in Schedule A hereto (such current
investment portfolios and any such additional investment portfolios together
called the "Funds") and the Investment Adviser represents that it is willing and
possesses legal authority to so furnish such services without violation of
applicable laws (including the Glass-Steagall Act) and regulations;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
Section 1. Appointment. The Trust hereby appoints the Investment Adviser
to act as investment adviser to the Funds for the period and on the terms set
forth in this Agreement. The Investment Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided. Additional investment portfolios may from time to time be added to
those covered by this Agreement by the parties executing a new Schedule A which
shall become effective upon its execution and shall supersede any Schedule A
having an earlier date.
Section 2. Delivery of Documents. The Trust has furnished the Investment
Adviser with copies properly certified or authenticated of each of the
following:
(a) the Trust's Declaration of Trust, and any and all amendments
thereto or restatements thereof (such Declaration, as presently in
effect and as it shall from time to time be amended or restated, is
herein called the "Declaration of Trust") ;
(b) the Trust's By-Laws and any amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission and
all amendments thereto;
(e) the Trust's Registration Statement on. Form N-1A under the
Securities Act of 1933, as amended ("1933 Act"), and under the 1940 Act
as filed with the Securities and Exchange Commission and the most recent
amendment thereto; and
<PAGE> 2
(f) the most recent Prospectus and Statement of Additional
Information of each of the Funds (such Prospectus and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto, are herein collectively called the "Prospectus").
The Trust will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
Section 3. Management. Subject to the supervision of the Trust's Board
of Trustees, the Investment Adviser will provide, or arrange for the provision
of, a continuous investment program for each of the Funds, including investment
research and management with respect to all securities and investments and cash
equivalents in the Funds. The Investment Adviser will determine, or arrange for
others to determine, from time to time what securities and other investments
will be purchased, retained or sold by the Trust with respect to the Funds and
will implement, or arrange for others to implement, such determinations through
the placement, in the name of the Funds, of orders for the execution of
portfolio transactions with or through such brokers or dealers as it may select.
The Investment Adviser will provide, or arrange for the provision of, the
services under this Agreement in accordance with each of the Fund's investment
objectives, policies, and restrictions as stated in the Prospectus and
resolutions of the Trust's Board of Trustees.
Subject to the provisions of this Agreement, the Declaration of Trust
and the 1940 Act, the Investment Adviser directly and indirectly may select and
enter into contracts with one or more qualified investment advisers
("Sub-Advisers") to provide to the Trust some or all of the services required by
this Agreement. With respect to any such appointment by the Investment Adviser
of any of the Sub-Advisers, the Investment Adviser will, as appropriate:
(a) advise the Sub-Advisers with respect to economic conditions
and trends;
(b) assist Sub-Advisers with the placement of orders for the
purchase and sale of securities;
(c) assist and consult with the Sub-Advisers in connection with
the Funds' continuous investment programs; and
(d) periodically review, evaluate and report to the Trust's
Board of Trustees with respect to the performance of the Sub-Advisers.
In fulfilling its responsibilities hereunder, the Investment Adviser
further agrees that it will, or, with respect to services provided to the Trust
by any of the Sub-Advisers appointed by the Investment Adviser, that it will
require that each of the Sub-Advisers:
(a) use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
2
<PAGE> 3
(b) conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and in addition will conduct its
activities under this Agreement (or any applicable sub-investment
advisory agreement) in accordance with any applicable regulations of any
governmental authority pertaining to the investment advisory activities
of the Investment Adviser;
(c) not make loans to any person to purchase or carry shares of
beneficial interest in the Trust or make loans to the Trust;
(d) place orders pursuant to its investment determinations for
the Funds either directly with the issuer or with any broker or dealer.
In placing orders with brokers and dealers, the Investment Adviser will
attempt to obtain, or require that each of the Sub-Advisers obtain,
prompt execution of orders in an effective manner at the most favorable
price. In assessing the best execution available for any transaction,
the Investment Adviser or any of the Sub-Advisers shall consider all
factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and
execution capability of the broker-dealer and the reasonableness of the
commission, if any (for the specific transaction and on a continuing
basis). Consistent with this obligation, the Investment Adviser and any
of the Sub-Advisers may, in its discretion and to the extent permitted
by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning
of Section 28(e) of the Securities Exchange Act of 1934) to or for the
benefit of the Funds and/or other accounts over which the Investment
Adviser or any of the Sub-Advisers exercises investment discretion.
Subject to the review of the Trust's Board of Trustees from time to time
with respect to the extent and continuation of the policy, the
Investment Adviser and any of the Sub-Advisers are authorized to pay a
broker or dealer who provides such brokerage and research services a
commission for effecting a securities transaction for any of the Funds
which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Investment Adviser or Sub-Advisers determine in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the overall responsibilities of
the Investment Adviser or Sub-Advisers with respect to the accounts as
to which it exercises investment discretion. In placing orders with
brokers and dealers, consistent with applicable laws, rules and
regulations, the Investment Adviser may consider the sale of shares of
the Trust. Except as otherwise permitted by applicable laws, rules and
regulations, in no instance will portfolio securities be purchased from
or sold to BISYS Fund Services Limited Partnership, the Investment
Adviser, any Sub-Adviser, or any affiliated person of the Trust, BISYS
Fund Services Limited Partnership, the Investment Adviser or any
Sub-Adviser;
(e) will maintain all books and records with respect to the
securities transactions of the Funds and will furnish the Trust's Board
of Trustees such periodic and special reports as the Board may request;
3
<PAGE> 4
(f) will treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust and
the Funds and prior, present, or potential shareholders, and will not
use such records and information for any purpose other than performance
of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld where the
Investment Adviser or any Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust; and
(g) will maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Funds, the Investment Adviser's or Sub-Advisers' personnel will
not inquire or take into consideration whether the issuers of securities
proposed for purchase or sale for the Trust's account are customers of
the Investment Adviser or any Sub-Adviser or of their respective
parents, subsidiaries or affiliates. In dealing with such customers, the
Investment Adviser or any Sub-Adviser and their respective parents,
subsidiaries, and affiliates will not inquire or take into consideration
whether securities of those customers are held by the Trust.
Section 4. Services Not Exclusive. The investment management services
furnished by the Investment Adviser and any Sub-Adviser hereunder are not to be
deemed exclusive, and the Investment Adviser and any Sub-Adviser shall be free
to furnish similar services to others so long as its services under this
Agreement or any sub-advisory agreement are not impaired thereby.
Section 5. Books and Records. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for the Funds are the property of the Trust and
further agrees to surrender promptly, and to require each of the Sub-Advisers to
surrender promptly, to the Trust any of such records upon the Trust's request.
The Investment Adviser further agrees to preserve, and to require each of the
Sub-Advisers to preserve, for the periods prescribed by Rule 31a-2 under the
1940 Act, the records required to be maintained by Rule 31a-1 under the 1940
Act.
Section 6. Expenses. During the term of this Agreement, the Investment
Adviser will pay all expenses, including as applicable, the compensation of any
Sub-Advisers appointed by it, incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
Section 7. Compensation. For the services provided and the expenses
assumed pursuant to this Agreement, each of the Funds will pay the Investment
Adviser and the Investment Adviser will accept as full compensation therefor a
fee as set forth on Schedule A hereto. The obligations of the Funds to pay the
above-described fee to the Investment Adviser will begin as of the respective
dates of the initial public sale of shares in the Funds; provided, however, that
the Investment Adviser may from time to time waive some or all of such fees
until such time as it notifies the Trust that it has terminated such waiver.
4
<PAGE> 5
Section 8. Limitation of Liability. The Investment Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with the performance of this 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 Investment Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
Section 9. Duration And Termination. This Agreement will become
effective as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date a registration statement relating to that
Fund becomes effective with the Securities and Exchange Commission and Schedule
A hereto is amended to add such Fund), provided that it shall have been approved
by vote of a majority of the outstanding voting securities of such Fund, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect until October 23, 2000.
Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each, provided
such continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the vote of a majority of the Trust's Board of Trustees or by the vote of a
majority of all votes attributable to the outstanding Shares of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to a
particular Fund at any time on sixty days' written notice, without the payment
of any penalty, by the Trust (by vote of the Trust's Board of Trustees or by
vote of a majority of the outstanding voting securities of such Fund) or by the
Investment Adviser. This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as ascribed to such terms in the 1940 Act.)
Section 10. Investment Adviser's Representations. The Investment Adviser
hereby represents that it is willing and possesses all requisite legal authority
to provide the services contemplated by this Agreement without violation of
applicable laws and regulations, including but not limited to the Glass-Steagall
Act and the regulations promulgated thereunder.
Section 11. Amendment of this Agreement. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
Section 12. Name. The Trust hereby-acknowledges that the name "1st
Source Monogram" is a property right of the Investment Adviser. The Investment
Adviser agrees that the Trust and the Funds may, so long as this Agreement
remains in effect, use "1st Source" as part of its name. The Investment Adviser
may permit other persons, firms or corporations, including other investment
companies, to use such name and may, upon termination of this Agreement, require
the Trust and the Funds to refrain from using the name "1st Source" in any form
or combination
5
<PAGE> 6
in its name or in its business or in the name of any of its Funds, and the Trust
shall, as soon as practicable following its receipt of any such request from the
Investment Adviser, so refrain from using such name.
Section 13. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the Commonwealth of Massachusetts.
The Coventry Group is a business trust organized under the laws of the
Commonwealth of Massachusetts and under a Declaration of Trust, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of Massachusetts, and to any and all amendments thereto so
filed or hereafter filed. The obligations of "The Coventry Group" entered into
in the name or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any of the Funds of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE COVENTRY GROUP
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
1ST SOURCE BANK
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
6
<PAGE> 7
Dated: October 23, 1998
Schedule A
to the
Investment Advisory Agreement
between The Coventry Group and
1st Source Bank dated as of October 23, 1998
<TABLE>
<CAPTION>
Name of Fund Compensation(1) Date
- ------------ --------------- ----
<S> <C> <C>
1st Source Monogram Diversified Equity Fund Annual rate of one hundred ten October 23, 1998
one-hundredths of one percent (.99%) of
such Fund's average daily net assets
1st Source Monogram Income Equity Fund Annual rate of eighty one-hundredths of October 23, 1998
one percent (0.80.%) of such Fund's
average daily net assets
1st Source Monogram Special Equity Fund Annual rate of eighty one-hundredths of October 23, 1998
one percent (0.80%) of such Fund's average
daily net assets
1st Source Monogram Income Fund Annual rate of fifty-five one-hundredths October 23, 1998
of one percent (0.55%) of such Fund's
average daily net assets
</TABLE>
THE COVENTRY GROUP 1ST SOURCE BANK
By By
------------------------------- ---------------------------------
Name: Name:
------------------------------- ---------------------------------
Title: Title:
------------------------------- ---------------------------------
- ----------
(1) All Fees are computed daily and paid monthly.
7
<PAGE> 1
EXHIBIT(5)(b)
SUB-INVESTMENT ADVISORY AGREEMENT
This Sub-Investment Advisory Agreement is made as of the 23rd day of
October, 1998, by and between 1st Source Bank, an Indiana banking corporation
(the "Adviser"), and Miller Anderson & Sherrerd LLP, a Delaware limited
liability partnership (the "Sub-Adviser").
WHEREAS, the Adviser serves as investment adviser of certain portfolios
of The Coventry Group, a Massachusetts business trust and an open-end management
investment company (the "Trust"), which has filed a registration statement (the
"Registration Statement") under the Investment Company Act of 1940, as amended
(the "1940 Act") and the Securities Act of 1933.
WHEREAS, the Trust is comprised of several separate investment
portfolios, one of which is 1st Source Monogram Diversified Equity Fund (the
"Fund"); and
WHEREAS, the Adviser desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser
experienced in the management of a portfolio of equity securities to assist the
Adviser in performing services for a portion of the Fund; and
WHEREAS, the Sub-Adviser represents that it has the legal power and
authority to perform the services contemplated hereunder without violation of
applicable law (including the Investment Advisers Act of 1940), and is engaged
in the business of rendering investment advisory services to investment
companies and desires to provide such services to the Trust and the Adviser; and
WHEREAS, the Sub-Adviser is familiar with the investment objectives,
policies and restrictions of the Fund and has reviewed the Investment Advisory
Agreement dated as of October 23, 1998, between the Adviser and the Trust (the
"Adviser Agreement").
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
Section 1. Appointment of the Sub-Adviser. The Adviser hereby appoints
the Sub-Adviser to provide a continuous investment program for that portion of
the Fund designated by the Adviser (the "MAS Portfolio"), subject to such
instructions and supervision as the Adviser may from time to time furnish and
further subject to the control and direction of the Trust's Board of Trustees,
for the period and on the terms hereinafter set forth. The Sub-Adviser hereby
accepts such appointment and agrees during such period to render the services
and to assume the obligations herein set forth for the compensation herein
provided. The Sub-Adviser will provide the services under this Agreement in
accordance with the Fund's and the MAS Portfolio's investment objectives,
policies and restrictions as stated in the Fund's most recent Prospectus and
Statement of Additional Information and as the same may, from time to time, be
supplemented or amended and in resolutions of the Trust's Board of Trustees. The
Adviser
<PAGE> 2
agrees to furnish the Sub-Adviser from time to time copies of all amendments of
or supplements to such Prospectus and Statement of Additional Information. The
Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Adviser, the Fund
or the Trust in any way.
Section 2. Sub-Advisory Services. Subject to such instructions and
supervision as the Adviser may from time to time furnish, the continuous
investment program of the MAS Portfolio provided by the Sub-Adviser shall
include, among other things, investment research and management with respect to
all securities, investments and cash equivalents in the MAS Portfolio. The
Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Fund for the MAS
Portfolio, the appropriate portion of the MAS Portfolio's assets to be invested
in particular countries or geographic regions, the use of foreign exchange
contracts and other foreign currency matters, and the manner in which voting
rights, rights to consent to corporate action and other rights pertaining to the
MAS Portfolio's investments should be exercised. The Sub-Adviser will implement
such determinations through the placement, in the name of the Fund for the MAS
Portfolio, of orders for the execution of portfolio transactions with it through
such brokers or dealers as it may select.
In fulfilling its responsibilities hereunder, the Sub-Adviser agrees
that it will:
(a) use the same skill and care in providing such services as it uses
in providing services to other fiduciary accounts for which it
has investment responsibilities;
(b) conform with all applicable Rules and Regulations of the United
States Securities and Exchange Commission ("SEC") and in addition
will conduct its activities under this Agreement in accordance
with any applicable regulations of any government authority
pertaining to the investment advisory activities of the
Sub-Adviser and shall furnish such written reports or other
documents substantiating such compliance as the Adviser
reasonably may from time to time request;
(c) not make loans to any person to purchase or carry shares of
beneficial interest in the Trust or make loans to the Trust;
(d) place orders pursuant to investment determinations for the MAS
Portfolio either directly with the issuer or with an underwriter,
market maker or broker or dealer. In placing orders with brokers
and dealers, the Sub-Adviser will use its reasonable best efforts
to obtain prompt execution of orders in an effective manner at
the most favorable price. Consistent with this obligation, the
Sub-Adviser may, to the extent permitted by law, purchase and
sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for
the benefit of the
- 2 -
<PAGE> 3
Fund and/or other accounts over which the Sub-Adviser exercises
investment discretion. Subject to the review of the Trust's Board
of Trustees from time to time with respect to the extent and
continuation of the policy, the Sub-Adviser is authorized to pay
a broker or dealer who provides such brokerage and research
services a commission for effecting a securities transaction for
the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or
the overall responsibilities of the Sub-Adviser with respect to
the accounts as to which it exercises investment discretion. In
placing orders with brokers and dealers, consistent with
applicable laws, rules and regulations, the Sub-Adviser may
consider the sale of shares of the Trust. In no instance will
portfolio securities be purchased from or sold to the Trust,
BISYS Fund Services Limited Partnership, the Adviser, any other
sub-investment adviser for the Trust ("other sub-advisers"), or
the Sub-Adviser or any affiliate of the foregoing except as may
be permitted by the 1940 Act or an exemption therefrom;
(e) maintain all necessary or appropriate books and records with
respect to the MAS Portfolio's securities transactions in
accordance with all applicable laws, rules and regulations,
including but not limited to Section 31 (a) of the 1940 Act and
will furnish the Trust's Board of Trustees such periodic and
special reports as the Board reasonably may request;
(f) treat confidentially and as proprietary information of the
Adviser and the Trust all records and other information relative
to the Adviser and the Trust and prior, present, or potential
shareholders, and will not use such records and information for
any purpose other than performance of its responsibilities and
duties hereunder, except that subject to prompt notification to
the Trust and the Adviser, the Sub-Adviser may divulge such
information to duly constituted authorities, or when so requested
by the Adviser and the Trust, Provided, however, that nothing
contained herein shall prohibit the Sub-Adviser from advertising
or soliciting the public generally with respect to other products
or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders
of the Fund;
(g) maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations for
the Trust, the Sub-Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the
Adviser, other sub-advisers, the Sub-Adviser or of their
respective parents, subsidiaries or affiliates. In dealing with
such customers, the
- 3 -
<PAGE> 4
Sub-Adviser and its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of those
customers are held by the Trust; and
(h) render, upon request of the Adviser or the Trust's Board of
Trustees, written reports concerning the investment activities of
the MAS Portfolio.
Section 3. Expense. During the term of this Agreement, the Sub-Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the MAS Portfolio.
Section 4. Books and Records. In compliance with the requirements of
Rule 31 a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records,
if any, which it maintains for the MAS Portfolio are the property of the Fund
and further agrees to surrender promptly to the Adviser or the Trust any such
records upon the Adviser's or the Trust's request and that such records shall be
available for inspection by the SEC. The Sub-Adviser further agrees to preserve
for the periods and at the places prescribed by Rule 31 a-2 under the 1940 Act
the records required to be maintained by Rule 31 a-1 under the 1940 Act.
Section 5. Compensation of the Sub-Adviser. In consideration of services
rendered pursuant to this Agreement, the Adviser will pay the Sub-Adviser a fee
at the annual rate of the value of the MAS Portfolio's average daily net assets
set forth in Schedule A hereto, provided, however, that the Sub-Adviser may from
time to time waive some or all of such fees until such time as it notifies the
Trust that it has terminated such waiver. Such fee shall be accrued daily and
paid monthly as soon as practicable after the end of each month. If the
Sub-Adviser shall serve for less than the whole of any month, the foregoing
compensation shall be prorated. For the purpose of determining fees payable to
the Sub-Adviser, the value of the MAS Portfolio's net assets shall be computed
at the times and in the manner specified in the Trust's Registration Statement.
If the Adviser is required to reduce its fee or to reimburse the Trust because
the expenses of the Fund exceed applicable state securities regulations or are
in excess of any voluntary expense limitations set forth in the Trust's current
Registration Statement, the Sub-Adviser's fee hereunder shall be reduced by an
amount equal to such excess expense multiplied by the ratio that the
Sub-Adviser's fee hereunder bears to the sum of the fees paid to and retained by
the Adviser and paid to BISYS Fund Services Limited Partnership (under the
Trust's Administration Agreement with BISYS Fund Services Limited Partnership
with respect to the Fund) by the Trust with respect to the MAS Portfolio.
Notwithstanding anything contained herein to the contrary, the Sub-Adviser shall
not be compensated on the basis of a share of capital gains or upon capital
appreciation of the MAS Portfolio or any portion thereof except as may be
authorized by applicable law.
Section 6. Services Not Exclusive. The services of the Sub-Adviser
hereunder are not to be deemed exclusive, and the Sub-Adviser shall be free to
render similar services to others and to engage in other activities, so long as
the services rendered hereunder are not impaired. It is understood that the
action taken by the Sub-Adviser under this Agreement may differ from the
- 4 -
<PAGE> 5
advice given or the timing or nature of action taken with respect to other
clients of the Sub-Adviser, and that a transaction in a specific security may
not be accomplished for all clients of the Sub-Adviser at the same time or at
the same price. The Sub-Adviser, in turn, understands that nothing in this
agreement will in any way limit or restrict Adviser or any of its officers,
directors or employees from buying or selling or trading in any securities
(including securities purchased or sold by the Sub-Adviser on behalf of the
Fund) for its or their own accounts or the accounts of other clients of the
Adviser, consistently with applicable law and fiduciary duties, except that no
such transactions will be made based on information derived or received directly
or indirectly from Sub-Adviser hereunder until the expiration of ten (10)
business days after: (i) the date such information has been so derived or
received, or (ii) in the case of information derived or received over several
days, the last date on which such information has been so derived or received.
The Adviser agrees that the Sub-Adviser shall have no responsibility or
liability whatsoever for any such use of such information.
Section 7. Use of Names. The Adviser shall not use the name of the
Sub-Adviser in any prospectus, sales literature or other material relating to
the Trust in any manner not approved prior thereto by the Sub-Adviser; provided,
however, that the Sub-Adviser shall approve all uses of its name which merely
refer in accurate terms to its appointment hereunder or which are required by
the SEC or a state securities commission; and, provided further, that in no
event shall such approval be unreasonably withheld. The Sub-Adviser shall not
use the name of the Trust, the Fund or the Adviser in any material relating to
the Sub-Adviser in any manner not approved prior thereto by the Adviser;
provided, however, that the Adviser shall approve all uses of its and the Fund's
or the Trust's name which merely refer in accurate terms to the appointment of
the Sub-Adviser hereunder or which are required by the SEC or a state securities
commission, and, provided further, that in no event shall such approval be
unreasonably withheld.
Section 8. Liability of the Sub-Adviser. Absent willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Sub-Adviser, or loss resulting from breach of
fiduciary duty with respect to the receipt of compensation for services, the
Sub-Adviser shall not be liable for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
Section 9. Limitation of Trust's Liability. The Sub-Adviser acknowledges
that it has received notice of and accepts the limitations upon the Trust's and
the Fund's liability set forth in its Declaration of Trust and under Ohio law.
The Sub-Adviser agrees that any of the Trust's obligations shall be limited to
the assets of the Fund and that the Sub-Adviser shall not seek satisfaction of
any such obligation from the shareholders of the Trust nor from any Trustee,
officer, employee or agent of the Trust.
The names "The Coventry Group" and "Trustees of the Coventry Group"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of January 8, 1992 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
the Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The obligations of "The
Coventry Group" entered into in the name or on behalf thereof, or in the name or
on behalf of any series or class of shares of the Trust, by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any series or class of shares of the Trust must look solely to the assets
of the Trust belonging to such series or class for the enforcement of any claims
against the Trust.
- 5 -
<PAGE> 6
Section 10. Duration Renewal Termination and Amendment. This Agreement
will become effective as of the date first written above, provided that it shall
have been approved by vote of a majority of the outstanding voting securities of
the Fund, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until October 23,
2000.
Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive periods of one year each, provided such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the vote of a majority of the Trust's Board of Trustees or by the vote of a
majority of all votes attributable to the outstanding Shares of the Fund. This
Agreement may be terminated as to the Fund at any time, without payment of any
penalty, by the Trust's Board of Trustees, by the Adviser, or by a vote of the
majority of the outstanding voting securities of the Fund upon, 60 days' prior
written notice to the Sub-Adviser, or by the Sub-Adviser upon 60 days' prior
written notice to the Adviser and the Trust's Board of Trustees, or upon such
shorter notice as may be mutually agreed upon. This Agreement shall terminate
automatically and immediately upon termination of the Adviser Agreement. This
Agreement shall terminate automatically and immediately in the event of its
assignment. No assignment of this Agreement shall be made by the Sub-Adviser
without the consent of the Adviser and the Board of Trustees of the Trust. The
terms "assignment" and "vote of a majority of the outstanding voting securities"
shall have the meaning set forth for such terms in the 1940 Act. This Agreement
may be amended at any time by the Adviser and the Sub-Adviser, subject to
approval by the Trust's Board of Trustees and, if required by the 1940 Act and
applicable SEC rules and regulations, a vote of a majority of the Fund's
outstanding voting securities.
Section 11. Confidential Relationship. Any information and advice
furnished by either party to this Agreement to the other shall be treated as
confidential and shall not be disclosed to third parties except as required by
law or by this Agreement.
Section 12. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this agreement shall not be affected thereby.
Section 13. Miscellaneous. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof each party agrees to perform such further actions and execute such
further documents as are necessary to effectuate the purposes hereof This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Indiana. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed in
several counterparts, all of which together shall for all purposes constitute
one Agreement, binding on all parties.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
1ST SOURCE BANK
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
MILLER ANDERSON & SHERRERD LLP
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
- 7 -
<PAGE> 8
Dated: October 23, 1998
SCHEDULE A
To the Sub-Investment Advisory Agreement
between 1st Source Bank and
Miller Anderson & Sherrerd LLP
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
------------ ------------- ----
<S> <C> <C>
1st Source Monogram Annual Rate of 0.625% up to October 23, 1998
Diversified Equity Fund $25,000,000 of the average
daily net assets of the MAS
Portfolio and 0.375% of the
excess over $25,000,000
</TABLE>
- ---------------
*All fees are computed daily and paid monthly.
1ST SOURCE BANK
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
MILLER ANDERSON & SHERRERD LLP
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
A-1
<PAGE> 1
EXHIBIT(5)(c)
SUB-INVESTMENT ADVISORY AGREEMENT
This Sub-Investment Advisory Agreement is made as of the 23rd day of
October, 1998, by and between 1st Source Bank, an Indiana banking corporation
(the "Adviser"), and Loomis Sayles & Company, L.P., a Delaware limited
partnership (the "Sub-Adviser").
WHEREAS, the Adviser serves as investment adviser of certain portfolios
of The Coventry Group, a Massachusetts business trust and an open-end management
investment company (the "Trust"), which has filed a registration statement (the
"Registration Statement") under the Investment Company Act of 1940, as amended
(the "1940 Act") and the Securities Act of 1933.
WHEREAS, the Trust is comprised of several separate investment
portfolios, one of which is 1st Source Monogram Diversified Equity Fund (the
"Fund"); and
WHEREAS, the Adviser desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser
experienced in the management of a portfolio of equity securities to assist the
Adviser in performing services for a portion of the Fund; and
WHEREAS, the Sub-Adviser represents that it has the legal power and
authority to perform the services contemplated hereunder without violation of
applicable law (including the Investment Advisers Act of 1940), and is engaged
in the business of rendering investment advisory services to investment
companies and desires to provide such services to the Trust and the Adviser; and
WHEREAS, the Sub-Adviser is familiar with the investment objectives,
policies and restrictions of the Fund and has reviewed the Investment Advisory
Agreement dated as of October 23, 1998, between the Adviser and the Trust (the
"Adviser Agreement").
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
Section 1. Appointment of the Sub-Adviser. The Adviser hereby appoints
the Sub-Adviser to provide a continuous investment program for that portion of
the Fund designated by the Adviser (the "LSC Portfolio"), subject to such
instructions and supervision as the Adviser may from time to time furnish and
further subject to the control and direction of the Trust's Board of Trustees,
for the period and on the terms hereinafter set forth. The Sub-Adviser hereby
accepts such appointment and agrees during such period to render the services
and to assume the obligations herein set forth for the compensation herein
provided. The Sub-Adviser will provide the services under this Agreement in
accordance with the Fund's and the LSC Portfolio's investment objectives,
policies and restrictions as stated in the Fund's most recent Prospectus and
Statement of Additional Information and as the same may, from time to time, be
supplemented or amended and in resolutions of the Trust's Board of Trustees. The
Adviser
<PAGE> 2
agrees to furnish the Sub-Adviser from time to time copies of all amendments of
or supplements to such Prospectus and Statement of Additional Information. The
Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Adviser, the Fund
or the Trust in any way.
Section 2. Sub-Advisory Services. Subject to such instructions and
supervision as the Adviser may from time to time furnish, the continuous
investment program of the LSC Portfolio provided by the Sub-Adviser shall
include, among other things, investment research and management with respect to
all securities, investments and cash equivalents in the LSC Portfolio. The
Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Fund for the LSC
Portfolio, the appropriate portion of the LSC Portfolio's assets to be invested
in particular countries or geographic regions, the use of foreign exchange
contracts and other foreign currency matters, and the manner in which voting
rights, rights to consent to corporate action and other rights pertaining to the
LSC Portfolio's investments should be exercised. The Sub-Adviser will implement
such determinations through the placement, in the name of the Fund for the LSC
Portfolio, of orders for the execution of portfolio transactions with it through
such brokers or dealers as it may select.
In fulfilling its responsibilities hereunder, the Sub-Adviser agrees
that it will:
(a) use the same skill and care in providing such services as it uses
in providing services to other fiduciary accounts for which it
has investment responsibilities;
(b) conform with all applicable Rules and Regulations of the United
States Securities and Exchange Commission ("SEC") and in addition
will conduct its activities under this Agreement in accordance
with any applicable regulations of any government authority
pertaining to the investment advisory activities of the
Sub-Adviser and shall furnish such written reports or other
documents substantiating such compliance as the Adviser
reasonably may from time to time request;
(c) not make loans to any person to purchase or carry shares of
beneficial interest in the Trust or make loans to the Trust;
(d) place orders pursuant to investment determinations for the LSC
Portfolio either directly with the issuer or with an underwriter,
market maker or broker or dealer. In placing orders with brokers
and dealers, the Sub-Adviser will use its reasonable best efforts
to obtain prompt execution of orders in an effective manner at
the most favorable price. Consistent with this obligation, the
Sub-Adviser may, to the extent permitted by law, purchase and
sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for
the benefit of the Fund and/or other accounts over which the
Sub-Adviser exercises investment
- 2 -
<PAGE> 3
discretion. Subject to the review of the Trust's Board of
Trustees from time to time with respect to the extent and
continuation of the policy, the Sub-Adviser is authorized to pay
a broker or dealer who provides such brokerage and research
services a commission for effecting a securities transaction for
the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or
the overall responsibilities of the Sub-Adviser with respect to
the accounts as to which it exercises investment discretion. In
placing orders with brokers and dealers, consistent with
applicable laws, rules and regulations, the Sub-Adviser may
consider the sale of shares of the Trust. In no instance will
portfolio securities be purchased from or sold to the Trust,
BISYS Fund Services Limited Partnership, the Adviser, any other
sub-investment adviser for the Trust ("other sub-advisers"), or
the Sub-Adviser or any affiliate of the foregoing except as may
be permitted by the 1940 Act or an exemption therefrom;
(e) maintain all necessary or appropriate books and records with
respect to the LSC Portfolio's securities transactions in
accordance with all applicable laws, rules and regulations,
including but not limited to Section 31 (a) of the 1940 Act and
will furnish the Trust's Board of Trustees such periodic and
special reports as the Board reasonably may request;
(f) treat confidentially and as proprietary information of the
Adviser and the Trust all records and other information relative
to the Adviser and the Trust and prior, present, or potential
shareholders, and will not use such records and information for
any purpose other than performance of its responsibilities and
duties hereunder, except that subject to prompt notification to
the Trust and the Adviser, the Sub-Adviser may divulge such
information to duly constituted authorities, or when so requested
by the Adviser and the Trust, Provided, however, that nothing
contained herein shall prohibit the Sub-Adviser from advertising
or soliciting the public generally with respect to other products
or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders
of the Fund;
(g) maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations for
the Trust, the Sub-Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the
Adviser, other sub-advisers, the Sub-Adviser or of their
respective parents, subsidiaries or affiliates. In dealing with
such customers, the
- 3 -
<PAGE> 4
Sub-Adviser and its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of those
customers are held by the Trust; and
(h) render, upon request of the Adviser or the Trust's Board of
Trustees, written reports concerning the investment activities of
the LSC Portfolio.
Section 3. Expense. During the term of this Agreement, the Sub-Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the LSC Portfolio.
Section 4. Books and Records. In compliance with the requirements of
Rule 31 a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records,
if any, which it maintains for the LSC Portfolio are the property of the Fund
and further agrees to surrender promptly to the Adviser or the Trust any such
records upon the Adviser's or the Trust's request and that such records shall be
available for inspection by the SEC. The Sub-Adviser further agrees to preserve
for the periods and at the places prescribed by Rule 31 a-2 under the 1940 Act
the records required to be maintained by Rule 31 a-1 under the 1940 Act.
Section 5. Compensation of the Sub-Adviser. In consideration of services
rendered pursuant to this Agreement, the Adviser will pay the Sub-Adviser a fee
at the annual rate of the value of the LSC Portfolio's average daily net assets
set forth in Schedule A hereto, provided, however, that the Sub-Adviser may from
time to time waive some or all of such fees until such time as it notifies the
Trust that it has terminated such waiver. Such fee shall be accrued daily and
paid monthly as soon as practicable after the end of each month. If the
Sub-Adviser shall serve for less than the whole of any month, the foregoing
compensation shall be prorated. For the purpose of determining fees payable to
the Sub-Adviser, the value of the LSC Portfolio's net assets shall be computed
at the times and in the manner specified in the Trust's Registration Statement.
If the Adviser is required to reduce its fee or to reimburse the Trust because
the expenses of the Fund exceed applicable state securities regulations or are
in excess of any voluntary expense limitations set forth in the Trust's current
Registration Statement, the Sub-Adviser's fee hereunder shall be reduced by an
amount equal to such excess expense multiplied by the ratio that the
Sub-Adviser's fee hereunder bears to the sum of the fees paid to and retained by
the Adviser and paid to BISYS Fund Services Limited Partnership (under the
Trust's Administration Agreement with BISYS Fund Services Limited Partnership
with respect to the Fund) by the Trust with respect to the LSC Portfolio.
Notwithstanding anything contained herein to the contrary, the Sub-Adviser shall
not be compensated on the basis of a share of capital gains or upon capital
appreciation of the LSC Portfolio or any portion thereof except as may be
authorized by applicable law.
Section 6. Services Not Exclusive. The services of the Sub-Adviser
hereunder are not to be deemed exclusive, and the Sub-Adviser shall be free to
render similar services to others and to engage in other activities, so long as
the services rendered hereunder are not impaired. It is understood that the
action taken by the Sub-Adviser under this Agreement may differ from the
- 4 -
<PAGE> 5
advice given or the timing or nature of action taken with respect to other
clients of the Sub-Adviser, and that a transaction in a specific security may
not be accomplished for all clients of the Sub-Adviser at the same time or at
the same price. The Sub-Adviser, in turn, understands that nothing in this
agreement will in any way limit or restrict Adviser or any of its officers,
directors or employees from buying or selling or trading in any securities
(including securities purchased or sold by the Sub-Adviser on behalf of the
Fund) for its or their own accounts or the accounts of other clients of the
Adviser, consistently with applicable law and fiduciary duties, except that no
such transactions will be made based on information derived or received directly
or indirectly from Sub-Adviser hereunder until the expiration of ten (10)
business days after: (i) the date such information has been so derived or
received, or (ii) in the case of information derived or received over several
days, the last date on which such information has been so derived or received.
The Adviser agrees that the Sub-Adviser shall have no responsibility or
liability whatsoever for any such use of such information.
Section 7. Use of Names. The Adviser shall not use the name of the
Sub-Adviser in any prospectus, sales literature or other material relating to
the Trust in any manner not approved prior thereto by the Sub-Adviser; provided,
however, that the Sub-Adviser shall approve all uses of its name which merely
refer in accurate terms to its appointment hereunder or which are required by
the SEC or a state securities commission; and, provided further, that in no
event shall such approval be unreasonably withheld. The Sub-Adviser shall not
use the name of the Trust, the Fund or the Adviser in any material relating to
the Sub-Adviser in any manner not approved prior thereto by the Adviser;
provided, however, that the Adviser shall approve all uses of its and the Fund's
or the Trust's name which merely refer in accurate terms to the appointment of
the Sub-Adviser hereunder or which are required by the SEC or a state securities
commission, and, provided further, that in no event shall such approval be
unreasonably withheld.
Section 8. Liability of the Sub-Adviser. Absent willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Sub-Adviser, or loss resulting from breach of
fiduciary duty with respect to the receipt of compensation for services, the
Sub-Adviser shall not be liable for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
Section 9. Limitation of Trust's Liability. The Sub-Adviser acknowledges
that it has received notice of and accepts the limitations upon the Trust's and
the Fund's liability set forth in its Declaration of Trust and under Ohio law.
The Sub-Adviser agrees that any of the Trust's obligations shall be limited to
the assets of the Fund and that the Sub-Adviser shall not seek satisfaction of
any such obligation from the shareholders of the Trust nor from any Trustee,
officer, employee or agent of the Trust.
The names "The Coventry Group" and "Trustees of the Coventry Group"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of January 8, 1992 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
the Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The obligations of "The
Coventry Group" entered into in the name or on behalf thereof, or in the name or
on behalf of any series or class of shares of the Trust, by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any series or class of shares of the Trust must look solely to the assets
of the Trust belonging to such series or class for the enforcement of any claims
against the Trust.
- 5 -
<PAGE> 6
Section 10. Duration Renewal Termination and Amendment. This Agreement
will become effective as of the date first written above, provided that it shall
have been approved by vote of a majority of the outstanding voting securities of
the Fund, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until October 23,
2000.
Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive periods of one year each, provided such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the vote of a majority of the Trust's Board of Trustees or by the vote of a
majority of all votes attributable to the outstanding Shares of the Fund. This
Agreement may be terminated as to the Fund at any time, without payment of any
penalty, by the Trust's Board of Trustees, by the Adviser, or by a vote of the
majority of the outstanding voting securities of the Fund upon, 60 days' prior
written notice to the Sub-Adviser, or by the Sub-Adviser upon 60 days' prior
written notice to the Adviser and the Trust's Board of Trustees, or upon such
shorter notice as may be mutually agreed upon. This Agreement shall terminate
automatically and immediately upon termination of the Adviser Agreement. This
Agreement shall terminate automatically and immediately in the event of its
assignment. No assignment of this Agreement shall be made by the Sub-Adviser
without the consent of the Adviser and the Board of Trustees of the Trust. The
terms "assignment" and "vote of a majority of the outstanding voting securities"
shall have the meaning set forth for such terms in the 1940 Act. This Agreement
may be amended at any time by the Adviser and the Sub-Adviser, subject to
approval by the Trust's Board of Trustees and, if required by the 1940 Act and
applicable SEC rules and regulations, a vote of a majority of the Fund's
outstanding voting securities.
Section 11. Confidential Relationship. Any information and advice
furnished by either party to this Agreement to the other shall be treated as
confidential and shall not be disclosed to third parties except as required by
law or by this Agreement.
Section 12. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this agreement shall not be affected thereby.
Section 13. Miscellaneous. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof each party agrees to perform such further actions and execute such
further documents as are necessary to effectuate the purposes hereof This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Indiana. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed in
several counterparts, all of which together shall for all purposes constitute
one Agreement, binding on all parties.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
1ST SOURCE BANK
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
LOOMIS SAYLES & COMPANY, L.P.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
- 7 -
<PAGE> 8
Dated: October 23, 1998
SCHEDULE A
To the Sub-Investment Advisory Agreement
between 1st Source Bank and
Loomis Sayles & Company, L.P.
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
------------ ------------- ----
<S> <C> <C>
1st Source Monogram Annual Rate of 0.40% of the October 23, 1998
Diversified Equity Fund average daily net assets of
the LSC Portfolio
</TABLE>
- ---------------
*All fees are computed daily and paid monthly.
1ST SOURCE BANK
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
LOOMIS SAYLES & COMPANY, L.P.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
A-1
<PAGE> 1
EXHIBIT (5)(d)
SUB-INVESTMENT ADVISORY AGREEMENT
This Sub-Investment Advisory Agreement is made as of the 23rd day of
October, 1998, by and between 1st Source Bank, an Indiana banking corporation
(the "Adviser"), and Standish, Ayer & Wood, Inc., a Massachusetts corporation
(the "Sub-Adviser").
WHEREAS, the Adviser serves as investment adviser of certain portfolios
of The Coventry Group, a Massachusetts business trust and an open-end management
investment company (the "Trust"), which has filed a registration statement (the
"Registration Statement") under the Investment Company Act of 1940, as amended
(the "1940 Act") and the Securities Act of 1933.
WHEREAS, the Trust is comprised of several separate investment
portfolios, one of which is 1st Source Monogram Diversified Equity Fund (the
"Fund"); and
WHEREAS, the Adviser desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser
experienced in the management of a portfolio of equity securities to assist the
Adviser in performing services for a portion of the Fund; and
WHEREAS, the Sub-Adviser represents that it has the legal power and
authority to perform the services contemplated hereunder without violation of
applicable law (including the Investment Advisers Act of 1940), and is engaged
in the business of rendering investment advisory services to investment
companies and desires to provide such services to the Trust and the Adviser; and
WHEREAS, the Sub-Adviser is familiar with the investment objectives,
policies and restrictions of the Fund and has reviewed the Investment Advisory
Agreement dated as of October 23, 1998, between the Adviser and the Trust (the
"Adviser Agreement").
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
Section 1. Appointment of the Sub-Adviser. The Adviser hereby appoints
the Sub-Adviser to provide a continuous investment program for that portion of
the Fund designated by the Adviser (the "SAW Portfolio"), subject to such
instructions and supervision as the Adviser may from time to time furnish and
further subject to the control and direction of the Trust's Board of Trustees,
for the period and on the terms hereinafter set forth. The Sub-Adviser hereby
accepts such appointment and agrees during such period to render the services
and to assume the obligations herein set forth for the compensation herein
provided. The Sub-Adviser will provide the services under this Agreement in
accordance with the Fund's and the SAW Portfolio's investment objectives,
policies and restrictions as stated in the Fund's most recent Prospectus and
Statement of Additional Information and as the same may, from time to time, be
supplemented or amended and in resolutions of the Trust's Board of Trustees. The
Adviser
<PAGE> 2
agrees to furnish the Sub-Adviser from time to time copies of all amendments of
or supplements to such Prospectus and Statement of Additional Information. The
Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Adviser, the Fund
or the Trust in any way.
Section 2. Sub-Advisory Services. Subject to such instructions and
supervision as the Adviser may from time to time furnish, the continuous
investment program of the SAW Portfolio provided by the Sub-Adviser shall
include, among other things, investment research and management with respect to
all securities, investments and cash equivalents in the SAW Portfolio. The
Sub-Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Fund for the SAW
Portfolio, the appropriate portion of the SAW Portfolio's assets to be invested
in particular countries or geographic regions, the use of foreign exchange
contracts and other foreign currency matters, and the manner in which voting
rights, rights to consent to corporate action and other rights pertaining to the
SAW Portfolio's investments should be exercised. The Sub-Adviser will implement
such determinations through the placement, in the name of the Fund for the SAW
Portfolio, of orders for the execution of portfolio transactions with it through
such brokers or dealers as it may select.
In fulfilling its responsibilities hereunder, the Sub-Adviser agrees
that it will:
(a) use the same skill and care in providing such services as it uses
in providing services to other fiduciary accounts for which it
has investment responsibilities;
(b) conform with all applicable Rules and Regulations of the United
States Securities and Exchange Commission ("SEC") and in addition
will conduct its activities under this Agreement in accordance
with any applicable regulations of any government authority
pertaining to the investment advisory activities of the
Sub-Adviser and shall furnish such written reports or other
documents substantiating such compliance as the Adviser
reasonably may from time to time request;
(c) not make loans to any person to purchase or carry shares of
beneficial interest in the Trust or make loans to the Trust;
(d) place orders pursuant to investment determinations for the SAW
Portfolio either directly with the issuer or with an underwriter,
market maker or broker or dealer. In placing orders with brokers
and dealers, the Sub-Adviser will use its reasonable best efforts
to obtain prompt execution of orders in an effective manner at
the most favorable price. Consistent with this obligation, the
Sub-Adviser may, to the extent permitted by law, purchase and
sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for
the benefit of the
-2-
<PAGE> 3
Fund and/or other accounts over which the Sub-Adviser exercises
investment discretion. Subject to the review of the Trust's Board
of Trustees from time to time with respect to the extent and
continuation of the policy, the Sub-Adviser is authorized to pay
a broker or dealer who provides such brokerage and research
services a commission for effecting a securities transaction for
the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or
the overall responsibilities of the Sub-Adviser with respect to
the accounts as to which it exercises investment discretion. In
placing orders with brokers and dealers, consistent with
applicable laws, rules and regulations, the Sub-Adviser may
consider the sale of shares of the Trust. In no instance will
portfolio securities be purchased from or sold to the Trust,
BISYS Fund Services Limited Partnership, the Adviser, any other
sub-investment adviser for the Trust ("other sub-advisers"), or
the Sub-Adviser or any affiliate of the foregoing except as may
be permitted by the 1940 Act or an exemption therefrom;
(e) maintain all necessary or appropriate books and records with
respect to the SAW Portfolio's securities transactions in
accordance with all applicable laws, rules and regulations,
including but not limited to Section 31 (a) of the 1940 Act and
will furnish the Trust's Board of Trustees such periodic and
special reports as the Board reasonably may request;
(f) treat confidentially and as proprietary information of the
Adviser and the Trust all records and other information relative
to the Adviser and the Trust and prior, present, or potential
shareholders, and will not use such records and information for
any purpose other than performance of its responsibilities and
duties hereunder, except that subject to prompt notification to
the Trust and the Adviser, the Sub-Adviser may divulge such
information to duly constituted authorities, or when so requested
by the Adviser and the Trust, Provided, however, that nothing
contained herein shall prohibit the Sub-Adviser from advertising
or soliciting the public generally with respect to other products
or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders
of the Fund;
(g) maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations for
the Trust, the Sub-Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the
Adviser, other sub-advisers, the Sub-Adviser or of their
respective parents, subsidiaries or affiliates. In dealing with
such customers, the
-3-
<PAGE> 4
Sub-Adviser and its parent, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of
those customers are held by the Trust; and
(h) render, upon request of the Adviser or the Trust's Board of
Trustees, written reports concerning the investment activities of
the SAW Portfolio.
Section 3. Expense. During the term of this Agreement, the Sub-Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the SAW Portfolio.
Section 4. Books and Records. In compliance with the requirements of
Rule 31 a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records,
if any, which it maintains for the SAW Portfolio are the property of the Fund
and further agrees to surrender promptly to the Adviser or the Trust any such
records upon the Adviser's or the Trust's request and that such records shall be
available for inspection by the SEC. The Sub-Adviser further agrees to preserve
for the periods and at the places prescribed by Rule 31 a-2 under the 1940 Act
the records required to be maintained by Rule 31 a-1 under the 1940 Act.
Section 5. Compensation of the Sub-Adviser. In consideration of services
rendered pursuant to this Agreement, the Adviser will pay the Sub-Adviser a fee
at the annual rate of the value of the SAW Portfolio's average daily net assets
set forth in Schedule A hereto, provided, however, that the Sub-Adviser may from
time to time waive some or all of such fees until such time as it notifies the
Trust that it has terminated such waiver. Such fee shall be accrued daily and
paid monthly as soon as practicable after the end of each month. If the
Sub-Adviser shall serve for less than the whole of any month, the foregoing
compensation shall be prorated. For the purpose of determining fees payable to
the Sub-Adviser, the value of the SAW Portfolio's net assets shall be computed
at the times and in the manner specified in the Trust's Registration Statement.
If the Adviser is required to reduce its fee or to reimburse the Trust because
the expenses of the Fund exceed applicable state securities regulations or are
in excess of any voluntary expense limitations set forth in the Trust's current
Registration Statement, the Sub-Adviser's fee hereunder shall be reduced by an
amount equal to such excess expense multiplied by the ratio that the
Sub-Adviser's fee hereunder bears to the sum of the fees paid to and retained by
the Adviser and paid to BISYS Fund Services Limited Partnership (under the
Trust's Administration Agreement with BISYS Fund Services Limited Partnership
with respect to the Fund) by the Trust with respect to the SAW Portfolio.
Notwithstanding anything contained herein to the contrary, the Sub-Adviser shall
not be compensated on the basis of a share of capital gains or upon capital
appreciation of the SAW Portfolio or any portion thereof except as may be
authorized by applicable law.
Section 6. Services Not Exclusive. The services of the Sub-Adviser
hereunder are not to be deemed exclusive, and the Sub-Adviser shall be free to
render similar services to others and to engage in other activities, so long as
the services rendered hereunder are not impaired. It is understood that the
action taken by the Sub-Adviser under this Agreement may differ from the
-4-
<PAGE> 5
advice given or the timing or nature of action taken with respect to other
clients of the Sub-Adviser, and that a transaction in a specific security may
not be accomplished for all clients of the Sub-Adviser at the same time or at
the same price. The Sub-Adviser, in turn, understands that nothing in this
agreement will in any way limit or restrict Adviser or any of its officers,
directors or employees from buying or selling or trading in any securities
(including securities purchased or sold by the Sub-Adviser on behalf of the
Fund) for its or their own accounts or the accounts of other clients of the
Adviser, consistently with applicable law and fiduciary duties, except that no
such transactions will be made based on information derived or received directly
or indirectly from Sub-Adviser hereunder until the expiration of ten (10)
business days after: (i) the date such information has been so derived or
received, or (ii) in the case of information derived or received over several
days, the last date on which such information has been so derived or received.
The Adviser agrees that the Sub-Adviser shall have no responsibility or
liability whatsoever for any such use of such information.
Section 7. Use of Names. The Adviser shall not use the name of the
Sub-Adviser in any prospectus, sales literature or other material relating to
the Trust in any manner not approved prior thereto by the Sub-Adviser; provided,
however, that the Sub-Adviser shall approve all uses of its name which merely
refer in accurate terms to its appointment hereunder or which are required by
the SEC or a state securities commission; and, provided further, that in no
event shall such approval be unreasonably withheld. The Sub-Adviser shall not
use the name of the Trust, the Fund or the Adviser in any material relating to
the Sub-Adviser in any manner not approved prior thereto by the Adviser;
provided, however, that the Adviser shall approve all uses of its and the Fund's
or the Trust's name which merely refer in accurate terms to the appointment of
the Sub-Adviser hereunder or which are required by the SEC or a state securities
commission, and, provided further, that in no event shall such approval be
unreasonably withheld.
Section 8. Liability of the Sub-Adviser. Absent willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Sub-Adviser, or loss resulting from breach of
fiduciary duty with respect to the receipt of compensation for services, the
Sub-Adviser shall not be liable for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security. The Sub-Adviser
shall have no responsibility for any other series of the Trust or any portion of
the assets of the Fund other than the SAW Portfolio, or for the acts or
omissions of the Adviser, any other sub-adviser of the Trust or the Fund, The
Fund's custodian, administrator or distributor or any broker or dealer effecting
transactions on behalf of the Fund. In particular, the Sub-Adviser shall have no
responsibility or liability for the Fund's being in violation of any applicable
law or regulation or investment policy or restriction applicable to the Fund's
portfolio as a whole or for the Fund's failing to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), if the securities and other holdings of the SAW Portfolio
are such that the SAW Portfolio would not be in such violation or fail to so
qualify if the SAW Portfolio were deemed a separate series of the Trust or a
separate "regulated investment company" under the Code.
Section 9. Limitation of Trust's Liability. The Sub-Adviser acknowledges
that it has received notice of and accepts the limitations upon the Trust's and
the Fund's liability set forth in its Declaration of Trust and under Ohio law.
The Sub-Adviser agrees that any of the Trust's obligations shall be limited to
the assets of the Fund and that the Sub-Adviser shall not seek satisfaction of
any such obligation from the shareholders of the Trust nor from any Trustee,
officer, employee or agent of the Trust.
The names "The Coventry Group" and "Trustees of the Coventry Group"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of January 8, 1992 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
the Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The obligations of "The
Coventry Group" entered into in the name or on behalf thereof, or in the name or
on behalf of any series or class of shares of the Trust, by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any series or class of shares of the Trust must look solely to the assets
of the Trust belonging to such series or class for the enforcement of any claims
against the Trust.
-5-
<PAGE> 6
Section 10. Duration Renewal Termination and Amendment. This Agreement
will become effective as of the date first written above, provided that it shall
have been approved by vote of a majority of the outstanding voting securities of
the Fund, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until October 23,
2000.
Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive periods of one year each, provided such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the vote of a majority of the Trust's Board of Trustees or by the vote of a
majority of all votes attributable to the outstanding Shares of the Fund. This
Agreement may be terminated as to the Fund at any time, without payment of any
penalty, by the Trust's Board of Trustees, by the Adviser, or by a vote of the
majority of the outstanding voting securities of the Fund upon, 60 days' prior
written notice to the Sub-Adviser, or by the Sub-Adviser upon 60 days' prior
written notice to the Adviser and the Trust's Board of Trustees, or upon such
shorter notice as may be mutually agreed upon. This Agreement shall terminate
automatically and immediately upon termination of the Adviser Agreement. This
Agreement shall terminate automatically and immediately in the event of its
assignment. No assignment of this Agreement shall be made by the Sub-Adviser
without the consent of the Adviser and the Board of Trustees of the Trust. The
terms "assignment" and "vote of a majority of the outstanding voting securities"
shall have the meaning set forth for such terms in the 1940 Act. This Agreement
may be amended at any time by the Adviser and the Sub-Adviser, subject to
approval by the Trust's Board of Trustees and, if required by the 1940 Act and
applicable SEC rules and regulations, a vote of a majority of the Fund's
outstanding voting securities.
Section 11. Confidential Relationship. Any information and advice
furnished by either party to this Agreement to the other shall be treated as
confidential and shall not be disclosed to third parties except as required by
law or by this Agreement.
Section 12. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this agreement shall not be affected thereby.
Section 13. Miscellaneous. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof each party agrees to perform such further actions and execute such
further documents as are necessary to effectuate the purposes hereof This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Indiana. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed in
several counterparts, all of which together shall for all purposes constitute
one Agreement, binding on all parties.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
1ST SOURCE BANK
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
STANDISH, AYER & WOOD, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
-7-
<PAGE> 8
Dated: October 23, 1998
SCHEDULE A
To the Sub-Investment Advisory Agreement
between 1st Source Bank and
Standish, Ayer & Wood, Inc.
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
------------ ------------- ----
<S> <C> <C>
1st Source Monogram Annual Rate of 0.45% of the October 23, 1998
Diversified Equity Fund average daily net assets of
the SAW Portfolio
</TABLE>
- ---------------
*All fees are computed daily and paid monthly.
1ST SOURCE BANK
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
STANDISH, AYER & WOOD, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
A-1
<PAGE> 1
EXHIBIT (6)
DISTRIBUTION AGREEMENT
This Agreement is made this 23rd day of October, 1998, between The
Coventry Group, a Massachusetts business trust (the "Trust"), 3435 Stelzer Road,
Columbus, Ohio 43219, and BISYS Fund Services Limited Partnership d/b/a BISYS
Fund Services, an Ohio limited partnership ("Distributor"), 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company,
organized as a Massachusetts business trust and registered with the Securities
and Exchange Commission (the "Commission") under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust identified on Schedule A hereto as such Schedule may be amended from
time to time (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933, as amended ("1933 Act"). As used in this
Agreement, the term "registration statement" shall mean Parts A (the prospectus)
, B (the Statement of Additional Information) and C of each registration
statement that is filed on Form N-1A, or any successor thereto, with the
commission, together with any amendments thereto. The term "prospectus" shall
mean each form of prospectus and Statement of Additional Information used by the
Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale of the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Trust understands
that Distributor is now and, in the future, may be the distributor of the shares
of several investment companies or series (together, "Companies") including
Companies having investment objectives similar to those of the Trust. The Trust
further understands that investors and potential investors in the Trust may
invest in shares of such other companies. The Trust agrees that Distributor's
duties to such Companies shall not be deemed in conflict with its duties to the
Trust under this paragraph 1.2.
Except as provided in Section 2 herein, Distributor shall, at its own
expense, finance appropriate activities which it deems reasonable which are
primarily intended to result in the sale of the Shares, including, but not
limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing and mailing of prospectuses to other than current
Shareholders, and the printing and mailing of sales literature.
<PAGE> 2
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal business
hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all documents
and to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the Shares
for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) a monthly itemized list of the securities in
the Funds, (c) monthly balance sheets as soon as practicable after the end of
each month, and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
commission under the 1933 Act have been carefully prepared in conformity with
the requirements of said Act and rules and regulations of the Commission
thereunder and all statements of fact contained in any such registration
statement and prospectus will be true and correct when such registration
statement becomes effective. Furthermore, neither any registration statement nor
any prospectus when such registration statement becomes effective includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
to a purchaser of the Shares. The Trust may, but shall not be obligated to,
-2-
<PAGE> 3
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Trust's counsel, be necessary
or advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any prospectus
in the form furnished from time to time in connection with the sale of the
Shares. The Trust agrees to indemnify, defend and hold Distributor, its several
partners and employees, and any person who controls Distributor within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Distributor, its partners and
employees, or any such controlling person, may incur under the 1933 Act or under
common law or otherwise, arising out of ' or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement or any prospectus or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in either any
registration statement or any prospectus or necessary to make the statements in
either thereof not misleading; provided, however, that the Trust's agreement to
indemnify Distributor, its partners or employees, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any statements or representations as are contained in any
prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in paragraph 1.10 shall
not be deemed to cover any liability to the Trust or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
Agreement. The Trust's agreement to indemnify Distributor., its partners and
employees, and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust's being notified of any action brought against
Distributor, its partners or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Trust at its
principal office in Columbus, Ohio and sent to the Trust by the person against
whom such action is brought, within 10 days after the summons or other first
legal process shall have been served. The failure to so notify the Trust of any
such action shall not relieve the Trust from any liability which the Trust may
have to the person against whom such action is brought by reason of any such
untrue, or allegedly untrue, statement or omission,
-3-
<PAGE> 4
or alleged omission, otherwise than on account of the Trust's indemnity
agreement contained in this paragraph 1.11. The Trust will be entitled to assume
the defense of any suit brought to enforce any such claim, demand or liability,
but, in such case, such defense shall be conducted by counsel of good standing
chosen by the Trust and approved by Distributor, which approval shall not be
unreasonably withheld. In the event the Trust elects to assume the defense of
any such suit and retain counsel of good standing approved by Distributor, the
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Trust does not elect
to assume the defense of any such suit, or in case Distributor reasonably does
not approve of counsel chosen by the Trust, the Trust will reimburse
Distributor, its partners and employees, or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by Distributor or them. The Trust's indemnification agreement
contained in this paragraph 1.11 and the Trust's representations and warranties
in this Agreement shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of Distributor, its partners and
employees, or any controlling person, and shall survive the delivery of any
Shares.
This agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several partners and employees, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees promptly to notify Distributor of the commencement
of any litigation or proceedings against the Trust or any of its officers or
Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or Trustees
or any such controlling person, may incur under the 1933 Act or under common law
or otherwise, but only to the extent that such liability or expense incurred by
the Trust, its officers or Trustees or such controlling person resulting from
such claims or demands, shall arise out of or be based upon any untrue, or
alleged untrue, statement of a material fact contained in information furnished
in writing by Distributor to the Trust and used in the answers to any of the
items of the registration statement or in the corresponding statements made in
the prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by Distributor to the Trust required to be stated in such answers or
necessary to make such information not misleading. Distributor's agreement to
indemnify the Trust, its officers and Trustees, and any such controlling person,
as aforesaid, is expressly conditioned upon Distributor's being notified of any
action brought against the Trust, its officers or Trustees, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office in Columbus, Ohio, and sent to
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served.
Distributor shall have the right of first control of the defense of such action,
with counsel of its own choosing, satisfactory to the Trust, if such action is
based solely upon such alleged misstatement or omission on Distributor's part,
and in any other event the Trust, its officers or Trustees or such controlling
person shall each have the
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<PAGE> 5
right to participate in the defense or preparation of the defense of any such
action. The failure to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the Trust,
its officers or Trustees, or to such controlling person by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Distributor's indemnity agreement contained in this paragraph
1.12.
1.13 No Shares shall be offered by either Distributor or the Trust under
any of the provisions of this Agreement and no orders for the purchase or sale
of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 10(a) of
said Act is not on file with the Commission; provided, however, that nothing
contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Declaration of Trust, or By-Laws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for additional
information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or
prospectus then in effect or the initiation by service of process on the
Trust of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the registration statement or prospectus then
in effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to any amendment
to any registration statement or prospectus which may from time to time
be filed with the Commission.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed
-5-
<PAGE> 6
to civil or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Trust.
1.16 This Agreement shall be governed by the laws of the State of Ohio.
2. Fee.
Distributor shall receive from the Funds identified on Schedule B hereto
(the "Distribution Plan Funds") a 12b-1 fee at the rate and upon the terms and
conditions set forth in the Distribution and Shareholder Service Plan attached
as Schedule C hereto, and as amended from time to time. The 12b-1 fee shall be
accrued daily and shall be paid on the first business day of each month, or at
such time(s) as Distributor shall reasonably request.
3. Sale and Payment.
Under this Agreement, the following provisions shall apply with respect
to the sale of and payment of Shares of a Fund sold at an offering price which
includes a sales load (collectively, the "Load Shares;" individually, a "Load
Share") as described in the prospectuses of any Funds identified on Schedule D
hereto (collectively, the "Load Funds"; individually, a "Load Fund"):
(a) Distributor shall have the right, as principal, to purchase
Load Shares at their net asset value and to sell such Load Shares to the
public against orders therefor at the applicable public offering price,
as defined in Section 4 hereof. Distributor shall also have the right,
as principal, to sell Load Shares to dealers against orders therefor at
the public offering price less a concession determined by Distributor,
which concession shall not exceed the amount of the sales charge or
underwriting discount, if any, referred to in Section 4 below.
(b) Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall pay or cause
to be paid to the Load Fund or to its order an amount in Boston or New
York clearing house funds equal to the applicable net asset value of
such Shares. Distributor may retain so much of any sales charge or
underwriting discount as is not allowed by Distributor as a concession
to dealers.
4. Public Offering Price.
The public offering price of a Load Share shall be the net asset value
of such Load Shares, plus any applicable sales charge, all as set forth in the
current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Declaration of Trust and
By-Laws of the Trust and the then current prospectus of the Load Fund.
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<PAGE> 7
5. Issuance of Shares.
The Trust reserves the right to issue, transfer or sell Load Shares at
net asset value (a) in connection, with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding Shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Load Shares pursuant to any exchange and reinvestment privileges described in
any then current prospectus of the Load Fund; and (e) otherwise in accordance
with any then current prospectus of the Load Fund.
6. Term, Duration and Matters Relating to the Trust as an Ohio Business
Trust.
This Agreement shall become effective with respect to each Fund listed
on Schedule A hereof as of the date first set forth above (or, if a particular
Fund is not in existence on such date, on the date an amendment to Schedule A to
this Agreement relating to that Fund is executed), and, unless sooner terminated
as provided herein, shall continue in effect until August 20, 1998. Thereafter,
if not terminated as provided herein, this Agreement shall continue with respect
to a particular Fund in effect automatically for successive one-year periods
ending on August 20 of each year with respect to each of the Funds, provided
such continuance is specifically approved at least annually by (a) the Trust's
Board of Trustees or (b) by "vote of a majority of the outstanding voting
securities" (as defined below) of the Trust, provided, however, that in either
event the continuance is also approved by a majority of the Trust's Trustees who
are not parties to the Agreement or interested persons (as defined in the 1940
Act) of any such party, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable without
penalty, on not less than sixty days" prior written notice, by the Trust's Board
of Trustees, by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Trust or by Distributor. This Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
The Coventry Group is a business trust organized under the laws of the
Commonwealth of Massachusetts and under a Declaration of Trust, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of the Commonwealth of Massachusetts, and to any and all
amendments thereto so filed or hereafter filed. The obligations of "The Coventry
Group" entered into in the name or on behalf thereof by any of the Trustees,
officers, employees or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, officers, employees, agents or
shareholders of the Trust personally, but bind only the assets of the Trust, and
all persons dealing with any of the Funds of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of any claims
against the Trust.
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<PAGE> 8
BISYS FUND SERVICES THE COVENTRY GROUP
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc., By:
General Partner ---------------------------
Name:
-------------------------
Title:
By: ------------------------
---------------------------
Name:
-------------------------
Title:
------------------------
-8-
<PAGE> 9
Dated: October 23, 1998
Schedule A
to the
Distribution Agreement
between The Coventry Group and
BISYS Fund Services Limited Partnership
October 23, 1998
<TABLE>
<CAPTION>
Name of Fund Date
- ------------ ----
<S> <C>
1st Source Monogram Diversified Equity Fund October 23, 1998
1st Source Monogram Income Equity Fund October 23, 1998
1st Source Monogram Special Equity Fund October 23, 1998
1st Source Monogram Income Fund October 23, 1998
</TABLE>
BISYS FUND SERVICES LIMITED THE COVENTRY GROUP
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: By:
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
-1-
<PAGE> 10
Dated: October 23, 1998
Schedule B
to the
Distribution Agreement
between The Coventry Group and
BISYS Fund Services Limited Partnership
October 23, 1998
<TABLE>
<CAPTION>
Name of Distribution Plan Fund Date
- ------------------------------ ----
<S> <C>
1st Source Monogram Diversified Equity Fund October 23, 1998
1st Source Monogram Income Equity Fund October 23, 1998
1st Source Monogram Special Equity Fund October 23, 1998
1st Source Monogram Income Fund October 23, 1998
</TABLE>
BISYS FUND SERVICES LIMITED THE COVENTRY GROUP
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: By:
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
-1-
<PAGE> 11
Schedule C
to the
Distribution Agreement
between The Coventry Group and
BISYS Fund Services Limited Partnership
October 23, 1998
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and shareholder
service plan of The Coventry Group, a Massachusetts business trust (the
"Trust"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). The Plan relates to those investment portfolios ("Funds")
identified on Schedule B to the Trust's Distribution Agreement dated as of
October 19, 1998, and as amended from time to time (the "Distribution Plan
Funds").
Section 1. Each Distribution Plan Fund shall pay to BISYS Fund Services
Limited Partnership, the distributor (the "Distributor") of the Funds' shares of
beneficial interest (the "Shares") a fee in an amount not to exceed on an annual
basis .25% of the average daily net asset value of such Fund (the "12b-1 Fee")
for: (i) (a) efforts of the Distributor expended in respect of or in furtherance
of sales of Shares, and (b) to enable the Distributor to make payments to banks
and other institutions and broker/dealers (a "Participating organization") for
distribution assistance pursuant to an agreement with the Participating
organization; (ii) reimbursement of expenses (a) incurred by the Distributor,
and (b) incurred by a Participating organization pursuant to an agreement in
connection with distribution assistance including, but not limited to, the
reimbursement of expenses relating to printing and distributing prospectuses to
persons other than Shareholders of such Distribution Plan Fund, printing and
distributing advertising and sales literature and reports to Shareholders for
use in connection with the sales of Shares, processing purchase, exchange and
redemption request from customers and placing orders with the Distributor or the
Distribution Plan Fund's transfer agent, and personnel and communication
equipment used in servicing Shareholder accounts and prospective shareholder
inquiries; (iii) (a) efforts of the Distributor expended in servicing
shareholders holding Shares, and (b) to enable the Distributor to make payments
to a Participating organization for shareholder services pursuant to an
agreement with the Participating organization; and (iv) reimbursement of
expenses (a) incurred by the Distributor, and (b) incurred by a Participating
organization pursuant to' an agreement in connection with shareholder service
including, but not limited to, personal, continuing services to investors in the
Shares of such Distribution Plan Fund, and providing office space, equipment,
telephone facilities and various personnel including clerical, supervisory and
computer, as is necessary or beneficial in connection therewith.
For purposes of the Plan, a Participating organization may
include the Distributor or any of its affiliates or subsidiaries.
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<PAGE> 12
Section 2. The 12b-1 Fee shall be paid by the Distribution Plan Funds to
the Distributor only to compensate or to reimburse the Distributor for payments
or expenses incurred pursuant to Section 1.
Section 3. The Plan shall not take effect with respect to a Distribution
Plan Fund until it has been approved by a vote of the initial shareholder of
such Fund.
Section 4. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
1940 Act or the rules and regulations thereunder) of both (a) the Trustees of
the Trust, and (b) the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on the Plan or such agreement.
Section 5. The Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of the Plan in
Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Distribution Plan Funds pursuant to the Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time as to a Distribution
Plan Fund by vote of a majority of the Independent Trustees, or by vote of a
majority of a Distribution Plan Fund's outstanding voting securities.
Section 8. All agreements with any person relating to implementation of
the Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding voting securities
of the Distribution Plan Fund, on not more than 60 days' written notice
to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the
event of its assignment.
Section 9. The Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 1 hereof without approval
in the manner provided in Section 3 hereof, and all material amendments to the
Plan shall be approved in the manner provided for approval of the Plan in
Section 4.
Section 10. As used in the Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of the
Plan or any agreements related to it, and (b) the terms
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<PAGE> 13
"assignment", "interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
-3-
<PAGE> 14
Dated: October 23, 1998
Schedule D
to the
Distribution Agreement
between The Coventry Group and
BISYS Fund Services Limited Partnership
October 23, 1998
<TABLE>
<CAPTION>
Name of Load Fund Date
- ----------------- ----
<S> <C>
1st Source Monogram Diversified Equity Fund October 23, 1998
1st Source Monogram Income Equity Fund October 23, 1998
1st Source Monogram Special Equity Fund October 23, 1998
1st Source Monogram Income Fund October 23, 1998
</TABLE>
BISYS FUND SERVICES LIMITED THE COVENTRY GROUP
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: By:
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
-1-
<PAGE> 1
EXHIBIT 8
CUSTODY AGREEMENT
THIS AGREEMENT, is made as of October 23, 1998, by and between The
Coventry Group, a business trust organized under the laws of the Commonwealth of
Massachusetts (the "Trust"), and THE FIFTH THIRD BANK, a banking company
organized under the laws of the State of Ohio (the "Custodian").
WITNESSETH:
WHEREAS, the Trust desires that the Securities and cash of each of the
investment portfolios and any additional portfolios of the Trust, as each are or
will be identified in Exhibit A hereto (such current investment portfolios and
any additional portfolios individually referred to herein as a "Fund" and
collectively as the "Funds"), be held and administered by the Custodian pursuant
to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "'1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral Instructions and
Written Instructions on behalf of the Trust and named in Exhibit B hereto or in
such resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to time
serving under the Trust's Declaration of Trust, as from time to time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as
provided in Subpart 0 of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart 0.
-1-
<PAGE> 2
1.4 "Business Day" shall mean any day recognized as a settlement day by
The New York Stock Exchange, Inc. and any other day for which the Fund computes
the net asset value of the Fund.
1.5 "NASD" shall mean The National Association of Securities Dealers,
Inc.
1.6 "Officer" shall mean the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer of
the Trust.
1.7 "Oral Instructions" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have been given by an Authorized Person, (ii)
recorded and kept among the records of the Custodian made in the ordinary course
of business and (iii) orally confirmed by the Custodian. The Trust shall cause
all Oral Instructions to be confirmed by Written Instructions. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Trust. If Oral Instructions vary
from the Written Instructions which purport to confirm them, the Custodian shall
notify the Trust of such variance but such Oral Instructions will govern unless
the Custodian has not yet acted.
1.8 "Custody Account" shall mean any account in the name of the Trust,
which is provided for in Section 3.2 below.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10 "Securities Depository" shall mean The Participants Trust Company
or The Depository Trust Company and (provided that Custodian shall have received
a copy of a resolution of the Board of Trustees, certified by an Officer,
specifically approving the use of such clearing agency as a depository for the
Trust) any other clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities and Exchange Act of 1934 (the
"1934 Act"), which acts as a system for the central handling of Securities where
all Securities of any particular class or series of an issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures, notes, bank
certificates of deposit, bankers' acceptances, mortgage-backed securities, other
money market instruments or other obligations, and any certificates, receipts,
warrants or other instruments or documents representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or any similar property or assets that the
Custodian has the facilities to clear and to service.
1.12 "Shares" shall mean the units of beneficial interest issued by the
Trust.
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<PAGE> 3
1.13 "Written Instructions" shall mean (i) written communications
actually received by the Custodian and signed by one or more persons as the
Board of Trustees shall have from time to time authorized, or (ii)
communications by telex or any other such system from a person or persons
reasonably believed by the Custodian to be Authorized, or (iii) communications
transmitted electronically through the Institutional Delivery System (IDS), or
any other similar electronic instruction system acceptable to Custodian and
approved by resolutions of the Board of Trustees, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Funds at any time during the period of this Agreement, provided that such
Securities or cash at all times shall be and remain the property of the Fund.
2.2 Acceptance. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of the Funds, except Securities maintained in a
Securities Depository or Book-Entry System, shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian and
shall be identified as subject to this Agreement.
3.2 Custody Account. The Custodian shall open and maintain in its trust
department a custody account in the name of each Fund, subject only to draft or
order of the Custodian, in which the Custodian shall enter and carry all
Securities, cash and other assets of the Fund which are delivered to it.
3.3 Appointment of Agents. In its discretion, the Custodian may
appoint, and at any time remove, any domestic bank or trust company, which has
been approved by the Board of Trustees and is qualified to act as a custodian
under the 1940 Act, as sub-custodian to hold Securities and cash of the Funds
and to carry out such other provisions of this Agreement as it may determine,
and may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of the Custodian and subject
only to its draft or order), provided, however, that the appointment of any such
agent shall not relieve the Custodian of any of its obligations or liabilities
under this Agreement.
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<PAGE> 4
3.4 Delivery of Assets to Custodian. Each Fund shall deliver, or cause
to be delivered, to the Custodian all of each Fund's Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The Custodian may
deposit and/or maintain Securities of the Funds in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any Securities
Depository or Book-Entry System, the Fund shall deliver to the
Custodian a resolution of the Board of Trustees, certified by an
Officer, authorizing and instructing the Custodian on an
on-going basis to deposit in such Securities Depository or
Book-Entry System all Securities eligible for deposit therein
and to make use of such Securities Depository or Book-Entry
System to the extent possible and practical in connection with
its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities. So long as such Securities
Depository or Book-Entry System shall continue to be employed
for the deposit of Securities of the Funds, the Trust shall
annually re-adopt such resolution and deliver a copy thereof,
certified by an Officer, to the Custodian.
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of
the Custodian in such Book-Entry System or Securities Depository
which includes only assets held by the Custodian as a fiduciary,
custodian or otherwise for customers.
(c) The records of the Custodian and the Custodian's account on the
books of the Book-Entry System and Securities Depository as the
case may be, with respect to Securities of a Fund maintained in
a Book-Entry System or Securities Depository shall, by
book-entry, or otherwise identify such Securities as belonging
to the Fund.
(d) If Securities purchases by the Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian shall
pay for such Securities upon (i) receipt of advice from the
Book-Entry System or Securities Depository that such Securities
have been transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. If
Securities sold by the
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<PAGE> 5
Fund are held in a Book-Entry System or Securities Depository,
the Custodian shall transfer such Securities upon (i) receipt of
advice from the Book-Entry System or Securities Depository that
payment for such Securities has been transferred to the
Depository Account, and (ii) the making of an entry on the
records of t the Custodian to reflect such transfer and payment
for the account of the Fund.
(e) Upon request, the Custodian shall provide the Fund with copies
of any report (obtained by the Custodian from a Book-Entry
System or Securities Depository in which Securities of the Fund
are kept) on the internal accounting controls and procedures for
safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to
the Trust resulting (i) from the use of a Book-Entry System or
Securities Depository by reason of any negligence or willful
misconduct on the part of Custodian or any sub-custodian
appointed pursuant to Section 3.3 above or any of its or their
employees, or (ii) from failure of Custodian or any such
sub-custodian to enforce effectively such rights as it may have
against a Book-Entry System or Securities Depository. At its
election, the Trust shall be subrogated to the rights of the
Custodian with respect to any claim against a Book-Entry System
or Securities Depository or any other person for any loss or
damage to the Funds arising from the use of such Book-Entry
System or Securities Depository, if and to the extent that the
Trust has been made whole for any such loss or damage.
3.6 Disbursement of Moneys from Custody Accounts. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from a Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only upon
compliance with Section 4.1 of this Agreement and only (i) in
the case of Securities (other than options on Securities,
futures contracts and options on futures contracts), against the
delivery to the Custodian (or any sub-custodian appointed
pursuant to Section 3.3 above) of such Securities registered as
provided in Section 3.9 below in proper form for transfer, or if
the purchase of such Securities is effected through a Book-Entry
System or Securities Depository, in accordance with the
conditions set forth in Section 3.5 above; (ii) in the case of
options on Securities, against delivery to the Custodian (or
such sub-custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the
case of futures contracts and options on futures contracts,
against delivery to the Custodian (or such sub-custodian) of
evidence of title thereto in favor of the Trust or any nominee
referred to in Section 3.9 below; and (iv) in the case of
repurchase or reverse repurchase
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<PAGE> 6
agreements entered into between the Trust and a bank which is a
member of the Federal Reserve System or between the Trust and a
primary dealer in U.S. Government securities, against delivery
of the purchased Securities either in certificate form or
through an entry crediting the Custodian's account at a
Book-Entry System or Securities Depository for the account of
the Fund with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by the
Trust, including but not limited to the following payments for
the account of a Fund: interest, taxes, administration,
investment management, investment advisory, accounting,
auditing, transfer agent, custodian, trustee and legal fees; and
other operating expenses of a Fund; in all cases, whether or not
such expenses are to be in whole or in part capitalized or
treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD, relating to
compliance with rules of The Options Clearing Corporation and of
any registered national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Trust;
(g) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian, and a futures commission
merchant registered under the Commodity Exchange Act, relating
to compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Trust;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including
the Custodian), which deposit or account has a term of one year
or less; and for any other proper purposes, but only upon
receipt, in addition to Proper Instructions, of a copy of a
resolution of the Board of Trustees, certified by an Officer,
specifying the amount and purpose of such payment, declaring
such purpose to be a proper corporate purpose, and naming the
person or persons to whom such payment is to be made.
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<PAGE> 7
3.7 Delivery of Securities from Fund Custody Accounts. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from a
Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of a Fund but only
against receipt of payment therefor in cash, by certified or
cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of
Section 3.5 above;
(c) To an Offeror's depository agent in connection with tender or
other similar offers for Securities of a Fund; provided that, in
any such case, the cash or other consideration is to be
delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the
name of the Trust, the Custodian or any sub-custodian appointed
pursuant to Section 3.3 above, or of any nominee or nominees of
any of the foregoing, or (ii) for exchange for a different
number of certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any
such case, the new Securities are to be delivered to the
Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the issuer of such Securities, or pursuant to provisions for
conversion contained in such Securities, or pursuant to any
deposit agreement, including surrender or receipt of underlying
Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by a Fund;
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of a
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
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<PAGE> 8
(j) For delivery as security in connection with any borrowings by
the Trust on behalf of a Fund requiring a pledge of assets by
such Fund, but only against receipt by the Custodian of the
amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Trust or a
Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD, relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or of any
similar organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Trust on
behalf of a Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Trust on behalf of a Fund, the Custodian, and a
futures commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market
(or any similar organization or organizations) regarding account
deposits in connection with transactions by the Trust on behalf
of a Fund; or
(n) For any other proper corporate purposes, but only upon receipt,
in addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
Securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless otherwise
instructed by the Trust, the Custodian shall with respect to all Securities held
for a Fund;
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Trust is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect
on a timely basis the amount payable upon all Securities which
may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Endorse for collection, in the name of the Trust, checks, drafts
and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
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<PAGE> 9
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax laws or
the laws or regulations of any other taxing authority now or
hereafter in effect, and prepare and submit reports to the
Internal Revenue Service ("IRS") and to the Trust at such time,
in such manner and containing such information as is prescribed
by the IRS;
(f) Hold for a Fund, either directly or, with respect to Securities
held therein, through a Book-Entry System or Securities
Depository, all rights and similar securities issued with
respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase, transfer
and other dealings with Securities and assets of the Fund.
3.9 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System for the account of the Trust on behalf of a Fund, if eligible
therefor. All other Securities held for a Fund may be registered in the name of
the Trust on behalf of such Fund, the Custodian, or any sub-custodian appointed
pursuant to Section 3.3 above, or in the name of any nominee of any of them, or
in the name of a Book-Entry System, Securities Depository or any nominee of
either thereof; provided, however, that such Securities are held specifically
for the account of the Trust on behalf of a Fund. The Trust shall furnish to the
Custodian appropriate instruments to enable the Custodian to hold or deliver in
proper form for transfer, or to register in the name of any of the nominees
hereinabove referred to or in the name of a Book-Entry System or Securities
Depository, any Securities registered in the name of a Fund.
3.10 Records
(a) The Custodian shall maintain, by Fund, complete and accurate
records with respect to Securities, cash or other property held
for the Trust, including (i) journals or other records of
original entry containing an itemized daily record in detail of
all receipts and deliveries of Securities and all receipts and
disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in
physical possession, (C) monies and Securities borrowed and
monies and Securities loaned (together with a record of the
collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable
and interest accrued; and (iii) canceled checks and bank records
related thereto. The Custodian shall keep such other books and
records of the Trust as the Trust shall reasonably request, or
as may be required by the 1940 Act, including, but not limited
to Section 31 and Rule 31a-1 and 31a-2 promulgated thereunder.
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<PAGE> 10
(b) All such books and records maintained by the Custodian shall (i)
be maintained in a form acceptable to the Trust and in
compliance with rules and regulations of the Securities and
Exchange Commission, (ii) be the property of the Trust and at
all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized
officers, employees or agents of the Trust and employees or
agents of the Securities and Exchange Commission, and (iii) if
required to be maintained by Rule 31a-1 under the 1940 Act, be
preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust
with a daily activity statement by Fund and a summary of all transfers to or
from the Custody Account on the day following such transfers. At least monthly
and from time to time, the Custodian shall furnish the Trust with a detailed
statement, by Fund, of the Securities and moneys held for the Trust under this
Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any sub-custodian appointed pursuant to Section
3.3 above,
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
if any, relating to Securities which are not registered in the name of a Fund,
to be promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
include all other proxy materials, if any, and promptly deliver to the Trust
such proxies, all proxy soliciting materials, which should include all other
proxy materials, if any, and all notices to such Securities.
3.14 Information on Corporate Actions. Custodian will promptly notify
the Trust of corporate actions, limited to those Securities registered in
nominee name and to those Securities held at a Depository or sub-custodian
acting as agent for Custodian. Custodian will be responsible only if the notice
of such corporate actions is published by the Financial Daily Card Service, J.J.
Kenny Called Bond Service, DTC, or received by first class mail from the agent.
For market announcements not yet received and distributed by Custodian's
services, the Trust will inform its custody representative with appropriate
instructions. Custodian will, upon receipt of the Trust's response within the
required deadline, affect such action for receipt or payment for the Trust. For
those responses received after the deadline, Custodian will affect such action
for receipt or payment, subject to the limitations of the agent(s) affecting
such actions. Custodian will promptly notify the Trust for put options only if
the notice is received by first class mail from the agent. The Trust will
provide or cause to be provided to the Custodian with all relevant information
contained in the prospectus for any security which has unique put/option
provisions and provide the Custodian with specific tender instructions at least
ten business days prior to the beginning date of the tender period.
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<PAGE> 11
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of Securities
for the Trust, Written Instructions shall be delivered to the Custodian,
specifying (a) the name of the issuer or writer of such Securities, and the
title or other description thereof, (b) the number of shares, principal amount
(and accrued interest, if any) or other units purchased, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, and (f) the name of the person to whom such amount
is payable. The Custodian shall upon receipt of such Securities purchased by a
Fund pay out of the moneys held for the account of such Fund the total amount
specified in such Written Instructions to the person named therein. The
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities for a Fund, if in the relevant Custody Account there
is insufficient cash available to the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of Securities
for a Fund is made by the Custodian in advance of receipt for the account of the
Fund of the Securities purchased but in the absence of specific Written or Oral
Instructions to so pay in advance, the Custodian shall be liable to the Fund for
such Securities to the same extent as if the Securities had been received by the
Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Trust as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Trust shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the Custodian shall have no liability for any of the
foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from
time to time, the Custodian may credit the relevant Custody Account, prior to
actual receipt of final payment thereof, with (i) proceeds from the sale of
Securities which it has been instructed to deliver
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<PAGE> 12
against payment, (ii) proceeds from the redemption of Securities or other assets
of the Trust, and (iii) income from cash, Securities or other assets of the
Trust. Any such credit shall be conditional upon actual receipt by Custodian of
final payment and may be reversed if final payment is not actually received in
full. The Custodian may, in its sole discretion and from time to time, permit
the Trust to use funds so' credited to its Custody Account in anticipation of
actual receipt of final payment. Any such funds shall be repayable immediately
upon demand made by the Custodian at any time prior to the actual receipt of all
final payments in anticipation of which funds were credited to the Custody
Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust to facilitate
the settlement of a Trust transactions on behalf of a Fund in its Custody
Account. Any such advance shall be repayable immediately upon demand made by
Custodian.
ARTICLE V
REDEMPTION OF TRUST SHARES
5.1 Transfer of Funds. From such funds as may be available for the
purpose in the relevant Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares of a Fund, the Custodian
shall wire each amount specified in such Proper Instructions to or through such
bank as the Trust may designate with respect to such amount in such Proper
Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under
any obligation to effect payment or distribution by any bank designated in
Proper Instructions given pursuant to Section 5.1 above of any amount paid by
the Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the
Trust, the Custodian and a broker-dealer registered under the
1934 Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating
to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the
Commodity Futures Trading commission or any registered contract
market), or of any similar organization or
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<PAGE> 13
organizations, regarding escrow or other arrangements in
connection with transactions by the Trust,
(b) for purposes of segregating cash or Securities in connection
with securities options purchased or written by a Fund or in
connection with financial futures contracts (or options thereon)
purchased or sold by a Fund,
(c) which constitute collateral for loans of Securities made by a
Fund,
(d) for purposes of compliance by the Trust with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and firm
commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees, certified by an Officer,
setting forth the purpose or purposes of such segregated account
and declaring such purposes to be proper corporate purposes.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Trust for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim unless such loss,
damages, cost, expense, liability or claim arises from negligence, bad faith or
willful misconduct on its part or on the part of any sub-custodian appointed
pursuant to Section 3.3 above. The Custodian shall be entitled to rely on and
may act upon advice of counsel on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice. The
Custodian shall promptly notify the Trust of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not be under any
obligation at any time to ascertain whether the Trust is in compliance with the
1940 Act, the regulations thereunder, the provisions of the Trust's charter
documents or by-laws, or its investment objectives and policies as then in
effect.
7.2 Actual Collection Required. The Custodian shall not be liable for,
or considered to be the custodian of, any cash belonging to the Trust or any
money represented by a check, draft or other instrument for the payment of
money, until the Custodian or its agents actually receive such cash or collect
on such instrument.
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<PAGE> 14
7.3 No Responsibility for title, etc. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for the Trust if such Securities are
in default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and/or any Written Instructions
actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 Cooperation. The Custodian shall cooperate with and supply
necessary information, by the Trust, to the entity or entities appointed by the
Trust to keep the books of account of the Trust and/or compute the value of the
assets of the Trust. The Custodian shall take all such reasonable actions as the
Trust may from time to time request to enable the Trust to obtain, from year to
year, favorable opinions from the Trust's independent accountants with respect
to the Custodian's activities hereunder in connection with (a) the preparation
of the Trust's report on Form N-1A and Form N-SAR and any other reports required
by the Securities and Exchange Commission, and (b) the fulfillment by the Trust
of any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold harmless the
Custodian and any sub-custodian appointed pursuant to Section 3.3 above, and any
nominee of the Custodian or of such sub-custodian from and against any loss,
damage, cost, expense (including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
Securities are registered in the name of any such nominee, or (b) from any
action or inaction by the Custodian or such sub-custodian (i) at the request or
direction of or in reliance on the advice of the Trust, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement or any sub-custody agreement with a sub-custodian appointed
pursuant to Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such custody agreement, provided that
neither the Custodian nor any such sub-custodian shall be indemnified
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<PAGE> 15
and held harmless from and against any such loss, damage, cost, expense,
liability or claim arising from the Custodian's or such sub-custodian's
negligence, bad faith or willful misconduct.
8.2 Indemnity to be Provided. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes, acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay shall use its best efforts to ameliorate the effects of any such
failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of the
date first set forth above and shall continue in full force and effect until
terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the
Trust and held by the Custodian as custodian, and (b) transfer any Securities
held in a Book-Entry System or Securities Depository to an account of or for the
benefit of the Trust at the successor custodian, provided that the Trust shall
have paid to the Custodian all fees, expenses and other amounts to the payment
or reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the Custodian by
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<PAGE> 16
applicable regulatory authorities or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian
is not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "Bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $25
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to an
account of or for the Trust at such bank or trust company all Securities of the
Trust held in a Book-Entry System or Securities Depository. Upon such delivery
and transfer, such bank or trust company shall be the successor custodian under
this Agreement and the Custodian shall be relieved of all obligations under this
Agreement. If, after reasonable inquiry, the Custodian cannot find a successor
custodian as contemplated in this Section 10.3, then the Custodian shall have
the right to deliver to the Trust all Securities and cash then owned by the
Trust and to transfer any Securities held in a Book-Entry System or Securities
Depository to an account of or for the Trust. Thereafter, the Trust shall be
deemed to be its own custodian with respect to the Trust and the Custodian shall
be relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from
time to time by the Trust and the Custodian. The fees and other charges in
effect on the date hereof and applicable to the Funds are set forth in Exhibit B
attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
The Trust is a business trust organized under the laws of the
Commonwealth of Massachusetts and under a Declaration of Trust, to which
reference is hereby made a copy of which is on file at the office of the
Secretary of State of Massachusetts, and to any and all amendments thereto so
filed or hereafter filed. The obligations of the Trust entered into in the name
of the Trust or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust or the Funds personally, but bind only the assets of the Trust, and all
persons dealing with any of the Funds of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of any claims
against the Trust.
-16-
<PAGE> 17
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the party at the address set forth after its name herein
below:
To the Trust:
The Coventry Group
3435 Stelzer Road
Columbus, Ohio 43219
Attn: President
Telephone: (614) 470-8000
Facsimile: (614) 470-8715
To the Custodian:
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attn: Area Manager - Trust Operations
Telephone: (513) 579-5300
Facsimile: (513) 579-4312
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmission by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
14.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information or its registration statement for the Trust
and such other printed matter as merely identifies Custodian as custodian for
the Trust. The Trust shall submit printed matter requiring approval to Custodian
in draft form, allowing sufficient time for review by Custodian and its counsel
prior to any deadline for printing.
-17-
<PAGE> 18
14.3 No Waiver. No failure by either party hereto to exercise and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
14.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: THE COVENTRY GROUP
By:
- ------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
ATTEST: THE FIFTH THIRD BANK
By:
- ------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
-18-
<PAGE> 19
Dated: October 23, 1998
EXHIBIT A
TO THE CUSTODY AGREEMENT BETWEEN
THE COVENTRY GROUP AND THE FIFTH THIRD BANK
October 23, 1998
Name of Fund Date
------------ ----
1st Source Monogram Diversified Equity Fund October 23, 1998
1st Source Monogram Income Equity Fund October 23, 1998
1st Source Monogram Special Equity Fund October 23, 1998
1st Source Monogram Income Fund October 23, 1998
THE COVENTRY GROUP
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
THE FIFTH THIRD BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-19-
<PAGE> 20
Dated: October 23, 1998
EXHIBIT B
TO THE CUSTODY AGREEMENT BETWEEN
THE COVENTRY GROUP AND THE FIFTH THIRD BANK
OCTOBER 23, 1998
AUTHORIZED PERSONS
for the following portfolios:
1st Source Monogram Diversified Equity Fund
1st Source Monogram Income Equity Fund
1st Source Monogram Special Equity Fund
1st Source Monogram Income Fund
CASH MOVEMENT OF SHAREHOLDER ACTIVITY
(excluding Fund shareholder checks)
Employees of BISYS
------------------
Mary A. Madick
Daniel Horne
Kelly Ramsey Gooch
Troy Huliba
Theresa L. Jennessee
Billy Williams
Michael Bryan
Robert Tartaglia
PAYMENT OF FUND EXPENSES
Officers of the Group
---------------------
Walter B. Grimm President
J. David Huber Vice President
Paul T. Kane Treasurer
George L. Stevens Secretary
Alaina V. Metz Assistant Secretary
Richard B. Ille Assistant Secretary
-20-
<PAGE> 21
Employees of BISYS
------------------
Paul Kane
Gary Tenkman
Frank Deutchki
Nichole Fisher
Darla Ball
Cory Gossard
WRITING OF FUND SHAREHOLDER CHECKS
FOR REDEMPTIONS OR DIVIDENDS
Officers of the Group
---------------------
Walter B. Grimm President
J. David Huber Vice President
Paul T. Kane Treasurer
George L. Stevens Secretary
Alaina V. Metz Assistant Secretary
Richard P. Ille Assistant Secretary
AUTHORIZED TO GIVE "ORAL INSTRUCTIONS" AND
"WRITTEN INSTRUCTIONS" TO THE CUSTODIAN FOR
PURCHASES AND SALES OF PORTFOLIO SECURITIES
-------------------------------------------
1st Source Bank Miller, Anderson & Sherrend LLP
--------------- -------------------------------
Pascal M. Romano
Ralph C. Shive Robert J. Marcin
Brian Bythrow
Loomis, Sayles & Company, Inc. Standish, Ayer & Wood
------------------------------ ---------------------
Jerry Castellini Phillip Leonardi
Thomas Hanlon
Eric Killough
-21-
<PAGE> 22
EXHIBIT C
TO THE CUSTODY AGREEMENT BETWEEN
THE CONVENTRY GROUP AND THE FIFTH THIRD BANK
OCTOBER 23, 1998
MUTUAL FUND CUSTODY FEE SCHEDULE
I. MONTHLY BASIC PER ACCOUNT FEE
Annual Asset Based Fees
Under $25 Million 1 bp
$25 - $100 Million .75 bp
Over $100 Million .5 bp
Minimum $2,400.00
II. SECURITY TRANSACTION FEES
DTC & FED Eligible $9.00
Physical 25.00
Amortized Securities 25.00
Amortized Principal & Income Payments 5.00
Options 25.00
Mutual Funds 11.00
Repos/Money Markets (non 5/3) 11.00
Foreign - Euroclear & Cedel 50.00
Foreign - Other TBD
Other TED
Turnaround Trade 50.00
Pair - off Trade 25.00
III. SYSTEMS
Automated Securities Workstation $150.00
$200.00 Initial Setup
Mainframe - To - Mainframe 150.00
$200.00 Initial Setup
ACCESS - Single Account 50.00
- Multiple Accounts 100.00
-22-
<PAGE> 23
IV. MISCELLANEOUS FEES
Per additional issue for repo collateral $5.00
Corporate Actions 25.00
Wire Transfers (In/Out) 7.00
Check Requests 6.00
Deposit Reject 25.00
Registration Fee 30.00
Automated Asset Reconciliation 25.00
Escrow Receipt 5.00
Special Services - per hr. fee 75.00
Overnight Packages 8.00
THE COVENTRY GROUP
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
THE FIFTH THIRD BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-23-
<PAGE> 1
EXHIBIT (9)(a)
MANAGEMENT AND ADMINISTRATION AGREEMENT
This Agreement is made this 23rd day of October, 1998,
between The Coventry Group, a Massachusetts business trust (the "Trust") , 3435
Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services Limited Partnership
dba BISYS Fund Services, an Ohio limited partnership ("Administrator"), 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment
company, organized as a Massachusetts business trust and registered with the
Securities and Exchange Commission (the "Commission") under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain Administrator to furnish
management and administration services to certain investment portfolios of the
Trust and may retain Administrator to serve in such capacity with respect to
additional investment portfolios of the Trust, all as now or hereafter may be
identified in Schedule A hereto as such Schedule may be amended from time to
time (individually referred to herein as a "Fund" and collectively referred to
herein as the "Funds"); and
NOW, THEREFORE, in consideration of the mutual premises and
covenants herein set forth, the parties agree as follows:
1. Services as Manager and Administrator
Subject to the direction and control of the Board of Trustees of the
Trust, Administrator will assist in supervising all aspects of the operations of
the Funds except those performed by the investment adviser for the Funds under
its Investment Advisory Agreement, the custodian for the Funds under its Custody
Agreement, the transfer agent for the Funds under its Transfer Agency Agreement
and the fund accountant for the Funds under its Fund Accounting Agreement.
Administrator will maintain office facilities (which may be in the
offices of Administrator or an affiliate but shall be in such location as the
Trust shall reasonably determine); 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, assist the Trust or its designee in the
preparation of, and file, all 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 Trust's counsel; assist to the extent
requested by the Trust with the Trust's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statements (on Form
N-1A or, any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
keep and maintain the financial accounts and records of the Funds, including
calculation of daily expense accruals; in the case of money market funds,
periodic review of the amount of the deviation, if any, of the current net asset
value per share (calculated using available market quotations or an appropriate
substitute that reflects current market
<PAGE> 2
conditions) from each money market fund's amortized cost price per share; and
generally assist in all aspects of the operations of the Funds. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, Administrator hereby
agrees that all records which it maintains for the Trust are the property of the
Trust and further agrees to surrender promptly to the Trust any of such records
upon the Trust's request. Administrator further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act. Administrator may delegate some or
all of its responsibilities under this Agreement.
Administrator may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that Administrator shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that Administrator shall be responsible, to the extent
provided in Section 4 hereof, for all acts of such subcontractor as if such acts
were its own.
2. Fees; Expenses; Expense Reimbursement
In consideration of services rendered and expenses assumed pursuant to
this Agreement, each of the Funds will pay Administrator on the first business
day of each month, or at such time(s) as Administrator shall request and the
parties hereto shall agree, a fee computed daily and paid as specified below
calculated at the applicable annual rate set forth on Schedule A hereto. The fee
for the period from the day of the month this Agreement is entered into until
the end of that month shall be prorated according to the proportion which such
period bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Administrator, the value
of the net assets of a particular Fund shall be computed in the manner described
in the Trust's Declaration of Trust or in the Prospectus or Statement of
Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
Administrator will from time to time employ or associate with itself
such person or persons as Administrator may believe to be particularly fitted to
assist it in the performance of this Agreement. Such person or persons may be
partners, officers, or employees who are employed by both Administrator and the
Trust.
The compensation of such person or persons shall be paid by
Administrator and no obligation may be incurred on behalf of the Funds in such
respect. Other expenses to be incurred in the operation of the Funds including
taxes, interest, brokerage fees and commissions, if any, fees of Trustees who
are not partners, officers, directors, shareholders or employees of
Administrator or the investment adviser or distributor for the Funds, Commission
fees and state Blue Sky qualification and renewal fees and expenses, advisory
fees, pricing service fees, custodian fees, transfer and dividend disbursing
agents' fees, fund accounting fees, certain
2
<PAGE> 3
insurance premiums, outside and, to the extent authorized by the Trust, inside
auditing and legal fees and expenses, costs of maintenance of the Trust's
existence, typesetting and printing prospectuses for regulatory purposes and for
distribution to current shareholders of the Funds, costs of shareholders' and
Trustees' reports and meetings, fees incurred under the Trust's Distribution and
Shareholder Service Plan and Administrative Services Plan and any extraordinary
expenses will be borne by the Funds.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, Administrator will
reimburse such Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees respecting such Fund otherwise payable to
Administrator hereunder to the aggregate fees respecting such Fund otherwise
payable to Administrator hereunder and to 1st Source Bank under the Investment
Advisory Agreement between 1st Source Bank and the Trust. The expense
reimbursement obligation of Administrator is limited to the amount of its fees
hereunder for such fiscal year, provided, however, that notwithstanding the
foregoing, Administrator shall reimburse a particular Fund for such proportion
of such excess expenses regardless of the amount of fees paid to it during such
fiscal year to the extent that the securities regulations of any state having
jurisdiction over the Trust so require. Such expense reimbursement, if any, will
be estimated daily and reconciled and paid on a monthly basis.
3. Proprietary and Confidential Information
Administrator agrees on behalf of itself and its partners and employees
to treat confidentially and as proprietary information of the Trust all records
and other information relative to the Trust and prior, present, or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval shall
not be unreasonably withheld and may not be withheld where Administrator may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust.
4. Limitation of Liability
Administrator shall not be liable for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also a partner,
employee, or agent of Administrator, who may be or become an officer, Trustee,
employee, or agent of the Trust or the Funds shall be deemed, when rendering
services to the Trust or the Funds, or acting on any business of that party, to
be rendering such services to or acting solely for that party and not as a
partner, employee, or agent or one under the control or direction of
Administrator even though paid by it.
3
<PAGE> 4
5. Term
This Agreement shall become effective as of the date first written
above (or, if a particular Fund is not in existence on that date, on the date an
amendment to Schedule A to this Agreement relating to that Fund is executed)
and, unless sooner terminated as provided herein, shall continue until October
1, 2001, and thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the nonrenewing party to
the other party at least 60 days prior to the expiration of the then-current
term; provided that the performance of Administrator is specifically reviewed at
least annually by the Trust's Board of Trustees. This Agreement is terminable
with respect to a particular Fund through a failure to renew at the end of a
one-year term; upon mutual agreement of the parties hereto; or for "cause" (as
defined below) by the party alleging "cause," in any case on not less than 60
days' notice by the Trust's Board of Trustees or by Administrator. Written
notice not to renew may be given for any reason, with or without "cause."
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a final, unappealable judicial, regulatory or administrative ruling
or order in which the party to be terminated has been found guilty of criminal
or unethical behavior in the conduct of its business; (c) the dissolution or
liquidation of either party or other cessation of business other than a
reorganization or recapitalization of such party as an ongoing business; (d)
financial difficulties on the part of the party to be terminated which is
evidenced by the authorization or commencement of, or involvement by way of
pleading, answer, consent, or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to time in effect, or any
applicable law, other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors; or (e) any circumstance which substantially impairs the
performance of the obligations and duties of the party to be terminated, or the
ability to perform those obligations and duties as contemplated herein.
Notwithstanding the foregoing, the absence of an annual review of this Agreement
by the Board of Trustees shall not, in and of itself, constitute "cause" as used
herein.
6. Governing Law and Matters Relating to the Trust as a
Massachusetts Business Trust
This Agreement shall be governed by the law of the Commonwealth of
Massachusetts. The Coventry Group is a business trust organized under the laws
of the Commonwealth of Massachusetts and under a Declaration of Trust, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of Massachusetts, and to any and all amendments thereto so
filed or hereafter filed. The obligations of "The Coventry Group" entered into
in the name or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the
4
<PAGE> 5
Trust, and all persons dealing with any of the Funds of the Trust must look
solely to the assets of the Trust belonging to such Fund for the enforcement of
any claims against the Trust.
BISYS FUND SERVICES LIMITED THE COVENTRY GROUP
General Partner
By: BISYS Fund Services, Inc., By:_____________________________
General Partner
Name: __________________________
By:______________________________ Title:: ________________________
Name: ___________________________
Title: __________________________
5
<PAGE> 6
Dated: October 23, 1998
Schedule A to the
Management and Administration Agreement
between The Coventry Group and
BISYS Fund Services Limited Partnership
dated October 23, 1998
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
- ------------ ------------- ----
<S> <C> <C>
1st Source Monogram Diversified Annual rate of twenty October 23, 1998
Equity Fund hundredths of one
percent (.20%) of such
Fund's average daily net
assets
1st Source Monogram Income Annual rate of twenty October 23, 1998
Equity Fund hundredths of one
percent (.20%) of such
Fund's average daily net
assets
1st Source Monogram Special Annual rate of twenty October 23, 1998
Equity Fund hundredths of one
percent (.20%) of such
Fund's average daily net
assets
1st Source Monogram Income Annual rate of twenty October 23, 1998
Fund hundredths of one
percent (.20%) of such
Fund's average daily net
assets
</TABLE>
- ---------
* All fees are computed daily and paid periodically.
6
<PAGE> 7
BISYS FUND SERVICES LIMITED THE COVENTRY GROUP
PARTNERSHIP
By BISYS Fund Services, Inc. By: ___________________________
General Partner
Name: _________________________
By: __________________________ Title: ________________________
Name: ________________________
Title: _______________________
7
<PAGE> 1
EXHIBIT (9)(b)
FUND ACCOUNTING AGREEMENT
This Agreement is made as of October 23rd, 1998 between The Coventry
Group (the "Trust") , a Massachusetts business trust having its principal place
of business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services,
Inc. ("BISYS"), a Delaware corporation having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain fund accounting
services for each of 1st Source Monogram Diversified Equity Fund, 1st Source
Monogram Income Equity Fund, 1st Source Monogram Special Equity Fund and 1st
Source Monogram Income Fund and such other investment portfolios of the Trust
identified on Schedule A hereto, as such Schedule may be amended from time to
time (individually referred to herein as a "Fund" and collectively as the
"Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. Services as Fund Accountant.
(a) Maintenance of Books and Records. BISYS will keep and maintain
the following books and records of each Fund pursuant to Rule 31a-1
under the Investment Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record in detail
of all purchases and sales of securities, all receipts and
disbursements of cash and all other debits and credits, as
required by subsection (b) (1) of the Rule;
(ii) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts,
including interest accrued and interest received, as required by
subsection (b) (2) (i) of the Rule;
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8) of the
Rule.
<PAGE> 2
(b) Performance of Daily Accounting Services. In addition to the
maintenance of the books and records specified above, BISYS shall
perform the following accounting services daily for each Fund:
(i) Calculate the net asset value per share utilizing prices
obtained from the sources described in subsection 1(b)(ii)
below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then obtain such
prices from each Fund's investment adviser or its designee, as
approved by the Trust's Board of Trustees;
(iii) Verify and reconcile with the Funds' custodian all
daily trade activity;
(iv) Compute, as appropriate, each Fund's net income and
capital gains, dividend payables, dividend factors, 7-day
yields, 7-day effective yields, 30-day yields, and weighted
average portfolio maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to release to
shareholders, check and confirm the net asset values and
dividend factors for reasonableness and deviations, and
distribute net asset values and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the comparison to the
amortized cost basis;
(vii) Determine unrealized appreciation and depreciation on
securities held in variable net asset value Funds;
(viii) Amortize premiums and accrete discounts on securities
purchased at a price other than face value, if requested by the
Trust;
(ix) Update fund accounting system to reflect rate changes,
as received from a Fund's investment adviser, on variable
interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to instructions
received from the Trust's Administrator;
(xii) Determine the outstanding receivables and payables for
all (1) security trades, (2) Fund share transactions and (3)
income and expense accounts;
(xiii) Provide accounting reports in connection with the
Trust's regular annual audit and other audits and examinations
by regulatory agencies; and
-2-
<PAGE> 3
(xiv) Provide such periodic reports as the parties shall
agree upon, as set forth in a separate schedule.
(c) Special Reports and Services
(i) BISYS may provide additional special reports upon the
request of the Trust or a Fund's investment adviser, which may
result in an additional charge, the amount of which shall be
agreed upon between the parties.
(ii) BISYS may provide such other similar services with
respect to a Fund as may be reasonably requested by the Trust,
which may result in an additional charge, the amount of which
shall be agreed upon between the parties.
(d) Additional Accounting Services. BISYS shall also perform the
following additional accounting services for each Fund:
(i) Provide monthly a download (and hard copy thereof) of
the financial statements described below, upon request of the
Trust. The download will include the following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and federal
excise tax returns;
(B) the Trust's semi-annual reports with the Securities
and Exchange Commission ("SEC") on Form N-SAR;
(C) the Trust's annual, semi-annual and quarterly (if
any) shareholder reports;
(D) registration statements on Form N-1A and other
filings relating to the registration of shares;
(E) the Administrator's monitoring of the Trust's
status as a regulated investment company under Subchapter M
of the Internal Revenue Code, as amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
-3-
<PAGE> 4
Section 2. Subcontracting.
BISYS may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder; provided,
however, that BISYS shall not be relieved of any of its obligations under this
Agreement by the appointment of such subcontractor and provided further, that
BISYS shall be responsible, to the extent provided in Section 7 hereof, for all
acts of such subcontractor as if such acts were its own.
Section 3. Compensation.
The Trust shall pay BISYS for the services to be provided by BISYS under
this Agreement in accordance with, and in the manner set forth in, Schedule A
hereto, as such Schedule may be amended from time to time.
Section 4. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 3 hereof, the
Trust agrees to reimburse BISYS for BISYS's out-of-pocket expenses in providing
services hereunder, including without limitation the following:
(1) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust;
(2) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communication with the Trust, the Trust's investment adviser or
custodian, dealers or others as required for BISYS to perform
the services to be provided hereunder;
(3) The cost of obtaining security market quotes pursuant to Section
1(b)(ii) above;
(4) The cost of microfilm or microfiche of records or other
materials;
(5) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized by the Trust's
Board of Trustees; and
(6) Any additional out-of-pocket expenses reasonably incurred by
BISYS in the performance of its duties and obligations under
this Agreement.
Section 5. Effective Date. This Agreement shall become effective with
respect to a Fund as of the date first written above (or, if a particular Fund
is not in existence on that date, on the date an amendment to Schedule A to this
Agreement relating to that Fund is executed) (the "Effective Date").
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<PAGE> 5
Section 6. Term. This Agreement shall continue in effect with respect to
a Fund, unless earlier terminated by either party hereto as provided hereunder,
until October 1, 2001, and thereafter shall be renewed automatically for
successive one-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; provided, however, that after such termination, for so
long as BISYS, with the written consent of the Trust, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the compensation described under Section 3 hereof, the amount of all of BISYS'
reasonable cash disbursements for services in connection with BISYS' activities
in effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. To the extent that BISYS may retain in its
possession copies of any Trust documents or records subsequent to such
termination, which copies had not been requested by or on behalf of the Trust in
connection with the termination process described above, for a reasonable fee,
BISYS will provide the Trust with reasonable access to such copies. This
Agreement is terminable with respect to a particular Fund only upon mutual
agreement of the parties hereto or for "cause" (as defined below) by the party
alleging "cause," in either case on not less than 60 days' notice by the Trust's
Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, or reckless disregard on the part of
either party with respect to its obligations and duties set forth herein; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which either party has been found guilty of criminal or unethical behavior in
the conduct of its business; (c) the dissolution or liquidation of either party
or other cessation of business other than a reorganization or recapitalization
of such party as an ongoing business; (d) financial difficulties on the part of
either party which is evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent, or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; or (e) any circumstance
which substantially impairs the performance of either party's obligations and
duties as contemplated herein.
Section 7. Standard of Care; Reliance on Records and Instructions;
Indemnification. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. A Fund agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of
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<PAGE> 6
services under this Agreement with respect to such Fund or based, if applicable,
upon reasonable reliance on information, records, instructions or requests with
respect to such Fund given or made to BISYS by a duly authorized representative
of the Trust; provided that this indemnification shall not apply to actions or
omissions of BISYS in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, BISYS shall give the Trust written notice of
and reasonable opportunity to defend against said claim in its own name or in
the name of BISYS.
Section 8. Record Retention and Confidentiality. BISYS shall keep and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act")
relating to the maintenance of books and records in connection with the services
to be provided hereunder. BISYS further agrees that all such books and records
shall be the property of the Trust and to make such books and records available
for inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
Section 9. Uncontrollable Events. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.
Section 10. Reports. BISYS will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or completed by BISYS,
or as subsequently agreed upon by the parties pursuant to an amendment hereto.
The Trust agrees to examine each such report or copy promptly and will report or
cause to be reported any errors or discrepancies therein no later than three
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within ten days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and binding upon the Trust and any
other recipient, and except as provided in Section 7 hereof, BISYS shall have no
liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Trust.
Section 11. Rights of Ownership. All computer programs and procedures
developed to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
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<PAGE> 7
Section 12. Return of Records. BISYS may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust and cease to
retain BISYS' files, records and documents created and maintained by BISYS
pursuant to this Agreement; provided, however, that to the extent needed by
BISYS in the performance of its services or for its legal protection, BISYS may
retain copies of such files, records and documents at BISYS' own expense. If not
so turned over to the Trust, such documents and records will be retained by
BISYS for six years from the year of creation. At the end of such six-year
period, such records and documents will be turned over to the Trust unless the
Trust authorizes in writing the destruction of such records and documents.
Section 13. Representations of the Trust. The Trust certifies to BISYS
that: (1) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (2)
this Agreement has been duly authorized by the Trust and, when executed and
delivered by the Trust, will constitute a legal, valid and binding obligation of
the Trust, enforceable against the Trust in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
Section 14. Representations of BISYS. BISYS represents and warrants
that: (1) the various procedures and systems which BISYS has implemented with
regard to safeguarding from loss or damage attributable to fire, theft, or any
other cause of the blank checks, records, and other data of the Trust and BISYS'
records, data, equipment facilities and other property used in the performance
of its obligations hereunder are adequate and that it will make such changes
therein from time to time as are required for the secure performance of its
obligations hereunder, and (2) this Agreement has been duly authorized by BISYS
and, when executed and delivered by BISYS, will constitute a legal, valid and
binding obligation of BISYS, enforceable against BISYS in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
Section 15. Insurance. BISYS shall notify the Trust should any of its
insurance coverage be cancelled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
Section 16. Information to be Furnished by the Trust and Funds. The
Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
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<PAGE> 8
(b) Copies of the following documents:
(i) The Trust's By-Laws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of Trustees
covering the approval of this Agreement, authorization
of a specified officer of the Trust to execute and
deliver this Agreement and authorization for specified
officers of the Trust to instruct BISYS thereunder.
(c) A list of all the officers of the Trust, together with specimen
signatures of those officers who are authorized to instruct
BISYS in all matters.
(d) Two copies of the Prospectus and Statement of Additional
Information for each Fund.
Section 17. Information Furnished by BISYS.
(a) BISYS has furnished to the Trust the following:
(i) BISYS' Articles of Incorporation; and
(ii) BISYS' Bylaws and any amendments thereto.
(b) BISYS shall, upon request, furnish certified copies of actions
of BISYS covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement; and
(ii) Authorization of BISYS to act as fund accountant for the
Trust and to provide accounting services for the Trust.
Section 18. Amendments to Documents. The Trust shall furnish BISYS
written copies of any amendments to, or changes in, any of the items referred to
in Section 16 hereof forthwith upon such amendments or changes becoming
effective. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statements of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which amendment might affect the duties of BISYS
hereunder unless the Trust first obtains BISYS' approval of such amendments or
changes.
Section 19. Compliance with Law. Except for the obligations of BISYS set
forth in Section 8 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended, the 1940 Act and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws
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<PAGE> 9
relating to the sale of the Trust's shares. The Trust represents and warrants
that no shares of the Trust will be offered to the public until the Trust's
registration statement under the Securities Act of 1933 and the 1940 Act has
been declared or becomes effective.
Section 20. Notices. Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to the party required to be
served with such notice, at the following address: 3435 Stelzer Road, Columbus,
Ohio 43219, or at such other address as such party may from time to time specify
in writing to the other party pursuant to this Section.
Section 21. Headings. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Section 22. Assignment. This Agreement and the rights and duties
hereunder shall not be assignable with respect to a Fund by either of the
parties hereto except by the specific written consent of the other party.
Section 23. Governing Law. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
Section 24. Limitation of Liability of the Trustees and Shareholders.
The Coventry Group is a business trust organized under the laws of the
Commonwealth of Massachusetts and under a Declaration of Trust, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of the Commonwealth of Massachusetts, and to any and all
amendments thereto so filed or hereafter filed. The obligations of "The Coventry
Group" entered into in the name or on behalf thereof by any of the Trustees,
officers, employees or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, officers, employees, agents or
shareholders of the Trust personally, but bind only the assets of the Trust, and
all persons dealing with any of the Funds of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BISYS FUND SERVICES, INC. THE COVENTRY GROUP
By:____________________ By:________________________
Name:__________________ Name: _____________________
Title:___________________ Title:_______________________
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<PAGE> 10
Dated: October 23, 1998
SCHEDULE A
TO THE
FUND ACCOUNTING AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES, INC.
OCTOBER 23, 1998
Name of Fund Compensation(1) Date
1st Source Monogram The greater of (i) the October 23, 1998
Diversified Equity Fund, annual rate of .03% of
1st Source Monogram such Fund's average
Income Equity Fund, 1st daily net assets or (ii)
Source Monogram Special $50,000 minus the
Equity Fund and 1st Source fee paid by such Fund,
Monogram Income Fund under its Management
and Administration
Agreement with BISYS
Fund Services dated as
of the date hereof.
THE COVENTRY GROUP
By:____________________
Name:__________________
Title:___________________
BISYS FUND SERVICES, INC.
By:____________________
Name:__________________
Title:___________________
- --------
(1). All fees are computed daily and paid periodically.
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<PAGE> 1
EXHIBIT (9)(c)
TRANSFER AGENCY AGREEMENT
This Agreement is made as of October 23rd, 1998, between The Coventry
Group (the "Trust"), a Massachusetts business trust having its principal place
of business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services,
Inc. ("BISYS"), a Delaware corporation having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for those
series of the Trust set forth in the Schedule A attached hereto, as such
Schedule may be amended from time to time (individually referred to herein as a
"Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. SERVICES. BISYS shall perform for the Trust the transfer agent
services set forth in Schedule B hereto.
BISYS also agrees to perform for the Trust such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. BISYS shall perform such additional services as
are provided on an amendment to Schedule B hereof, in consideration of such fees
as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
Section 2. FEES. The Trust shall pay BISYS for the services to be provided
by BISYS under this Agreement in accordance with, and in the manner set forth
in, Schedule C hereto. Fees for any additional services to be provided by BISYS
pursuant to an amendment to Schedule B hereto shall be subject to mutual
agreement at the time such amendment to Schedule C is proposed.
Section 3. REIMBURSEMENT OF EXPENSES. In addition to paying BISYS the fees
described in Section 2 hereof, the Trust agrees to reimburse BISYS for BISYS'
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
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<PAGE> 2
A. All freight and other delivery and bonding charges incurred by BISYS
in delivering materials to and from the Trust and in delivering all
materials to shareholders;
B. All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS in communication
with the Trust, the Trust's investment adviser or custodian,
dealers, shareholders or others as required for BISYS to perform the
services to be provided hereunder;
C. Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be required by
BISYS for the performance of the services to be provided hereunder;
D. The cost of microfilm or microfiche of records or other materials;
and
E. Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized by the Trust's Board
of Trustees.
Section 4. EFFECTIVE DATE. This Agreement shall become effective as of the
date first written above (the "Effective Date").
Section 5. TERM. This Agreement shall continue in effect, unless earlier
terminated by either party hereto as provided hereunder, until October 1, 2001.
Thereafter, this Agreement shall be renewed automatically for successive
one-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; provided, however, that after such termination, for so long
as BISYS, with the written consent of the Trust, in fact continues to perform
any one or more of the services contemplated by this Agreement or any Schedule
or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' reasonable cash disbursements for services in connection with
BISYS' activities in effecting such termination, including without limitation,
the delivery to the Trust and/or its distributor or investment advisers and/or
other parties, of the Trust's property, records, instruments and documents, or
any copies thereof. To the extent that BISYS may retain in its possession copies
of any Trust documents or records subsequent to such termination which copies
had not been requested by or on behalf of the Trust in connection with the
termination process described above, BISYS, for a reasonable fee, will provide
the Trust with reasonable access to such copies. Further, this Agreement is
terminable with respect to a particular Fund only upon mutual agreement of the
parties hereto or for "cause" (as defined below) by the party alleging "cause,"
in either case on not less than 60 days' notice by the Trust's Board of Trustees
or by BISYS.
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<PAGE> 3
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a final, unappealable judicial, regulatory or administrative ruling
or order in which the party to be terminated has been found guilty of criminal
or unethical behavior in the conduct of its business; (c) financial difficulties
on the part of the party to be terminated which are evidenced by the
authorization or commencement of, or involvement by way of pleading, answer,
consent, or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any applicable
law, other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the rights
of creditors; or (d) any circumstance which substantially impairs the
performance of the obligations and duties as contemplated herein of the party to
be terminated.
Section 6. UNCONTROLLABLE EVENTS. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.
Section 7. LEGAL ADVICE. BISYS shall notify the Trust at any time BISYS
believes that it is in need of the advice of counsel (other than counsel in the
regular employ of BISYS or any affiliated companies) with regard to BISYS'
responsibilities and duties pursuant to this Agreement; and after so notifying
the Trust, BISYS, at its discretion, shall be entitled to seek, receive and act
upon advice of legal counsel of its choosing, such advice to be at the expense
of the Trust or Funds unless relating to a matter involving BISYS' willful
misfeasance, bad faith, negligence or reckless disregard with respect to BISYS'
responsibilities and duties hereunder and BISYS shall in no event be liable to
the Trust or any Fund or any shareholder or beneficial owner of the Trust for
any action reasonably taken pursuant to such advice.
Section 8. INSTRUCTIONS. Whenever BISYS is requested or authorized to take
action hereunder pursuant to instructions from a shareholder or a properly
authorized agent of a shareholder ("shareholder's agent"), concerning an account
in a Fund, BISYS shall be entitled to rely upon any certificate, letter or other
instrument or communication, whether in writing, by electronic or telephone
transmission, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statements of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
Section 9. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. BISYS shall use its best efforts to ensure the accuracy of all
services
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<PAGE> 4
performed under this Agreement, but shall not be liable to the Trust for any
action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or non actions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
Section 10. RECORD RETENTION AND CONFIDENTIALITY. BISYS shall keep and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act")
relating to the maintenance of books and records in connection with the services
to be provided hereunder. BISYS further agrees that all such books and records
shall be the property of the Trust and to make such books and records available
for inspection by the Trust or by the Securities and Exchange Commission (the
"Commission") at reasonable times and otherwise to keep confidential all books
and records and other information relative to the Trust and its shareholders;
except when requested to divulge such information by duly-constituted
authorities or court process, or requested by a shareholder, or shareholder's
agent, with respect to information concerning an account as to which such
shareholder has either a legal or beneficial interest or when requested by the
Trust, the shareholder, or shareholder's agent, or the dealer of record as to
such account.
Section 11. REPORTS. BISYS will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports at such times as are prescribed in Schedule D attached
hereto, or as subsequently agreed upon by the parties pursuant to an amendment
to Schedule D. The Trust agrees to examine each such report or copy promptly and
will report or cause to be reported any errors or discrepancies therein no later
than three business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within ten days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and binding upon the Trust and any
other recipient, and, except as provided in Section 9 hereof, BISYS shall have
no liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report
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<PAGE> 5
except to perform reasonable corrections of such errors and discrepancies within
a reasonable time after requested to do so by the Trust.
Section 12. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
Section 13. RETURN OF RECORDS. BISYS may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust and cease to
retain BISYS' files, records and documents created and maintained by BISYS
pursuant to this Agreement which are no longer needed by BISYS in the
performance of its services or for its legal protection. If not so turned over
to the Trust, such documents and records will be retained by BISYS for six years
from the year of creation. At the end of such six-year period, such records and
documents will be turned over to the Trust unless the Trust authorizes in
writing the destruction of such records and documents.
Section 14. BANK ACCOUNTS. The Trust and the Funds shall establish and
maintain such bank accounts with such bank or banks as are selected by the
Trust, as are necessary in order that BISYS may perform the services required to
be performed hereunder. To the extent that the performance of such services
shall require BISYS directly to disburse amounts for payment of dividends,
redemption proceeds or other purposes, the Trust and Funds shall provide such
bank or banks with all instructions and authorizations necessary for BISYS to
effect such disbursements.
Section 15. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS
that: (a) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (b)
by virtue of its Declaration of Trust, shares of each Fund which are redeemed by
the Trust may be sold by the Trust from its treasury, and (c) this Agreement has
been duly authorized by the Trust and, when executed and delivered by the Trust,
will constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
Section 16. REPRESENTATIONS OF BISYS. BISYS represents and warrants that:
(a) BISYS has been in, and shall continue to be in, substantial compliance with
all provisions of law, including Section 17A(c) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), required in connection with the
performance of its duties under this Agreement; and (b) the various procedures
and systems which BISYS has implemented with regard to safekeeping from loss or
damage attributable to fire, theft, or any other cause of the blank checks,
records, and other data of the Trust and BISYS' records, data, equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate and that it
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<PAGE> 6
will make such changes therein from time to time as are required for the secure
performance of its obligations hereunder.
Section 17. INSURANCE. BISYS shall notify the Trust should its insurance
coverage with respect to professional liability or errors and omissions coverage
be cancelled or reduced. Such notification shall include the date of change and
the reasons therefor. BISYS shall notify the Trust of any material claims
against it with respect to services performed under this Agreement, whether or
not they may be covered by insurance, and shall notify the Trust from time to
time as may be appropriate of the total outstanding claims made by BISYS under
its insurance coverage.
Section 18. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The Trust
has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state in
which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. certified copies of resolutions of the Board of Trustees
covering the following matters:
a. Approval of this Agreement and authorization of a
specified officer of the Trust to execute and deliver
this Agreement and authorization of specified officers
of the Trust to instruct BISYS hereunder; and
b. Authorization of BISYS to act as Transfer Agent for the
Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct BISYS
in all matters.
(d) Two copies of the following (if such documents are employed by the
Trust):
1. Prospectuses and Statements of Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its Distributor
with regard to their relationships and transactions with
shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of
BISYS' appointment as Transfer Agent (or as of the date on which
BISYS' services are commenced, whichever is the later
-6-
<PAGE> 7
date) and as to receipt of full consideration by the Trust for all
shares outstanding, such statement to be certified by the Treasurer
of the Trust.
Section 19. INFORMATION FURNISHED BY BISYS. BISYS has furnished to the
Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following matters:
1. Approval of this Agreement, and authorization of a specified
officer of BISYS to execute and deliver this Agreement;
2. Authorization of BISYS to act as Transfer Agent for the Trust.
(d) A copy of the most recent independent accountants' report relating
to internal accounting control systems as filed with the Commission
pursuant to Rule 17Ad-13 of the Exchange Act.
Section 20. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS written
copies of any amendments to, or changes in, any of the items referred to in
Section 18 hereof forthwith upon such amendments or changes becoming effective.
In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statement of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which amendment might affect the duties of BISYS
hereunder unless the Trust first obtains BISYS' approval of such amendments or
changes.
Section 21. RELIANCE ON AMENDMENTS. BISYS may rely on any amendments to or
changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 18 and 20 of this Agreement and the Trust hereby
indemnifies and holds harmless BISYS from and against any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character which may
result from actions or omissions on the part of BISYS in reasonable reliance
upon such amendments and/or changes. Although BISYS is authorized to rely on the
above-mentioned amendments to and changes in the documents and other items to be
provided pursuant to Sections 18 and 20 hereof, BISYS shall be under no duty to
comply with or take any action as a result of any of such amendments or changes
unless the Trust first obtains BISYS' written consent to and approval of such
amendments or changes.
Section 22. COMPLIANCE WITH LAW. Except for the obligations of BISYS set
forth in Section 10 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), the 1940 Act and any other laws, rules
-7-
<PAGE> 8
and regulations of governmental authorities having jurisdiction. BISYS shall
have no obligation to take cognizance of any laws relating to the sale of the
Trust's shares. The Trust represents and warrants that no shares of the Trust
will be offered to the public until the Trust's registration statement under the
1933 Act and the 1940 Act has been declared or becomes effective.
Section 23. NOTICES. Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to the party required to be
served with such notice, at the following address: 3435 Stelzer Road, Columbus,
Ohio 43219, or at such other address as such party may from time to time specify
in writing to the other party pursuant to this Section.
Section 24. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Section 25. ASSIGNMENT. This Agreement and the rights and duties hereunder
shall not be assignable by either of the parties hereto except by the specific
written consent of the other party. This Section 25 shall not limit or in any
way affect BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1
hereof.
Section 26. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
Section 27. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. The
Coventry Group is a business trust organized under the laws of the Commonwealth
of Massachusetts and under a Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the Office of the Secretary of State of
the Commonwealth of Massachusetts, and to any and all amendments thereto so
filed or hereafter filed. The obligations of "The Coventry Group" entered into
in the name or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any of the Funds of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BISYS FUND SERVICES, INC. THE COVENTRY GROUP
By:____________________ By:____________________
Name:__________________ Name:__________________
Title:_________________ Title:_________________
-8-
<PAGE> 9
Dated: October 23, 1998
SCHEDULE A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES, INC.
OCTOBER 23, 1998
Name of Fund Date
------------ ----
1st Source Monogram Diversified Equity Fund, October 23, 1998
1st Source Monogram Income Equity Fund,
1st Source Monogram Special Equity Fund and
1st Source Monogram Income Fund
THE COVENTRY GROUP
By:____________________
Name:__________________
Title:_________________
BISYS FUND SERVICES, INC.
By:____________________
Name:__________________
Title:_________________
-9-
<PAGE> 10
SCHEDULE B
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10 under the Exchange
Act.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares
through dividend reinvestment.
2. Shareholder Information Services
a. Make information available to shareholder servicing unit and other
remote access units regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements, or marketing material to current
shareholders.
3. Compliance Reporting
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in which
the Funds are registered.
b. Prepare and distribute appropriate Internal Revenue Service forms
for corresponding Fund and shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and purchases
made under a Letter of Intent.
-10-
<PAGE> 11
b. Account for separation of shareholder investments from transaction
sale charges for purchases of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
-11-
<PAGE> 12
Date: October 23, 1998
SCHEDULE C
Fees
Transfer Agent:
Annual fees per fund:
Fewer than 150 shareholders $12,000 per portfolio
150 to 250 shareholders $15,000 per portfolio Annual
250 shareholders $20,000 per portfolio
Multiple classes of shares:
Classes of shares which have different net asset values or pay different daily
dividends will be treated as separate classes, and the fee schedule above,
including the appropriate minimums, will be charged for each separate class.
Additional services:
Additional services such as IRA processing are subject to additional fees which
will be quoted upon request. Programming costs or data base management fees for
special reports or specialized processing will be quoted upon request.
Out of pocket charges:
Out-of-pocket costs, including postage, Tymnet charges, statement/confirm paper
and forms, and microfiche, will be added to the transfer agent fees.
THE COVENTRY GROUP
By:____________________
Name:__________________
Title:_________________
BISYS FUND SERVICES, INC.
By:____________________
Name:__________________
Title:_________________
-12-
<PAGE> 13
SCHEDULE D
REPORTS
I. Daily Shareholder Activity Journal
II. Daily Fund Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Exchange Act.
-13-
<PAGE> 1
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 42 to the Registration Statement on Form N-1A (File No. 33-44964) of The
Coventry Group of our report dated August 11, 1998 on our audits of the
financial statements and financial highlights of the 1st Source Monogram Funds
(comprising the Diversified Equity Fund, Special Equity Fund, Income Fund and
Income Equity Fund, respectively), which report is included in the Annual Report
to Shareholders for the year ended June 30, 1998. We also consent to the
reference to our Firm under the caption "Auditors" in the Prospectus and
Statement of Additional Information relating to the 1st Source Monogram Funds in
this Post-Effective Amendment No. 42 to the Registration Statement on Form N-1A
(File No. 33-44964)of The Coventry Group.
PricewaterhouseCoopers LLP
Columbus, Ohio
October 23, 1998
<PAGE> 1
EXHIBIT 15
Distribution Agreement
between The Coventry Group and
BISYS Fund Services Limited Partnership
October 23, 1998
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and shareholder
service plan of The Coventry Group, a Massachusetts business trust (the
"Trust"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). The Plan relates to those investment portfolios ("Funds")
identified on Schedule B to the Trust's Distribution Agreement dated as of
October 19, 1998, and as amended from time to time (the "Distribution Plan
Funds").
Section 1. Each Distribution Plan Fund shall pay to BISYS Fund Services
Limited Partnership, the distributor (the "Distributor") of the Funds' shares of
beneficial interest (the "Shares") a fee in an amount not to exceed on an annual
basis .25% of the average daily net asset value of such Fund (the "12b-1 Fee")
for: (i) (a) efforts of the Distributor expended in respect of or in furtherance
of sales of Shares, and (b) to enable the Distributor to make payments to banks
and other institutions and broker/dealers (a "Participating organization") for
distribution assistance pursuant to an agreement with the Participating
organization; (ii) reimbursement of expenses (a) incurred by the Distributor,
and (b) incurred by a Participating organization pursuant to an agreement in
connection with distribution assistance including, but not limited to, the
reimbursement of expenses relating to printing and distributing prospectuses to
persons other than Shareholders of such Distribution Plan Fund, printing and
distributing advertising and sales literature and reports to Shareholders for
use in connection with the sales of Shares, processing purchase, exchange and
redemption request from customers and placing orders with the Distributor or the
Distribution Plan Fund's transfer agent, and personnel and communication
equipment used in servicing Shareholder accounts and prospective shareholder
inquiries; (iii) (a) efforts of the Distributor expended in servicing
shareholders holding Shares, and (b) to enable the Distributor to make payments
to a Participating organization for shareholder services pursuant to an
agreement with the Participating organization; and (iv) reimbursement of
expenses (a) incurred by the Distributor, and (b) incurred by a Participating
organization pursuant to an agreement in connection with shareholder service
including, but not limited to, personal, continuing services to investors in the
Shares of such Distribution Plan Fund, and providing office space, equipment,
telephone facilities and various personnel including clerical, supervisory and
computer, as is necessary or beneficial in connection therewith.
For purposes of the Plan, a Participating organization may
include the Distributor or any of its affiliates or subsidiaries.
-1-
<PAGE> 2
Section 2. The 12b-1 Fee shall be paid by the Distribution Plan Funds to
the Distributor only to compensate or to reimburse the Distributor for payments
or expenses incurred pursuant to Section 1.
Section 3. The Plan shall not take effect with respect to a Distribution
Plan Fund until it has been approved by a vote of the initial shareholder of
such Fund.
Section 4. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
1940 Act or the rules and regulations thereunder) of both (a) the Trustees of
the Trust, and (b) the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on the Plan or such agreement.
Section 5. The Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of the Plan in
Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Distribution Plan Funds pursuant to the Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time as to a Distribution
Plan Fund by vote of a majority of the Independent Trustees, or by vote of a
majority of a Distribution Plan Fund's outstanding voting securities.
Section 8. All agreements with any person relating to implementation of
the Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding voting securities
of the Distribution Plan Fund, on not more than 60 days' written notice
to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the
event of its assignment.
Section 9. The Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 1 hereof without approval
in the manner provided in Section 3 hereof, and all material amendments to the
Plan shall be approved in the manner provided for approval of the Plan in
Section 4.
Section 10. As used in the Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of the
Plan or any agreements related to it, and (b) the terms
-2-
<PAGE> 3
"assignment", "interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
-3-
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<NET-CHANGE-FROM-OPS> 21404321
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 9785732
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<NUMBER-OF-SHARES-SOLD> 1643723
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<NET-CHANGE-IN-ASSETS> 23093709
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<GROSS-EXPENSE> 1530344
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<PER-SHARE-NAV-BEGIN> 11.80
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<PER-SHARE-GAIN-APPREC> 3.00
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<GROSS-EXPENSE> 713887
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