<PAGE> 1
As filed with the Securities and Exchange Commission on January 21, 1998
Registration No. 33-44964
Investment Company Act File No. 811-6526
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 32 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
AMENDMENT NO. 34 / X /
(Check appropriate box or boxes)
THE COVENTRY GROUP
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Office)
Registrant's Telephone Number: (614) 470-8000
-------------------------------------
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, NW
Washington, DC 20005
-------------------------------------
(Name and Address of Agent for Services)
Copies to:
Walter B. Grimm
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
It is proposed that this filing will become effective (check appropriate box)
<TABLE>
<S> <C>
[ ] Immediately upon filing pursuant to [ ] on ( ) pursuant
paragraph (b), or to paragraph (b), or
[ ] 60 days after filing pursuant to [ x] on the 75th day after filing
paragraph (a), or pursuant to paragraph (a) of Rule 485
</TABLE>
* Registrant has registered an indefinite number of shares of all series then
existing or subsequently established under the Securities Act of 1933
pursuant to Rule 24f-2 under the Investment Company Act of 1940, which it
expressly reaffirms. Registrant filed the notice required by Rule 24f-2
with respect to its fiscal year ended March 31, 1997, on May 29, 1997.
<PAGE> 2
CROSS REFERENCE SHEET
The enclosed materials relate only to the three Stewardship Portfolios
which consist of: Stewardship Aggressive Growth Fund, Stewardship Moderate
Growth Fund and Stewardship Conservative Growth Fund, each of which are separate
investment series of the Coventry Group (the "Group"). Information relating to
the Group's other investment series, consisting of AMCORE Mutual Funds, Brenton
U.S. Government Money Market Fund; Brenton Intermediate U.S. Government
Securities Fund; Brenton Value Equity Fund; Ernst Asia Fund; Ernst Global
Resources Fund; Ernst Global Asset Allocation Fund; Ernst Global Smaller
Companies Fund; Ernst Australia-New Zealand Fixed Income Fund; and The Shelby
Fund, is contained in previously filed Post-Effective Amendments.
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
PART A: INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective and Policies; Investment
Restrictions; General Information - Description of the
Group and Its Shares
5. Management of the Fund Management of the Group
5A. Management's Discussion of Fund Provided in Registrant's Annual Report to Shareholders
Performance
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
</TABLE>
<TABLE>
<CAPTION>
Form N-1A Part B Item Statement of Additional Information
<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 - Trustees and Officers
15. Control Persons and Principal Additional Information - Description of Shares
Holders of Securities
16. Investment Advisory and Other Management of the Group
Services
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 Additional Purchase and Redemption Information
Securities Being Offered
20. Tax Status Additional Information - Additional Tax Information
21. Underwriters Management of the Group - Distributor
22. Calculation of Performance Data Additional Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
STEWARDSHIP PORTFOLIOS
(series of The Coventry Group)
Stewardship Aggressive Growth Fund
Stewardship Moderate Growth Fund
Stewardship Conservative Growth Fund
For current yield,
purchase, and
redemption
information, call
(800) 438-6375.
The Coventry Group (the "Group") is an open-end management investment
company which issues its shares in separate series. Each series relates to a
separate portfolio of assets. The portfolios offered by this Prospectus, which
are advised by ParkSouth Corporation ("Adviser'), are the Stewardship
Aggressive Growth Fund ("Aggressive Growth Fund"), Stewardship Moderate Growth
Fund ("Moderate Growth Fund") and Stewardship Conservative Growth Fund
("Conservative Growth Fund") (collectively, the "Funds"). Each of the Funds
offers two classes of shares. (See "Classes of Shares.")
The Stewardship Portfolios will provide investors with a managed
investment portfolio employing active asset allocation management directed by
the Adviser. Assets of each Fund will be allocated, in varying proportions
depending on the particular Fund's investment objective, among three asset
classes: (a) domestic equities, (b) international equities and (c) fixed
income/cash assets. In addition, the Funds will invest in a manner that supports
traditional family values, and will not invest in issuers that profit from or
promote abortion, pornography, antifamily entertainment, non-marriage
lifestyles, alcohol, tobacco or gaming. There is no assurance that each Fund
will achieve its investment objective. The investment objectives of each Fund,
which cannot be changed without shareholder approval, are as follows:
AGGRESSIVE GROWTH FUND - to provide capital appreciation. The Fund pursues this
objective by investing in a diversified mix of domestic and international
equities and fixed income securities or cash.
MODERATE GROWTH FUND - to provide long-term capital appreciation with some
current income. The Fund pursues this objective by investing in a diversified
mix of domestic and international equities and fixed income securities or cash.
CONSERVATIVE GROWTH FUND - to provide current income and long-term capital
preservation. The Fund pursues this objective by investing in a diversified mix
of fixed income securities or cash and domestic equities.
The Adviser is a subsidiary of Deposit Guaranty National Bank. SHARES OF
THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
DEPOSIT GUARANTY NATIONAL BANK OR ANY BANKING AFFILIATE OR ANY OTHER AFFILIATE
AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENTS IN THE FUNDS ARE SUBJECT
TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
BISYS Fund Services L.P., Columbus, Ohio ("the Distributor") acts as the
Fund's administrator and distributor. BISYS Fund Services Ohio Inc., Columbus,
Ohio, acts as the Funds' transfer agent (the "Transfer Agent") and performs
certain accounting services for the Funds.
Additional information about the Funds, contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission (the "Commission") and is available upon request without charge by
writing to the Funds at their address or by calling the Funds at the telephone
number shown above. The Statement of Additional Information bears the same date
as this Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
-------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------
The date of this Prospectus is ___________________
STEWARDSHIP FUNDS LOGO
<PAGE> 4
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Funds.............................................. Aggressive Growth Fund, Moderate Growth Fund, and Conservative
Growth Fund ("Funds"), each a diversified investment portfolio
of The Coventry Group, an open-end management investment company
organized as a Massachusetts business trust.
Shares Offered......................................... The Funds offer two classes of shares of beneficial interest
("Shares") -- Class A and Class B.
Offering Price......................................... The public offering price of each class of the Fund's Shares is equal to
the net asset value per Share plus a maximum front-end sales
charge of 4.50% for Class A Shares; Class B Shares are sold with no
front-end sales charge but may be subject to a contingent deferred
sales charge. (See "Classes of Shares.")
Minimum Purchase....................................... $1,000 minimum for the initial investment with a $50 minimum for
subsequent investments. (See "HOW TO PURCHASE AND REDEEM
SHARES--Purchases of Shares and Auto Invest Plan" for a discussion
of lower minimum purchase amounts).
Investment Objective and Policies...................... The investment objective of Aggressive Growth Fund is to seek
capital appreciation. The Fund pursues this objective by investing
in a diversified mix of domestic and international equities and
fixed income securities or cash.
The primary investment objective of Moderate Growth Fund is to
provide long-term capital appreciation with some current income. The
Fund pursues this objective by investing in a diversified mix of
domestic and international equities and fixed income securities or cash.
The primary investment objective of Conservative Growth Fund is to
provide current income and long-term capital preservation. The Fund
pursues this objective by investing in diversified mix of fixed income
securities or cash and domestic equities.
Investment Adviser ..................................... ParkSouth Corporation, a registered investment adviser, acts as the
Funds' investment adviser. The Adviser is a subsidiary of
Deposit Guaranty National Bank ("Bank"), which is owned by Deposit
Guaranty Corp. ("DGC").
Dividends............................................... Each Fund intends to declare dividends with respect to each class of
its Shares from net investment income and pay such dividends
semi-annually, in the case of Aggressive Growth Fund, and quarterly
for Moderate Growth Fund and Conservative Growth Fund.
Distributor ............................................ BISYS Fund Service, L.P., Columbus, Ohio.
</TABLE>
<PAGE> 5
FEE TABLE
<TABLE>
<CAPTION>
Aggressive Moderate Conservative
Growth Fund Growth Fund Growth Fund
Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Lead Imposed on Purchase (as a percentage of
offering price ............................................... 4.50% 4.50% 4.50%
---- ---- ----
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offfering price) ...............................
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable) ....................... 5.00% 5.00% 5.00%
---- ---- ----
Redemption Fees (as a percentage of amount redeemed, if
applicable) ..................................................
Exchange Fee .................................................
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) ......................
Management Fees .............................................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(2) ................................................ 0.25 0.35 0.25 0.35 0.25 0.35
Other Expenses ............................................... 1.33 1.33 1.33 1.33 1.33 1.33
---- ---- ---- ---- ---- ----
2.58% 2.68% 2.58% 2.68% 2.58% 2.68%
==== ==== ==== ==== ==== ====
Total Fund Operating Expenses After Waivers
<FN>
- ----------------------------------
1. A Participating Organization (as defined in this Prospectus) or a Bank (as
defined in this Prospectus) may charge a Customers (as defined in the
Prospectus) account fees for automatic investment and other investment
management services provided in connection with investment in the Funds.
(See HOW TO PURCHASE AND REDEEM INVESTOR SHARES--Purchase of Shares.)
2. The Group has adopted a Distribution and Shareholder Service Plan (the
plan) pursuant to which a Fund is authorized to pay or reimburse the
Distributor a periodic amount calculated at an annual rate not to exceed
0.25% of the average daily net assets of Class A Shares of an 0.35% of the
average daily net assets of Class b Shares of each Fund. As a result of
expenses payable in connection with the Plan, it is possible that long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers. Each class of Shares of each Fund is also authorized to pay up to
0.15% of its average daily net assets as a Shareholder Services fee, but
these fees are currently being waived. If no waivers were in effect,
expenses would be 2.58% for Class A Shares and 2.68% for Class B Shares.
</FN>
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming
5% annual return with redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years
Class A Class A
<S> <C> <C>
Aggressive Growth Fund $70 $122
Moderate Growth Fund 70 122
Conservative Growth Fund 70 122
</TABLE>
You would pay the following expenses on a $1,000 investment assuming
5% annual return without redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years
Class B Class B
<S> <C> <C>
Aggressive Growth Fund $77 $113
Moderate Growth Fund 77 113
Conservative Growth Fund 77 113
</TABLE>
<PAGE> 6
Classes of Shares
Class A Shares and Class B Shares differ principally with respect to sales
charges and the rate of expense to which they are subject. Investors may select
the class that best suits their investment needs. Class A Shares are offered
with a maximum front-end sales charge of 4.50%. The initial sales charge for
each Fund may be reduced or waived in certain cases. See "Pricing of Fund
Shares." Class B Shares are offered at net asset value, with no front-end sales
charge. Shares of each class are also subject to distribution fees calculated as
a percentage of the net asset value of each class which may not exceed the
following annual rates: 0.25% for Class A Shares of each Fund; 0.35% for Class B
Shares of each Fund. Shareholders who redeem Class B Shares within [five] years
from the date of purchase will be assessed a contingent deferred sales charge
("CDSC") declining from a maximum in the first year after purchase of 5.00% to a
minimum in the [fifth] year after purchase of 1.00% for each of the Funds. The
CDSC may be waived in certain cases. On the sixth anniversary of their purchase
date, Class B Shares convert automatically to Class A Shares, which bear a lower
Distribution Fee.
A prospective investor of Class A or Class B Shares, in selecting between
these classes, should consider the respective impact of the sales charge or CDSC
together with the cumulative effect of the Distribution Fees for each class over
the anticipated period of investment, as well as the effect of any sales charge
or CDSC waivers to which the investor may be entitled. For purchasers
contemplating an investment of at least $250,000, the Funds believe it is
preferable to purchase Class A Shares. Investors should be aware that other
expenses attributable to each class may differ slightly due to the allocation of
each class of certain "class specific" expenses, including Shareholder Service
fees of up to 0.15% of the average daily net assets of each class (currently
being waived), distribution and mailing expenses and federal and state
securities registration and notice filing fees. Finally, investors should be
aware that persons selling Shares of the Funds may receive different levels of
compensation for sales of Class A and Class B Shares.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS OF THE FUNDS
The Stewardship Portfolios will provide investors with a managed investment
portfolio employing active asset allocation management directed by the Adviser.
The Adviser will, at its sole discretion, modify the allocation of investments
of each Fund from time to time to various asset classes (each, an "Asset Class")
as it seeks to meet the investment objective of each Fund. These Asset Classes
are: (a) domestic equity securities, (b) international equity securities and (c)
fixed income/cash investments. The permitted investments and policies applicable
to each Asset Class are described below. (See "Asset Classes".) The portion of a
Fund's assets that are allocated to a particular Asset Class will be managed
according to the policies applicable to that Asset Class.
The Funds invest only in securities issued by companies which conduct
business in a manner that does not detract from traditional family values. This
policy precludes the investment in securities of companies involved in the
profit from or promotion of abortion, pornography, antifamily entertainment, and
non-marriage lifestyles, as well as stocks of companies whose businesses involve
alcohol, tobacco or gaming. (The foregoing policies are referred to as "Family
Value Policies.")
Each Fund has its own investment objective and policies, which are
described below. There is no assurance that a Fund will be successful in
achieving its investment objectives. The investment objective of each Fund is a
fundamental policy and, as such, may not be changed without a vote of the
holders of a majority of the outstanding Shares of a Fund (as described in the
Statement of Additional Information). The other policies of a Fund may be
changed without a vote of the holders of a majority of Shares unless (1) the
policy is expressly deemed to be a fundamental policy of the Fund or (2) the
policy is expressly deemed to be changeable only by such majority vote.
AGGRESSIVE GROWTH FUND
The investment objective of Aggressive Growth Fund is to seek capital
appreciation through a diversified mix of domestic and international equities
and fixed income securities or cash. The assets of this Fund will be allocated
among Asset Classes as follows:
High Low
Domestic/International Equities 100% 65%
Fixed Income/Cash 35% 0%
MODERATE GROWTH FUND
The investment objectives of Moderate Growth Fund are to provide long-term
capital appreciation with some current income through investing in a diversified
mix of domestic and international equities and fixed income securities or cash.
The assets of this Fund will be allocated among Asset classes as follows:
High Low
Domestic/International Equities 75% 50%
Fixed Income/Cash 50% 25%
CONSERVATIVE GROWTH FUND
The investment objectives of Conservative Growth Fund are to provide
current income and long-term capital preservation through investing in a
diversified mix of income securities or cash and domestic equities. The assets
of this Fund will be allocated among Asset Classes as follows:
High Low
Domestic/International Equities 45% 25%
Fixed Income/Cash 75% 55%
<PAGE> 7
ASSET CLASSES
The assets and investment practices permitted for each Asset Class, subject
to the Funds' Family Value Policies, are as follows:
DOMESTIC EQUITY ASSET CLASS: Assets in this class may include:
o common stock of U.S. companies which are either listed on the New York or
American Stock Exchange or traded in over-the-counter markets, preferred
stock of such companies, warrants, and preferred stock convertible into
common stock of such companies;
o investments in American Depositary Receipts ("ADRS") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market.
(For a description of certain risks associated with investing in foreign
companies, see "International Equity Asset Class - Risks Associated with
Investing in Foreign Securities.");
o convertible bonds rated at least BBB by Standard & Poor's ("S&P") or Fitch
Investors Service, Inc. ("Fitch"), or at least Baa by Moody's Investors
Service, Inc. ("Moody's"), or, if not rated, are determined by the Adviser
to be of comparable quality;
o money market instruments rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch, or, if not rated, determined by the
Adviser to be of comparable quality;
o fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock it may acquire and that are rated BBB or
better by S&P or Baa or better by Moody's, or, if not rated, determined by
the Adviser to be of comparable quality;
o zero coupon convertible securities; and
o obligations, including certificates of deposit and bankers' acceptances, of
banks or savings associations having at least 1$ billion in deposits as of
the date of their most recently published financial statements and which
are insured by the Bank Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"), both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"), including U.S. branches of foreign
banks and foreign branches of U.S. banks.
Convertible Securities. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants, or a combination of the features of several of these securities. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives.
In selecting convertible securities for this Asset Class, the Adviser
evaluates the investment characteristics of the convertible security as a fixed
income instrument and the investment potential of the underlying equity security
for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices. Convertible
securities may be converted when the Adviser believes the common stock acquired
upon conversion is consistent with the particular Fund's investment objectives.
Certain Other Portfolio Strategies. Management strategies used for the
Domestic Equity Asset Class may include repurchase agreements, securities of
foreign issuers, put and call options, futures contracts and options on futures,
lending of portfolio securities, when-issued and delayed delivery transactions,
temporary investments and securities of other investment companies. See "Other
Portfolio Investments and Strategies."
INTERNATIONAL EQUITY ASSET CLASS. Assets in this class may include:
o equity securities denominated in foreign currencies, including European
Currency Units, of issuers located in countries outside of the United
States; and
o sponsored or unsponsored ADRs, Global Depositary Receipts ("GDRs"), and
European Depositary Receipts ("EDRs"), collectively, "Depositary Receipts."
In managing the assets of a Fund allocated to the International Equity
<PAGE> 8
Asset Class, the Adviser may also purchase corporate and government fixed income
securities denominated in currencies other than U.S. Dollars; enter into forward
commitments, repurchase agreements, and foreign currency transactions; maintain
reserves in foreign or U.S. money market instruments; and purchase options and
financial futures contracts.
Equity Securities. The International Equity Asset Class will include
primarily equity securities. In selecting investments for assets of a Fund
allocated to this class, the Adviser attempts to identify inexpensive markets
worldwide through traditional measures of value, including low price to earnings
ratio, high yield, unrecognized assets, potential for management change and/or
the potential to improve profitability. In addition, the Adviser seeks to
identify companies that it believes are financially productive and undervalued
in those markets. The Adviser focuses on individual stock selection (a
"bottom-up" approach) rather than on forecasting stock market trends (a
"top-down" approach).
The Adviser recognizes that some of the best opportunities are in
securities not generally followed by investment professionals. Thus, the Adviser
relies on its research capabilities and also maintains a dialogue with foreign
brokers and with the management of foreign companies in an effort to gather the
type of "local knowledge" that it believes is critical to successful investment
abroad, including information concerning current business trends, and to gain a
better understanding of the management of local businesses.
Emerging Market Securities. Up to 40% of a Fund's total assets allocated to
the International Equity Asset Class may be invested in equity securities of
established companies located in countries having emerging markets. Countries
having emerging markets are deemed to be all countries that are generally
considered to have developing or emerging markets or economies, as well as
countries considered by the International Bank for Reconstruction and
Development (more commonly known as the World Bank), the International Finance
Corporation, or the United Nations, as developing.
Generally included as emerging markets are all countries in the world
except Australia, Canada, Japan, New Zealand, the United States, and most
western European countries. Assets allocated to this Asset Class that are
invested in emerging markets will focus on countries which the Adviser believes
to have strongly developing economies and markets including, among others, the
following countries: Argentina, Bolivia, Botswana, Brazil, Chile, China,
Colombia, Cyprus, Czech Republic, Ecuador, Egypt, Ghana, Greece, Hong Kong,
Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Korea, Malaysia, Mauritius,
Mexico, Morocco, Nigeria, Oman, Pakistan, Peru, Philippines, Poland, Russia,
Singapore, Slovakia, South Africa, Sri Lanka, Swaziland, Taiwan, Thailand,
Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe. A Fund may invest in
countries other than those defined above, if, in the opinion of the Adviser,
they are considered to be emerging markets. While the Adviser considers the
above-mentioned countries eligible for investment, a Fund's assets allocated to
this Asset Class will not be invested in all such markets at all times.
Furthermore, a Fund may not pursue investment in such countries due to lack of
adequate custody of the Fund's assets, overly burdensome restrictions and
repatriation, lack of an organized and liquid market, or unacceptable political
or other risks.
Emerging markets companies are defined as (i) those for which the principal
securities trading market is an emerging market country, as described above;
(ii) those which are organized under the laws of, or with a principal office in,
an emerging market country; or (iii) those, wherever organized or traded, who
derive (directly or indirectly through subsidiaries) at least 50% of their total
assets, capitalization, gross revenue or profit from its most current year from
goods produced, services performed, or sales made in such emerging market
countries.
Fixed Income and Other Securities. As a temporary defensive position, a
Fund's assets allocated to the International Equity Asset Class may be invested
up to 100% in fixed income securities, warrants, or other obligations of foreign
companies or governments, if these securities appear to offer potentially higher
returns. Fixed income securities include preferred stock, convertible
securities, bonds, notes or other debt securities which are investment grade or
higher. However, in no event will a Fund's assets allocated to the International
Equity Asset Class be more than 25% invested in the debt securities of any one
foreign country.
The high-quality debt securities in which a Fund's assets allocated to the
International Equity Asset Class will be invested will possess a minimum credit
rating of A as assigned by S&P or A by Moody's, or, if unrated, will be judged
by the Adviser to be of comparable quality. The average quality of International
Equity Asset Class debt securities should remain constantly between A and AAA in
an effort to avoid the adverse consequences that may arise for some debt
securities in difficult economic circumstances, although there can be no
assurance that such adverse consequences will not occur. Downgraded securities
<PAGE> 9
will be evaluated on a case by case basis by the Adviser. The Adviser will
determine whether or not the security continues to be an acceptable investment
for the particular Fund. If not, the security will be sold.
The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.
Depositary Receipts. Assets of a Fund allocated to the International Equity
Asset Class may be invested in foreign issuers through the purchase of sponsored
or unsponsored ADRs, GDRs, and EDRs. ADRs are depositary receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or trust companies, although they also may be
issued by United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
Generally, depositary receipts in registered form are designed for use in the
United States securities market and depositary receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Ownership of unsponsored
depositary receipts may not entitle a Fund to financial or other reports from
the issuer of the underlying security, to which it would be entitled as the
owner of sponsored depositary receipts.
Forward Commitments. Forward commitments are contracts to purchase
securities for a fixed price at a date beyond customary settlement time. The
Adviser may enter into these contracts for a Fund if liquid securities in
amounts sufficient to meet the purchase price are segregated on the particular
Fund's records at the trade date and maintained until the transaction has been
settled. Risk is involved if the value of the security declines before
settlement. Although the Adviser enters into forward commitments with the
intention of acquiring the security, it may dispose of the commitment prior to
settlement and realize short-term profit or loss.
Money Market Instruments. A Fund's assets allocated to the International
Equity Asset Class may be invested in U.S. and foreign short-term money market
instruments, including, interest-bearing call deposits with banks, government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate debt securities, and repurchase agreements. The commercial
paper in which this Asset Class invests will be rated A-1 by S&P or P-1 by
Moody's. These investments may be used to temporarily invest cash received from
the sale of Fund shares, to establish and maintain reserves (up to 100% of a
Fund's assets allocated to this Asset Class) for temporary defensive purposes,
or to take advantage of market opportunities. Investments in the World Bank,
Asian Development Bank, or Inter-American Development Bank are not anticipated.
Foreign Currency Transactions. In managing Fund assets allocated to the
International Equity Asset Class, the Adviser will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Adviser may also enter into foreign currency transactions to protect
Fund assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the value of
Fund assets which are denominated in foreign currencies, such as foreign
securities or funds deposited in foreign banks, as measured in U.S. Dollars.
Although foreign currency exchanges may be used by the Adviser to protect
against a decline in the value of one or more currencies, such efforts may also
limit any potential gain that might result from a relative increase in the value
of such currencies and might, in certain cases, result in losses to a Fund.
Forward Foreign Currency Exchange Contracts. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time a
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the contract has been settled. A Fund will not
enter into a forward contract with a term of more than one year. A Fund will
generally enter into a forward contract to provide the proper currency to settle
a securities transaction at the time the transaction occurs ("trade date"). The
period between the trade date and settlement date will vary between 24 hours and
30 days, depending upon local custom.
The Adviser may also determine to protect against the decline of a
particular foreign currency by entering into a forward contract to sell an
amount of that currency approximating the value of all or a portion of a Fund's
<PAGE> 10
assets denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the securities
involved. Although the Adviser will consider the likelihood of changes in
currency values when making investment decisions, the Adviser believes that it
is important to be able to enter into forward contracts when it believes the
interests of a Fund's investments in this Asset Class will be served. A Fund
will not enter into forward contracts for hedging purposes in a particular
currency in an amount in excess of the Fund's assets denominated in that
currency.
Short Sales. The Adviser may sell securities a Fund owns or has a right to
acquire short from time to time, subject to certain restrictions. A short sale
occurs when a borrowed security is sold in anticipation of a decline in its
price. If the decline occurs, shares equal in number to those sold short can be
purchased at the lower price. If the price increases, the higher price must be
paid. The purchased shares are then returned to the original lender. Risk arises
because no loss limit can be placed on the transaction. When a Fund enters into
a short sale, assets, equal to the market price of the securities sold short or
any lesser price at which the Fund can obtain such securities, are segregated on
the Fund's records and maintained until the Fund meets its obligations under the
short sale.
Risks Associated With Investing in Foreign Companies. Investing in non-U.S.
securities carries substantial risks in addition to those associated with
domestic investments. In an attempt to reduce some of these risks, the Adviser
attempts to diversify a Fund's investments that are allocated to the
International Equity Asset Class broadly among foreign countries, including both
developed and developing countries. At least three different countries will
always be represented.
The Adviser will occasionally take advantage of the unusual opportunities
for higher returns available from investing in developing countries. As
discussed in the Statement of Additional Information, however, these investments
carry considerably more volatility and risk because they are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies by a Fund may be subject to
limitation. Foreign ownership limitations also may be imposed by the charters of
individual companies to prevent, among other concerns, violation of foreign
investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
countries. A Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could adversely affect the economies of such countries or
the value of a Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodian services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in loss to a Fund due to subsequent declines in value of the
<PAGE> 11
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
Other differences between investing in foreign and U.S. companies include:
o less publicly available information about foreign companies;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o the limited size of many foreign securities markets and limited
trading volume in issuers compared to the volume of trading in U.S.
securities, which could cause prices to be erratic for reasons apart
from factors that affect the quality of securities;
o the likelihood that foreign securities may be less liquid or more
volatile;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some countries;
o increased risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities;
o requirements of certain markets that payment for securities be made
before delivery;
o religious and ethnic instability; and
o certain national policies which may restrict a Fund's investment
opportunities, including those restricting investment in issuers or
industries deemed sensitive to national interests.
Additional Risks Associated With Investing in Emerging Markets. Investing
in securities of issuers in emerging market countries involves exposure to
significantly higher risk than investing in countries with developed markets.
Emerging market countries may have economic structures that are generally less
diverse and mature and political systems that can be expected to be less stable
than those of developed countries.
Securities prices in emerging market countries can be significantly more
volatile than in developed countries, reflecting the greater uncertainties of
investing in lesser developed markets and economies. In particular, emerging
market countries may have relatively unstable governments, and may present a
greater risk of nationalization of businesses, expropriation, confiscatory
taxation or, in certain instances, reversion to closed market, centrally planned
economies. Such countries may also have greater restrictions on foreign
ownership or prohibitions on the repatriation of assets, and may have less
protection of property rights, than developed countries.
The economies of emerging market countries may be predominantly based on
only a few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in emerging
market countries may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially resulting in a
lack of liquidity and in volatility in the price of securities traded on those
markets. Also, securities markets in emerging market countries typically offer
less regulatory protection for investors.
U.S. Government Policies. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors. Investors are
advised that when such policies are instituted, the Funds will abide by them.
Currency Risks. Because the majority of the securities purchased with
assets allocated to the International Equity Asset Class are denominated in
currencies other than the U.S. Dollar, changes in foreign currency exchanges
rates will affect a Fund's net asset value; the value of interest earned; gains
and losses realized on the sales of securities; and net investment income and
<PAGE> 12
capital gain, if any, to be distributed to shareholders by a Fund. If the value
of a foreign currency rises against the U.S. Dollar, the value of a Fund's
assets denominated in that currency will increase; correspondingly, if the value
of a foreign currency declines against the U.S. Dollar, the value of a Fund's
assets denominated in that currency will decrease.
The exchange rates between the U.S. Dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although each Fund values its assets
daily in U.S. Dollars, a Fund will not convert its holdings of foreign
currencies to U.S. Dollars daily. When a Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
Certain Portfolio Strategies. Assets of a Fund allocated to of the
International Equity Asset Class may also be invested in put and call options,
futures contracts and options on futures, repurchase agreements, lending of
portfolio securities, when-issued and delayed delivery transactions and
securities of other investment companies. See "Other Portfolio Investments and
Strategies."
DOMESTIC FIXED INCOME/CASH ASSET CLASS. Assets in This Class may include:
o direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;
o notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;
o notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding;
o notes, bonds, and discount notes of other U.S. government instrumentalities
supported only by the credit of the instrumentalities;
o domestic issues of corporate debt obligations, including variable rate
demand notes;
o commercial paper (including Canadian Commercial Paper and Europaper);
o certificates of deposit; demand and time deposits, bankers' acceptances and
other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
o short-term credit facilities;
o asset-backed securities;
o obligations issued or guaranteed as to payment of principal and interest by
the U.S. government or one of its agencies or instrumentalities; and
o other money market instruments.
Government Obligations. Some obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government are backed by the full faith and
credit of the U.S. Treasury. No assurances can be given that the U.S. government
will provide financial support to other agencies or instrumentalities, since it
is not obligated to do so. These instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
Corporate Bonds. Assets in this Class may include issues of corporate debt
obligations which are rated in one of the three highest categories by a
nationally recognized statistical rating organization (rated Aaa, Aa, or A by
Moody's; AAA, AA, or A by S&P or by Fitch, or, if unrated, which are of
comparable quality in the judgment of the Adviser).
Mortgage-Backed Securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
<PAGE> 13
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Mortgage Corporation ("Freddie
Mac"); (ii) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities; and (iii) those issued
by private issuers that represent an interest in or are collateralized by whole
loans or mortgage-backed securities without a government guarantee but usually
having some form of private credit enhancement.
Collateralized Mortgage Obligations. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole loans
or private pass-through securities.
Assets in this Class may include only CMOs which are rated AAA by a
nationally recognized rating agency, and which may be: (a) collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(b) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or (c) securities in which the proceeds of the
issuance are invested in mortgage securities and payment of the principal and
interest are supported by the credit of an agency or instrumentality of the U.S.
government.
Asset-Backed Securities. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial interests in
special purpose trusts, limited partnership interests, or commercial paper or
other debt securities issued by a special purpose corporation. Although the
securities often have some form of credit or liquidity enhancement, payments on
the securities depend predominately upon collections of the loans and
receivables held by the issuer. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Assets in this Class
may include only asset-backed securities rated A or higher by a nationally
recognized rating agency. The collateral for such securities will consist of
motor vehicle installment purchase obligations and credit card receivables.
These securities may be in the form of pass-through instruments or asset-backed
bonds. The securities are issued by non-governmental entities and carry no
direct or indirect government guarantee.
Average Portfolio Duration. The Adviser will seek to limit, to the extent
consistent with its goal of current income, the magnitude of fluctuations in the
value of a Fund's assets allocated to this Asset Class by limiting the
dollar-weighted average duration of those assets. Although the dollar-weighted
average duration will not exceed six years, the weighted average maturity of
that portion of a Fund's portfolio invested in this Asset Class could be longer
than six years. Generally, the duration of a security is shorter than the
maturity date and duration takes into account the timing of a security's cash
flow. Duration is a commonly used measure of the potential volatility of the
price of a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. A Fund's assets
allocated to this Asset Class should be expected to maintain a higher average
duration during periods of falling interest rates, and a lower average duration
during periods of rising interest rates.
Variable Rate Demand Notes. Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide a Fund
with the right to tender the security for repurchase at its stated principal
amount plus accrued interest. Such securities typically bear interest at a rate
that is intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually), and
is normally based on a published interest rate or interest rate index. Most
variable rate demand notes allow a Fund to demand the repurchase of the security
on not more than seven days prior notice. Other notes only permit a Fund to
tender the security at the time of each interest rate adjustment or at other
fixed intervals. See "Demand Features." A Fund treats variable rate demand notes
as maturing on the later of the date of the next interest rate adjustment or the
date on which the Fund may next tender the security for repurchase.
Bank Instruments. Assets in this Class may include only Bank Instruments
that are either issued by an institution having capital, surplus and undivided
profits over $100 million, or insured by the Bank Insurance Fund ("BIF") or the
Savings Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). Prime Money Market Fund
<PAGE> 14
will treat securities credit-enhanced with a bank's letter of credit as Bank
Instruments.
Short-Term Credit Facilities. A Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master note
agreement payable upon demand. Under these arrangements, the borrower may
reborrow funds during the term of the facility. A Fund treats any commitments to
provide such advances as a standby commitment to purchase the borrower's notes.
Credit Enhancement. Certain investments in this Asset Class may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to a Fund and affect its share
price.
Demand Features. A Fund's assets allocated to this Asset Class may be used
to acquire securities that are subject to puts and standby commitments ("demand
features") to purchase the securities at their principal amount (usually with
accrued interest) within a fixed period (usually seven days) following a demand
by the Fund. The demand feature may be issued by the issuer of the underlying
securities, a dealer in the securities, or by another third party, and may not
be transferred separately from the underlying security. The Adviser uses these
arrangements to provide a Fund with liquidity and not to protect against changes
in the market value of the underlying securities. The bankruptcy, receivership,
or default by the issuer of the demand feature, or a default on the underlying
security or other event that terminates the demand feature before its exercise,
will adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security may
be treated as a form of credit enhancement.
Restricted and Illiquid Securities. A Fund's assets allocated to this Asset
Class may be invested in restricted securities. Restricted securities are
securities in which a Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, a Fund will limit their purchase, together with
other illiquid securities including non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days after notice, to 15%
of its net assets.
A Fund may invest its assets allocated to this Asset Class in commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933. Section 4(2) commercial paper is restricted
as to disposition under federal securities law, and is generally sold to
institutional investors, such as the Funds, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Funds through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Adviser believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by the
Trustees of the Funds are quite liquid. The Funds intend, therefore, to treat
the restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Adviser, as liquid and not subject to the investment limitations applicable to
illiquid securities.
Investment Risks. ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and
Europaper are subject to different risks than domestic obligations of domestic
banks or corporations. Example of these risks include international economic and
political developments, foreign governmental restrictions that may adversely
affect the payment of principal or interest, foreign withholding or other taxes
on interest income, difficulties in obtaining or enforcing a judgment against
the issuing entity, and the possible impact of interruptions in the flow of
international currency transactions. Risks may also exist for ECDs, ETDs, Yankee
CDs, because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the pubic availability of
information. These factors will be carefully considered by the Adviser in
selecting investments for a Fund.
Certain Other Portfolio Strategies. Assets of a Fund allocated to this
Asset Class may also be invested in put and call options, temporary investments,
repurchase agreements, lending of portfolio securities, when-issued and delayed
delivery transactions and securities of other investment companies. (See "Other
Portfolio Investments and Strategies.")
<PAGE> 15
OTHER PORTFOLIO INVESTMENTS AND STRATEGIES
Repurchase Agreements. Certain securities in which the Funds invest may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Funds and agree at the time of sale to
repurchase the securities from the Funds. The Funds could receive less than the
repurchase price on any sale of such securities.
When-Issued and Delayed Delivered Transactions. The Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Funds purchase securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause a Fund to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, a Fund may pay more or less than the market value of the
securities on the settlement date.
The Funds may dispose of a commitment prior to settlement if the Adviser
deems it appropriate to do so. In addition, the Funds may enter into
transactions to sell their purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Funds may realize short-term profits or losses
upon the sale of such commitments.
Reverse Repurchase Agreements. Each Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell certain of its 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 liquid securities, consistent with its
investment restrictions having a value equal to the repurchase price (including
accrued interest), and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of securities sold by a Fund
may decline below the price at which it is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by an
investment company under the 1940 Act. For further information about reverse
repurchase agreements, see "INVESTMENT OBJECTIVES AND POLICIES--Additional
Information on Portfolio Instruments--Reverse Repurchase Agreements" in the
Statement of Additional Information.
Futures Contracts and Related Options. The Funds may invest in futures
contracts and options on futures contracts to the extent permitted by the
Commodity Futures Trading Commission ("CFTC") and the Commission. Such
transactions, including stock or bond index futures contracts, or options
thereon, will generally be intended to act as a hedge to protect a Fund from
fluctuations in the value of its securities caused by anticipated changes in
interest rate or market conditions without necessarily buying or selling the
securities. Hedging is a specialized investment technique that entails skills
different from other investment management. A stock or bond index futures
contract is an agreement in which one party agrees to take or make delivery of
an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stock or
bonds included in the index) at the close of the last trading day of the
contract and the price at which the agreement is originally made. No physical
delivery of the underlying stock or bond in the index is contemplated.
Similarly, it may be in the best interest of a Fund to purchase or sell interest
rate futures contracts, or options thereon, which provide for the future
delivery of specified securities.
The purchase and sale of futures contracts or related options will not be a
primary investment technique of the Funds. The Funds will not purchase or sell
futures contracts (or related options thereon) if, immediately after the
transaction, the aggregate initial margin deposits and premiums paid by a Fund
on its open futures and options positions that do not constitute bona fide
hedging transactions, as defined by applicable rules, exceed 5% of the
liquidation value of the Fund after taking into account any unrealized profits
and unrealized losses on any such futures or related options contracts into
which it has entered.
Call Options. The Funds may write covered call options on securities owned
by the Fund. Such instruments may also be referred to as equity derivatives.
Derivatives generally are instruments whose value is derived from or related to
the value of some other instrument, asset or specified benchmark, such as a
specific stock or stock index. A call option gives the purchaser of the option
the right to buy, and obligates the seller of the option to sell, the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. When a Fund
writes a covered call option and such option is exercised, it will forgo the
appreciation, if any, on the underlying security in excess of the exercise
price. In order to close out a call option it has written, a Fund may enter into
a "closing purchase transaction"--the purchase of a call option on the same
security with the same exercise price and expiration date as the call option
which the Fund previously wrote on a particular security. When a portfolio
security subject to a call option is sold, the Fund may effect a closing
purchase transaction to close out any existing call option on that security. If
a Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the option expires or the Fund delivers
the underlying security upon exercise.
Putable Securities. The Funds may acquire puts with respect to fixed income
securities or Municipal Securities as described above. Under a put, a Fund would
have the right to sell or redeem a specified security at a certain time or
within a certain period of time at a specified price. The security is sold to a
third party or redeemed by the issuer as provided contractually. The put may be
an independent feature or may be combined with a reset feature that is designed
to reduce downward price volatility as interest rates rise by enabling the
holder to liquidate the investment prior to maturity. The Funds may acquire
putable securities to facilitate portfolio liquidity, shorten the maturity of
the underlying security, or to permit the investment of funds at a more
favorable rate of return. The price of a putable security may be higher than the
price which otherwise would be paid for the security without such put feature,
thereby increasing the security's cost and reducing its yield. The time
remaining to the put date will apply for purposes of determining the maximum
maturity of such securities.
Lending of Portfolio Securities. From time to time in order to generate
additional income, a Fund may lend its portfolio securities, provided such
action is consistent with its investment objective, policies, and restrictions.
During the time portfolio securities are on loan, the borrower will pay a Fund
any dividends or interest paid on the securities. In addition, loans will be
subject to termination by a Fund or the borrower at any time.
A Fund will enter into loan arrangements only with broker-dealers, banks or
other institutions that are not affiliated directly or indirectly with the Group
and which the Adviser has determined are creditworthy under guidelines
established by the Group's Board of Trustees. While the lending of securities
may subject a Fund to certain risks, such as delays or an inability to regain
the securities in the event the borrower defaults on its lending agreement or
enters into bankruptcy, a Fund will receive 100% collateral on loaned securities
<PAGE> 16
in the form of cash or eligible liquid securities. This collateral will be
valued daily by the Adviser and, should the market value of the loaned
securities increase, the borrower will be required to furnish additional
collateral to the Fund. Although each of the Funds does not expect to do so on a
regular basis, it may lend portfolio securities in amounts representing up to
one-third of the value of the Fund's total assets.
Other Investment Companies. Each of the Funds may also invest up to 5% of
its total assets in another investment company not to exceed 10% of the value of
its total assets in the securities of other investment companies. A Fund will
incur additional expenses due to the duplication of expenses as a result of
investing in mutual funds other than the Funds. Additional restrictions on a
Fund's investments in the securities of other mutual funds are contained in the
Statement of Additional Information.
Affiliated Transactions. The Funds will not execute portfolio transactions
through, acquire portfolio securities issued by, make savings deposits in, or
enter into repurchase agreements or reverse repurchase agreements with the
Adviser, the Distributor or their affiliates, and will not give preference to
Deposit Guaranty National Bank's correspondents with respect to such
transactions, securities, savings deposits, and agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies of each of
the Funds (except as otherwise noted) and may not be changed with respect to a
Fund without approval by vote of a majority of the outstanding shares of the
particular Fund. For this purpose such a majority vote means the lesser of (1)
67% or more of the voting securities present at an annual or special meeting of
shareholders, if holders of more than 50% of the outstanding voting securities
of the particular Fund are present or represented by proxy or (2) more than 50%
of the outstanding voting securities of the Fund.
A Fund may not:
borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
engage in the business of underwriting securities issued by others, except
to the extent that the Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities;
purchase or sell real estate, which does not include securities of
companies which deal in real estate or mortgages or investments secured by real
estate or interests therein, except that the Fund reserves freedom of action to
hold and to sell real estate acquired as a result of the Fund's ownership of
securities;
purchase physical commodities or contracts relating to physical
commodities;
make loans to other persons, except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase of
debt instruments or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
NET ASSET VALUE
The net asset value of each of the Funds is determined and its Shares are
priced as of the close of regular trading on the New York Stock Exchange
("NYSE") (generally 4:00 p.m. Eastern Time) on each Business Day. As used
herein, a "Business Day" constitutes any day on which the NYSE is open for
trading, and any other day except days on which there are not sufficient changes
in the value of the Fund's portfolio securities that the Fund's net asset value
might be materially affected and days during which no Shares are tendered for
redemption and no orders to purchase Shares are received. Currently, the NYSE is
closed on New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per Share for purposes of pricing sales and
redemptions is calculated by dividing the value of all securities and other
assets of the Fund less the liabilities charged to the Fund by the number of its
outstanding Shares.
The securities in the Funds' portfolios will be valued at market value. If
market quotations are not available, the securities will be valued by a method
which the Board of Trustees believes accurately reflects fair value. For further
information about valuation of investments, see "NET ASSET VALUE" in the
Statement of Additional Information.
<PAGE> 17
PRICING OF FUND SHARES
Class A Shares
Orders for the purchase of Class A shares will be executed at the net asset
value per Share of that class next determined after an order has been received,
plus any applicable sales charge (the "public offering price"). The sales charge
on purchases of Class A Shares of the Funds unless reduced or waived (see
below), is as follows:
<TABLE>
<S> <C> <C> <C>
Sales Charge as a Percentage Of Amount of Sales Charge Reallowed
Public Net Amount to Dealers as a Percentage of
Offering Invested Public Offering Price*
CLASS A SHARES --
AMOUNT OF INVESTMENT:
Less than $100,000...................... 4.50% 4.71% 4.50%
$100,000 but less than $250,000......... 4.00% 4.17% 4.00%
$250,000 but less than $500,000......... 3.00% 3.09% 3.00%
$500,000 but less than $750,000......... 2.00% 2.04% 2.00%
$750,000 but less than $1,000,000....... 1.00% 1.01% 1.00%
$1,000,000 but less than $2,000,000..... 0.50% 0.50% 0.50%
$2,000,000 or more...................... 0.25% 0.25% 0.25%
</TABLE>
- --------------
* The staff of the Securities and Exchange Commission has indicated that
dealers who receive more than 90% of the sales charge may be considered
underwriters.
The sales charge will not apply to purchases of Class A Shares by: (a)
trust, investment management and other fiduciary accounts managed by the
Adviser, or the Bank pursuant to a written agreement; (b) any person purchasing
Shares with the proceeds of a distribution from a trust, investment management
or other fiduciary account managed by the Adviser, or the Bank pursuant to a
written agreement; (c) BISYS or any of its affiliates; (d) Trustees or officers
of the Funds; (e) directors or officers of BISYS, the Adviser or affiliates or
bona fide full-time employees of either of the foregoing who have acted as such
for not less than 90 days (including members of their immediate families and
their retirement accounts or plans); (f) retirement accounts or plans (or monies
from retirement accounts or plans) for which there is a written service
agreement between the Group and the plan sponsor, so long as such Shares are
purchased through the Funds; or (g) any person purchasing shares within an
approved asset allocation program sponsored by a financial services
organization. The sales charge also does not apply to shares sold to
representatives of selling brokers and members of their immediate families. In
addition, the sales charge does not apply to sales to bank trust departments,
acting on behalf of one or more clients, of Shares having an aggregate value
equal to or exceeding $200,000.
For purchases of $250,000 or more, the Funds believe that it is preferable
for an investor to purchase Class A rather than Class B Shares. This belief is
based on an assessment of the relative costs of the two classes, including
applicable sales charge or CDSC and Service and Distribution Fees. Accordingly,
the Funds have adopted guidelines directing authorized brokers, investment
advisers and Participating Organizations that purchases $250,000 or more by
their non-institutional clients should be of Class A Shares. The Funds reserve
the right to vary these guidelines at any time.
Class B Shares
The Funds offer their Class B shares at their net asset value next
determined after a purchase order has been received. No sales charge is imposed
at the time of purchase. A CDSC is, however, imposed on certain redemptions of
Class B Shares. See "How to Purchase and Redeem Fund Shares" for more
information on the CDSC. On the sixth anniversary of their purchase date, Class
B Shares automatically convert to Class A Shares. See "Management of the Funds
the Distributor."
See "Dividends, Distributions and Federal Income Taxation," for an
explanation of circumstances in which a sales charge paid to acquire Shares of a
mutual fund may not be taken into account in determining gain or loss on the
disposition of those Shares.
Quantity Discounts in the Sales Charges
Right of Accumulation
<PAGE> 18
The Funds permit sales charges on Class A Shares to be reduced from rights of
accumulation. For Class A Shares, the schedule of reduced sales charges will be
applicable once the accumulated value of the account has reached $50,000. For
this purpose, the dollar amount of the qualifying concurrent or subsequent
purchase is added to the net asset value of any other Class A Shares of those
Funds in the Company owned at the time by the investor. The sales charge imposed
on the Class A Shares being purchased will then be at the rate applicable to the
aggregate of Class A shares purchased. For example, if the investor held Class A
Shares of these Funds valued at $100,000 and purchased an additional $20,000 of
Shares of these Funds (totaling an investment of $120,000), the sales charge for
the $20,000 purchase would be at the next lower sales charge on the schedule
(i.e., the sales charge for purchases over $100,000 but less than $250,000).
There can be no assurance that investors will receive the cumulative discounts
to which they may be entitled unless, at the time of placing their purchase
order, the investors, their dealers, or Participating Organizations make a
written request for the discount. The cumulative discount program may be amended
or terminated at any time. This particular privilege does not entitle the
investor to any adjustment in the sales charge paid previously on purchases of
Shares of the Funds. If the investor knows that he will be making additional
purchases of Shares in the future, he may wish to consider executing a Letter of
Intent.
Letter of Intent
The schedule of reduced sales charges is also available to Class A
investors who enter into a written Letter of Intent providing for the purchase,
within a 13-month period, of Class A Shares of a particular Fund. Shares of such
Fund previously purchased during a 90-day period prior to the date of receipt by
the Fund of the Letter of Intent which are still owned by the shareholder may
also be included in determining the applicable reduction, provided the
shareholder, dealer, or Participating Organization notifies the Fund of such
prior purchases.
A Letter of Intent permits an investor in Class A Shares to establish a
total investment goal to be achieved by any number of investments over a
13-month period. Each investment made during the period will receive the reduced
sales commission applicable to the amount represented by the goal as if it were
a single investment. A number of Shares totaling 5% of the dollar amount of the
Letter of Intent will be held in escrow by the Fund in the name of the
shareholder. The initial purchase under a Letter of Intent must be equal to at
least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, or a Fund
to sell, the indicated amount. In the event the Letter of Intent goal is not
achieved within the 13-month period, the investor is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. The Fund is authorized by
the shareholder to liquidate a sufficient number of escrowed Shares to obtain
such difference. If the goal is exceeded and purchases pass the next sales
charge level, the sales charge on the entire amount of the purchase that results
in passing that level and on subsequent purchases will be subject to further
reduced sales charges in the same manner as set forth under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. At any time while a Letter of Intent is in effect, a
shareholder may, by written notice to the Fund, increase the amount of the
stated goal. In that event, shares purchased during the previous 90-day period
and still owned by the minimum purchase requirements will be applicable to the
new stated goal. Investors electing to purchase Fund Shares pursuant to a Letter
of Intent should carefully read the application for Letter of Intent which is
available from the Fund.
MINIMUM PURCHASE REQUIREMENTS
The minimum initial investment in each of the Funds is $1,000, except that
the minimum investment required for an IRA or other qualified retirement plan is
$100. Any subsequent investments must be at least $50, except for an IRA or
qualified retirement plan investment. All initial investments should be
accompanied by a completed Purchase Application unless otherwise agreed upon
when purchases are made through an authorized securities dealer or financial
institution. A Purchase Application accompanies this Prospectus. However, a
separate application is required for IRA and other qualified retirement plan
investments. The Funds reserve the right to reject purchase orders.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Funds are sold on a continuous basis by the Funds'
Distributor, BISYS Fund Services Inc. The principal office of the distributor is
3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact
<PAGE> 19
the Funds at (800) 438-6375.
PURCHASES OF SHARES
Shares of the Funds are continuously offered and may be purchased directly
either by mail, by telephone or by electronic transfer. Shares may also be
purchased through a broker-dealer who has established a dealer agreement with
the Distributor. The minimum investment is generally $2,000 for the initial
purchase of Shares and $100 for subsequent purchases. For purchases that are
made in connection with 401(k) plans, 403(b) plans and other similar plans or
payroll deduction plans, the minimum investment amount for initial and
subsequent purchases is $25. In the case of such retirement plan investments,
the minimum purchase amounts are not restricted to the purchase of Shares of one
Fund. Thus, the $25 minimum amount may be spread among any of the Funds. (But,
see "HOW TO PURCHASE AND REDEEM SHARES -- Auto Invest Plan" below for minimum
investment requirements under the Auto Invest Plan).
Purchasers of Shares of the Funds will pay the sum of the next calculated
net asset value per Share after the Distributor's receipt of an order to
purchase Shares in good form ("public offering price") (see "HOW TO PURCHASE AND
REDEEM SHARES" below).
In the case of orders for the purchase of Shares placed through a
broker-dealer, the public offering price will be the net asset value as so
determined, but only if the broker-dealer receives the order prior to the
Valuation Time for that day and transmits it to the Funds by the Valuation Time.
The broker-dealer is responsible for transmitting such orders promptly. If the
broker-dealer fails to do so, the investor's right to that day's closing price
must be settled between the investor and the broker-dealer. If the broker-dealer
receives the order after the Valuation Time for that day, the price will be
based on the net asset value determined as of the Valuation Time for the next
Business Day.
Purchases By Mail
To purchase Shares of a Fund, complete an Account Application and return it
along with a check (or other negotiable bank draft or money order) in at least
the minimum initial purchase amount, made payable to the appropriate Fund to:
STEWARDSHIP PORTFOLIOS
Dept. L-1392
Columbus, Ohio 43260-1392
An Account Application form can be obtained by calling the Funds at (800)
438-6375. Subsequent purchases of Shares of a Fund may be made at any time by
mailing a check payable to a Fund, to the above address.
Purchases by Telephone
Shares of a Fund may be purchased by calling the Funds at (800) 438-6375,
if your Account Application has been previously received by the Distributor.
Payment for Shares ordered by telephone is made by electronic transfer to the
Funds' custodian. Prior to wiring funds and in order to ensure that wire orders
are invested promptly, investors must call the Funds at the number above to
obtain instructions regarding the bank account number to which the funds should
be wired and other pertinent information.
Other Information Regarding Purchases
Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by Deposit Guaranty National
Bank, its related companies or their correspondents ("Banks"). Shares of a Fund
sold to the Banks acting in a fiduciary, advisory, custodial, or other similar
capacity on behalf of Customers will normally be held of record by the Banks.
With respect to Shares sold, it is the responsibility of the holder of record to
transmit purchase or redemption orders to the Distributor and to deliver funds
for the purchase thereof by the Fund's custodian within the settlement
requirements defined in the Securities Exchange Act of 1934. If payment is not
received within the prescribed time periods or a check timely received does not
clear, the purchase will be canceled and the investor could be liable for any
losses or fees incurred. Any questions regarding current settlement requirements
or electronic payment instructions should be directed to the Funds at (800)
438-6375.
Purchases of Shares in a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES"). The public offering price of the Funds will
be the net asset value per Share (see "VALUATION OF SHARES"), plus the
applicable sales charge in the case of Class A Shares, as determined on the
Business Day the order is received by the Distributor, but only if the
Distributor receives the order by the Valuation Time. Otherwise, the price will
<PAGE> 20
be determined as of the Valuation Time on the next Business Day. In the case of
an order for the purchase of Shares placed through a broker-dealer, it is the
responsibility of the broker-dealer to transmit the order to the Distributor
promptly.
Depending upon the terms of the particular Customer account, a Bank may
charge a Customer account fees for services provided in connection with
investments in a Fund. Information concerning these services and any charges
will be provided by the Bank. This Prospectus should be read in conjunction with
any such information so received from a Bank.
The Funds reserve the right to reject any order for the purchase of a
Fund's Shares in whole or in part including purchases made with foreign and
third party checks.
Every Shareholder of record will receive a confirmation of each transaction
in his or her account, which will also show the total number of Shares of a Fund
owned by the Shareholder. Sending confirmations for purchases and redemptions of
Shares held by a Bank on behalf of its Customer will be the responsibility of
the Bank. Shareholders may rely on these statements in lieu of certificates.
Certificates representing Shares of the Funds will not be issued.
The Distributor, at its expense, will also provide other compensation to
dealers in connection with sales of Shares of a Fund. Compensation may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and other dealer-sponsored special
events. In some instances, this compensation may be made available only to
certain dealers whose representatives have sold or are expected to sell a
significant amount of Shares. Compensation will also include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will also include the following types of non-cash compensation
offered through sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging at luxury resorts at exotic locations; (2)
tickets for entertainment events (such as concerts, cruises and sporting events)
and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may
not use sales of Shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Funds or their Shareholders.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAs")
A STEWARDSHIP IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
IRA contributions may be tax deductible and earnings are tax-deferred. Under
applicable federal tax law, the tax deductibility of IRA contributions may be
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 STEWARDSHIP IRA distribution requests must be made in writing to the
Distributor. Any additional deposits to a STEWARDSHIP IRA must distinguish the
type and year of the contribution.
For tax years beginning after 1997, individuals may make contributions to
Roth IRAs which are non-deductible but distributions from which may, under
certain conditions, be tax free. Also for tax years beginning after 1997,
non-deductible contributions of up to $500 per year per beneficiary may be made
to an Education IRA. To the extent distributions from an Education IRA do not
exceed a beneficiary's "qualified higher education expenses," they are not
taxable. Both Roth IRAs and Education IRAs are subject to certain income limits.
For more information on IRA accounts call the Funds at (800) 438-6375.
Shareholders are advised to consult a tax adviser on IRA contribution and
withdrawal requirements and restrictions.
AUTO INVEST PLAN
The Auto Invest Plan enables Shareholders of the Funds to make regular
monthly or quarterly purchases of Shares through automatic deductions from their
bank accounts (which must be with a domestic member of the Automatic Clearing
House). With Shareholder authorization, the Transfer Agent will deduct the
amount specified from the Shareholder's bank account which will automatically be
invested in Shares at the public offering price on the dates of the deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $250; the minimum amount for subsequent investments in a Fund is
$25. To participate in the Auto Invest Plan, Shareholders should complete the
<PAGE> 21
appropriate section of the account application which can be acquired by calling
(800) 438-6375. For a Shareholder to change the Auto Invest instructions, the
request must be made in writing to the Distributor.
EXCHANGE PRIVILEGE
The Funds offer an exchange program whereby Shareholders are entitled to
exchange their Shares of a class for Shares of the same class of the other
Funds. Such exchanges will be executed on the basis of the relative net asset
values of the Shares exchanged. The Shares exchanged must have a current value
that equals or exceeds the minimum investment that is required (either the
minimum amount required for initial or subsequent investments as the case may
be) for the Fund whose Shares are being acquired. Share exchanges will only be
permitted where the Shares to be acquired may legally be sold in the investor's
state of residence. An exchange is considered to be a sale of Shares for
federal income tax purposes on which a Shareholder may realize a taxable gain
or loss. A Shareholder may make an exchange request by calling the Funds at
(800) 438-6375 or by providing written instructions to the Funds. An investor
should consult the Funds for further information regarding exchanges. During
periods of significant economic or market change, telephone exchanges may be
difficult to complete. If a Shareholder is unable to contact the Funds by
telephone, a Shareholder may also mail the exchange request to the Funds at the
address listed under "HOW TO PURCHASE AND REDEEM SHARES--Redemption By Mail."
The Funds reserve the right to modify or terminate the exchange privilege
described above at any time and to reject any exchange request. If an exchange
request in good order is received by the Distributor by the Valuation Time, on
any Business Day, the exchange usually will occur on that day. Any Shareholder
who wishes to make an exchange should obtain and review the current prospectus
of the Fund in which he or she wishes to invest before making the exchange.
Shareholders wishing to make use of the Funds' exchange program must so
indicate on the Account Application.
This option will be suspended for a period of 30 days following a
telephonic address change.
REDEMPTION OF SHARES
Shareholders may redeem their Shares on any day that net asset value is
calculated (see "VALUATION OF SHARES"). Redemptions may ordinarily be requested
by mail or by telephone.
Class A and B Shares will be redeemed at the net asset value next
determined after a redemption request in good order has been received by the
applicable Fund, provided that for Class B Shares, redemption proceeds will be
reduced by any applicable CDSC. A CDSC payable to the Distributor is imposed on
any redemption of Class B Shares that causes the current value of a Class B
shareholder's account to fall below the dollar amount of all payments by the
shareholder for the purchase of Class B Shares ("purchase payments") during the
preceding five years. No charge is imposed to the extent the net asset value of
the Class B Shares to be redeemed does not exceed (a) the current net asset
value of the Class B Shares purchased through the reinvestment of dividends or
capital gains distributions, plus (b) increases in the net asset value of the
shareholder's Class B Shares above the purchase payments made during the
preceding five years.
In circumstances in which the CDSC is imposed, the amount of the charge
will depend on the number of years since the shareholder made the purchase
payment from which the amount is being redeemed. With respect to Class B Share
redemptions only, the purchase payment from which a redemption is made is
assumed to be the earliest purchase payment from which a full redemption has not
already been effected. Solely for purposes of determining the number of years
since a purchase payment, all purchase payments during a month will be
aggregated and deemed to have been made on the last day of the preceding month.
The following table sets forth the rates of the charge for redemption of Class B
Shares of each Fund.
Contingent Deferred Sales Charge
Years Since Purchase
1....................... 5.0%
2....................... 4.0%
3....................... 3.0%
4....................... 2.0%
5....................... 1.0%
6....................... 0%
Following the sixth anniversary of their purchase date, Class B Shares will
convert automatically to Class A Shares and thereafter will be subject to the
lower service and distribution plan fees applicable to Class A Shares. See
"Management of the Funds - The Distributor."
Waivers of CDSC. The Class B CDSC will be waived on (a) involuntary
<PAGE> 22
redemptions (see below); and (b) redemptions of shares in connection with a
combination of any investment company with the Company or a Fund by merger,
acquisition of assets or otherwise. The CDSC will also be waived for the classes
of investors for which the initial sales charge is waived on purchases of Class
A Shares. (See "Pricing of Fund Shares - Class A Shares.")
All or part of a Customer's Shares may be required to be redeemed in
accordance with instructions and limitations pertaining to his or her account
held by a Bank. For example, if a Customer has agreed to maintain a minimum
balance in his or her account, and the balance in that account falls below that
minimum, the Customer may be obliged to redeem, or the Bank may redeem for and
on behalf of the Customer, all or part of the Customer's Shares to the extent
necessary to maintain the required minimum balance. There may be no notice
period affording Shareholders an opportunity to increase the account balance in
order to avoid an involuntary redemption under these circumstances.
REDEMPTION BY MAIL
A written request for redemption must be received by the Funds in order to
honor the request. The Funds' address is: Dept. L-1392, Columbus, Ohio
43260-1392. The Transfer Agent may require a signature guarantee by an eligible
guarantor institution. For purposes of this policy, the term "eligible guarantor
institution" shall include banks, brokers, dealers, credit unions, securities
exchanges and associations, clearing agencies and savings associations as those
terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. The
Transfer Agent reserves the right to reject any signature guarantee if (1) it
has reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. The signature
guarantee requirement will be waived if all of the following conditions apply:
(1) the redemption check is payable to the Shareholder(s) of record and (2) the
redemption check is mailed to the Shareholder(s) at the address of record or the
proceeds are either mailed or wired to a commercial bank account previously
designated on the Account Application. There is no charge for having redemption
requests mailed to a designated bank account.
If the Group receives a redemption order but a shareholder has not clearly
indicated the amount of money or number of shares involved, the Group cannot
execute the order. In such cases, the Group will request the missing information
and process the order on the day such information is received.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the Shareholder selected that option
on the Account Application. The Shareholder may have the proceeds mailed to his
or her address or mailed or sent electronically to a commercial bank account
previously designated on the Account Application. Electronic payment requests
may be made by the Shareholder by telephone to the Funds at (800) 438-6375. For
a wire redemption, the then-current wire redemption charge may be deducted from
the proceeds of a wire redemption. This charge, if applied, will vary depending
on the receiving institution for each wire redemption. It is not necessary for
Shareholders to confirm telephone redemption requests in writing. During periods
of significant economic or market change, telephone redemptions may be difficult
to complete. If a Shareholder is unable to contact the Funds by telephone, a
Shareholder may also mail the redemption request to the Distributor at the
address listed above under "HOW TO PURCHASE AND REDEEM SHARES--Redemption by
Mail". Neither the Distributor, the Transfer Agent, the Adviser, nor the Group
will be liable for any losses, damages, expense or cost arising out of any
telephone transaction (including exchanges and redemptions) effected in
accordance with the Funds' telephone transaction procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service contractors may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verification of
account name and account number or tax identification number, and sending
redemption proceeds only to the address of record or to a previously authorized
bank account.
This option will be suspended for a period of 30 days following a
telephonic address change.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular
monthly or quarterly redemptions of Shares. With Shareholder authorization, the
Transfer Agent will automatically redeem Shares at the net asset value on the
dates of the withdrawal and have a check in the amount specified mailed to the
Shareholder. The required minimum withdrawal is $100. To participate in the Auto
<PAGE> 23
Withdrawal Plan, Shareholders should call (800) 438-6375 for more information.
Purchases of additional Shares concurrent with withdrawals may be
disadvantageous to certain Shareholders because of tax liabilities. For a
Shareholder to change the Auto Withdrawal instructions the request must be made
in writing to the Distributor.
DIRECTED DIVIDEND OPTION
A Shareholder may elect to have all income dividends and capital gains
distributions paid by check or reinvested in any of the Group's other funds,
(provided the other Fund is maintained at the minimum required balance).
The Directed Dividend Option may be modified or terminated by the Group at
any time after notice to participating Shareholders. Participation in the
Directed Dividend Option may be terminated or changed by the Shareholder at any
time by writing the Distributor. The Directed Dividend Option is not available
to participants in a STEWARDSHIP IRA.
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 the
settlement requirements defined in the Securities Exchange Act of 1934 after
receipt by the Distributor of the request for redemption. However, to the
greatest extent possible, the Group will attempt to honor requests from
Shareholders for next day payments upon redemption if the request 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 within two Business Days, unless it would be disadvantageous to the Fund
or the Shareholders of the Fund to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner.
At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, a Fund may delay the
forwarding of proceeds until payment has been collected for the purchase of such
Shares, which delay may be for up to 10 days or more. A Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, a Fund may make payment wholly or partly in portfolio securities at
their then-current market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Funds
reserve the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder (but not
as a result of a decrease in the market price of such Shares), the account of
such Shareholder has a value of less than $500. Before the Funds exercise their
right to redeem such Shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the Shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in an amount which will increase the value of the account
to at least $500.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Matters Affecting
Redemption" in the Statement of Additional Information for examples of when the
Group may, under applicable law and regulation, suspend the right of redemption
if it appears appropriate to do so in light of the Group's responsibilities
under the 1940 Act.
DIVIDENDS AND TAXES
DIVIDENDS
Aggressive Growth Fund intends to declare its net investment income
semi-annually as a dividend to shareholders at the close of business on the day
of declaration, and generally will pay such dividends semi-annually. Moderate
Growth Fund and Conservation Growth Fund each intend to declare their net
investment income quarterly as a dividend to Shareholders at the close of
business on the day of declaration, and generally will pay such dividends
quarterly. Each Fund also intends to distribute its capital gains, if any, at
least annually, normally in December of each year. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares of a Fund at net asset value as of the
ex-dividend date, unless the Shareholder elects to receive dividends or
distributions in cash. Such election must be made on the Account Application;
any change in such election must be made in writing to the Funds at Dept.
L-1392, Columbus, Ohio 43260-1392, and will become effective with respect to
dividends and distributions having record dates after its receipt by the
Transfer Agent. Dividends are paid in cash no later than seven business days
after a Shareholder's complete redemption of his or her Shares.
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, such cash election will be changed automatically and future dividend and
capital gains distributions will be reinvested in the Fund at the per share net
<PAGE> 24
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be canceled and will be reinvested in the Fund at the per share net asset
value determined as of the date of cancellation.
FEDERAL TAXES
The following discussion is intended for general information only.
Investors should consult with their tax adviser as to the tax consequences of an
investment in the Funds, including the status of distributions from the Funds
under applicable state or local law.
Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify, each Fund must meet certain income, distribution and
diversification requirements. In any year in which a Fund qualifies as a
regulated investment company and timely distributes all of its income and
substantially all of its net tax-exempt interest income, the Fund generally will
not pay any U.S. federal income or excise tax.
Dividends paid out of a Fund's investment company taxable income (including
dividends, taxable interest and net short-term capital gains) will be taxable to
a U.S. Shareholder as ordinary income. A portion of a Fund's income may consist
of dividends paid by U.S. corporations. Therefore, a portion of the dividends
paid by the Funds may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains will be taxable to Shareholders,
but the rate of tax will vary depending upon the Fund's holding periods in the
assets whose sale resulted in the capital gain. In general, net capital gains
from assets held by a Fund for more than 18 months will be subject to a maximum
rate of 20%, net capital gains from assets held more than one year but not more
than 18 months will be subject to a maximum tax rate of 28% and net capital
gains from assets held one year or less will be taxed as ordinary income. These
capital gains rates will apply regardless of the length of time the Shareholder
has held a Fund's Shares. Dividends are generally treated in the same manner
whether received in cash or reinvested in additional Fund Shares.
A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by a Fund in October, November or December of
that year to shareholders of record on a date in such a month and paid by a Fund
during January of the following calendar year. Such distributions will be
treated as received by Shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Each year the Funds will notify Shareholders of the tax status of dividends
and distributions.
Investments in securities that are issued at a discount will result each
year in income to a Fund equal to a portion of the excess of the face value of
the securities over their issue price, even though the Fund receives no cash
interest payments from the securities. Such income generally will, however, have
to be distributed to shareholders on a timely basis.
Any gain or loss realized by a Shareholder upon the sale or other
disposition of Shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a taxable capital gain or loss which
will be long-term, mid-term or short-term, generally depending upon the
Shareholder's holding period for the Shares. In some cases, Shareholders will
not be permitted to take sales charges into account in determining the amount of
gain or loss realized on the disposition of their shares. See "Additional Tax
Information" in the Statement of Additional Information.
The Funds may be required to withhold U.S. federal income tax at the rate
of 31% of all reportable dividends (which does not include exempt-interest
dividends) and capital gain distributions (as well as redemptions), payable to
Shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
<PAGE> 25
withholding is not an additional tax. Any amounts withheld may be credited
against the Shareholder's U.S. federal income tax liability.
Further information relating to tax consequences is contained in the
Statement of Additional Information.
STATE AND LOCAL TAXES
The Group is organized as a Massachusetts business trust and, under current
law, neither the Group nor any Fund is liable for any income or franchise tax in
the Commonwealth of Massachusetts as long as each Fund qualifies as a regulated
investment company under the Code.
Distributions from all of the Funds may be subject to state and local
taxes. Distributions of a Fund which are derived from interest on obligations of
the U.S. Government and certain of its agencies and instrumentalities may be
exempt from state and local taxes in certain states. Shareholders should consult
their tax advisers regarding the possible exclusion for state and local income
tax purposes of the portion of dividends paid by a Fund which is attributable to
interest from obligations of the U.S. Government and its agencies, authorities
and instrumentalities, and the particular tax consequences to them of an
investment in a Fund, including the application of state and local tax laws.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of the Group's funds. There are
currently five Trustees, of whom two are "interested persons" of the Group
within the meaning of that term under the 1940 Act. The Group will be managed by
the Trustees in accordance with the laws of Massachusetts governing business
trusts. The Trustees, in turn, elect the officers of the Group to supervise
actively its day-to-day operations.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. However, no
officer or employee of BISYS Fund Services, Inc. receives any compensation from
the Group for acting as a Trustee of the Group. The officers of the Group (see
the Statement of Additional Information) receive no compensation directly from
the Group for performing the duties of their offices. BISYS Fund Services Inc.
receives fees from the Funds for acting as administrator. BISYS Fund Services
Ohio, Inc. receives fees from the Funds for acting as Transfer Agent and for
providing certain fund accounting services.
INVESTMENT ADVISER
ParkSouth Corporation, 201 E. Capitol Street, Jackson, Mississippi 39201,
is the investment adviser for the Funds. The Adviser is a wholly-owned
subsidiary of Deposit Guaranty National Bank ("Bank") which is controlled by
Deposit Guaranty Corp. ("DGC"), a bank holding company. The Adviser provides
investment management services to individuals and institutional clients. [MORE
INFORMATION TO BE PROVIDED]
The following individuals serve as portfolio managers for the Funds and are
primarily responsible for the day-to-day management of the Fund's portfolios:
Ronald E. Linquist, Senior Vice President, ParkSouth Corporation, will
manage the equity portions of the Asset Classes. Ron also has managed the DG
Equity Fund, totalling more than $600 million, since its inception in 1992. Ron
has been with ParkSouth since the company was founded in January 1996. He has
worked with Deposit Guaranty National Bank since 1978 and has over 33 years of
investment experience. He has received his B.S. in Finance from Florida State
University and M.S.M. in Finance from Florida International University.
John Mark McKenzie, Senior Vice President, ParkSouth Corporation, manages
the fixed income investments of the Asset Classes. Mr. McKenzie also manages the
DG Treasury Money Market Fund, the DG Prime Money Market Fund, the DG Government
Income Fund, the DG Limited Term Government Fund and the DG Municipal Income
Fund totaling over $900 million. Prior to joining ParkSouth in January 1996 he
was a portfolio manager with Deposit Guaranty since 1984. He received a B.B.A.
in Banking and Finance from the University of Mississippi. He is a member of the
Mississippi Society of Financial Analysts, and is a member of the Mississippi
State and Hinds County Bar Association.
Subject to the general supervision of the Group's Board of Trustees and in
accordance with a Fund's investment objective and restrictions, the Adviser
manages the investments of a Fund allocated to the Domestic, Equity and Fixed
Income/Cash Asset Classes, makes decisions with respect to and places orders for
all allocation of a Fund's assets among Asset Classes, manages purchases and
sales of a Fund's portfolio securities, and maintains a Fund's records relating
<PAGE> 26
to such purchases and sales.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Group, the Adviser receives a fee computed daily and
paid monthly, at the annual rate of 1.00% of each Fund's average net assets. The
Adviser may periodically waive all or a portion of its advisory fee to increase
the net income of a Fund available for distribution as dividends. The Adviser
may not seek reimbursement of such waived fees at a later date. The waiver of
such fee will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for the Funds and also acts as the Funds'
principal underwriter and distributor (the "Administrator" or the "Distributor,"
as the context indicates). BISYS Fund Services Inc. is wholly-owned by The BISYS
Group, Inc. 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned
company engaged in information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of the Funds'
administration and operation. For expenses assumed and services provided as
administrator pursuant to its management and administration agreement with the
Funds, the Administrator receives a fee computed daily and paid periodically,
calculated at an annual rate of .13% of the first $250 million, .115% of the
next $250 million, .095% of the next $250 million, and .08% over $750 million,
based on each Fund's average daily net assets, subject to an annual minimum of
$100,000 per portfolio plus $10,000 for each additional class. The Administrator
may periodically waive all or a portion of its administrative fee to increase
the net income of a Fund available for distribution as dividends. The
Administrator may not seek reimbursement of such waived fees at a later date.
The waiver of such fee will cause the yield of a Fund to be higher than it would
otherwise be in the absence of such a waiver.
The Distributor acts as agent for the Funds in the distribution of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities.
EXPENSES AND PORTFOLIO TRANSACTIONS
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
The policy of each of the Funds, regarding purchases and sales of
securities for its portfolio, is that primary consideration be given to
obtaining the most favorable prices and efficient execution of transactions. In
seeking to implement the Fund's policies, the Adviser effects transactions with
those brokers and dealers whom the Adviser believes provide the most favorable
prices and are capable of providing efficient executions. If the Adviser
believes such price and executions are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund or
the Adviser. Such services may include, but are not limited to, any one or more
of the following: information as to the availability of securities for purchase
or sale; statistical or factual information or opinions pertaining to
investments; wire services; and appraisals or evaluations of portfolio
securities. Such information may be useful to the Adviser in serving both the
Funds and other clients and, conversely, supplemental information obtained by
the placement of business of other clients may be useful to the Adviser in
carrying out its obligations to the Funds.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commission charged by other broker-dealers in
recognition of their research or execution services. In order to cause the Funds
to pay such higher commissions, the Adviser must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage and/or
research services provided by such executing broker-dealers, viewed in terms of
a particular transaction or the Adviser's overall responsibilities to the Funds.
In reaching this determination, the Adviser will not attempt to place a specific
dollar value on the brokerage and/or research services provided, or to determine
what portion of the compensation should be related to those services.
DISTRIBUTION 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 class
of Shares of each Fund is authorized to pay or reimburse BISYS Fund Services
<PAGE> 27
Inc., as Distributor, a periodic amount calculated at an annual rate not to
exceed twenty-five one hundredths of one percent (0.25%) of the average daily
net assets of Class A Shares of the Fund and thirty-five one hundredths of one
percent (0.35%) of the average daily net assets of Class B Shares of the Fund.
Such amount may be used to pay banks (including the Bank) for administrative and
shareholder services and to pay broker-dealers and other institutions for
similar services, including distribution services (each such bank, broker-dealer
and other institution is hereafter referred to as a "Participating
Organization"), pursuant to an agreement between BISYS Fund Services, Inc. and
the Participating Organization. Under the Plan, a Participating Organization may
include BISYS Fund Services, Inc., its subsidiaries and its affiliates.
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 Fund Services Inc.,
which agree to provide certain ministerial, recordkeeping 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 .15% (waived
initially) 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, recordkeeping 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 Funds on behalf
of customers, providing periodic statements to customers showing their positions
in the Shares of the Funds, 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 Funds pursuant to specific
or pre-authorized instructions.
As authorized by the Services Plan, the Group has entered into a Servicing
Agreement with an affiliate of the Adviser pursuant to which the affiliate has
agreed to provide certain administrative support services in connection with
Shares of the Funds owned of record or beneficially by its customers. Such
administrative support services may include, but are not limited to, (i)
processing dividend and distribution payments from a Fund on behalf of
customers, (ii) providing periodic statements to its customers showing their
positions in the Shares; (iii) arranging for bank wires; (iv) responding to
routine customer inquiries relating to services performed by the affiliate; (v)
providing sub-accounting with respect to the Shares beneficially owned by the
affiliate's customers or the information necessary for sub-accounting; (vi) if
required by law, forwarding shareholder communications from a Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to its customers; (vii) aggregating and
processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for customers; and (viii)
providing customers with a service that invests the assets of their account in
the Shares pursuant to specific or pre-authorized instructions. In consideration
of such services, the Group, on behalf of each Fund, has agreed to pay the
affiliate a monthly fee, computed at an annual rate of fifteen one-hundredths of
one percent (0.15%) of the average aggregate net asset value of Shares of that
Fund held during the period by customers for whom the affiliate has provided
services under the Servicing Agreement. This fee is currently being waived.
CUSTODIAN AND SUBCUSTODIAN
Deposit Guaranty National Bank will act as the Funds' custodian. Bank of
New York will be sub-custodian.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc. ("BISYS Fund Services" or the "Transfer
Agent"), 3435 Stelzer Road, Columbus, Ohio 43219, serves as the Funds' transfer
agent pursuant to a Transfer Agency Agreement for the Funds and receives a fee
for such services. BISYS Fund Services also provides certain accounting services
for the Funds pursuant to a Fund Accounting Agreement. See "MANAGEMENT OF THE
COMPANY--Transfer Agency and Fund Accounting Services" in the Statement of
Additional Information for further information.
<PAGE> 28
BANKING LAWS
The Adviser, the Bank, and their affiliates believe that they possess the
legal authority to perform the advisory services and the administrative and
shareholder support services for the Funds contemplated by the investment
advisory agreement and the Rule 12b-1 Agreement, as described in this
Prospectus, without violation of applicable banking laws and regulations. Future
changes in Federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which the Adviser, the Bank. or their affiliates could continue to
perform such services for the Funds. It is not anticipated, however, that any
change in the Funds' method of operations would affect its net asset value per
share or result in financial losses to any Shareholder. See "MANAGEMENT OF THE
GROUP--Banking Laws" in the Statement of Additional Information for further
discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on January 8,
1992. The Group consists of several funds organized as separate series of
shares. Each share represents an equal proportionate interest in a fund with
other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that fund as
are declared at the discretion of the Trustees (see "Miscellaneous" below),
provided that each class of Shares of the Stewardship Funds is subject to
certain class-specific expenses.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held, and will vote in
the aggregate and not by series or classes except as otherwise expressly
required by law. For example, shareholders of each fund will vote in the
aggregate with other shareholders of the Group with respect to the election of
Trustees and ratification of the selection of independent auditors. However,
shareholders of a particular fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that fund's
investment advisory agreement, and shareholders of each class of Shares of each
Fund will vote separately as a class with respect to the Plan..
Overall responsibility for the management of the Funds is vested in the
Board of Trustees of the Group. See "MANAGEMENT OF THE GROUP--Trustees of the
Group." Individual Trustees are elected by the shareholders of the Group and may
be removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and
Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in the Statement
of Additional Information for further information.
An annual or special meeting of shareholders is not generally required by
the Declaration of Trust, the 1940 Act or other applicable authority. To the
extent that such a meeting is not required, the Group may elect not to have an
annual or special meeting.
The Group has undertaken that the Trustees will call a special meeting of
shareholders for purposes of considering the removal of one or more Trustees
upon written request therefor from shareholders holding not less than 10% of the
outstanding votes of the Group. The Group will, to the extent required under the
1940 Act, assist Shareholders in calling such a meeting. At such a meeting, a
quorum of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
PERFORMANCE INFORMATION
From time to time the Funds may advertise their average annual total
return, aggregate total return, yield and effective yield in advertisements,
sales literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average
annual total return will be calculated for the period since the establishment of
each Fund and will reflect the imposition of the maximum sales charge or CDSC.
Average annual total return is measured by comparing the value of an investment
in the particular Fund at the beginning of the relevant period to the redemption
value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the difference. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield for each class of the Funds will be computed
<PAGE> 29
by dividing the Fund's net investment income per share of a class earned during
a recent one-month period by the Fund's per share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result.
Distribution rates will be computed by dividing the distribution per share
of each class made by a Fund over a twelve-month period by the maximum offering
price per share. The distribution rate includes both income and capital gain
dividends and does not reflect unrealized gains or losses. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, whereas yield does not include such items.
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices and to data prepared by various services which may be
published by such services or by other services or publications. In addition to
performance information, general information about a Fund that appears in such
publications may be included in advertisements, sales literature and in reports
to Shareholders.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by the Adviser or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted.
Additional information regarding the investment performance of the Funds is
contained in the annual report of the Funds which may be obtained without charge
by writing or calling the Funds.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent auditors.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a Fund" means the consideration received by the Fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular Fund
that are allocated to a 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 among all portfolios of the Group. Determinations by the Board of
Trustees of the Group as to the timing of the allocation of general liabilities
and expenses and as to the timing and allocable portion of any general assets
with respect to the Funds are conclusive.
As used in this Prospectus and in the Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of a Fund present at a meeting at which the holders
of more than 50% of the votes attributable to Shareholders of record of the Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of a Fund.
Inquiries regarding the Funds may be directed in writing to the Funds at
3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800) 438-6375.
<PAGE> 30
INVESTMENT ADVISER
ParkSouth Corporation
201 E. Capitol Street
DGB-14
Jackson, Mississippi 39201
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Inc.
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
INDEPENDENT AUDITORS
Ernst & Young LLP
10 West Broad Street
Suite 2300
Columbus, Ohio 43215
CUSTODIAN
Deposit Guaranty National Bank
201 E. Capitol Street
Jackson, Mississippi 39201
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
-----
<S> <C>
Prospectus Summary....................
Fee Table.............................
Financial Highlights..................
Investment Objectives, Policies and
Risk Factors........................
Investment Restrictions...............
Net Asset Value.......................
Pricing of Fund Shares................
Minimum Purchase Requirements.........
How to Purchase and Redeem Shares.....
Dividends and Taxes...................
Management of the Group...............
General Information...................
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
PROSPECTUS DATED __________________
<PAGE> 31
STEWARDSHIP PORTFOLIOS
Stewardship Aggressive Growth Fund
Stewardship Moderate Growth Fund
Stewardship Conservative Growth Fund
Each an Investment Portfolio of
The Coventry Group
Statement of Additional Information
[ date ]
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the prospectus for the STEWARDSHIP PORTFOLIOS,
including Stewardship Aggressive Growth Fund, Stewardship Moderate Growth Fund
and Stewardship Conservative Growth 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 three 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)
438-6375.
<PAGE> 32
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
THE COVENTRY GROUP . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . 1
Additional Information on Portfolio Instruments . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . 15
Portfolio Turnover . . . . . . . . . . . . . . . . . . . 17
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . 19
Matters Affecting Redemption . . . . . . . . . . . . . . 19
MANAGEMENT OF THE GROUP . . . . . . . . . . . . . . . . . . . . . 20
Trustees and Officers . . . . . . . . . . . . . . . . . 20
Investment Adviser . . . . . . . . . . . . . . . . . . . 24
Portfolio Transactions . . . . . . . . . . . . . . . . . 26
Banking Laws . . . . . . . . . . . . . . . . . . . . . . 28
Administrator . . . . . . . . . . . . . . . . . . . . . 28
Expenses . . . . . . . . . . . . . . . . . . . . . . . . 31
Distributor . . . . . . . . . . . . . . . . . . . . . . 32
Administrative Services Plan . . . . . . . . . . . . . . 34
Custodian . . . . . . . . . . . . . . . . . . . . . . . 35
Transfer Agency and Fund Accounting Services . . . . . . 36
Independent Auditors . . . . . . . . . . . . . . . . . . 37
Legal Counsel . . . . . . . . . . . . . . . . . . . . . 37
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 37
Description of Shares . . . . . . . . . . . . . . . . . 37
Vote of a Majority of the Outstanding Shares . . . . . . 38
Additional Tax Information . . . . . . . . . . . . . . . 38
Yields and Total Returns . . . . . . . . . . . . . . . . 48
Performance Comparisons . . . . . . . . . . . . . . . . 51
Principal Shareholders . . . . . . . . . . . . . . . . . 52
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 52
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 53
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
<PAGE> 33
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. The portfolios advised by ParkSouth
Corporation ("Adviser") are each referred to generally as a "Fund". This
Statement of Additional Information deals with the three Funds, Stewardship
Aggressive Growth Fund ("Aggressive Growth Fund"), Stewardship Moderate Growth
Fund ("Moderate Growth Fund") and Stewardship Conservative Growth Fund
("Conservative Growth Fund") each of which offers two classes of Shares. Much of
the information contained in this Statement of Additional Information expands
upon subjects discussed in the Prospectus of the Funds. Capitalized terms not
defined herein are defined in such Prospectus. No investment in Shares of a Fund
should be made without first reading the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies of
the Funds as set forth in their respective Prospectuses.
BANK OBLIGATIONS. Each Fund may invest in bank obligations such as bankers'
acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Bankers' acceptances
invested in by the Funds will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of investment the depository institution has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes
issued by corporations. Issues of commercial paper normally have maturities of
less than nine months and fixed rates of return.
The Funds may purchase commercial paper consisting of issues rated at the
time of purchase within the [three] highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO"). The Funds may also
invest in commercial paper that is not rated but is determined by the Adviser
under guidelines established by the Group's Board of Trustees, to be of
comparable quality.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes
are unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic readjustments in the interest rate according to the terms
of the instrument. They are also referred to as variable rate demand notes.
Because master demand notes are direct lending arrangements between a Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, a Fund may demand payment of principal and accrued interest at any
time or during specified periods not exceeding one year, depending upon the
instrument involved, and may resell the note at any time to a third party. The
Adviser will consider the earning power, cash flow, and other liquidity ratios
of the issuers of such notes and will continuously monitor their financial
status and ability to meet payment on demand. In determining dollar-weighted
average portfolio maturity, a variable amount master demand note will be deemed
to have a maturity equal to the longer of the period of time remaining until the
next interest rate adjustment or the period of time remaining until the
principal amount can be recovered from the issuer through demand.
VARIABLE AND FLOATING RATE NOTES. A variable rate note is one whose terms
provide for the readjustment of its interest rate on set dates and which, upon
such readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate note is one whose terms provide for
<PAGE> 34
the readjustment of its interest rate whenever a specified interest rate changes
and which, at any time, can reasonably be expected to have a market value that
approximates its par value. Such notes are frequently not rated by credit rating
agencies; however, unrated variable and floating rate notes purchased by a Fund
will be determined by the Adviser under guidelines approved by the Group's Board
of Trustees to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. In
making such determinations, the Adviser will consider the earning power, cash
flow and other liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by a Fund, the Fund may resell the note at any time to a third party.
The absence of an active secondary market, however, could make it difficult for
the Fund to dispose of a variable or floating rate note in the event the issuer
of the note defaulted on its payment obligations and the Fund could, as a result
or for other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit.
U.S. GOVERNMENT OBLIGATIONS. The Funds may invest in U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. A Fund will invest in
the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
STRIPPED TREASURY SECURITIES. The Funds may invest in certain U.S.
Government Obligations referred to as "Stripped Treasury Securities." Stripped
Treasury Securities are U.S. Treasury securities that have been stripped of
their unmatured interest coupons (which typically provide for interest payments
semi-annually), interest coupons that have been stripped from such U.S. Treasury
securities, and receipts and certificates for such stripped debt obligations and
stripped coupons. Stripped bonds and stripped coupons are sold at a deep
discount because the buyer of those securities receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest payments on the security.
Stripped Treasury Securities will include coupons that have been stripped
from U.S. Treasury bonds, which may be held through the Federal Reserve Bank's
book-entry system called "Separate Trading of Registered Interest and Principal
of Securities" ("STRIPS") or through a program entitled "Coupon Under Book-Entry
Safekeeping" ("CUBES").
The U.S. Government does not issue Stripped Treasury Securities directly.
The STRIPS program, which is ongoing, is designed to facilitate the secondary
market in the stripping of selected U.S. Treasury notes and bonds into separate
interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.
CUBES, like STRIPS, are direct obligations of the U.S. Government. CUBES
are coupons that have previously been physically stripped from U.S. Treasury
notes and bonds, but which were deposited with the Federal Reserve Bank's
book-entry system and are now carried and transferable in book-entry form only.
Only stripped U.S. Treasury coupons maturing on or after January 15, 1988, that
were stripped prior to January 5, 1987, were eligible for conversion to
book-entry form under the CUBES program.
By agreement, the underlying debt obligations will be held separate from
the general assets of the custodian and nominal holder of such securities, and
will not be subject to any right, charge, security interest, lien or claim of
any kind in favor of or against the custodian or any person claiming through the
custodian, and the custodian will be responsible for applying all payments
received on those underlying debt obligations to the related receipts or
certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
<PAGE> 35
parties in interest, are entitled to the rights and privileges of the underlying
debt obligations, including the right, in the event of default in payment of
principal or interest to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
FOREIGN INVESTMENTS. The Funds may, subject to their respective investment
objectives and policies, invest in certain obligations or securities of foreign
issuers. Permissible investments include American Depository Receipts ("ADRs")
and Yankee Obligations. Investment in securities issued by foreign branches of
U.S. banks, foreign banks, or other 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. 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
other taxes, and the adoption of other foreign governmental restrictions.
Additional risks include less publicly available information, the risk that
companies may not be subject to the accounting, auditing and financial reporting
standards and requirements of U.S. companies, the risk that foreign securities
markets may have less volume and therefore many securities traded in these
markets may be less liquid and their prices more volatile than U.S. securities,
and the risk that custodian and brokerage costs may be higher. Foreign issuers
of securities or obligations are often subject to accounting treatment and
engage in business practices different from those respecting domestic issuers of
similar securities or obligations. Foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
FUTURE CONTRACTS. As discussed in the Prospectus, the Funds may invest in
futures contracts and options thereon (stock or bond index futures contracts or
interest rate futures or options) to hedge or manage risks associated with a
Fund's securities investments. To enter into a futures contract, an amount of
cash and cash equivalents, equal to the market value of the futures contracts,
is deposited in a segregated account with the Fund's Custodian and/or in a
margin account with a broker to collateralize the position and thereby ensure
that the use of such futures is unleveraged. Positions in futures contracts may
be closed out only on an exchange that provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund had insufficient
cash, it might have to sell portfolio securities to meet daily margin
requirements at a time when it would be disadvantageous to do so. In addition, a
Fund might be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to hedge or manage risks
effectively.
Successful use of futures by a Fund is also subject to the Adviser's
ability to predict movements correctly in the direction of the market. There is
an imperfect correlation between movements in the price of the future and
movements in the price of the securities that are the subject of the hedge. In
addition, the price of futures may not correlate perfectly with movement in the
cash market due to certain market distortions. Due to the possibility of price
distortion in the futures market and because of the imperfect correlation
between the movements in the cash market and movements in the price of futures,
a correct forecast of general market trends or interest rate movements by the
Adviser may still not result in a successful hedging transaction over a short
time frame.
The trading of futures contracts is also subject to the risk of trading
halts, suspension, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruption of normal trading activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
CALL OPTIONS. The Funds may write (sell) "covered" call options and
purchase options to close out options previously written by them. Such options
must be listed on a National Securities Exchange and issued by the Options
Clearing Corporation. The purpose of writing covered call options is to generate
additional premium income for a Fund. This premium income will serve to enhance
the Fund's total return and will reduce the effect of any price decline of the
security involved in the option. Covered call options will generally be written
on securities which, in the opinion of the Adviser, are not expected to make any
major price moves in the near future but which, over the long term, are deemed
to be attractive investments for a Fund.
<PAGE> 36
A call option gives the holder (buyer) the "right to purchase" a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by repurchasing an option identical to that
previously sold. To secure his obligation to deliver the underlying security in
the case of a call option, a writer is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation. A Fund will write only covered call options and will
normally not write a covered call option if, as a result, the aggregate market
value of all portfolio securities covering all call options exceeds 15% of the
market value of its net assets.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objective. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options, which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but retains
the risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Fund has no control over when it may be
required to sell the underlying securities, since it may be assigned an exercise
notice at any time prior to the expiration of its obligation as a writer. If a
call option which a Fund has written expires, the Fund will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period. If the call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of a Fund's Custodian.
The premium received is the market value of an option. The premium a Fund
will receive from writing a call option will reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser, in determining whether a
particular call option should be written on a particular security, will consider
the reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for such option. The premium received by a Fund for
writing covered call options will be recorded as a liability in the Fund's
statement of assets and liabilities. This liability will be adjusted daily to
the option's current market value, which will be the latest sale price at the
time at which the net asset value per share of a Fund is computed (close of the
New York Stock Exchange), or, in the absence of such sale, the latest asked
price. The liability will be extinguished upon expiration of the option, the
purchase of an identical option in a closing transaction, or delivery of the
underlying security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no assurance
that a Fund will be able to effect such closing transactions at a favorable
price. If a Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. This could result in higher
transaction costs. The Funds will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by a Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, a Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
<PAGE> 37
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by the
Fund.
PUT OPTIONS. A Fund may acquire "puts" with respect to debt securities held
in its portfolio. A put is a right to sell or redeem a specified security (or
securities) at a certain time or within a certain period of time at a specified
exercise price. The put may be an independent feature or may be combined with a
reset feature that is designed to reduce downward price volatility as interest
rates rise by enabling the holder to liquidate the investment prior to maturity.
The amount payable to a Fund upon its exercise of a "put" is normally (i)
the Fund's acquisition cost of the securities subject to the put (excluding any
accrued interest which the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the portfolio
assets. Puts may also be used to facilitate that reinvestment of assets at a
rate of return more favorable than that of the underlying security. Puts may,
under certain circumstances, also be used to shorten the maturity of underlying
variable rate or floating rate securities for purposes of calculating the
remaining maturity of those securities and the dollar-weighted average portfolio
maturity of a Fund's assets.
A Fund will, if necessary or advisable, pay for puts either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities).
WHEN-ISSUED SECURITIES. Each of the Funds may purchase securities on a
when-issued or delayed-delivery basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield and thereby involve a risk that the yield obtained in the transaction will
be less than those available in the market when delivery takes place. A Fund
will generally not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase securities on a
when-issued basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy the
purchase commitment, and in such a case, the Fund may be required subsequently
to place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. In addition, because a Fund will set aside cash or
liquid portfolio securities to satisfy its purchase commitments in the manner
described above, the Fund's liquidity and the ability of the Adviser to manage
it might be affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its total assets.
When a Fund engages in when issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Funds will engage in when issued delivery transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives and policies, not for investment leverage.
MORTGAGE-RELATED SECURITIES. The Funds may, consistent with their
respective investment objectives and policies, invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. 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 a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
<PAGE> 38
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 Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow Funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. The
FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the principal
and interest by FNMA. Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
A Fund may also invest in mortgage-related securities which are
collateralized mortgage obligations ("CMOs") structured on pools of mortgage
pass-through certificates or mortgage loans. The CMOs in which the Funds may
invest represent securities issued by a private corporation or a U.S. Government
instrumentality that are backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligations to make interest
and principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
which have different maturities and which may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of a CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of a CMO held by a Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security. Mortgage-related securities will be purchased only if
rated within the three highest bond rating categories assigned by an NRSRO or,
if unrated, which the Adviser deems to present attractive opportunities and are
of comparable quality.
OTHER ASSET-BACKED SECURITIES. A Fund may also invest in interests in pools
of receivables, such as motor vehicle installment purchase obligations (known as
Certificates of Automobile Receivables or CARS(SM) and credit card receivables
(known as Certificates of Amortizing Revolving Debts or CARDS(SM). Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities may also be debt instruments which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities are not issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities.
Non-mortgage backed securities will be purchased by a Fund only when rated
within the three highest rating categories by an NRSRO at the time of purchase.
<PAGE> 39
In addition, such securities generally will have remaining estimated lives at
the time of purchase of 7 years or less.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by the other investment companies. Each of the Funds currently
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; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by any of
the Funds; and (d) not more than 10% of the outstanding voting stock of any one
investment company will be owned in the aggregate by the Funds. As a shareholder
of another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the Fund
bears directly in connection with its own operations. Investment companies in
which a Fund may invest may also impose a sales or distribution charge in
connection with the purchase or redemption of their shares and other types of
commissions or charges. Such charges will be payable by the Funds and,
therefore, will be borne directly by Shareholders.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers which the Adviser deems creditworthy
under guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain continually the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). If the seller were to default on its
repurchase obligation or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Additionally, there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under the
regular procedures normally in effect for custody of a Fund's securities subject
to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by that Fund's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectuses, each Fund
may borrow funds for temporary purposes by entering into reverse repurchase
agreements in accordance with that Fund's investment restrictions. Pursuant to
such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at a mutually agreed-upon date and price. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid 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.
Investment Restrictions
- -----------------------
The following are fundamental investment restrictions of the Funds. Under
these restrictions a Fund may not:
borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
concentrate its investments in a particular industry, as that term is used
<PAGE> 40
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
engage in the business of underwriting securities issued by others, except
to the extent that the Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities;
purchase or sell real estate, which does not include securities of
companies which deal in real estate or mortgages or investments secured by real
estate or interests therein, except that the Fund reserves freedom of action to
hold and to sell real estate acquired as a result of the Fund's ownership of
securities;
purchase physical commodities or contracts relating to physical
commodities;
make loans to other persons, except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase of
debt instruments or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
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 turnover rate for each Fund is not expected to exceed
50% for the equity portions of the Funds' Assets and 40% the fixed income
portion.
NET ASSET VALUE
As indicated in the Prospectuses, the net asset value of each class of
Shares of each Fund is determined and the Shares of each class are priced as of
the Valuation Times applicable to such Fund on each Business Day of the Company.
A "Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading and any other day except days on which there are not
sufficient changes in the value of the Fund's portfolio securities that the
Fund's net asset value might be materially affected and days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received. Currently, the NYSE is closed on New Year's Day, Martin Luther King,
Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. Debt
securities with remaining maturities of 60 days or less will be valued at their
amortized cost. Other securities and assets for which quotations are not readily
available, including restricted securities and securities purchased in private
transactions, are valued at their fair value in the best judgment of the Adviser
under the supervision of the Group's Board of Trustees.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Funds are the existence of restrictions upon
the sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
The Group may use a pricing service to value certain portfolio securities
where the prices provided are believed to reflect the fair market value of such
securities. A pricing service would normally consider such factors as yield,
risk, quality, maturity, type of issue, trading characteristics, special
circumstances and other factors it deems relevant in determining valuations of
normal institutional trading units of debt securities and would not rely
exclusively on quoted prices. The methods used by the pricing service and the
valuations so established will be reviewed by the Group under the general
supervision of the Group's Board of Trustees. Several pricing services are
available, one or more of which may be used by the Adviser from time to time.
<PAGE> 41
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
- ----------------------------
Shares in each of the Group's Funds are sold on a continuous basis by BISYS
Fund Services Limited Partnership d/b/a BISYS Fund Services (the "Distributor")
and BISYS Fund Services has agreed to use appropriate efforts to solicit all
purchase orders. In addition to purchasing Shares directly from the Distributor,
Shares may be purchased through procedures established by BISYS Fund Services in
connection with the requirements of accounts at Deposit Guaranty National Bank
("Bank") or the Bank's affiliated entities (collectively, "Banks"). Customers
purchasing Shares of the Funds may include officers, directors, or employees of
the Banks.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension for
the protection of security holders of the Group, or (d) the Commission has
determined that an emergency exists as a result of which (i) disposal by the
Group of securities owned by it is not reasonably practical, or (ii) it is not
reasonably practical for the Group to determine the fair value of its net
assets.
The Group may redeem Shares of each of the Funds involuntarily if
redemption appears appropriate in light of the Group's responsibilities under
the 1940 Act. See "NET ASSET VALUE" in this Statement of Additional Information.
MANAGEMENT OF THE GROUP
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board of
Trustees, which is elected by the Shareholders of the Group. The Trustees elect
the officers of the Group to supervise actively its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses, ages
and principal occupations during the past five years are as follows:
<PAGE> 42
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age 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 from 1987 to June 1992, President
Age: 51 of Leigh Investments (investment
firm).
Maurice G. Stark Trustee Retired. Until December 31,
505 King Avenue 1994, Vice President-Finance and
Columbus, Ohio 43201 Treasurer, Battelle Memorial
Age: 61 Institute (scientific research
and development service
corporation).
Michael M. Van Buskirk Trustee From June 1991 to present,
37 West Broad Street Executive Vice President of The
Suite 1001 Ohio Bankers' Association (trade
Columbus, Ohio 43215 association); from September 1987
Age: 49 to June 1991, Vice President -
Communications, TRW Information
Systems Group (electronic and
space engineering).
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age the Group During Past 5 Years
--------------------- ----------- -------------------
<S> <C> <C>
Chalmers P. Wylie Trustee From April 1993 to present, Of
754 Stonewood Court Counsel, Kegler Brown Hill &
Columbus, Ohio 43235 Ritter; from January 1993 to
Age: 76 present, Adjunct Professor, Ohio
State University; from January 1967 to
January 1993, member of the United
States House of Representatives for the
15th District of Ohio.
Nancy E. Converse* Trustee From December 1997 to present, employee of
3435 Stelzer Road of Ohio Bankers Association; from July 1990
Columbus, Ohio 43219 to December 1997, employee of BISYS Fund
Age: 47 Services.
J. David Huber Vice President From June, 1987 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 50
Thresa Dewar Treasurer From March 1997 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from September 1994 to March 1997
Age: 43 Independent Consultant; from April
1975 to September 1994, employee of
Federated Investors, Inc.
George L. Stevens Secretary From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from September 1995 to September
Age: 45 1996, Independent Consultant;
from September 1989 to September
1995, Senior Vice President, AmSouth
Bank, N.A.
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age the Group During Past 5 Years
--------------------- ----------- -------------------
<S> <C> <C>
Alaina V. Metz Assistant Secretary From 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May
Columbus, Ohio 43219 1989 to June 1995, employee of
Age: 29 Alliance Capital Management.
D'Ray Moore Assistant Secretary From February 1990 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 38
Richard B. Ille Assistant Secretary From July 1990 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 32
James L. Smith Assistant Secretary From October 1996 to present, employee
3435 Stelzer Road of BISYS Fund Services; from October 1995
Columbus, Ohio 43219 to October 1996, employee of Davis Graham
Age: 37 & Stubbs LLP, from June 1990 to October 1995,
Compliance Officer for ALPS Mutual Funds
Services, Inc.
<FN>
- ----------------------------
*Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
As of the date of this Statement of Additional Information, the Group's
officers and Trustees, as a group, own less than 1% of the Funds' outstanding
Shares.
</FN>
</TABLE>
The officers of the Group receive no compensation directly from the Group
for performing the duties of their offices. BISYS Fund Services receives fees
from the Funds for acting as Administrator. BISYS Fund Services Ohio, Inc.
receives fees from the Funds for acting as transfer agent and for providing
certain fund accounting services. Messrs. Huber, Stevens, Grimm, Ille, and Young
and Ms. Converse, Ms. Bittermann, Ms. Moore, Ms. Dewar, Mr. Smith 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.
Investment Adviser
- ------------------
Investment advisory services are provided by ParkSouth Corporation, [street
address], Jackson Mississippi [zip code], pursuant to an Investment Advisory
Agreement dated as of ________________ (the "Investment Advisory Agreement").
Under the Investment Advisory Agreement, the Adviser has agreed to provide
investment advisory services as described in the Prospectus of the Funds. For
the services provided pursuant to the Investment Advisory Agreement, each of the
Funds pays the Adviser a fee computed daily and paid monthly, at an annual rate,
calculated as a percentage of the average daily net assets of that Fund, of
1.00%. The Adviser may periodically waive all or a portion of its advisory fee
with respect to any Fund to increase the net income of the Fund available for
distribution as dividends.
Unless sooner terminated, the Investment Advisory Agreement will continue
in effect as to each Fund until [__________] and from year to year thereafter,
if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of a majority of the outstanding Shares of the relevant Fund
(as defined under "GENERAL INFORMATION - Miscellaneous" in the Funds'
Prospectus), and a majority of the Trustees who are not parties to the
<PAGE> 45
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.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute such Fund's portfolio transactions. Purchases and sales of
portfolio securities with respect to the Funds usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities generally include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers may include the spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. Transactions in the over-the-counter market are generally principal
transactions with dealers. With respect to the over-the-counter market, the
Adviser, where possible, will deal directly with dealers who make a market in
the securities involved except in those circumstances where better price and
execution are available elsewhere.
The Group, on behalf of the Funds, will not execute portfolio transactions
through, acquire portfolio securities issued by, make savings deposits in, or
enter into repurchase or reverse repurchase agreements with the Adviser, or its
affiliates, and will not give preference to Deposit Guaranty National Bank's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those for
the other Funds or any other investment company or account managed by the
Adviser. Any such other Fund, investment company or account may also invest in
the same securities as the Group on behalf of the Funds. When a purchase or sale
of the same security is made at substantially the same time on behalf of more
than one Fund or a Fund and another investment company or account, the
transaction will be averaged as to price, and available investments will be
allocated as to amount in a manner which the Adviser believes to be equitable to
the Fund(s) and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by a Fund. To the extent permitted by
law, the Adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for the other Funds or for other investment
companies or accounts in order to obtain best execution. As provided by the
Investment Advisory Agreement, in making investment recommendations for the
Funds, the Adviser will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by the Funds is a customer of the
Adviser or its parents or subsidiaries or affiliates and, in dealing with their
customers, the Adviser, its parents, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of such customers are held
by the Funds.
Banking Laws
- ------------
The Adviser, the Bank and their brokerage affiliates believe that it
possesses the legal authority to perform the services for the Funds contemplated
by the Prospectus, this Statement of Additional Information, the Investment
Advisory Agreement, and Rule 12b-1 Agreement described below without violation
of applicable statutes and regulations. The Adviser, the Bank and their
brokerage affiliates have been advised by their counsel that, while the question
is not free from doubt, such laws should not prevent the Adviser, the Bank and
their brokerage affiliates from providing the services required of it under the
Investment Advisory Agreement and Rule 12b-1 Agreement. Future changes in either
federal or state statutes and regulations relating to the permissible activities
of banks or bank holding companies and the subsidiaries or affiliates of those
<PAGE> 46
entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict the Adviser, the Bank or their brokerage affiliates from continuing to
perform such services for the Funds. Depending upon the nature of any changes in
the services which could be provided by the Adviser, the Bank or their brokerage
affiliates the Board of Trustees of the Group would review the Funds'
relationship with the Adviser or the Bank 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, the Bank and their brokerage
affiliates and/or its affiliated and correspondent banks in connection with
Customer purchases of Shares of the Funds, those banks might be required to
alter materially or discontinue the services offered by them to Customers. It is
not anticipated, however, that any change in the Group's method of operations
would affect its net asset value per share or result in financial losses to any
Customer.
Administrator
- -------------
BISYS Fund Services serves as administrator (the "Administrator") to the
Funds pursuant to a Management and Administration Agreement dated [date] (the
"Administration Agreement"). The Administrator assists in supervising all
operations of each Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, the Custodian under the Custodian Agreement and
by BISYS Fund Services Ohio under the Transfer Agency Agreement and Fund
Accounting Agreement). The Administrator is a broker-dealer registered with the
Commission, and is a member of the National Association of Securities Dealers,
Inc. 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 and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Funds with the Fund's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts and records of each Fund, including calculation of daily
expense accruals; and generally assists in all aspects of the Funds' operations
other than those performed by the Adviser, under the Investment Advisory
Agreement, by the Custodian under the Custodian Agreement or by BISYS Fund
Services Ohio, Inc. under the Transfer Agency Agreement or Fund Accounting
Agreement. Under the Administration Agreement, the Administrator may delegate
all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to the lesser of (1) a fee calculated daily and paid periodically, at the
annual rate equal to .13% of the first $250 million, .115% of the next $250
million, .095% of the next $250 million and .08% over $750 million of that
Fund's average daily net assets, subject to an annual minimum of $100,000 per
portfolio plus $10,000 for each additional class. The Administrator may
periodically waive all or a portion of its fee with respect to any Fund in order
to increase the net income of one or more of the Funds available for
distribution as dividends.
Unless sooner terminated as provided therein, the Administration Agreement
will continue in effect until [date]. The Administration Agreement thereafter
shall be renewed automatically for successive [five]-year terms, unless written
notice not to renew is given by the non-renewing party to the other party at
least 60 days prior to the expiration of the then-current term. The
Administration Agreement is terminable with respect to a particular Fund only
upon mutual agreement of the parties to the Administration Agreement and for
cause (as defined in the Administration Agreement) by the party alleging cause,
on not less than 60 days' notice by the Group's Board of Trustees or by the
Administrator.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by any
of the Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
Distributor
- -----------
<PAGE> 47
BISYS Fund Services serves as distributor to the Funds pursuant to the
Distribution Agreement dated [DATE}, (the "Distribution Agreement"). Unless
otherwise terminated, the Distribution Agreement will continue in effect until
[date], if such continuance is approved at least annually (i) by the Group's
Board of Trustees or by the vote of a majority of the outstanding Shares of the
Funds and (ii) by the vote of a majority of the Trustees of the Group who are
not parties to the Distribution Agreement or interested persons (as defined in
the 1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.
In its capacity as Distributor, BISYS Fund Services solicits orders for the
sale of Shares, advertises and pays the costs of advertising, office space and
the personnel involved in such activities. The Distributor receives no
compensation under the Distribution Agreement with the Group, but may receive
compensation under the Distribution and Shareholder Service Plan described
below.
As described in the Prospectus, the Group has adopted a Distribution and
Shareholder Service Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
under which the Funds are authorized to pay the Distributor for payments it
makes to banks, including [affiliates of the Adviser], other institutions and
broker-dealers, and for expenses the Distributor and any of its affiliates or
subsidiaries incur (with all of the foregoing organizations being referred to as
"Participating Organizations") for providing administration, distribution or
shareholder service assistance. Payments to such Participating Organizations may
be made pursuant to agreements entered into with the Distributor. The Plan
authorizes the Funds to make payments to the Distributor in an amount not to
exceed, on an annual basis, 0.25% of the average daily net assets of Class A
Shares of a Fund and 0.35% of the average daily net assets of Class B Shares of
a Fund. Each class of Shares is authorized to pay a shareholder service fee of
up to 0.15% of its average daily net assets, although this fee is currently
being waived. As required by Rule 12b-1, the Plan was approved by the sole
Shareholder of each class of each Fund and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of the Funds and who
have no direct or indirect financial interest in the operation of the Plan (the
"Independent Trustees"). The Plan may be terminated with respect to a Fund by
vote of a majority of the Independent Trustees, or by vote of a majority of the
outstanding Shares of the Fund. The Trustees review quarterly a written report
of such costs and the purposes for which such costs have been incurred. The Plan
may be amended by vote of the Trustees including a majority of the Independent
Trustees, cast in person at a meeting called for that purpose. However, any
change in the Plan that would materially increase the distribution cost to a
Fund requires approval by Shareholders of each affected class of Shares. For so
long as the Plan is in effect, selection and nomination of the Independent
Trustees shall be committed to the discretion of such disinterested persons. All
agreements with any person relating to the implementation of the Plan may be
terminated, with respect to a Fund of class, at any time on 60 days' written
notice without payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding Shares of the Fund or the
class, as applicable. The Plan will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Independent Trustees, and (ii) by the vote of a
majority of the entire Board of Trustees cast in person at a meeting called for
that purpose. The Board of Trustees has a duty to request and evaluate such
information as may be reasonably necessary for it to make an informed
determination of whether the Plan should be implemented or continued. In
addition the Trustees in approving the Plan must determine that there is a
reasonable likelihood that the Plan will benefit each Fund, each class and its
Shareholders.
The Board of Trustees of the Group believes that the Plan is in the best
interests of each of the Funds since it encourages Fund growth. As a Fund grows
in size, certain expenses, and therefore total expenses per Share, may be
reduced and overall performance per Share may be improved.
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 the Distributor, which
agree to provide certain ministerial, recordkeeping 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 .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
<PAGE> 48
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, recordkeeping 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 authorized by the Services Plan, the Group has entered into Servicing
Agreements with the Adviser pursuant to which the Adviser has agreed to provide
certain administrative support services in connection with Shares of the Funds
owned of record or beneficially by its customers. Such administrative support
services may include, but are not limited to, (i) processing dividend and
distribution payments from a Fund on behalf of customers, (ii) providing
periodic statements to its customers showing their positions in the Shares;
(iii) arranging for bank wires; (iv) responding to routine customer inquiries
relating to services performed by the Adviser; (v) providing sub-accounting with
respect to the Shares beneficially owned by the Adviser's customers or the
information necessary for sub-accounting; (vi) if required by law, forwarding
shareholder communications from a Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to its customers; (vii) aggregating and processing purchase, exchange,
and redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Shares pursuant to specific or
pre-authorized instructions. In consideration of such services, the Group, on
behalf of each Fund, has agreed to pay the Adviser a monthly fee, computed at an
annual rate of twenty-five one-hundredths of one percent (.25%) of the average
aggregate net asset value of Shares of that Fund held during the period by
customers for whom the Adviser has provided services under the Servicing
Agreement.
Custodian
- ---------
Deposit Guaranty National Bank, Jackson, Mississippi, serves as the Funds'
custodian. Sub-custody services are provided by Bank of New York.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Fund Services Ohio, Inc. serves as transfer agent and dividend
disbursing agent ("BISYS Fund Services Ohio" or the "Transfer Agent") for the
Funds, pursuant to the Transfer Agency Agreement dated , 1998.
Pursuant to such Agreement, the Transfer Agent, among other things, performs the
following services in connection with each of the Funds' Shareholders of record:
maintenance of shareholder records for each of the Fund's Shareholders of
record; processing shareholder purchase and redemption orders; processing
transfers and exchanges of Shares of the Funds on the shareholder files and
records; processing dividend payments and reinvestments; and assistance in the
mailing of shareholder reports and proxy solicitation materials. For such
services the Transfer Agent receives a fee based on the number of shareholder
accounts.
In addition, BISYS Fund Services Ohio provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement dated ,
1998. Fees paid under the Administration Agreement to BISYS Fund Services cover
the fund accounting services provided by the Transfer Agent. Under such
Agreement, BISYS Fund Services Ohio maintains the accounting books and records
for each Fund, including journals containing an itemized daily record of all
purchases and sales of portfolio securities, all receipts and disbursements of
cash and all other debits and credits, general and auxiliary ledgers reflecting
all asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Fund, including calculation of the net asset
value per Share, calculation of the dividend and capital gain distributions, if
any, and of yield, reconciliation of cash movements with the Custodian,
affirmation to the Custodian of all portfolio trades and cash settlements,
verification and reconciliation with the Custodian of all daily trade activity;
provides certain reports; obtains dealer quotations, prices from a pricing
service or matrix prices on all portfolio securities in order to mark the
portfolio to the market; and prepares an interim balance sheet, statement of
income and expense, and statement of changes in net assets for each Fund.
<PAGE> 49
Independent Auditors
- --------------------
Ernst & Young LLP, 10 West Broad Street, Suite 2300, Columbus, Ohio 43215,
has been selected as independent auditors for the Funds for the fiscal year
ended March 31, 1998. Ernst & Young LLP will perform an annual audit of the
Funds' financial statements and provide other services related to filings with
respect to securities regulations. Reports of their activities will be provided
to the Group's Board of Trustees.
Legal Counsel
- -------------
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, is
counsel to the Group.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust, organized on January 8, 1992.
The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of shares, which are shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption, and to establish separate classes of Shares.
Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectuses and this Statement of
Additional Information, the shares will be fully paid and non-assessable. In the
event of a liquidation or dissolution of the Group, shareholders of a fund are
entitled to receive the assets available for distribution belonging to that
fund, and a 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, subject to any differential class
expenses.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each Fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a Fund will be required in
connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a Fund only if approved
by a majority of the outstanding Shares of such Fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by Shareholders of the Group voting without regard to
series. Rule 18f-3 under the 1940 Act provides that shareholders of each class
shall have exclusive voting rights on matters submitted to shareholders relating
solely to distribution and shareholder service arrangements.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Group. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees or
officers of the Group for acts or obligations of the Group, which are binding
only on the assets and property of the Group, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Group or the Trustees. The Declaration of Trust provides for indemnification
out of Group property for all loss and expense of any shareholder held
personally liable for the obligations of the Group. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Group itself would be unable to meet its obligations,
and thus should be considered remote.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectus and this Statement of Additional Information, a
<PAGE> 50
"vote of a majority of the outstanding Shares" of a Fund or class 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 or class present at a
meeting at which the holders of more than 50% of the votes attributable to
Shareholders of record of that Fund or class are represented in person or by
proxy, or (b) the holders of more than 50% of the outstanding votes of
Shareholders of that Fund or class.
Additional Tax Information
- --------------------------
TAXATION OF THE FUNDS. Each Fund intends to qualify annually and to elect
to be treated as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code").
To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which a Fund controls and which are determined to be engaged
in the same or similar trades or businesses or related trades or businesses; and
(c) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) and its net tax-exempt interest
income each taxable year.
As a regulated investment company, each Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to Shareholders. Each Fund intends
to distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts, other than
tax-exempt interest, not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, each Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year, and (3) any ordinary
income and capital gains for previous years that were not distributed during
those years. A distribution, including an "exempt-interest dividend," will be
treated as paid on December 31 of the current calendar year if it is declared by
a Fund in October, November or December to shareholders of record on a date in
such a month and paid by the Fund during January of the following calendar year.
Such distributions will be treated as received by Shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received. To prevent application of the excise tax,
each Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS. Dividends paid out of a Fund's investment company taxable
income generally will be taxable to a U.S. Shareholder as ordinary income. A
portion of the income of each Fund may consist of dividends paid by U.S.
corporations and, accordingly, a portion of the dividends paid by a Fund may be
eligible for the corporate dividends-received deduction. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the Shareholder has held the
Fund's Shares, and are not eligible for the dividends-received deduction. The
rate of tax on capital gains distributions will vary depending upon a Fund's
holding period in the assets giving rise to the gain. Shareholders receiving
distributions in the form of additional Shares, rather than cash, generally
will have a cost basis in each such Share equal to the net asset value of a
Share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. federal
<PAGE> 51
tax status of distributions, and Shareholders receiving distributions in the
form of additional Shares will receive a report as to the net asset value of
those Shares.
Distributions by a Fund reduce the net asset value of Fund shares. Should a
taxable distribution reduce the net asset value below a Shareholder's cost
basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
DISCOUNT SECURITIES. Investments by a Fund in securities that are issued at
a discount will result in income to the Fund equal to a portion of the excess of
the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held, even though the Fund receives
no cash interest payments. This income is included in determining the amount of
income which the Fund must distribute to maintain its status as a regulated
investment company and to avoid the payment of federal income tax and the 4%
excise tax.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
Generally, the gain realized on the disposition of any debt security acquired
after April 30, 1993 or any taxable debt security acquired prior to May 1, 1993
having market discount will be treated as ordinary income to the extent it does
not exceed the accrued market discount on such debt security.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a put
or call option is not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If the Fund enters
into a closing transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by a Fund,
if the option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Certain options in which a Fund may invest are "section 1256 contracts."
Gains or losses on section 1256 contracts generally are considered 60% long-term
and 40% short-term capital gains or losses ("60/40"). Also, section 1256
contracts held by a Fund at the end of each taxable year (and, generally, for
purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Funds which is taxed as
ordinary income when distributed to Shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
<PAGE> 52
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or capital
gain, may be increased or decreased as compared to a fund that did not engage in
such hedging transactions.
The diversification requirements applicable to each Fund's assets may limit
the extent to which each Fund will be able to engage in transactions in options.
The Funds may invest in shares of foreign corporations (through ADRs) which
may be classified under the Code as passive foreign investment companies
("PFICs"). In general, a foreign corporation is classified as a PFIC if at least
one-half of its assets constitute investment-type assets, or 75% or more of its
gross income is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to Shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or capital gain, may be increased or decreased substantially as compared
to a fund that did not invest in PFIC shares.
SALE OF SHARES. Upon the sale or other disposition of Shares of a Fund, or
upon receipt of a distribution in complete liquidation of a Fund, a Shareholder
generally will realize a taxable capital gain or loss which will be long-term or
short-term, generally depending upon the Shareholder's holding period for the
Shares. Any loss realized on a sale or exchange will be disallowed to the extent
the Shares disposed of are replaced (including Shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the Shares. In such a case, the basis of
the Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a Shareholder on a disposition of Fund Shares held by the
Shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
Shareholder with respect to such Shares. Furthermore, a loss realized by a
Shareholder on the redemption, sale or exchange of Shares of a Fund with respect
to which exempt-interest dividends have been paid will, to the extent of such
exempt-interest dividends, be disallowed if such Shares have been held by the
Shareholder for less than six months.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
<PAGE> 53
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.
BACKUP WITHHOLDING. Each Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all reportable dividends (which does not
include exempt-interest dividends) and capital gain distributions (as well as
redemptions) payable to Shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the IRS that they are subject to backup withholding.
Corporate Shareholders and certain other Shareholders specified in the Code
generally are exempt from such backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the Shareholder's
U.S. federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of an
investment in a Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER TAXATION. The Group is organized as a Massachusetts business trust
and, under current law, neither the Group nor any Fund is liable for any income
or franchise tax in the Commonwealth of Massachusetts, provided that each Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund Shareholders may be subject to state and local taxes on their Fund
distributions. In certain states, Fund distributions which are derived from
interest on obligations of that state or any municipality or political
subdivision thereof may be exempt from taxation. Also, in many states, Fund
distributions which are derived from interest on certain U.S. Government
obligations may be exempt from taxation.
Yields and Total Returns
- ------------------------
YIELD CALCULATIONS. As summarized in the Prospectuses of the Funds under
the heading "PERFORMANCE INFORMATION", yields of each class of Shares of the
Funds will be computed by dividing the net investment income per share (as
described below) earned by the Fund with respect to a class during a 30-day (or
one month) period by the maximum offering price per share of the class on the
last day of the period and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. The net investment income per
share of a class earned during the period is based on the average daily number
of Shares of the class outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
a - b
Yield = 2 [(------- + 1)exp(6) - 1]
cd
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per Share on the last
day of the period.
</TABLE>
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Fund. Interest earned on any debt
obligations held by a Fund is calculated by computing the yield to maturity of
each obligation held by that Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
<PAGE> 54
Business Day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by that Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value per
share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, the Adviser, Administrator or Distributor
may voluntarily waive all or a portion of their fees with respect to a Fund or
class. Such waiver would cause the yield of that Fund to be higher than it would
otherwise be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. As summarized in the Prospectuses of the Funds
under the heading "PERFORMANCE INFORMATION", average annual total return is a
measure of the change in value of an investment in a class of a Fund over the
period covered, which assumes any dividends or capital gains distributions are
reinvested in Shares of the class immediately rather than paid to the investor
in cash. The Funds compute the average annual total returns of each class by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
<PAGE> 55
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual ERV
Total Return = [(------)exp (1/n) - 1]
P
Where: ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
</TABLE>
The Funds compute their aggregate total returns by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Aggregate Total ERV
Return = [(------] - 1]
P
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
</TABLE>
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Performance Comparisons
- -----------------------
Investors may judge the performance of the Funds by comparing them to the
performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds or
Ibbotson Associates, Inc. Comparisons may also be made to indices or data
published in IBC/Donaghue's MONEY FUND REPORT, a nationally recognized money
market fund reporting service, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, and U.S.A. Today. In addition to
performance information, general information about the Funds that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders. The Funds may also include in advertisements and
reports to Shareholders information comparing the performance of the Adviser to
other investment advisers; such comparisons may be published by or included in
Nelsons Directory of Investment Managers, Roger's, Casey/PIPER Manager Database
or CDA/Cadence.
Current yields or performance will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of a Fund's quality, composition and maturity, as well
as expenses allocated to the Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's effective yield to Customers.
From time to time, the Fund may include general comparative information,
such as statistical data regarding inflation, securities indices or the features
or performance of alternative investments, in advertisements, sales literature
and reports to shareholders. The Funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund.
Miscellaneous
- -------------
<PAGE> 56
The Funds may include information in their Annual Reports and Semi-Annual
Reports to Shareholders that (1) describes general economic trends, (2)
describes general trends within the financial services industry or the mutual
fund industry, (3) describes past or anticipated portfolio holdings for a fund
within the Group or (4) describes investment management strategies for such
funds. Such information is provided to inform Shareholders of the activities of
the Funds for the most recent fiscal year or half-year and to provide the views
of the Adviser and/or Group officers regarding expected trends and strategies.
Individual Trustees are elected by the Shareholders and, subject to removal
by the vote of two-thirds of the Board of Trustees, serve for a term lasting
until the next meeting of Shareholders at which Trustees are elected. Such
meetings are not required to be held at any specific intervals. Shareholders
owning not less than 10% of the outstanding Shares of the Group entitled to vote
may cause the Trustees to call a special meeting, including for the purpose of
considering the removal of one or more Trustees. Any Trustee may be removed at
any meeting of Shareholders by vote of two-thirds of the Group's outstanding
shares. The Declaration of Trust provides that the Trustees will assist
shareholder communications to the extent required by Section 16(c) of the 1940
Act in the event that a shareholder request to hold a special meeting is made.
The 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 Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectuses and this Statement of Additional Information.
<PAGE> 57
APPENDIX
The nationally recognized statistical rating organizations (individually,
an "NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P") and Duff & Phelps, Inc. ("D&F"). Set
forth below is a description of the relevant ratings of each such NRSRO. The
NRSROs that may be utilized by the Adviser and the description of each NRSRO's
ratings is as of the date of this Statement of Additional Information, and may
subsequently change.
LONG TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the Fundamentally
strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Description of the three highest long-term debt ratings by D&P;
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time AA-
because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods of
A- economic stress.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
<PAGE> 58
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by many of the following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on Funds employed.
- Conservative capitalization structures with
moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed
financial charges and high internal cash generation.
- Well-established access to a range of
financial markets and assured sources of alternate
liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayments of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
D&P's description of the short-term debt ratings (D&P incorporates
gradations of "1+" (one plus) and "1-" (one minus) to assist investors in
recognizing quality differences within the highest rating category);
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
<PAGE> 59
PART C
------
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements
--------------------
Not applicable
(b) Exhibits
--------
(1) Declaration of Trust(1)
(2) (a) By-Laws(2)
(b) Form of Establishment and
Designation of three Series of
Shares (Stewardship Aggressive
Growth Fund, Stewardship Moderate
Growth Fund, Stewardship
Conservative Growth 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) Form of Investment Advisory Agreement
between Registrant and ParkSouth
Corporation.
(6) Distribution Agreement between Registrant and
BISYS Fund Services, Limited Partnership
(7) Not Applicable
(8) (a) Custodian Agreement between
Registrant and Deposit Guaranty
National Bank (to be added by
amendment).
(9) (a) Management and Administration
Agreement between the Registrant and
BISYS Fund Services, Limited
Partnership.
(b) Fund Accounting Agreement between
the Registrant and BISYS Fund
Services Ohio, Inc.
(c) Transfer Agency Agreement between
the Registrant and BISYS Fund
Services Ohio, Inc.
(10) Opinion and Consent of Counsel*
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) (a) Form of Shareholder Servicing
Agreement
(b) Rule 12b-1 Plan (to be added
by amendment)
(c) Administrative Services Plan (to be
added by amendment)
(16) Not Applicable
(17) Not Applicable
(18) Form of Multiclass plan pursuant to Rule
18f-3 under the Investment Company Act of 1940
- ------------------
1. Filed with initial Registration Statement on January 8, 1992.
2. Filed with Post-Effective Amendment No. 2 on September 4, 1992.
* To be provided by amendment.
<PAGE> 60
Item 25. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
Not applicable.
Item 26. Number of Record Holders
- -------- ------------------------
<TABLE>
<CAPTION>
Fund # of Record Holders
- ---- -------------------
<S> <C> <C>
Amcore U.S. Government Obligations Fund 1,624
Amcore Equity Fund 3,828
Amcore Fixed Income Fund 305
Amcore Intermediate Tax-Free Fund 113
Amcore Balanced Fund 741
Amcore Fixed Total Return 189
Amcore Aggressive Growth Fund 1,341
Ernst Asia Fund 74
Ernst Global Resources Fund 66
Ernst Global Asset Allocation Fund 77
Shelby The Shelby Fund 28
Brenton U.S. Gov't Money Market Fund 512
Brenton Intermediate U.S. Gov't Securities Fund 45
Brenton Value Equity Fund 450
</TABLE>
<PAGE> 61
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:
(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:
<PAGE> 62
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
acts on the matter) or an independent legal counsel in a
written opinion shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient ultimately will
be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has
been exempted from being an Interested Person by any rule, regulation
or order of the Commission), or (ii) involved in the claim, action,
suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers
or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted
by such trustees, officers or controlling persons in connection
with the shares being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser and its
- -------- ------------------------------------------------------------
Officers and Directors
----------------------
[To be provided]
<PAGE> 63
Item 29. Principal Underwriter
- -------- ---------------------
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor and administrator for
Registrant. BISYS Fund Services also distributes the
securities of The Riverfront Funds, Inc., The Parkstone
Group of Funds, The BB&T Mutual Funds Group, the Eureka
Funds, the ProFunds, Variable Insurance Funds, The ARCH
Fund, Inc., the American Performance Funds, The Sessions
Group, the Pacific Capital Funds, the AmSouth Mutual Funds,
the MMA Praxis Mutual Funds, the MarketWatch Funds,
M.S.D.&T Funds, Empire Builder Tax Free Bond Fund, Fountain
Square Funds, Hirtle Callaghan Trust, HSBC Family of Funds,
The Infinity Mutual Funds, Intrust Funds, The Kent Funds,
Meyers Investment Trust, MMA Praxis Mutual Funds, Magna
Funds, The Parkstone Advantage Funds, Pegasus Funds, The
Republic Funds Trust, The Republic Advisors Funds Trust,
SBSF Fund, Inc. dba Key Mutual Funds, Sefton Funds, Summit
Investment Trust, and The Victory Portfolios, each of which
is an open-end management investment company, each of which
is an open-end management investment company.
(b) Partners of BISYS Fund Services, as of June 30, 1997, were
as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address BISYS Fund Services Registrant
- ---------------- ------------------- ----------
<S> <C> <C>
BISYS Fund Services Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
- -------- --------------------------------
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 ParkSouth Corporation
<PAGE> 64
201 E. Capitol Street, Jackson, Mississippi 39201 (records
relating to its function as adviser), BISYS Fund Services,
Limited Partnership, 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) Registrant undertakes to file a post-effective amendment,
using financial statements with respect to Stewardship
Aggressive Growth Fund, Stewardship Moderate Growth Fund
and Stewardship Conservative Growth Fund, which need not
be certified within four to six months from the effective
date of this Post-Effective Amendment No. 32 to Registrant's
registration statement under the Securities Act of 1933.
(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.
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 32 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington in the
District of Columbia on the 31st day of July, 1997.
THE COVENTRY GROUP
By: Walter B. Grimm
-----------------------------
Walter B. Grimm, President***
By: 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
- --------- ----- ----
Walter B. Grimm Chairman, President January 20, 1998
- --------------------- and Trustee
Walter B. Grimm*** (Principal Executive
Officer)
Chalmers P. Wylie Trustee January 20, 1998
- ---------------------
Chalmers P. Wylie**
Maurice G. Stark Trustee January 20, 1998
- ---------------------
Maurice G. Stark*
Michael M. Van Buskirk Trustee January 20, 1998
- ----------------------
Michael M. Van Buskirk*
<PAGE> 66
Nancy E. Converse Trustee January 20, 1998
- ---------------------
Nancy E. Converse***
Thresa Dewar Treasurer January 20, 1998
- --------------------- (Principal
Thresa Dewar**** Financial and
Accounting Officer)
By: 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.
6 on May 4, 1993.
*** Pursuant to power of attorney filed with Post-Effective
Amendment No. 26 on May 1, 1996.
**** Pursuant to power of attorney filed with Post-Effective Amendment No.
30 on July 1, 1997.
<PAGE> 1
Exhibit 2(b)
THE COVENTRY GROUP
Establishment and Designation of three 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"), three
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");
and
FURTHER RESOLVED, that pursuant to Section 5.13 of the Declaration,
each Fund shall have two classes of shares (each, a "Class"); and
FURTHER RESOLVED, that the Funds and Classes shall have the following
designations and Shares of a Fund or Class shall have the following special and
relative rights:
1. The Funds shall be designated "Stewardship Aggressive Growth
Fund," "Stewardship Moderate Growth Fund" and "Stewardship Conservative
Growth Fund."
2. Each Fund shall have two Classes, designated Class A and Class B.
3. 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 ("Share") of a Fund
shall be redeemable. Except for matters that are voted separately by Class, each
Share of a Fund 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
vote. Subject to paragraph 4, each Share of a Fund shall represent a pro rata
beneficial interest in the assets allocated to a Fund and shall be subject to a
pro rata share of expenses allocated to the Fund; and, subject to paragraph 4,
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 or in accordance
with applicable law, regulation or regulatory policy.
4. Shares of each Class of each Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional Share) on matters on which Shares of
the Class of a Fund shall be entitled to vote, shall represent a pro rata
beneficial interest in the assets allocated to a Fund subject to such expenses
as are allocated to the Class, and shall be entitled to receive its pro rata
share of net assets of the Class of the Fund upon liquidation of the Fund, all
as provided in the Declaration or in accordance with applicable law, regulation
or regulatory policy.
5. Each Share of each Fund and Class shall have the voting rights
provided to shareholders in the Declaration and shall vote with shareholders of
other series of the Trust with respect to matters affecting the Trust generally.
With respect to matters concerning the Funds (but not shareholders of other
series of the Trust), Shares of all Funds and Classes shall vote as a group,
except that a Fund shall vote separately as a group on any matter to the extent
required by
<PAGE> 2
the Declaration or applicable law, regulation or regulatory policy or when the
matter affects only that Fund or affects that Fund in a manner that is different
form other Funds; provided that a Class shall vote separately as a group on a
matter to the extent required by the Declaration, applicable law, regulation or
regulatory policy or when the matter affects only that Class or affects that
Class in a manner that is different from other Classes. In each case of separate
voting, the Trustees shall determine whether, for the matter to be effectively
acted upon in accordance with the Declaration, or applicable law, rule or
regulatory policy, as applicable, as to the Funds, a Fund or Class, the
applicable percentage (as specified in the Declaration, or the Act and the rules
thereunder) of the shares of that Fund or Class alone must be voted in favor of
the matter, or whether the required favorable vote of such applicable percentage
of the shares must include share of other Funds and/or Classes and/or other
series of the Trust, as well.
6. The assets and liabilities of the Trust shall be allocated among the
Funds and Classes as set forth in Sections 5.11 and 5.13 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.
7. 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 and
Classes hereby created, or to otherwise change the special and relative rights
of each such Fund and Class, provided that such change shall not adversely
affect the rights of the Shareholders of any such Fund or Class.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
____ day of __________, 1998.
/s/ Walter B. Grimm
------------------------------
Walter B. Grimm
/s/ Nancy E. Converse
------------------------------
Nancy E. Converse
/s/ Maurice G. Stark
------------------------------
Maurice G. Stark
/s/ Michael M. Van Buskirk
------------------------------
Michael M. Van Buskirk
/s/ Chalmers P. Wylie
------------------------------
Chalmers P. Wylie
-2-
<PAGE> 1
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made as of ___________, 1998 between The Coventry
Group, a Massachusetts business trust (herein called the "Trust"), and ParkSouth
Corporation, a registered investment adviser having its principal place of
business in Jackson, Mississippi (herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and administrative services to three newly created
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 initial
investment portfolio 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:
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.
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, dated January 8, 1992, and
filed with the Secretary of State of Massachusetts on January
8, 1992, 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;
1
<PAGE> 2
(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 on January 8, 1992, and all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), and under
the 1940 Act as filed with the Securities and Exchange
Commission and all amendments thereto; and
(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.
3. MANAGEMENT. Subject to the supervision of the Trust's Board of
Trustees, the Investment Adviser will provide a continuous investment
program for 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 from time to time what
securities and other investments will be purchased, retained or sold by
the Trust with respect to the Funds. The Investment Adviser will
provide 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. The
Investment Adviser further agrees that it:
(a) will 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;
(b) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission under the 1940 Act and in
addition will conduct its activities under this Agreement in
accordance with any applicable regulations of any governmental
authority pertaining to the investment advisory activities of
the Investment Adviser;
(c) will not make loans to any person to purchase or carry units
of beneficial interest ("shares") in the Trust or make loans
to the Trust;
(d) will place or cause to be placed orders 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 prompt execution of orders in
an
2
<PAGE> 3
effective manner at the most favorable price. The Investment
Adviser may cause a Fund to pay a broker which provides
brokerage and research services to the Investment Adviser a
commission for effecting a securities transaction in excess of
the amount another broker might have charged. Such higher
commissions may not be paid unless the Investment Adviser
determines in good faith that the amount paid is reasonable in
relation to the services received in terms of the particular
transaction or the Investment Adviser's overall
responsibilities to the Trust and any other of the Investment
Adviser's clients. In no instance will portfolio securities be
purchased from or sold to BISYS Fund Services, the Investment
Adviser, or any affiliated person of the Trust, BISYS Fund
Services or the Investment 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 with such periodic and special
reports as the Board may request;
(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 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
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
of its parent or its subsidiaries or affiliates. In dealing
with such customers, the Investment Adviser and its parent,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held
by the Trust.
4. SERVICES NOT EXCLUSIVE. The investment management services furnished by
the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired
thereby.
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
3
<PAGE> 4
surrender promptly to the Trust any of such records upon the Trust's
request. The Investment Adviser 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.
6. EXPENSES. During the term of this Agreement, the Investment 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 Funds.
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 equal to the fee 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.
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.
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), 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 ________,
2000.
Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive annual periods, 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.)
4
<PAGE> 5
10. INVESTMENT ADVISER'S REPRESENTATIONS. The Investment Adviser hereby
represents and warrants that it is willing and possesses all requisite
legal authority to provide the services contemplated by this Agreement
without violation of applicable law and regulations, including but not
limited to the Glass-Steagall Act and the regulations promulgated
thereunder.
11. AMENDMENT OF THIS AGREEMENT. No provisions 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.
12. MISCELLANEOUS. 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 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.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their offices designated below as of the day and year first above
written.
[SEAL] THE COVENTRY GROUP
------------------------------
By: Walter B. Grimm
Title: President
PARKSOUTH CORPORATION
------------------------------
[SEAL] By:
------------------------
Title:
------------------------
5
<PAGE> 6
DATED: ____________
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN THE COVENTRY GROUP AND
PARKSOUTH CORPORATION
The compensation payable to the Investment Adviser pursuant to paragraph 7 of
the Investment Advisory Agreement shall be computed daily and paid monthly at
the following annual rates calculated as a percentage of the average daily net
assets of the Fund:
<TABLE>
<CAPTION>
Name of Fund Fee Rate
- ---------------------------------------------- -----------------------------
<S> <C>
Stewardship Aggressive Growth Fund 1.00%
Stewardship Moderate Growth Fund 1.00%
Stewardship Conservative Growth Fund 1.00%
</TABLE>
<PAGE> 1
EXHIBIT 6
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this 1st day of APRIL, 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
LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES ("Distributor"), having its
principal place of business at 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 (the "Securities 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 may in the future 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.
<PAGE> 2
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.
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 Securities Act have been carefully prepared in
conformity with requirements of said Act and rules and
2
<PAGE> 3
regulations of the Commission thereunder. The registration statement and
prospectus contain all statements required to be stated therein in conformity
with said Act and the rules and regulations of said Commission and all
statements of fact contained in any such registration statement and prospectus
are true and correct. Furthermore, neither any registration statement nor any
prospectus 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, 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 Securities 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 Securities
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 gross 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
3
<PAGE> 4
person, as aforesaid, is expressly conditioned upon the Trust 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, 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 Securities 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 Securities 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
4
<PAGE> 5
Trustees, and any such controlling person, as aforesaid, is expressly
conditioned upon Distributor 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
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 Securities Act or if and so long as a current prospectus as required by
Section 10(b)(2) 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, Agreement and Declaration of Trust, or Bylaws.
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
5
<PAGE> 6
(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 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
Commonwealth of Massachusetts.
2. Fee.
----
Distributor shall receive from the Funds identified in
Schedule B hereto (the "Distribution Plan Funds") a distribution 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 distribution fee shall be accrued daily and shall be paid on the first
business day of each month, or at such time(s) as the Distributor shall
reasonably request.
3. Sale and Payment.
-----------------
Pursuant to the Agreement and Declaration of Trust dated as of
January 8, 1992, as amended, each Fund may be divided into separate classes of
Shares in which case the Shares of one or more classes may be subject to a sales
load and may be subject to the imposition of a distribution fee pursuant to the
Distribution and Service Plan referred to above. To the extent that Shares of a
Fund are sold at an offering price which includes a sales load or at net asset
value subject to a contingent deferred sales load with respect to certain
redemptions (either within a single class of Shares or pursuant to two or more
classes of Shares), such Shares shall hereinafter be referred to collectively as
"Load Shares" (in the case of Shares that are sold with a front-end sales load
or Shares that are sold subject to a contingent deferred sales load), "Front-End
Load Shares" or "CDSL Shares" and individually as a "Load Share," a "Front-End
Load Share" or a "CDSL Share." A Fund that contains Front-End Load Shares shall
hereinafter be referred to collectively as "Load Funds" or "Front-End Load
Funds" and individually as a "Load Fund" or a "Front-end Load Fund." A Fund that
contains CDSL Shares shall hereinafter be referred to collectively as "Load
Funds" or "CDSL Funds" and individually as a "Load Fund" or a "CDSL Fund." Under
this Agreement, the following
6
<PAGE> 7
provisions shall apply with respect to the sale of, and payment for, Load Shares
of the Funds identified in Schedule D hereto.
3.1 Distributor shall have the right 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 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.
3.2 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 Share, 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 Agreement and
Declaration of Trust and Bylaws of the Trust and the then-current prospectus of
the Load Fund.
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 Termination.
-------------------------------
This Agreement shall become effective with respect to each
Fund listed on Schedule A hereof as of the date first written 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 until April 1, 2000.
Thereafter, if not terminated, this Agreement shall continue with respect to a
particular Fund automatically for
7
<PAGE> 8
successive one-year terms, provided that such continuance is specifically
approved at least annually by (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 such party, cast in person at a meeting for the
purpose of voting on such approval and (b) by the vote of the Trust's Board of
Trustees or the vote of a majority of the outstanding voting securities of such
Fund. 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 of the Trust or by the Distributor. This
Agreement will also terminate automatically 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.)
7. Limitation of Liability of the Trustees and Shareholders.
---------------------------------------------------------
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
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
written above.
THE COVENTRY GROUP BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: By: BISYS Fund Services, Inc.,
--------------------------- General Partner
Title:
------------------------ By:
Date: ---------------------------------
------------------------ Title:
-----------------------------
Date:
-----------------------------
Dated:
-------------
<PAGE> 9
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
NAME OF FUND
- ---------------------------------------
Stewardship Aggressive Growth Fund
Stewardship Moderate Growth Fund
Stewardship Conservative Growth Fund
(the "Stewardship Portfolios")
THE COVENTRY GROUP
By:
---------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:
---------------------------------
A-1
<PAGE> 10
Dated:
-----------
SCHEDULE B
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
NAME OF DISTRIBUTION PLAN FUND
- ---------------------------------------
Stewardship Aggressive Growth Fund
Stewardship Moderate Growth Fund
Stewardship Conservative Growth Fund
(the "Stewardship Portfolios")
THE COVENTRY GROUP
By:
------------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:
-----------------------------------
B-1
<PAGE> 11
Dated:
-----------
SCHEDULE C
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
C-1
<PAGE> 12
Dated:
-----------
SCHEDULE D
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
NAME OF LOAD FUND
- -----------------
Stewardship Aggressive Growth Fund
Stewardship Moderate Growth Fund
Stewardship Conservative Fund
(the "Stewardship Portfolios")
THE COVENTRY GROUP
By:
-------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:
-------------------------------
D-1
<PAGE> 1
EXHIBIT 9(a)
ADMINISTRATION AGREEMENT
------------------------
THIS AGREEMENT is made as of this 1st day of April, 1998, by and
between The Coventry Group, a Massachusetts business trust (the "Company"), and
BISYS FUND SERVICES LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES (the
"Administrator"), an Ohio limited partnership.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such series of the Company as the Company and the Administrator may agree on
("Portfolios") and as listed on Schedule A attached hereto and made a part of
this Agreement, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Company hereby retains
the Administrator to act as the administrator of the Portfolios and to furnish
the Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. ADMINISTRATIVE SERVICES. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Company,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Company with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Company with regulatory reporting,
all necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and Trustees' meetings) for handling the
affairs of the Portfolios and such other services as the Administrator shall,
from time to time, determine to be necessary to perform its obligations under
<PAGE> 2
this Agreement. In addition, at the request of the Board of Trustees, the
Administrator shall make reports to the Company's Trustees concerning the
performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate contractual Company expenses and control all
disbursements for the Company, and as appropriate compute the
Company's yields, total return, expense ratios, portfolio,
turnover rate and, if required, Portfolio average
dollar-weighted maturity;
(b) assist Company counsel with the preparation of prospectuses,
statements of additional information, registration statements
and proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the
Company's Shares with state securities authorities, monitor
the sale of Company Shares for compliance with state
securities laws, and file with the appropriate state
securities authorities the registration statements and reports
for the Company and the Company's Shares and all amendments
thereto, as may be necessary or convenient to register and
keep effective the Company and the Company's Shares with state
securities authorities to enable the Company to make a
continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Company's
investment adviser, communications to Shareholders, including
the annual report to Shareholders, coordinate the mailing of
prospectuses, notices, proxy statements, proxies and other
reports to Company Shareholders, and supervise and facilitate
the proxy solicitation process for all shareholder meetings,
including the tabulation of shareholder votes;
(e) administer contracts on behalf of the Company with, among
others, the Company's investment adviser, distributor,
custodian, transfer agent and fund accountant;
(f) supervise the Company's transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
(g) calculate performance data of the Portfolios for dissemination
to information services covering the investment company
industry;
(h) coordinate and supervise the preparation and filing of the
Company's tax returns;
(i) examine and review the operations and performance of the
various organizations providing services to the Company or any
Portfolio of the Company, including,
2
<PAGE> 3
without limitation, the Company's investment adviser,
distributor, custodian, fund accountant, transfer agent,
outside legal counsel and independent public accountants, and
at the request of the Board of Trustees, report to the Board
on the performance of organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and
printing of the Company's semi-annual and annual reports to
Shareholders;
(k) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives,
policies and structure;
(l) provide individuals reasonably acceptable to the Company's
Board of Trustees to serve as officers of the Company, who
will be responsible for the management of certain of the
Company's affairs as determined by the Company's Board of
Trustees;
(m) advise the Company and its Board of Trustees on matters
concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the
Company in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Company's Board of Trustees;
(o) monitor and advise the Company and its Portfolios on their
registered investment company status under the Internal
Revenue Code of 1986, as amended;
(p) perform all administrative services and functions of the
Company and each Portfolio to the extent administrative
services and functions are not provided to the Company or such
Portfolio pursuant to the Company's or such Portfolio's
investment advisory agreement, distribution agreement,
custodian agreement, transfer agent agreement and fund
accounting agreement;
(q) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the
Company and the Administrator shall determine desirable; and
(r) prepare and file with the SEC the semi-annual report for the
Company on Form N-SAR and all required notices pursuant to
Rule 24f-2.
The Administrator shall perform such other services for the Company
that are mutually agreed upon by the parties from time to time. Such services
may include performing internal audit examinations; mailing the annual reports
of the Portfolios; preparing an annual list of Shareholders;
3
<PAGE> 4
and mailing notices of Shareholders' meetings, proxies and proxy statements, for
all of which the Company will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
-----------------------------------
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Trustees of the
Company to perform services on behalf of the Company.
(B) THE COMPANY. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
Federal and state securities laws, fees and out-of-pocket expenses of Trustees
who are not affiliated persons of the Administrator or the Investment Adviser to
the Company or any affiliated corporation of the Administrator or the Investment
Adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Company.
ARTICLE 4. Compensation of the Administrator.
----------------------------------
(A) ADMINISTRATION FEE. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Company shall pay to the Administrator compensation at an annual
rate specified in Schedule A attached hereto. Such compensation shall be
calculated and accrued daily, and paid to the Administrator quarterly. The
Company shall also reimburse the Administrator for its reasonable out-of-pocket
expenses, including the travel and lodging expenses incurred by officers and
employees of the Administrator in connection with attendance at Board meetings.
If this Agreement becomes effective subsequent to the first
day of a month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
4
<PAGE> 5
(B) SURVIVAL OF COMPENSATION RIGHTS. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
partners, officers, employees and other agents of the Administrator as well as
the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Company assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
Administrator's actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold the
Administrator harmless, the Company shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Company promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Company, but failure to do so in good faith shall not affect the rights
hereunder.
The Company shall be entitled to participate at its own expense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and retain counsel, the Administrator shall bear the fees
and expenses of any additional counsel retained by it. If the Company does not
elect to assume the defense of a suit, it will reimburse the Administrator for
the reasonable fees and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Company at any time for instructions
and may consult counsel for the Company or its own counsel and with accountants
and other experts with respect to
5
<PAGE> 6
any matter arising in connection with the Administrator's duties, and the
Administrator shall not be liable or accountable for any action taken or omitted
by it in good faith in accordance with such instruction or with the opinion of
such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Company until receipt of written notice thereof from the Company.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that directors, officers, employees
and Shareholders of the Company are or may be or become interested in the
Administrator, as officers, employees or otherwise and that partners, officers
and employees of the Administrator and its counsel are or may be or become
similarly interested in the Company, and that the Administrator may be or become
interested in the Company as a Shareholder or otherwise.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall
be as specified in Schedule A hereto.
ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts of such subcontractor as if such acts were its own. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
ARTICLE 9. AMENDMENTS. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Trustees of the Company, and (ii) by the vote of a majority of
the Trustees of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Trustees meeting called
for the purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Company does not conflict with or violate any requirements of
its Declaration of Trust or then current prospectuses, or any rule, regulation
or requirement of any regulatory body.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and
6
<PAGE> 7
preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are
prepared or maintained by the Administrator on behalf of the Company shall be
prepared and maintained at the expense of the Administrator, but shall be the
property of the Company and will be made available to or surrendered promptly to
the Company on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, 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.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice; if to the Company, at 1500 K Street, Washington, D.C. 20005; and if to
the Administrator at 3435 Stelzer Road, Columbus, Ohio 43219.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
It is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust personally, but shall bind only the trust property of the
Trust. The execution and delivery of this Agreement have been authorized by the
Trustees, and this Agreement has been signed and delivered by an authorized
officer of the Trust, acting as such, and neither such authorization by the
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
the Trust's Agreement and Declaration of Trust.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE COVENTRY GROUP
By:
-----------------------------
Title:
--------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
BY: BISYS FUND SERVICES, INC.,
GENERAL PARTNER
By:
-----------------------------
Title:
--------------------------
8
<PAGE> 9
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF APRIL 1, 1998
BETWEEN THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Stewardship Portfolios of
The Coventry Group either now or hereafter created. The
current Stewardship Portfolios are set forth below:
Stewardship Aggressive Growth Fund, Stewardship Moderate
Growth Fund and Stewardship Conservative Growth Fund
(collectively, the "Portfolios").
Fees: Pursuant to Article 4, in consideration of services rendered
and expenses assumed pursuant to this Agreement, the Company
will pay the Administrator on the first business day of each
month, or at such time(s) as the Administrator shall request
and the parties hereto shall agree, a fee computed daily at an
annual rate of: .13% of the first $250 million, .115% of the
next $250 million, .095% of the next $250 million and .08%
over $750 million, based on the Portfolio's average daily net
assets, subject to an annual minimum of $100,000 per portfolio
plus $10,000 for each additional class.
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 purposes of determining the fees payable to the
Administrator, the value of the net assets of a particular
Fund shall be computed in the manner described in the Fund'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.
The parties hereby confirm that the fees payable hereunder
shall be applied to each Portfolio as a whole, and not to
separate classes of shares within the Portfolios.
The fee payable by the Company hereunder shall be allocated to
each Portfolio based upon its pro rata share of the total fee
payable hereunder. Such fee as is attributable to each
Portfolio shall be a separate (and not joint or joint and
several) obligation of each such Portfolio. The Administrator
may agree, from time to time, to waive any
A-1
<PAGE> 10
fees payable under this Agreement. Such waiver shall be at the
Administrator's sole discretion.
Term: Pursuant to Article 7, the term of this Agreement shall
commence on April 1, 1998 and shall remain in effect through
April 1, 2001 ("Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be renewed
automatically for successive three-year periods ("Rollover
Periods"). This Agreement may be terminated without penalty
(i) by provision of a notice of nonrenewal in the manner set
forth below, (ii) by mutual agreement of the parties or (iii)
for "cause," as defined below, upon the provision of 60 days
advance written notice by the party alleging cause. Written
notice of nonrenewal must be provided within 60 days of the
end of the Initial Term or any Rollover Period, as the case
may be.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been cured
within thirty (30) days following written notice of such
breach from the non-breaching party; (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;
or (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.
Notwithstanding the foregoing, after such termination for so
long as the Administrator, with the written consent of the
Company, 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 the Administrator and unpaid by the Company
upon such termination shall be immediately due and payable
upon and notwithstanding such termination. The Administrator
shall be entitled to collect from the Company, in addition to
the compensation described in this Schedule A, the amount of
all of the Administrator's cash disbursements for services in
connection with the Administrator's activities in effecting
such termination, including without limitation, the delivery
to the Company and/or its designees of the Company's property,
records, instruments and documents, or any copies thereof.
Subsequent to such termination, for a reasonable fee, the
Administrator will provide the Company with reasonable access
to any Company documents or records remaining in its
possession.
A-2
<PAGE> 11
If, for any reason, the Administrator is replaced as fund
manager and administrator, or if a third party is added to
perform all or a part of the services provided by the
Administrator under this Agreement (excluding any sub-
administrator appointed by the Administrator as provided in
Article 7 hereof), then the Company shall make a one-time cash
payment, as liquidated damages, to the Administrator equal to
the balance due the Administrator for the remainder of the
term of this Agreement, assuming for purposes of calculation
of the payment that the asset level of the Company on the date
the Administrator is replaced, or a third party is added, will
remain constant for the balance of the contract term.
In the event the Company is merged into another legal entity
in part or in whole or is otherwise liquidated in part or in
whole pursuant to a business reorganization prior to the
expiration of the then-current term of this Agreement, the
parties acknowledge and agree that (i) the liquidated damages
provision set forth above shall be applicable in those
instances in which the Administrator is not retained by the
surviving entity to provide administration services and (ii)
for purposes of calculating the payment amount representing
liquidated damages, the appropriate asset level of the Company
shall be the greater of: (i) the asset level calculated for
the Company at the time the Company's Board of Trustees
receives notification of an intention on the part of Fund
management to effect such a business reorganization; (ii) the
asset level calculated for the Company at the time the
Company's Board of Trustees formally approves such a business
reorganization; or (iii) the asset level calculated for the
Company on the day prior to the first day during which assets
are transferred by the Company to the surviving entity
pursuant to the plan of reorganization. The one-time cash
payment referenced above shall be due and payable on the day
prior to the first day during which assets are transferred to
the surviving entity pursuant to the plan of reorganization.
The parties further acknowledge and agree that, in the event
the Administrator is replaced, or a third party is added, as
set forth above, (i) a determination of actual damages
incurred by the Administrator would be extremely difficult,
and (ii) the liquidated damages provision contained herein is
intended to adequately compensate the Administrator for
damages incurred and is not intended to constitute any form of
penalty.
A-3
<PAGE> 1
EXHIBIT 9(b)
FUND ACCOUNTING AGREEMENT
AGREEMENT made this 1ST day of April, 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,
OHIO INC. ("Fund Accountant"), a corporation organized under the laws of the
State of Delaware and having its principal place of business at 3435 Stelzer
Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each investment portfolio of the Trust, all as now or
hereafter may be established from time to time (individually referred to herein
as the "Fund" and collectively as the "Funds"); and
WHEREAS, Fund Accountant 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:
1. Services as Fund Accountant.
----------------------------
(a) MAINTENANCE OF BOOKS AND RECORDS. Fund Accountant
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.
(b) PERFORMANCE OF DAILY ACCOUNTING SERVICES. In addition
to the maintenance of the books and records specified
above, Fund Accountant shall perform the following
accounting services daily for each Fund:
<PAGE> 2
(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;
2
<PAGE> 3
(xiii) Provide accounting reports in connection
with the Trust's regular annual audit and
other audits and examinations by regulatory
agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon, as set forth in a separate
schedule.
(c) Special Reports and Services.
-----------------------------
(i) Fund Accountant 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) Fund Accountant 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. Fund Accountant 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;
3
<PAGE> 4
(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.
2. Subcontracting.
---------------
Fund Accountant may, at its expense, subcontract with any
entity or person concerning the provision of the services contemplated
hereunder; provided, however, that Fund Accountant shall not be relieved of any
of its obligations under this Agreement by the appointment of such subcontractor
and provided further, that Fund Accountant shall be responsible, to the extent
provided in Section 7 hereof, for all acts of such subcontractor as if such acts
were its own.
3. Compensation.
-------------
The Trust shall pay Fund Accountant for the services to be
provided by Fund Accountant 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.
4. Reimbursement of Expenses.
--------------------------
In addition to paying Fund Accountant the fees described in
Section 3 hereof, the Trust agrees to reimburse Fund Accountant for its
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
(a) All freight and other delivery and bonding charges incurred by
Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund
Accountant in communication with the Trust, the Trust's
investment adviser or custodian, dealers or others as required
for Fund Accountant to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly
authorized; and
(f) Any additional expenses reasonably incurred by Fund Accountant
in the performance of its duties and obligations under this
Agreement.
4
<PAGE> 5
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 such Fund commences operation) (the "Effective Date").
6. Term.
-----
This Agreement shall continue in effect with respect to a
Fund, unless earlier terminated by either party hereto as provided hereunder,
until APRIL 1, 2001 and thereafter shall be renewed automatically for successive
three-year terms unless written notice not to renew is given by the non-renewing
party to the other party at least 60 days prior to the expiration of the
then-current term; provided, however, that after such termination for so long as
Fund Accountant, 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 Fund Accountant and unpaid by the Trust upon
such termination shall be immediately due and payable upon and notwithstanding
such termination. Fund Accountant shall be entitled to collect from the Trust,
in addition to the compensation described under Section 3 hereof, the amount of
all of Fund Accountant's cash disbursements for services in connection with Fund
Accountant's 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. Subsequent
to such termination, for a reasonable fee, Fund Accountant will provide the
Trust with reasonable access to any Trust documents or records remaining in its
possession.
If, for any reason, Fund Accountant is replaced as Fund
Accountant, or if a third party is added to perform all or a part of the
services provided by Fund Accountant under this Agreement (excluding any
sub-accountant appointed by Fund Accountant as provided in Section 2 hereof),
then the Trust shall make a one-time cash payment, as liquidated damages, to
Fund Accountant equal to the balance due Fund Accountant for the remainder of
the term of this Agreement, assuming for purposes of calculation of the payment
that the asset level of the Trust on the date Fund Accountant is replaced, or a
third party is added, will remain constant for the balance of the contract term.
7. Standard of Care; Reliance on Records and Instructions;
-------------------------------------------------------
Indemnification.
----------------
Fund Accountant shall use its best efforts to insure the
accuracy of all services performed under this Agreement, but shall not be liable
to the Trust for any action taken or omitted by Fund Accountant 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 Fund
Accountant, 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 Fund Accountant's actions
taken or
5
<PAGE> 6
nonactions with respect to the performance of 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 Fund Accountant by a duly authorized representative of the Trust;
provided that this indemnification shall not apply to actions or omissions of
Fund Accountant 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, Fund Accountant shall give the Trust written notice of
and reasonable opportunity to defend against said claim in its own name or in
the name of Fund Accountant.
8. Record Retention and Confidentiality.
-------------------------------------
Fund Accountant shall keep and maintain on behalf of the Trust
all books and records which the Trust and Fund Accountant 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. Fund Accountant 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.
9. Uncontrollable Events.
----------------------
Fund Accountant 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.
10. Reports.
--------
Fund Accountant 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 Fund
Accountant, 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,
Fund Accountant shall have no liability for errors or discrepancies therein and
shall have no further
6
<PAGE> 7
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.
11. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform
services required to be provided by Fund Accountant under this Agreement are the
property of Fund Accountant. 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.
12. Return of Records.
------------------
Fund Accountant may at its option at any time, and shall
promptly upon the Trust's demand, turn over to the Trust and cease to retain
Fund Accountant's files, records and documents created and maintained by Fund
Accountant pursuant to this Agreement which are no longer needed by Fund
Accountant 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
Fund Accountant 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.
13. Representations of the Trust.
-----------------------------
The Trust certifies to Fund Accountant that: (1) as of the
close of business on the Effective Date, each Fund that 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.
14. Representations of Fund Accountant.
-----------------------------------
Fund Accountant represents and warrants that: (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
the records, and other data of the Trust and Fund Accountant's 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 Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization,
7
<PAGE> 8
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
15. Insurance.
----------
Fund Accountant shall notify the Trust should any of its
insurance coverage be canceled or reduced. Such notification shall include the
date of change and the reasons therefor. Fund Accountant 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 Fund Accountant under its insurance coverage.
16. Information to be Furnished by the Trust and Funds.
---------------------------------------------------
The Trust has furnished to Fund Accountant 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 document has been
filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws 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
Fund Accountant thereunder.
(c) A list of all the officers of the Trust, together
with specimen signatures of those officers who are
authorized to instruct Fund Accountant in all
matters.
(d) Two copies of the Prospectuses and Statements of
Additional Information for each Fund.
17. Information Furnished by Fund Accountant.
-----------------------------------------
(a) Fund Accountant has furnished to the Trust the
following:
(i) Fund Accountant's Articles of Incorporation;
and
(ii) Fund Accountant's Bylaws and any amendments
thereto.
8
<PAGE> 9
(b) Fund Accountant shall, upon request, furnish
certified copies of corporate actions covering the
following matters:
(i) Approval of this Agreement, and
authorization of a specified officer of Fund
Accountant to execute and deliver this
Agreement; and
(ii) Authorization of Fund Accountant to act as
fund accountant for the Trust and to provide
accounting services for the Trust.
18. Amendments to Documents.
------------------------
The Trust shall furnish Fund Accountant 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 Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes.
19. Compliance with Law.
--------------------
Except for the obligations of Fund Accountant 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
"Securities Act"), the 1940 Act and any other laws, rules and regulations of
governmental authorities having jurisdiction. Fund Accountant 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
Securities Act and the 1940 Act has been declared or becomes effective.
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.
21. Headings.
---------
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
9
<PAGE> 10
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.
23. Governing Law.
--------------
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
-----------------------------------
By:
--------------------------------
BISYS FUND SERVICES, OHIO INC.
By:
--------------------------------
Dated:
-------------
10
<PAGE> 11
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
THE COVENTRY FUNDS
------------------
AND
BISYS FUND SERVICES, OHIO INC.
FEES
----
Fund Accountant shall be entitled to receive a fee from the following portfolios
in accordance with the schedule attached as Schedule A to the Administration
Agreement between BISYS FUND SERVICES LIMITED PARTNERSHIP and THE COVENTRY GROUP
dated APRIL 1, 1998:
Stewardship Aggressive Growth Fund
Stewardship Moderate Growth Fund
Stewardship Conservative Growth Fund
(the "Stewardship Portfolios")
THE COVENTRY FUNDS BISYS FUND SERVICES, OHIO INC.
By: By:
----------------------------- ---------------------------------
A-1
11
<PAGE> 1
EXHIBIT 9(c)
TRANSFER AGENCY AGREEMENT
-------------------------
AGREEMENT made this 1st day of APRIL, 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,
OHIO 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 the
Trust; 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:
1. Services.
---------
BISYS shall perform for the Trust the transfer agent services
set forth in Schedule A 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 A 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; provided, however, that the Sub- transfer
Agent shall be the agent of BISYS and not the agent of the Trust, 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.
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 B hereto. BISYS may increase the fees it charges pursuant to the fee
schedule; provided, however, that BISYS may not increase such fees until the
expiration of the Initial Term of this Agreement (as defined below), unless the
Trust otherwise agrees to such change in writing. Fees for any additional
services to be provided by BISYS pursuant to an amendment to Schedule A hereto
shall be subject to mutual agreement at the time such amendment to Schedule A is
proposed.
<PAGE> 2
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:
(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, fund
accountant, 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.
4. Effective Date.
---------------
This Agreement shall become effective as of the date first
written above (the "Effective Date").
5. Term.
-----
This Agreement shall continue in effect, unless earlier
terminated by either party hereto as provided hereunder, until APRIL 1, 2001.
Thereafter, it 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. Fees and
out-of-pocket expenses incurred by BISYS but 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
2
<PAGE> 3
hereof, the amount of all of BISYS' cash disbursements and a reasonable fee
(which fee shall be not less than one hundred and two percent (102%) of the sum
of the actual costs incurred by BISYS in performing such service) 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 adviser and/or other parties, of the Trust's property, records,
instruments and documents, or any copies thereof. Subsequent to such
termination, BISYS, for a reasonable fee, will provide the Trust with reasonable
access to any Trust documents or records remaining in its possession.
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.
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 unless
relating to a matter involving BISYS' willful misfeasance, bad faith, gross
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
shareholder or beneficial owner of the Trust for any action reasonably taken
pursuant to such advice.
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, BISYS
shall be entitled to rely upon any certificate, letter or other instrument or
communication, 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 Statement of Additional
Information of the Trust to the extent that such services are described therein
unless BISYS receives written instructions to the contrary in a timely manner
from the Trust.
3
<PAGE> 4
9. 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, gross 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 nonactions 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.
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.
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 C attached hereto, or
as subsequently agreed upon by the parties pursuant to an amendment to Schedule
C. The Trust agrees to examine each such report or copy promptly and will report
or cause to be reported any errors or discrepancies therein not later than three
business days from the receipt
4
<PAGE> 5
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 three 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 be binding upon the Trust and any other recipient, and 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.
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.
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.
14. Bank Accounts.
--------------
The Trust 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 shall provide such bank or banks with all instructions and authorizations
necessary for BISYS to effect such disbursements.
15. Representations of the Trust.
-----------------------------
The Trust certifies to BISYS that: (a) as of the close of
business on the Effective Date, the Trust has authorized unlimited shares, and
(b) by virtue of its Certificate of Incorporation, shares 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
5
<PAGE> 6
its terms, subject to bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the rights and remedies of creditors
and secured parties.
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 will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder.
17. Insurance.
----------
BISYS shall notify the Trust should its insurance coverage
with respect to professional liability or errors and omissions coverage be
canceled 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.
18. Information to be Furnished by the Trust.
-----------------------------------------
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 of
Trust 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 for
specified officers of the Trust to
instruct BISYS hereunder; and
6
<PAGE> 7
B. Authorization of BISYS to act as
Transfer Agent for the Trust.
(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 Statement 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.
(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 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.
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 under the Exchange Act.
7
<PAGE> 8
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.
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.
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 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.
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.
8
<PAGE> 9
24. Headings.
---------
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
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.
26. Governing Law.
--------------
This Agreement shall be construed in accordance with the laws
of the State of Ohio and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of Ohio, or any of the provisions
herein, conflict with the applicable provisions of the 1940 Act, the latter
shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE COVENTRY GROUP
------------------
By:
-----------------------------
BISYS FUND SERVICES OHIO, INC.
By:
-----------------------------
9
<PAGE> 10
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
------------------
AND
BISYS FUND SERVICES OHIO, INC.
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
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new
shares, through dividend reimbursement.
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.
A-1
<PAGE> 11
3. Compliance Reporting
--------------------
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Trust is registered.
b. Prepare and distribute appropriate Internal Revenue Service
forms for the Trust 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.
b. Account for separation of shareholder investments from
transaction sale charges for purchase of Trust 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
the Trust.
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.
A-2
<PAGE> 12
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
------------------
AND
BISYS FUND SERVICES OHIO, INC.
TRANSFER AGENT FEES
-------------------
ANNUAL FEE: $12,500 per portfolio for Stewardship Aggressive Growth Fund,
Stewardship Moderate Growth Fund and Stewardship Conservative Growth Fund
(the "Stewardship Portfolios")
Annual Per Account Fee: $19 per open account
- ---------------------- $ 5 per closed account
Multiple Classes of Shares: $12,500 per additional class
- ---------------------------
Additional Services:
- --------------------
Out-of-pocket Expenses:
- -----------------------
B-1
<PAGE> 13
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
------------------
AND
BISYS FUND SERVICES OHIO, INC.
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. 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 Securities Exchange Act of 1934, as amended.
C-1
<PAGE> 1
EXHIBIT 15(a)
BISYS FUND SERVICES LIMITED PARTNERSHIP
d/b/a BISYS FUND SERVICES
3435 STELZER ROAD
COLUMBUS, OHIO 43219
SHAREHOLDER SERVICING AGREEMENT
-------------------------------
Ladies and Gentlemen:
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services (the
"Distributor") serves as the distributor to the THE COVENTRY GROUP (the
"Company"), an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940 (the "1940
Act"). Pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"), but subject to
the provisions of Section 4.1 hereof, the holders of the units of beneficial
interest ("Shares") of each of the investment portfolios (currently existing or
hereafter created) of the Company identified on Schedule A hereto (individually,
a "Fund"; collectively, the "Funds") have adopted or may adopt a Distribution
and Shareholder Servicing Plan (the "Plan") which, among other things,
authorizes the Distributor to enter into this Shareholder Servicing Agreement
with ____________ (the "Participating Organization"), with its principal office
located at ________________, concerning the provision of support services to the
Participating Organization's customers ("Customers") who may from time to time
beneficially own Fund Shares. The terms and conditions of this Agreement are as
follows:
1. REFERENCE TO PROSPECTUS; DETERMINATION OF NET ASSET VALUE.
1.1 Reference is made to the prospectuses of the Funds (individually, a
"Prospectus"; collectively, the "Prospectuses") as from time to time are
effective under the Securities Act of 1933 (the "1933 Act"). Terms defined
therein and not otherwise defined herein are used herein with the meaning so
defined.
2. SERVICES AS PARTICIPATING ORGANIZATION.
2.1 The Participating Organization shall provide any combination of the
following support services, as agreed upon by the parties from time to time, to
Customers who may from time to time beneficially own Shares of a Fund: (i)
aggregating and processing purchase and redemption requests for a Fund's Shares
from Customers and placing net purchase and redemption orders with the
Distributor; (ii) processing dividend payments from the Company on behalf of
Customers; (iii) arranging for bank wire transfer of funds to or from a
Customer's account; (iv) responding to inquiries from Customers relating to the
services performed by the Participating Organization under this Agreement; (v)
providing subaccounting with respect to a Fund's Shares
<PAGE> 2
beneficially owned by Customers or the information to the Company necessary for
subaccounting; (vi) if required by law, forwarding Shareholder communications
from the Company (such as proxies, Shareholders reports, annual and semi-annual
financial statements, and dividend, distribution, and tax notices) to Customers;
(vii) forwarding to Customers proxy statements and proxies containing any
proposals regarding this Agreement or a Fund's Plan; (viii) providing such other
similar services as the Distributor may reasonably request to the extent the
Participating Organization is permitted to do so under applicable statutes,
rules, or regulations.
2.2 The Participating Organization will provide such office space and
equipment, telephone facilities, and personnel (which may be any part of the
space, equipment, and facilities currently used in the Participating
Organization's business, or any personnel employed by the Participating
Organization) as may be reasonably necessary or beneficial in order to provide
such services to Customers.
2.3 All orders for a Fund's Shares are subject to acceptance or
rejection by the Company in its sole discretion, and the Company may, in its
discretion and without notice, suspend or withdraw the sale of a Fund's Shares,
including the sale of such Shares to the Participating Organization for the
account of any Customer or Customers.
2.4 The Participating Organization shall act solely for, upon the order
of, and for the account of, its Customers. For all purposes of this Agreement,
the Participating Organization will be deemed to be an independent contractor,
and will have no authority to act as agent for the Distributor in any matter or
in any respect. No person is authorized to make any representations concerning
the Distributor, the Company, or a Fund's Shares except those representations
contained in the Fund's then-current Prospectus and the Company's Statement of
Additional Information and in such printed information as the Distributor or the
Company may subsequently prepare. The Participating Organization further agrees
to deliver to Customers, upon the request of the Distributor, copies of any
amended Prospectus and Statement of Additional Information.
2.5 The Participating Organization and its employees will, upon
request, be available during normal business hours to consult with the
Distributor or its designees concerning the performance of the Participating
Organization's responsibilities under this Agreement. In addition, the
Participating Organization will furnish to the Distributor, the Company or their
designees such information as the Distributor, the Company or their designees
may reasonably request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein), and
will otherwise cooperate with the Distributor, the Company and their designees
(including, without limitation, any auditors designated by the Company), in the
preparation of reports to the Company's Board of Trustees concerning this
Agreement, as well as any other reports or filings that may be required by law.
2
<PAGE> 3
3. COMPENSATION.
3.1 The Distributor shall pay the Participating Organization for the
services to be provided by the Participating Organization under this Agreement
in accordance with, and in the manner set forth in, Schedule B hereto, as such
Schedule may be amended from time to time.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
4.1 By written acceptance of this Agreement, the Participating
Organization further represents, warrants, and agrees that: (i) the
Participating Organization believes that it possesses the legal authority to
perform the services contemplated by this Agreement without violation of
applicable Federal banking laws (including the Glass-Steagall Act) and
regulations.
5. EXCULPATION; INDEMNIFICATION.
5.1 The Distributor shall not be liable to the Participating
Organization and the Participating Organization shall not be liable to the
Distributor except for acts or failures to act which constitute lack of good
faith or gross negligence and for obligations expressly assumed by either party
hereunder. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or by the Participating Organization of compliance
with any applicable federal or state law, rule, or regulation and the rules and
regulations promulgated by the National Association of Securities Dealers, Inc.
6. EFFECTIVE DATE; TERMINATION.
6.1 This Agreement will become effective with respect to each Fund on
the date a fully executed copy of this Agreement is received by the Distributor
or its designee. Unless sooner terminated with respect to any Fund, this
Agreement will continue with respect to a Fund until ____________, 19 ____, and
thereafter will continue automatically for successive annual periods ending on
__________ of each year, provided such continuance is specifically approved at
least annually by the vote of a majority of the members of the Board of
Trustees of the Company who are not "interested persons" (as such term is
defined in the 1940 Act) and who have no direct or indirect financial interest
in the Plan relating to such Fund or any agreement relating to such Plan,
including this Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
6.2 This Agreement will automatically terminate with respect to a Fund
in the event of its assignment (as such term is defined in the 1940 Act) with
respect to such Fund. This Agreement may be terminated with respect to any Fund
by the Distributor or by the Participating Organization, without penalty, upon
ten days' prior written notice to the other party. This Agreement may also be
terminated with respect to any Fund at any time without penalty by the vote of a
majority of the members of the Board of Trustees of the Company who are not
"interested persons" (as such term is defined in the 1940 Act) and who have no
direct or indirect
3
<PAGE> 4
financial interest in the Plan relating to such Fund or any agreement relating
to such Plan, including this Agreement, or by a vote of a majority of the Shares
of such Fund on ten days' written notice.
7. GENERAL.
7.1 All notices and other communications to either the Participating
Organization or the Distributor will be duly given if mailed, telegraphed or
telecopied to the appropriate address set forth on page 1 hereof, or at such
other address as either party may provide in writing to the other party.
7.2 The Distributor may enter into other similar agreements for the
provision of Shareholder services with any other person or persons without the
Participating Organization's consent.
7.3 This Agreement supersedes any other agreement between the
Distributor and the Participating Organization relating to the provision of
support services to the Participating Organization's Customers who beneficially
own a Fund's Shares and relating to any other matters discussed herein. All
covenants, agreements, representations, and warranties made herein shall be
deemed to have been material and relied on by each party, notwithstanding any
investigation made by either party or on behalf of either party, and shall
survive the execution and delivery of this Agreement. The invalidity or
unenforceability of any term or provision hereof shall not affect the validity
or enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter or otherwise
affect the meaning hereof. This Agreement may be executed in any number of
counterparts which together shall constitute one instrument and shall be
governed by and construed in accordance with the laws (other than the conflict
of laws rules) of the State of Ohio and shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns.
4
<PAGE> 5
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated.
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:
-------------------------------
Title:
----------------------------
Date:
------------------------------
ACCEPTED AND AGREED TO:
By:
-------------------------------
Title:
----------------------------
Date:
------------------------------
5
<PAGE> 6
Schedule A
to the
Shareholder Servicing Agreement with Respect to
Distribution Assistance and Shareholder Services
between BISYS Fund Services Limited Partnership
and ____________________________________________
FUNDS
-----
This Agreement shall apply to (i) all Funds of the Company that have
adopted a Distribution and Shareholder Servicing Plan (the "Plan") as of the
effective date of this Agreement and (ii) all Funds hereafter created that adopt
the Plan. The current Funds that have adopted the Plan are set forth below:
Stewardship Aggressive Growth Fund
Stewardship Moderate Growth Fund
Stewardship Conservative Growth Fund
(the "Stewardship Portfolios")
BISYS FUND SERVICES
LIMITED PARTNERSHIP ACCEPTED AND AGREED TO:
By: BISYS Fund Services, Inc., ------------------------------
General Partner
By: By:
------------------------------ -------------------------------
Title: Title:
--------------------------- ----------------------------
Date: Date:
---------------------------- -----------------------------
A-1
<PAGE> 7
Schedule B
to the
Shareholder Servicing Agreement with Respect to
Distribution Assistance and Shareholder Services
between BISYS Fund Services Limited Partnership
and _________________________________________
COMPENSATION(1)
---------------
The Participating Organization shall receive a fee calculated at an
annual rate of ________________ one-hundredths of one percent (. ______%) of
each Fund's average daily net assets attributable to Shares beneficially owned
by the Participating Organization's Customers.
BISYS FUND SERVICES
LIMITED PARTNERSHIP ACCEPTED AND AGREED TO:
By: BISYS Fund Services, Inc., ------------------------------
General Partner
By: By:
---------------------------- --------------------------------
Title: Title:
------------------------- -----------------------------
Date: Date:
-------------------------- ------------------------------
- --------
1 All fees are computed daily and paid periodically.
B-1
<PAGE> 1
Exhibit 18
STEWARDSHIP PORTFOLIOS ("PORTFOLIOS")
STEWARDSHIP AGGRESSIVE GROWTH FUND
STEWARDSHIP MODERATE GROWTH FUND
STEWARDSHIP CONSERVATIVE GROWTH FUND
(THE "FUNDS")
SERIES OF
THE COVENTRY GROUP
(THE "TRUST")
PLAN PURSUANT TO RULE 18F-3
UNDER THE
INVESTMENT FUNDS ACT OF 1940
THE PLAN
--------
I. Introduction
------------
As required by Rule 18f-3 under the Investment Company Act of 1940, as
amended ("1940 Act"), this Plan describes the multi-class system for the Funds,
including the separate class arrangements for shareholder services and/or
distribution of shares, the method for allocating expenses to classes and
related conversion features or exchange privileges applicable to the classes.
Upon the effective date of this Plan, the Trust, on behalf of the
Funds, elects to offer multiple classes of shares of each of the Funds, as
described herein, pursuant to Rule 18f-3 and this Plan.
II. The Multi-Class System
----------------------
Each of the Funds shall offer two classes of shares, Class A and Class
B. Shares of each class of a Fund shall represent an equal pro rata interest in
that Fund and, generally, shall have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any Class Expenses, as defined
in Section C, below; (c) each class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution
arrangement; and (d) each class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class. In addition, Class A and Class B shares shall have
the features described in Sections A, B, C and D, below.
A. Sales Charge Structure
----------------------
1. Class A Shares. Class A shares of each Multi-Class Fund shall be
offered at the then-current net asset value plus a front-end sales charge in
such amount as is disclosed in
1
<PAGE> 2
the current prospectus for that Fund, including any prospectus supplements, and
shall be subject to such reductions and waivers as are determined or approved by
the Trust's Board of Trustees. Class A shares shall generally not be subject to
a contingent deferred sales charge provided, however, that such a charge may be
imposed in such cases as the Board may approve and as disclosed in a future
prospectus or prospectus supplement for a Fund. Class A shares shall be
distinguished from Class B shares by the relative rates and timing of sales
charges and the relative rates of fees under the distribution plan (see below)
applicable to each class.
2. Class B Shares. Class B shares of each Multi-Class Fund shall be
offered at the then-current net asset value plus a contingent deferred sales
charge in such amount as is disclosed in the current prospectus for that Fund,
including any prospectus supplements, and shall be subject to such reductions
and waivers as are determined or approved by the Trust's Board of Trustees.
Class B shares shall generally not be subject to a front-end sales charge
provided, however, that such a charge may be imposed in such cases as the Board
may approve and as disclosed in a future prospectus or prospectus supplement for
a Fund. Class B shares shall be distinguished from Class A shares by the
relative rates and timing of sales charges and the relative rates of fees under
the distribution plan (see below) applicable to each class.
B. Distribution Plan
-----------------
The Trust has adopted a distribution plan pursuant to Rule 12b-1 with
respect to the Funds and each class of shares, containing the following terms:
1. Class A Shares. Class A shares of each Fund shall reimburse the
Distributor for costs and expenses incurred in connection with distribution and
marketing of shares of the Funds, as provided in the distribution plan, subject
to an annual limit of 0.25% of the average daily net assets of a Fund
attributable to its Class A shares, provided that up to 0.25% of such average
daily net assets may be designated out of such reimbursements as a "service
fee," as defined in rules and policy statements of the National Association of
Securities Dealers.
2. Class B Shares. Class B shares of each Fund shall reimburse the
Distributor for costs and expenses incurred in connection with distribution and
marketing of shares of the Funds, as provided in the distribution plan, subject
to an annual limit of 0.35% of the average daily net assets of a Fund
attributable to its Class B shares, provided that up to 0.25% of such average
daily net assets may be designated out of such reimbursements as a "service
fee," as defined in rules and policy statements of the National Association of
Securities Dealers.
C. Allocation of Income and Expenses
---------------------------------
1. General
The gross income, realized and unrealized capital gains and
losses and expenses (other than Class Expenses, as defined below) of each Fund
shall be allocated to each class on the basis of its net asset value relative to
the net asset value of the Fund unless, as to any
2
<PAGE> 3
Fund, the Trustees determine to use another method that (a) is specifically
permitted by Rule 18f-3 or (b) is appropriate and is determined by the
Trustees, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust ("Independent Trustees"), to be fair
to the shareholders of each class and to provide an annualized rate of return
for each class that generally differs from that of any other class only by the
expense differentials among the classes. Expenses to be so allocated also
include expenses of the Trust that are allocated to a Fund and are not
attributable to a particular Fund or class of a Fund ("Trust Expenses"),
expenses of the Portfolios that are not allocable to a particular Fund or class
of a Fund ("Portfolios Expenses"), and expenses of the particular Fund that are
not attributable to a particular class of the Fund ("Fund Expenses"). Trust
Expenses include, but are not limited to, Trustees' fees, insurance costs and
certain legal fees incurred generally on behalf of the Trust. Portfolios
Expenses include, but are not limited to, Trustees' fees, insurance costs and
certain legal fees incurred generally on behalf of the Portfolios. Fund Expenses
include, but are not limited to, certain registration fees, advisory fees,
custodial fees, and other expenses relating to the management of the Fund's
assets.
2. Class Expenses
Expenses attributable to a particular class ("Class Expenses") shall be
limited to: (a) payments pursuant to the distribution plan by that class; (b)
transfer agent fees attributable to that class; (c) printing and postage
expenses related to preparing and distributing material such as shareholder
reports, prospectuses and proxy materials to current shareholders of that class;
(d) registration and notice filing fees for shares of that class; (e) the
expense of administrative personnel and services as required to support the
shareholders of that class; (f) litigation or other legal expenses relating
solely to that class; and (g) Trustees' fees incurred as a result of issues
relating to that class. Expenses described in (a) of this paragraph must be
allocated to the class for which they are incurred. All other expenses described
in this paragraph may be allocated as Class Expenses only if they are actually
incurred in a different amount by a class, or if a class receives services of a
different kind or to a different degree than another class. It is intended that
expenses will be allocated as Class Expenses only to the extent consistent with
applicable legal principles under the 1940 Act and the Internal Revenue Code of
1986, as amended.
In the event a particular expense is no longer reasonably or legally
allocable by class or to a particular class, it shall be treated as a Trust
Expense, Portfolios Expense or Fund Expense, and in the event a Trust Expense,
Portfolios Expense or Fund Expense becomes allocable at a different level,
including as a Class Expense, it shall be so allocated, subject to compliance
with Rule 18f-3 and to approval or ratification by the Board of Trustees.
The initial determination of expenses that will be allocated as Class
Expenses and any subsequent changes thereto shall be reviewed by the Board of
Trustees and approved by such Board and by a majority of the Trustees who are
not "interested persons" of the Funds, as defined in the 1940 Act.
3
<PAGE> 4
3. Waivers or Reimbursements of Expenses
Expenses may be waived or reimbursed by the Adviser, the Distributor or
any other provider of services to the Trust, the Portfolios, the Funds or a Fund
without the prior approval of the Board of Trustees.
D. Exchange and Conversion Privileges
----------------------------------
Shareholders of a Fund may exchange shares of a particular class for
shares of the same class in another Fund at relative net asset value, provided
the shares to be acquired in the exchange are permitted to be sold in the
shareholder's state of residence and subject to the applicable requirements as
to minimum amount.
Class B shares will automatically convert to Class A shares on the
sixth anniversary of their purchase. Such conversion will be effected on the
basis of the relative net asset values of Class B and Class A shares without the
imposition of any sales load, fee, or other charge and is subject to the
conditions and limitations of Rule 18f-3.
E. Board Review
------------
1. Initial Approval
The Board of Trustees, including a majority of the Independent
Trustees, at a meeting held ___________, 1998, initially approved the Plan based
on a determination that the Plan, including the expense allocation, is in the
best interests of each class and Fund individually and of the Funds. Their
determination was based on their review of information furnished to them which
they deemed reasonably necessary and sufficient to evaluate the Plan.
2. Approval of Amendments
The Plan may not be amended materially unless the Board of Trustees,
including a majority of the Independent Trustees, have found that the proposed
amendment, including any proposed related expense allocation, is in the best
interests of each class and Fund individually and of the Funds. Such finding
shall be based on information requested by the Board and furnished to them which
the Board deems reasonably necessary to evaluate the proposed amendment.
3. Periodic Review
The Board shall review reports of expense allocations and such other
information as they request at such times, or pursuant to such schedule, as they
may determine consistent with applicable legal requirements.
4
<PAGE> 5
F. Contracts
---------
Any agreement related to the Multi-Class System shall require the
parties thereto to furnish to the Board of Trustees, upon their request, such
information as is reasonably necessary to permit the Trustees to evaluate the
Plan or any proposed amendment.
G. Effective Date
--------------
The Plan, having been reviewed and approved by the Board of Trustees
and by a majority of the Independent Trustees as indicated in Section E1 of the
Plan, shall take effect as of _____________, 1998.
H. Amendments
----------
The Plan may not be amended to modify materially its terms unless such
amendment has been approved in the manner specified in Section E2 of the Plan.
Effective Date:
------------------
5
