<PAGE> 1
As filed with the Securities and Exchange Commission on August 21, 1998
Registration No. 33-44964
Investment Company Act File No. 811-6526
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 40 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
--
Amendment No. 42 [X]
--
THE COVENTRY GROUP
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 470-8000
---------------
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
----------------------
(Name and Address of Agent for Service)
Copies to:
Walter B. Grimm
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
It is proposed that this filing will become effective 75 days after filing
pursuant to paragraph (a) of Rule 485.
<PAGE> 2
CROSS REFERENCE SHEET
REQUIRED BY RULE 495 UNDER THE
SECURITIES ACT OF 1933
The enclosed materials relate only to 1st Source Monogram Income Equity Fund,
1st Source Monogram Diversified Equity Fund, 1st Source Monogram Special Equity
Fund and 1st Source Monogram Income Fund, which are four separate investment
series being added to The Coventry Group (the "Group") by this filing.
Information with respect to other funds in the Group is contained in other
separately filed amendments to the Group's Registration Statement on Form N-1A.
Items Required by Form N-1A
---------------------------
<TABLE>
<CAPTION>
Item Number in Part A Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Fee Table
3. Condensed Financial
Information.............................. Financial Highlights
4. General Description of
Registrant............................... Investment Objectives and Policies; Investment
Restrictions; General Information -Description
of the Group and Its Shares
5. Management of the Fund..................... Management of the Group
5A. Management's Discussion of
Fund Performance......................... Provided in Annual Report to Shareholders
6. Capital Stock and Other
Securities............................... How to Purchase and Redeem Shares; Dividends
and Taxes; General Information -
Description of the Group and Its Shares
General Information - Miscellaneous
7. Purchase of Securities
Being Offered............................ Valuation of Shares; How to Purchase
and Redeem Shares
8. Redemption or Repurchase................... How to Purchase and Redeem Shares
9. Pending Legal Proceedings.................. Inapplicable
Item Number in Part B Statement of Additional Information Caption
- --------------------- -------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and
History.................................. The Coventry Group; Additional
Information
13. Investment Objectives and
Policies................................. Investment Objectives and Policies
14. Management of the Fund..................... Management of the Group
15. Control Persons and Principal
Holders of Securities.................... Additional Information - Description of
Shares
16. Investment Advisory and other
Services................................. Management of the Group
17. Brokerage Allocation....................... Management of the Group - Portfolio
Transactions
18. Capital Stock and other
Securities............................... Additional Information - Description of
Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered............................ Additional Purchase and Redemption
Information
20. Tax Status................................. Additional Information - Additional Tax
Information
21. Underwriters............................... Management of the Group - Distributor
22. Calculations of Performance
Data..................................... Additional Information - Yield -
Calculation of Total Return - Performance
Comparisons
23. Financial Statements....................... Financial Statements
</TABLE>
<PAGE> 4
1ST SOURCE MONOGRAM INCOME EQUITY FUND
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
1ST SOURCE MONOGRAM INCOME FUND LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase, and redemption information, call (800) 766-8938.
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The Coventry Group (the "Group") is an open-end management investment
company. The Group includes the 1st Source Monogram Income Equity Fund (the
"Income Equity Fund"), the 1st Source Monogram Diversified Equity Fund (the
"Diversified Equity Fund"), the 1st Source Monogram Special Equity Fund (the
"Special Equity Fund") and the 1st Source Monogram Income Fund (the "Income
Fund"), each of which is a diversified investment fund of the Group (the Income
Equity, Diversified Equity, Special Equity and Income Funds are hereinafter
collectively referred to as the "Funds" and individually as a "Fund"). The
Trustees of the Group have divided each Fund's beneficial ownership into an
unlimited number of transferable shares (the "Shares").
1st Source Bank, South Bend, Indiana (the "Adviser"), which is a wholly
owned subsidiary of 1st Source Corporation ("FSC"), acts as the investment
adviser to each of the Funds. In addition, with respect to the Diversified
Equity Fund, the Adviser has retained Miller Anderson & Sherrerd LLP, Loomis
Sayles & Company, L.P. and Standish, Ayer & Wood, Inc. to provide sub-investment
advisory services. The Securities and Exchange Commission maintains an Internet
website (http://www.sec.gov) that contains the Statement of Additional
Information, material that is incorporated by reference and other information
about the Funds.
Additional information about the Funds, contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing to the Funds
at their address or by calling the Funds at the telephone number shown above.
The Statement of Additional Information bears the same date as this Prospectus
and is incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Funds
that a prospective investor should know before investing. Investors should
read this Prospectus and retain it for future reference.
Each Fund's net asset value per share will fluctuate as the value of
its portfolio changes in response to changing market prices, market rates of
interest and/or other factors.
<PAGE> 5
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), Columbus, Ohio, acts as the Funds' administrator and distributor.
BISYS Fund Services, Inc., Columbus, Ohio, an affiliate of BISYS, acts as the
Funds' transfer agent (the "Transfer Agent") and performs certain fund
accounting services for each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE ADVISER, FSC OR ANY OF THEIR AFFILIATES. SUCH
SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND AN INVESTMENT IN
A FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1998.
2
<PAGE> 6
PROSPECTUS SUMMARY
SHARES OFFERED: Shares of beneficial interest ("Shares") of the Income
Equity Fund, the Diversified Equity Fund, the Special Equity Fund and the Income
Fund, four separate investment funds (collectively, the "Funds") of The Coventry
Group, a Massachusetts business trust (the "Group").
OFFERING PRICE: The public offering price of each of the Funds is equal
to the net asset value per share plus a sales charge of 5.00% (with respect to
the Income Equity, Diversified Equity and Special Equity Funds) and 4.00% (with
respect to the Income Fund) of the public offering price, reduced on investments
of $50,000 or more (See "HOW TO PURCHASE AND REDEEM SHARES--Sales Charges").
Under certain circumstances, the sales charge may be eliminated (See "HOW TO
PURCHASE AND REDEEM SHARES--Sales Charge Waivers").
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial and subsequent investments are
reduced for investors using the Auto Invest Plan described herein and for
employees of the Adviser or one of its affiliates.
TYPE OF COMPANY: Each Fund is a diversified series of an open-end,
management investment company.
INVESTMENT OBJECTIVES: For the INCOME EQUITY FUND, capital appreciation
with current income as a secondary objective.
For the DIVERSIFIED EQUITY FUND and the SPECIAL EQUITY FUND, capital
appreciation.
For the INCOME FUND, current income consistent with preservation of
capital.
INVESTMENT POLICIES: Under normal market conditions, the INCOME EQUITY
FUND will invest substantially all, but in no event less than 65%, of its total
assets in common stocks and securities convertible into common stocks.
Under normal market conditions, the DIVERSIFIED EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks--of that amount 25% to 40%
will be committed to each of the following styles, representing the three
different styles of the Sub-Advisers: (1) investing in companies believed to
have strong value measures whose stock is traded at a price below its perceived
value, (2) investing in companies believed to have growth potential, and (3)
investing in companies believed to be in a position to take advantage of
political, economic, industrial or secular trends or developments.
Under normal market conditions, the SPECIAL EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in equity
securities issued by companies with market capitalizations ranging on average
between $100 million and $2 billion and which are considered to have growth
potential.
3
<PAGE> 7
Under normal market conditions, the INCOME FUND will invest
substantially all, but in no event less than 65%, of its total assets in debt
securities of all types, including high grade corporate bonds and U.S.
Government bonds.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in any of the
Funds is subject to certain risks, including market risk and interest rate risk,
as set forth in detail under "INVESTMENT OBJECTIVES AND POLICIES--Risk Factors
And Investment Techniques." As with other mutual funds, there can be no
assurance that any of the Funds will achieve its investment objectives. The
Funds, to the extent set forth under "INVESTMENT OBJECTIVES AND POLICIES," may
engage in the following practices: the use of repurchase agreements and reverse
repurchase agreements, purchasing futures contracts, foreign securities and
restricted securities, entering into option transactions on securities in which
the Funds may invest directly and the purchase of securities on a when-issued or
delayed-delivery basis.
INVESTMENT ADVISER: 1st Source Bank (the "Adviser").
SUB-ADVISERS: With respect to the Diversified Equity Fund only, Miller
Anderson & Sherrerd LLP, Loomis, Sayles & Company, L.P. and Standish, Ayer &
Wood, Inc. (collectively, the "Sub-Advisers").
DIVIDENDS: For each of the Funds, other than the Special Equity Fund,
dividends from net income are declared and generally paid monthly. For the
Special Equity Fund, dividends from net income are declared and generally paid
quarterly. Net realized capital gains, if any, for each of the Funds are
distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
4
<PAGE> 8
FEE TABLE
<TABLE>
<CAPTION>
DIVERSIFIED
INCOME EQUITY EQUITY
FUND FUND
---- ----
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................................................................. 5.00% 5.00%
Exchange Fee................................................................ $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees............................................................. .80% .99%
12b-1 Fees After Fee Waivers(1).............................................
Other Expenses.............................................................. ---- ----
Total Fund Operating Expenses After Fee Waivers(1)..........................
<CAPTION>
SPECIAL
EQUITY INCOME
FUND FUND
---- ----
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).................................................................. 5.00% 4.00%
Exchange Fee................................................................ $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees............................................................. .80% .55%
12b-1 Fees After Fee Waivers(1).............................................
Other Expenses.............................................................. ---- ----
Total Fund Operating Expenses After Fee Waivers(1)..........................
<FN>
- --------------
1. BISYS has agreed with the Group to waive a portion of its Rule 12b-1
Fees until on or about October 31, 1999 so that such fees will not
exceed during that period, on an annual basis, 0.03% of any Fund's
average daily net assets. Absent such Fee Waivers, 12b-1 Fees for each
of the Funds would be 0.25% and Total Fund Operating Expenses would be
____%, ____%, ____% and ____% for the Income Equity Fund, Diversified
Equity Fund, Special Equity Fund and Income Fund, respectively.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
5
<PAGE> 9
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Income Equity Fund............................... $ $ $ $
Diversified Equity Fund..........................
Special Equity Fund..............................
Income Fund......................................
</TABLE>
The purpose of the above table is to assist a potential purchaser of
Shares of any of the Funds in understanding the various costs and expenses that
an investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by the Adviser or any of its affiliates to its customer
accounts which may have invested in Shares of the Funds. See "MANAGEMENT OF THE
GROUP" and "GENERAL INFORMATION" for a more complete discussion of the
Shareholder transaction expenses and annual operating expenses of each Fund. As
a result of the payment of sales loads and Rule 12b-1 Fees, long-term
Shareholders may pay more than the maximum front-end sales charge permitted by
the Rules of the National Association of Securities Dealers, Inc. (the "NASD").
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Each Fund is one separate fund of the Group. The table below sets forth
certain information concerning the investment results of the Funds for the
periods ended June 30, 1997 and for the fiscal year ended June 30, 1998. Further
financial information is included in the Statement of Additional Information.
The Financial Highlights contained in the following table have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants for the
Funds, whose report on the fiscal year ended June 30, 1998, is incorporated by
reference in the Statement of Additional Information and which may be obtained
by shareholders.
<TABLE>
<CAPTION>
INCOME EQUITY DIVERSIFIED EQUITY
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD
$10.00 $10.00
INVESTMENT ACTIVITIES
Net investment income 0.20 (0.01)
Net realized and unrealized
gains (losses) on investments 2.32 2.03
Total from Investment Activities
2.52 2.02
</TABLE>
6
<PAGE> 10
<TABLE>
<S> <C> <C>
DISTRIBUTIONS
Net investment income ........ (0.19) --
Net realized gains ........... (0.05) (0.22)
In excess of realized gains .. -- --
Total Distributions ............ (0.24) (0.22)
NET ASSET VALUE, END OF PERIOD
$12.28 $11.80
Total Return (excludes sales
charge) ........................ 25.58%(b) 20.42%(b)
RATIOS/
SUPPLEMENTAL DATA:
Net Assets, at end of
period (000) ................. $39,196 $74,990
Ratio of expenses of
average net assets ........... 1.37%(c) 1.62%(c)
Ratio of net investment
income to average net
assets ....................... 2.38%(c) -0.10%(c)
Ratio of expenses to
average net assets* .......... 1.62%(c) 1.87%(c)
Ratio of net investment
income to average net
assets* ...................... 2.13%(c) -0.35%(c)
Portfolio Turnover Rate ...... 38.49% 76.54%
Average Brokerage
Commission Paid (d) .......... $0.0988 $0.0572
<FN>
- ----------
* During the period distribution fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Commencement of the Funds began September 25, 1996 and September 23, 1996,
respectively.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Pertains to Funds with a greater
than 10% investment in equity securities.
</TABLE>
7
<PAGE> 11
<TABLE>
<CAPTION>
SPECIAL EQUITY INCOME
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997(a) 1998 1997(a)
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD
$ 10.00 $ 10.00
INVESTMENT ACTIVITIES
Net investment income --- 0.44
Net realized and unrealized
gains (losses) on investments (0.10)(d) 0.12
Total from Investment Activities
(0.10) 0.56
DISTRIBUTIONS
Net investment income -- (0.43)
Net realized gains -- --
In excess of realized gains (0.31) --
Total Distributions (0.31) (0.43)
NET ASSET VALUE, END OF PERIOD
$ 9.59 $ 10.13
Total Return (excludes sales
charge) -1.03%(b) 5.71%(b)
RATIOS/
SUPPLEMENTAL DATA:
Net Assets, at end of
period (000) $ 30,524 $ 54,789
Ratio of expenses of 1.39%(c)
average net assets 1.05%(c)
Ratio of net investment
income to average net
assets 0.05%(c) 5.71%(c)
Ratio of expenses to
average net assets* 1.65%(c) 1.30%(c)
Ratio of net investment
income to average net
assets* -0.21(c) 5.46%(c)
Portfolio Turnover Rate 152.81% 118.33%
Average Brokerage
Commission Paid (e) $ 0.0941 ---
<FN>
- ----------
* During the period distribution fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
</TABLE>
8
<PAGE> 12
(a) Commencement of the Funds began September 20, 1996 and September 24, 1996,
respectively.
(b) Not annualized.
(c) Annualized.
(d) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
of securities during the period because of the timing of sales and
purchases of Fund shares in relation to fluctuating market values during
the period.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Pertains to Funds with a greater
than 10% investment in equity securities.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the
Funds' average annual total return and yield may be presented in advertisements,
sales literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL PERFORMANCE AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
Average annual total return will be calculated for the period since commencement
of operations for a Fund (or its respective predecessor collective investment
fund) and will reflect the imposition of the maximum sales charge. Average
annual total return is measured by comparing the value of an investment in such
Fund at the beginning of the relevant period to the redeemable value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions), which figure is then annualized.
Yield will be computed by dividing a Fund's net investment income per share
earned during a recent one-month period by that Fund's per share maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last day of the period and annualizing the result.
Each of the Funds may also present its average annual total return and yield, as
the case may be, excluding the effect of a sales charge.
Each of the Funds was initially funded in part by the transfer of all
of the assets of a corresponding collective investment fund (the "CIFs")managed
by the Adviser and, in the case of the Diversified Equity Fund, the
Sub-Advisers. Because the management of the Funds is substantially the same as
the corresponding CIF, the quoted performance of those Funds includes the
performance of the CIFs for periods prior to the effectiveness of the Group's
registration statement as it relates to the Funds. The CIFs were not registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
therefore were not subject to certain investment restrictions that are imposed
by the 1940 Act. If the CIFs had been so registered, their performance might
have been adversely affected.
For the one year, five year and ten year periods ended June 30, 1998,
and the respective periods from commencement of operations to June 30, 1998, the
average annual total returns for
9
<PAGE> 13
the Income Equity Fund, the Diversified Equity Fund, the Special Equity Fund and
the Income Fund are set forth in the following table. Such performance
information includes the prior performance of the respective CIFs for such Funds
during those periods which has been restated to reflect the estimated fees for
those Funds.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
WITH MAXIMUM SALES LOAD(1) WITHOUT SALES LOAD
SINCE SINCE
FUND 1 YEAR 5 YEAR 10 YEAR INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income % % % % % % % %
Equity(2)
Diversified % % % % % % % %
Equity (3)
Special % % % % % % % %
Equity(2)
Income(3) % % % % % % % %
<FN>
- ---------------
1. The maximum sales load for the Income Equity, Diversified Equity and
Special Equity Funds is 5.00%. For the Income Fund, the maximum sales load
is 4.00%.
2. Commenced operations November 30, 1985.
3. Commenced operations June 30, 1985.
</TABLE>
Of course, past performance is no guarantee as to future performance.
In addition, from time to time the Funds may also present their distribution
rates in supplemental sales literature and in shareholder reports, both of which
must be accompanied or preceded by a prospectus. Distribution rates will be
computed by dividing the distribution per share made by a Fund over a
twelve-month period by the maximum offering price per share at the end of that
period. The calculation of income in the distribution rate includes both income
and capital gain dividends and does not reflect unrealized gains or losses,
although each Fund may also present a distribution rate excluding the effect of
capital gains and/or a sales charge. The distribution rate differs from the
yield because it includes capital gain dividends which are often non-recurring
in nature, whereas yield does not include such items.
Investors may also judge the performance of each Fund by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and to data prepared by various services, which indices or data may be published
by such services or by other services or publications. In addition
10
<PAGE> 14
to performance information, general information about these Funds that appears
in such publications may be included in advertisements, sales literature and
reports to Shareholders.
Yield and total return are generally functions of market conditions,
interest rates, types of investments held, and operating expenses. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by FSC or by any of its
affiliated or correspondent banks, including the Adviser, to its customer
accounts which may have invested in Shares of a Fund will not be included in
performance calculations; such fees, if charged, will reduce the actual
performance from that quoted. In addition, if the Adviser or BISYS voluntarily
reduces all or part of its fees for a Fund, as discussed below, the yield and
total return for that Fund will be higher than they would otherwise be in the
absence of such voluntary fee reductions.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objectives of the Income Equity Fund are capital
appreciation with current income as a secondary objective. The investment
objective for each of the Diversified Equity Fund and the Special Equity Fund is
capital appreciation. The investment objective of the Income Fund is current
income consistent with preservation of capital.
The investment objectives with respect to a Fund are non-fundamental
policies and as such may be changed by the Group's Trustees without a vote of
the holders of a majority of the outstanding Shares of that Fund (as defined
below under "GENERAL INFORMATION--Miscellaneous"). There can be no assurance
that the investment objectives of any Fund will be achieved.
THE INCOME EQUITY FUND
Under normal market conditions, the Income Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalization of at least $100 million which the Adviser believes pay above
average dividends or interest. For purposes of the foregoing, securities
convertible into common stocks include convertible bonds, convertible preferred
stock, options and rights. The securities purchased by the Income Equity Fund
are those considered by the Adviser to be generally undervalued by the market.
Under normal market conditions, the Income Equity Fund may also invest
up to 35% of its total assets in warrants, sponsored and unsponsored American
Depositary Receipts ("ADRs"), as described more fully below, preferred stock,
securities of other investment companies and real estate investment trust
("REITs"), cash and short-term obligations (with maturities of 12 months or
less) (collectively, "Short-Term Obligations") such as commercial paper,
bankers' acceptances, certificates of deposit, obligations of the U.S.
Government or its agencies or instrumentalities, demand and time deposits of
domestic banks and savings and loan associations and repurchase agreements
secured by such Short-Term Obligations. Commercial paper which is included
within
11
<PAGE> 15
"Short-Term Obligations" is that which is rated at the time of purchase within
the two highest rating groups assigned by one or more appropriate nationally
recognized statistical rating organizations ("NRSROs") (e.g., Standard & Poor's
Corporation and Moody's Investors Service, Inc.), or, if unrated, which the
Adviser or the Sub-Adviser, as the case may be, deems to be of comparable
quality. For a description of the rating symbols of the NRSROs, see the Appendix
to the Statement of Additional Information. The Income Equity Fund may engage in
other investment techniques described on page ___.
THE DIVERSIFIED EQUITY FUND
Under normal market conditions, the Diversified Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalizations of $100 million or greater--of that amount, 25% to 40% will be
committed to each of the following styles, representing the three different
styles of the Sub-Advisers: (1) investing in companies believed to have strong
value measures whose stock is traded at a price below its perceived value, (2)
investing in companies believed to have growth potential, and (3) investing in
companies that have accelerating earnings but whose valuations do not yet
reflect this positive trend. For purposes of the foregoing, securities
convertible into common stocks include convertible bonds, convertible preferred
stock, options and rights. To the extent the Diversified Equity Fund invests in
options or rights, such investments may contribute to its investment objective
of capital appreciation.
Miller Anderson & Sherrerd LLP, one of the Sub-Advisers ("Miller
Anderson"), manages its portion of the Diversified Equity Fund's portfolio with
an emphasis on equity securities of companies it believes have traditional value
characteristics, i.e., high yield, low price to earnings ratios and low price to
book value ratios, which Miller Anderson believes have unrecognized potential
for earnings improvement.
Loomis, Sayles & Company, L.P., another of the Sub-Advisers ("Loomis"),
manages its portion of the Diversified Equity Fund's portfolio with an emphasis
on equity securities of companies Loomis believes are entering into a phase of
accelerating earnings growth. The criteria used by Loomis to select such
securities are historic and current relative price to earnings ratios, and the
extent to which Loomis believes that the market has recognized the accelerating
growth of such company.
Standish, Ayer & Wood, Inc., the third Sub-Adviser ("Standish") manages
its portion of the Diversified Equity Fund's portfolio by using both
quantitative and fundamental investment analysis to identify stocks with
improving business momentum as characterized by accelerating earnings growth but
which still have reasonable valuations because their accelerating growth trends
have not yet been fully recognized.
Under normal market conditions, the Diversified Equity Fund may also
invest up to 35% of its total assets in ADRs, preferred stock, securities of
other investment companies, units of REITs, warrants, cash and Short-Term
Obligations. The Diversified Equity Fund may also engage in other investment
techniques described on page ___.
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THE SPECIAL EQUITY FUND
Under normal market conditions, the Special Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks (i.e., convertible bonds,
convertible preferred stock, options, warrants and rights), traded in U.S.
markets, and issued by companies believed by the Adviser to exhibit an
attractive outlook for growth in sales and earnings, with market capitalizations
between $100 million and $2 billion and which are considered to have growth
potential. Such companies may include "unseasoned" companies, i.e., companies
that, together with any predecessor, have less than three years of continuous
operation. The Special Equity Fund will not invest more than 25% of its total
assets in the securities of unseasoned companies.
The Special Equity Fund may also invest up to 35% of its total assets
in warrants, ADRs, securities of other investment companies and REITs, cash and
Short-Term Obligations and may engage in other investment techniques described
on page ___.
THE INCOME FUND
Under normal market conditions, the Income Fund will invest
substantially all, but in no event less than 65%, of its total assets in debt
securities of all types, including variable and floating rate securities,
although up to 35% of its total assets may be invested in securities of other
investment companies and in preferred stock and dividend paying common stocks.
Debt securities include bonds, debentures, notes, mortgage-related securities,
state, municipal or industrial revenue bonds, obligations issued or guaranteed
as to principal and interest by the U.S. Government or its agencies or
instrumentalities ("Government Obligations") and fixed-income securities
convertible into, or exchangeable for, common stocks. In addition, a portion of
the Income Fund may from time to time be invested in participation certificates
in pools of mortgages issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Under normal market conditions, the Income Fund
expects to invest primarily in Government Obligations and in debt obligations of
United States corporations. The Income Fund also intends that, under normal
market conditions, its portfolio will maintain a dollar-weighted average
maturity of no more than 18 years.
The Income Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, and other Government Obligations. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association ("GNMA") and the Export-Import Bank of the United States,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association ("FNMA"), are supported by
the right of the issuer to borrow from the Treasury; others, such as those of
the Student Loan Marketing Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The
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Income Fund will invest in the obligations of such agencies or instrumentalities
only when the Adviser believes that the credit risk with respect thereto is
minimal.
The Income Fund also expects to invest in bonds, notes and debentures
of a wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
The Income Fund will invest only in corporate debt securities which are
rated at the time of purchase within the three highest rating groups assigned by
one or more appropriate NRSROs or, if unrated, which the Adviser deems to be of
comparable quality. In the event that a security's rating falls below "A" by an
appropriate NRSRO, the Adviser will re-evaluate the security in order to
determine whether to sell. In no event, however, will the Income Fund be
required to liquidate such security if it would suffer a loss on the sale of
such security or so long as one appropriate NRSRO has rated such security within
its three highest rating groups. For a description of the rating symbols of the
NRSROs, see the Appendix to the Statement of Additional Information.
The Income Fund may hold some Short-Term Obligations and securities of
other investment companies for cash management purposes.
The Income Fund may also invest in U.S. dollar denominated
international bonds for which the primary trading market is in the United States
("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar
Bonds"), and in Canadian Bonds and bonds issued by institutions organized for a
specific purpose, such as the World Bank and the European Economic Community, by
two or more sovereign governments ("Supranational Agency Bonds").
The Income Fund may invest up to 25% of its total assets in
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by nongovernmental entities which are rated, at
the time of purchase, within the three highest bond rating categories assigned
by one or more appropriate NRSROs, or, if unrated, which the Adviser deems to be
of comparable quality. Such mortgage-related securities have mortgage
obligations backing such securities, including among others, conventional thirty
year fixed rate mortgage obligations, graduated payment mortgage obligations,
fifteen year mortgage obligations and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. In addition, prepayment rates will be used to determine a security's
estimated average life and the Income Fund's average portfolio duration and its
dollar-weighted average portfolio maturity. Accelerated prepayments have an
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adverse impact on yields for pass-through securities purchased at a premium
(i.e., a price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized at the
time the obligations are repaid. The opposite is true for pass-through
securities purchased at a discount. The Income Fund may purchase
mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates. The term "mortgage-related
securities" does not include obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities that are not backed by mortgage
obligations. The Income Fund may also acquire collateralized mortgage
obligations or "CMOs." CMOs are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized by
GNMA, FNMA or FHLMC certificates, but also may be collateralized by whole loans
or private mortgage pass-through securities (such collateral collectively
referred to as "Mortgage Assets"). Payments of principal or interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs. CMOs may be issued by agencies or instrumentalities of
the U.S. Government or by private originators of, or investors in, mortgage
loans.
Asset-backed securities are similar to mortgage-backed securities
except that instead of using mortgages to collateralize the obligations, a broad
range of other assets may be used as collateral, primarily automobile and credit
card receivables and home equity loans. Such receivables and loans are
securitized in pass-through structures similar to the mortgage pass-through or
pay-through structures described above.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs, asset backed securities and securitized loan receivables, as
well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity dates.
As a result, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of compliance with stated
maturity policies and calculation of the Income Fund's dollar-weighted average
maturity, the effective maturity of such securities will be used.
An increase in interest rates will generally reduce the value of the
investments in the Income Fund, and a decline in interest rates will generally
increase the value of those investments. Depending upon the prevailing market
conditions, the Adviser may purchase debt securities at a discount from face
value, which produces a yield greater than the coupon rate. Conversely, if debt
securities are purchased at a premium over face value, the yield will be lower
than the coupon rate. In making investment decisions, the Adviser will consider
many factors other than current yield, including the preservation of capital,
maturity, and yield to maturity.
IN GENERAL
Each of the Funds may purchase securities of other investment companies
which in the opinion of the Adviser or Sub-Adviser, as the case may be, will
assist such Fund in achieving its
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investment objective and/or for cash management purposes, may enter into
repurchase and reverse repurchase agreements, and may enter into options and
futures transactions and write covered call options on securities that such Fund
could otherwise purchase directly. In addition, the Income Fund may purchase
securities on a when-issued basis.
The securities purchased by the Funds are generally traded on U.S.
markets, including the New York Stock Exchange, the American Stock Exchange and
NASDAQ, although each Fund may purchase securities which are restricted as to
their disposition, including those eligible for resale under Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities").
During temporary defensive periods as determined by the Adviser or the
appropriate Sub-Adviser, as the case may be, based upon current or anticipated
market conditions, each Fund may hold up to 100% of its total assets in
Short-Term Obligations as described above or in cash. However, to the extent
that a Fund is so invested, it may not achieve its investment objective or
objectives.
Each of the Funds may invest in certain types of securities which are
considered to be "derivative" securities, such as certain variable or floating
rate securities, options and futures. A derivative is generally defined as an
instrument whose value is based upon, or derived from, some underlying index,
reference rate (e.g., interest rates), security, commodity or other asset. The
Income Equity Fund, the Diversified Equity Fund, and the Special Equity Fund
each will not invest more than 25% of its total assets in such derivatives. With
respect to the Income Fund, such Fund may invest up to 35% of its total assets
in CMOs and asset-backed securities and up to 25% of its total assets in any
other derivatives. Notwithstanding the foregoing, with respect to the Income
Fund, there is no limitation on the amount of its total assets which may be
invested in variable or floating rate obligations regardless of whether or not
such obligations are deemed to be "derivatives."
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in any of the Funds entails
certain risks. Equity securities such as those in which the Income Equity,
Diversified Equity and Special Equity Funds may invest are more volatile and
carry more risk than some other forms of investment, including investments in
high grade fixed income securities. Therefore, such Funds are subject to stock
market risk, i.e., the possibility that stock prices in general will decline
over short or even extended periods of time.
Depending upon the performance of each Funds' investments, the net
asset value per share of a Fund may decrease instead of increase.
The Special Equity Fund is intended for investors who can accept the
higher risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Special Equity Fund does not anticipate any
significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the
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Special Equity Fund. The securities of less seasoned companies may have limited
marketability, and therefore may be less liquid, and may be subject to more
abrupt or erratic market movements over time than securities of more seasoned
companies or the market as a whole.
Since the Income Fund invests in bonds, investors in such Fund, to the
extent so invested, are exposed to bond market risk, i.e., fluctuations in the
market value of bonds. Bond prices are influenced primarily by changes in the
level of interest rates. When interest rates rise, the prices of bonds generally
fall; conversely, when interest rates fall, bond prices generally rise. While
bonds normally fluctuate less in price than stocks, there have been in the
recent past extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices and have caused the effective
maturity of securities with pre-payment features to be extended, thus
effectively converting short or intermediate term securities into longer term
securities which are generally more volatile in price.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities, in exchange for cash from banks and/or registered
broker-dealers which the Adviser or Sub-Adviser, as the case may be, deems
creditworthy under guidelines approved by the Group's Board of Trustees. The
seller agrees to repurchase such securities at a mutually agreed date and price.
The repurchase price generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. Securities subject
to repurchase agreements must be of the same type and quality as those in which
such Fund may invest directly. For further information about repurchase
agreements and the related risks, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Repurchase
Agreements" in the Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. At the
time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid securities consistent with such Fund's investment restrictions having a
value equal to the repurchase price (including accrued interest), and will
continually monitor the account to ensure that such equivalent value is
maintained at all times. Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the price at
which the Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by a Fund under the 1940 Act and
therefore a form of leverage. A Fund may experience a negative impact on its net
asset value if interest rates rise during the term of a reverse repurchase
agreement. A Fund generally will invest the proceeds of such borrowings only
when such borrowings will enhance the Fund's liquidity or when the Fund
reasonably expects that the interest income to be earned from the investment of
the proceeds is greater than the interest expense of the transaction. For
further information about, and limitations on the use of, reverse repurchase
agreements, see investment restriction Number 3 under "INVESTMENT RESTRICTIONS"
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below and "INVESTMENT OBJECTIVES AND POLICIES--Additional Information on
Portfolio Instruments--Reverse Repurchase Agreements" in the Statement of
Additional Information.
Except as otherwise disclosed to the Shareholders of the Funds, the
Group will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, BISYS, or their affiliates, and
will not give preference to the Adviser's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, and reverse
repurchase agreements.
VARIABLE AND FLOATING RATE OBLIGATIONS. A variable rate obligation is
one whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value.
A floating rate obligation is one whose terms provide for the
adjustment of its interest rate whenever a specified interest rate changes and
which, at any time, can reasonably be expected to have a market value that
approximates its par value.
Such obligations are frequently not rated by credit rating agencies;
however, unrated variable and floating rate obligations purchased by the Income
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to rated instruments eligible for purchase under the Income Fund's
investment policies. In making such determinations, the Adviser will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
obligations and will continuously monitor their financial condition. Although
there may be no active secondary market with respect to a particular variable or
floating rate obligation purchased by the Income Fund, the Income Fund may
attempt to resell the obligation at any time to a third party. The absence of an
active secondary market, however, could make it difficult for the Income Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations and the Income Fund could, as a
result or for other reasons, suffer a loss to the extent of the default.
Variable or floating rate obligations may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate
obligation is established by reference to an index or an interest rate that may
from time to time lag behind other market interest rates, there is the risk that
the market value of such obligation, on readjustment of its interest rate, will
not approximate its par value.
Variable and floating rate obligations for which no readily available
market exists will be purchased in an amount which, together with other illiquid
securities, exceeds 15% of the Income Fund's net assets only if such obligations
are subject to a demand feature that will permit the Income Fund to receive
payment of the principal within seven days after demand by the Income Fund.
OPTIONS. Each Fund may also purchase put and call options for hedging
purposes. The Funds anticipate that options will be exchange traded options,
meaning that such options are
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generally standardized and are guaranteed by a clearing agency, which is in
contrast to over-the-counter (OTC) traded options. A put option gives the
purchaser of the option the right to sell, and obligates the writer (seller) of
the option to buy, the underlying security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security. A call option gives the purchaser of the option the right to
buy, and obligates the seller of the option to sell, the underlying security at
the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security. Purchasing options is a
specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to writers of options.
For hedging purposes, each of the Funds may also engage in writing call
options as the Adviser or the Sub-Adviser, as the case may be, deems
appropriate. A Fund will write only covered call options (options on securities
owned by that Fund). When a Fund writes a covered call option and such option is
exercised, that Fund will forego the appreciation, if any, on the underlying
security in excess of the exercise price. In order to close out a call option it
has written, a Fund will enter into a "closing purchase transaction"--the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which that Fund previously wrote on any
particular securities. When a portfolio security subject to a call option is
sold, the Fund which wrote the call will effect a closing purchase transaction
to close out any existing call option on that security. There is no assurance of
liquidity in the secondary market for purposes of closing out option positions.
If that Fund is unable to effect a closing purchase transaction, it will not be
able to sell the underlying security until the option expires or such Fund
delivers the underlying security upon exercise.
Each of the Funds, as part of its option transactions, also may
purchase index put and call options and write index options. Through the writing
or purchase of index options, a Fund can achieve many of the same objectives as
through the use of options on individual securities. Options on indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
A Fund may lose the expected benefit of option transactions if interest
rates or security prices move in an unanticipated manner. In addition, the value
of a Fund's option positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting such Fund's
ability to hedge effectively against market or interest rate risk. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise. Under normal conditions, it is
not expected that any such Fund would permit the underlying value of its
portfolio securities subject to such options to exceed 25% of its net assets.
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FUTURES CONTRACTS. Each Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities, interest rate or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index or based on an interest
rate is an agreement obligating either party to pay, and entitling the other
party to receive, while the contract is outstanding, cash payments based on the
level of a specified securities index or interest rate, as the case may be. A
Fund may use this investment technique as a substitute for a comparable market
position in the underlying securities or to hedge against anticipated future
changes in market prices or interest rates, which otherwise might adversely
affect either the value of such Fund's securities or the prices of securities
which the Fund intends to purchase at a later date. Alternatively, a Fund may
purchase or sell futures contracts to hedge against changes in market interest
rates which may result in the premature call at par value of certain securities
which the Fund has purchased at a premium.
Each Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for such Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period. A Fund may also sell options
on futures contracts as part of closing purchase transactions to terminate its
option positions. No assurance can be given that such closing transactions can
be effected, that there will be a correlation between price movements in the
Fund's portfolio securities which are the subject of the hedge or of liquidity
in the secondary market for purposes of closing out futures positions. In
addition, a Fund's purchase of such options will be based upon predictions as to
anticipated interest rate or other market trends, which could prove to be
inaccurate.
In general, the value of futures contracts sold by a Fund to offset
declines in its portfolio securities will not exceed the total market value of
the portfolio securities to be hedged, and futures contracts purchased by a Fund
will be covered by a segregated account consisting of cash or liquid securities
in an amount equal to the total market value of such futures contracts, less the
initial margin deposited therefore.
When buying futures contracts and when writing put options, a Fund will
be required to segregate in a separate account cash and/or liquid securities in
an amount sufficient to meet its obligations. When writing call options, a Fund
will be required to own the financial instrument or futures contract underlying
the option or segregate cash and/or liquid securities in an amount sufficient to
meet its obligations under written calls.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of a Fund's total assets,
and the value of securities that are
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the subject of such futures and options (both for receipt and delivery) may not
exceed one-third of the market value of a Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain each Fund's
qualifications as a regulated investment company.
A Fund may lose the expected benefit of futures transactions if
interest rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting such Fund's ability to
hedge effectively against interest rate and/or market risk and giving rise to
additional risks. For futures contracts based on indices, the risk of imperfect
correlation increases as the composition of the Fund's portfolio varies from the
composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract has
been less or greater than that of the securities. Such "over hedging" or "under
hedging" may adversely affect the Fund's net investment results if the market
does not move as anticipated when the hedge is established.
FOREIGN INVESTMENTS. As described above, each of the Income Equity,
Diversified Equity and Special Equity Funds may invest in sponsored and
unsponsored ADRs. ADRs are receipts typically issued by a United States bank or
trust company evidencing ownership of the underlying foreign securities and are
denominated in U.S. dollars. Unsponsored ADRs may be less liquid than sponsored
ADRs, and there may be less information available regarding the underlying
foreign issuer for unsponsored ADRs.
Investments in foreign securities, including ADRs, may subject a Fund
to investment risks that differ in some respects from those related to
investments in securities of U.S. domestic issuers. Such risks include future
adverse political and economic developments, the possible imposition of
withholding taxes on interest or other investment income, fluctuations in
exchange rates, possible seizure, nationalization, or expropriation of foreign
deposits or investments, the possible establishment of exchange controls or
taxation at the source, less stringent disclosure requirements, less liquid or
developed securities markets or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal, interest or
dividends on such securities or the purchase or sale thereof. In addition,
foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. A Fund will acquire securities issued by foreign branches of U.S. banks,
foreign banks, or other foreign issuers only when the Adviser believes that the
risks associated with such instruments are minimal.
SECURITIES LENDING. In order to generate additional income, each Fund
may, from time to time, lend its portfolio securities to broker-dealers, banks,
or institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Adviser or the Sub-Adviser, as the case may be. Should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to
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that Fund. During the time portfolio securities are on loan, the borrower pays
that Fund any dividends or interest received on such securities. Loans are
subject to termination by such Fund or the borrower at any time. While a Fund
does not have the right to vote securities on loan, each Fund intends to
terminate the loan and regain the right to vote if that is considered important
with respect to the investment. In the event the borrower would default on its
obligations, the Fund bears the risk of delay in recovery of the portfolio
securities and the loss of rights in the collateral. A Fund will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Adviser or the Sub-Adviser, as the case may be, has determined are creditworthy
under guidelines established by the Group's Board of Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Income Fund may
purchase securities on a when-issued or delayed-delivery basis. These
transactions are arrangements in which a Fund purchases securities with payment
and delivery scheduled for a future time. The Income Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with and in furtherance of its investment
objective and policies, not for investment leverage, although such transactions
represent a form of leveraging. When-issued securities are securities purchased
for delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. A Fund will
generally not pay for such securities or start earning interest on them until
they are received on the settlement date. When a Fund agrees to purchase such
securities, however, its custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in the value based upon changes in the general level of interest rates.
In when-issued and delayed-delivery transactions, the Fund relies on the seller
to complete the transaction; the seller's failure to do so may cause such Fund
to miss a price or yield considered to be advantageous.
RESTRICTED SECURITIES. Securities in which the Funds may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), such as securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold, if at all, to other
institutional investors through or with the assistance of the issuer or
investment dealers who facilitate the resale of such Section 4(2) securities,
thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group,
the Adviser, or the Sub-Adviser, as the case may be, may determine Section 4(2)
Securities to be liquid if such securities are eligible for resale under Rule
144A under the 1933 Act and are readily saleable. Rule 144A permits a Fund to
purchase securities which have been privately placed and resell such securities
to certain qualified institutional buyers without restriction. For purposes of
determining whether a Rule 144A security is readily saleable, and therefore
liquid, the Adviser or the Sub-Adviser, as the case may be, must consider,
among other things, the frequency of trades and quotes for the security, the
number of dealers willing to purchase or sell the security and the
22
<PAGE> 26
number of potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and marketplace trades of such
security. However, investing in Rule 144A securities, even if such securities
are initially determined to be liquid, could have the effect of increasing the
level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
INVESTMENT COMPANY SECURITIES. Each Fund may also invest in the
securities of other investment companies in accordance with the limitations of
the 1940 Act and any exemptions therefrom. Each Fund intends to invest in the
securities of other investment companies which, in the opinion of the Adviser or
the Sub-Adviser, as the case may be, will assist such Fund in achieving its
investment objectives and in money market mutual funds for purposes of
short-term cash management. A Fund will incur additional expenses due to the
duplication of fees and expenses as a result of investing in mutual funds.
Additional restrictions on the Funds' investments in the securities of other
mutual funds are described in the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The Commission requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition are one year or less. The portfolio turnover rate for each
of the Funds may vary greatly from year to year, as well as within a particular
year, and may also be affected by cash requirements for redemptions of Shares.
High portfolio turnover rates will generally result in higher transaction costs,
including brokerage commissions, to a Fund and may result in additional tax
consequences to a Fund's shareholders. Portfolio turnover will not be a limiting
factor in making investment decisions. Portfolio turnover information is set
forth above under "FINANCIAL HIGHLIGHTS."
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION--Miscellaneous" herein).
Each of the Funds will not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements secured by such obligations, if, immediately after
such purchase, more than 5% of such Fund's total assets would be invested in
such issuer, or such Fund would hold more than 10% of outstanding voting
securities of such issuer, except that up to 25% of a Fund's total assets may be
invested without regard to such limitations. There is no limit to the percentage
of assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements secured by such obligations.
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<PAGE> 27
2. Purchase any securities which would cause more than 25% of
such Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry; provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements secured by such obligations; (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities except as and to the
extent permitted by the 1940 Act or any rule, order or interpretation
thereunder.
4. Make loans, except that each Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its investment
objective and policies, make time deposits with financial institutions, and
enter into repurchase agreements.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of a Fund: Each of the Funds
will not purchase or otherwise acquire any security, if, as a result, more than
15% of its net assets would be invested in securities that are illiquid. For
purposes of this investment restriction, illiquid securities include securities
which cannot be sold at approximately the value assessed by the Fund within
seven days.
In addition to the above investment restrictions, each Fund is subject
to certain other investment restrictions set forth under "INVESTMENT OBJECTIVES
AND POLICIES--Investment Restrictions" in the Funds' Statement of Additional
Information.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are
priced as of the close of regular trading on the New York Stock Exchange (the
"Exchange") (usually 4:00 p.m. Eastern time) on each Business Day of such
Fund. The time at which the Shares of a Fund are priced is hereinafter referred
to as the "Valuation Time." A "Business Day" of a Fund is a day on which the
Exchange is open for trading and any other day (other than a day on which no
Shares of that Fund are tendered for redemption and no order to purchase any
Shares of that Fund is received) during which there is sufficient trading in
portfolio instruments such that such Fund's net asset value per share might be
materially affected. The Exchange will not be open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Net asset value per share for purposes of pricing purchases and
redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund, less the liabilities charged to that Fund, by the
number of that Fund's outstanding Shares.
The net asset value per share for each of the Funds will fluctuate as
the value of the underlying securities in the investment portfolio of a Fund
changes.
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<PAGE> 28
The portfolio securities in each of the Funds for which market
quotations are readily available are valued based upon their current available
prices in the principal market in which such securities are normally traded.
Unlisted securities for which market quotations are readily available are
valued at such market values. Other securities, including restricted securities
and other securities for which market quotations are not readily available, and
other assets are valued at fair value by the Adviser under procedures
established by, and under the supervision of the Group's Board of Trustees.
Securities may be valued by an independent pricing service approved by the
Group's Board of Trustees. Investments in debt securities with remaining
maturities of 60 days or less may be valued based upon the amortized cost
method. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by the Group's
distributor, BISYS (the "Distributor"). The principal office of the Distributor
is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares,
telephone the Group at (800) 766-8938.
PURCHASES OF SHARES
Shares may be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by the Adviser or its
correspondent or affiliated banks (collectively, the "Banks").
Shares of the Funds sold to the Banks acting in a fiduciary, advisory,
custodial, agency, or other similar capacity on behalf of Customers will
normally be held of record by the Banks. With respect to Shares of the Funds so
sold, it is the responsibility of the particular Bank to transmit purchase or
redemption orders to the Distributor and to deliver federal funds for purchase
on a timely basis. Beneficial ownership of Shares will be recorded by the Banks
and reflected in the account statements provided by the Banks to Customers. A
Bank will exercise voting authority for those Shares for which it is granted
authority by the Customer.
Investors may also purchase Shares of a Fund by completing and signing
an Account Registration Form and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, payable to the appropriate Fund, to the 1st Source Monogram Funds, P.O.
Box 182084, Columbus, Ohio 43218-2084. Subsequent purchases of Shares of that
Fund may be made at any time by mailing a check (or other negotiable bank draft
or money order) payable to the Group to the above address.
If an Account Registration Form has been previously received by the
Group, investors may also purchase Shares by wiring funds to the Funds'
custodian. Prior to wiring any such funds and in order to ensure that wire
orders are invested promptly, investors must call the Group at (800) 766-8938 to
obtain instructions regarding the bank account number into which the funds
should be wired and other pertinent information.
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<PAGE> 29
Shares of each Fund are purchased at the net asset value per share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares plus any applicable sales charge as described below.
Purchases of Shares of a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES") of that Fund.
For orders for the purchase of Shares of any of the Funds placed
through a broker-dealer, the applicable public offering price will be the net
asset value as so determined (plus any applicable sales charge), but only if the
broker-dealer receives the order and transmits it to the Distributor prior to
the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. If the broker-dealer fails to do
so, the investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next Business Day.
Depending upon the terms of a particular Customer's account, the Banks
or their affiliates may charge a Customer account fees for automatic investment
and other cash management services provided in connection with an investment in
a Fund. Information concerning these services and any charges will be provided
by the Banks. This Prospectus should be read in conjunction with any such
information received from the Banks or their affiliates.
Each Fund reserves the right to reject any order for the purchase of
its Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in his or
her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by Banks on behalf of their Customers will be sent by the Banks to
their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
1ST SOURCE MONOGRAM INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A 1st Source Monogram IRA enables individuals, even if they participate
in an employer-sponsored retirement plan, to establish their own retirement
program. 1st Source Monogram IRA contributions may be tax-deductible and
earnings are tax deferred. Under the Tax Reform Act of 1986, the tax
deductibility of IRA contributions is restricted or eliminated for individuals
who participate in certain employer pension plans and whose annual income
exceeds certain limits. Existing IRAs and future contributions up to the IRA
maximums, whether deductible or not, still earn income on a tax-deferred basis.
All 1st Source Monogram IRA distribution requests must be made in
writing to the Distributor. Any deposits to a 1st Source Monogram IRA must
identify the type and year of the contributions.
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<PAGE> 30
For more information on the 1st Source Monogram IRAs call the Group at
(800) 766-8938. The rules relating to IRA eligibility, contributions and
distributions are complex and change from time to time. Therefore, shareholders
are advised to consult a tax adviser on 1st Source Monogram IRA contribution and
withdrawal requirements and restrictions.
AUTO INVEST PLAN
The 1st Source Monogram Funds Auto Invest Plan enables Shareholders to
make regular semi-monthly, monthly or quarterly purchases of Shares of a Fund
through automatic deduction from their bank accounts, provided that the
Shareholder's bank is a member of the Federal Reserve and the Automated Clearing
House (ACH) system. With Shareholder authorization, the Transfer Agent will
deduct the amount specified (subject to the applicable minimums described below)
from the Shareholder's bank account which will automatically be invested in
Shares of the designated Fund at the public offering price next determined after
receipt of payment by the Transfer Agent. To participate in the Auto Invest
Plan, Shareholders should complete the appropriate section of the Account
Registration Form or a supplemental sign-up form which can be acquired by
calling the Group at (800) 766-8938. For a Shareholder to change the Auto Invest
instructions, the request must be made in writing to the Group at: 3435 Stelzer
Road, Columbus, Ohio 43219.
The Group may eliminate or change the Auto Invest Plan at any time or
from time to time without notice thereof.
MINIMUM INVESTMENT
The following table sets forth the minimum requirements for initial
purchases of a Fund's Shares and any subsequent purchases made thereafter. As
the table shows, these requirements may vary depending upon the method or
methods used by the purchaser to invest in the Funds.
<TABLE>
<CAPTION>
MINIMUM REQUIREMENTS FOR
INITIAL PURCHASE
METHOD OF PURCHASE SUBSEQUENT PURCHASES
<S> <C> <C>
For purchases other than through the Auto Invest Plan:
Non-IRA $1,000 per Fund $25 per Fund
IRAs $1,000 per Fund $25 per Fund
For purchases made through the Auto Invest Plan:
Non-IRA $25 per Fund $25 per Fund
IRAs $250 per Fund $25 per Fund
</TABLE>
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<PAGE> 31
SPECIAL PURCHASE PROGRAMS
For Employees of the Adviser or one of its Affiliates. The Adviser has
arranged for lower minimum requirements for its employees and the employees of
its affiliates (collectively, "Employees") to invest in the Funds. Regardless of
the method chosen by an Employee to purchase Shares (e.g., whether or not for an
IRA and whether or not through the Auto Invest Plan), all initial purchases of
Shares in a Fund must be for a dollar amount of not less than $10 and all
subsequent purchases of Shares in that Fund must be for a dollar amount of not
less than $10.
Employees should note that regardless of the amount that they use to
open a 1st Source Monogram IRA, the annual fee of $10 will be deducted from
their IRA account each December. Therefore, if an Employee opens a 1st Source
Monogram IRA account with only the minimum investment and does not add to it
during that year, the annual fee may reduce the Employee's IRA account balance
to $0.
For Payroll Deduction Plans. Lower minimum requirements are also
available for people investing in the Funds through a payroll deduction plan
offered by their employer. For purchases of Shares of a Fund through such a plan
all initial purchases must be for a dollar amount of not less than (1) $10 and
all subsequent purchases of Shares in that Fund must be for a dollar amount of
not less than $10 per payroll deduction if you are paid at least twice a month
or (2) $25 and all subsequent purchases of Shares in that Fund must be for a
dollar amount of not less than $25 per payroll deductions if you are paid less
than twice a month.
IN-KIND PURCHASES
Payment for Shares of a Fund may, in the discretion of the Adviser, be
made in the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
a Fund will require, among other things, that the securities be valued on the
date of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form of transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
SALES CHARGES
The public offering price of Shares of each of the Funds equals net
asset value plus a sales charge calculated in accordance with the tables below.
BISYS receives this sales charge as Distributor and reallows a portion of it as
dealer discounts and brokerage commissions. However, the Distributor, in its
sole discretion, may pay certain dealers all or part of the portion of the sales
charge it receives. The broker or dealer who receives a reallowance in excess of
90% of the sales charge may be deemed to be an "underwriter" for purposes of the
1933 Act.
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<PAGE> 32
SALES CHARGES FOR THE
INCOME EQUITY, DIVERSIFIED EQUITY AND SPECIAL EQUITY FUNDS
<TABLE>
<CAPTION>
DEALER DISCOUNTS
AND
SALES CHARGE AS SALES CHARGE BROKERAGE COMMISSIONS
% OF NET AMOUNT AS % OF PUBLIC AS % OF PUBLIC
INVESTED OFFERING PRICE OFFERING PRICE
--------------- -------------- ---------------------
<S> <C> <C> <C>
AMOUNT OF PURCHASE
- ------------------
Less than $50,000 5.26% 5.00% 4.50%
$50,000 but less than
$100,000 4.17 4.00 3.60
$100,000 but less than
$250,000 3.09 3.00 2.70
$250,000 but less than
$500,000 2.04 2.00 1.80
$500,000 but less than
$1,000,000 1.52 1.50 1.35
$1,000,000 or more 0 0 0
SALES CHARGE FOR THE
INCOME FUND
<CAPTION>
DEALER DISCOUNTS
AND
SALES CHARGE AS SALES CHARGE BROKERAGE COMMISSIONS
% OF NET AMOUNT AS % OF PUBLIC AS % OF PUBLIC
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING PRICE
- ------------------ --------------- ------------- ---------------
Less than $50,000 4.17% 4.00% 3.60%
$50,000 but less than
$100,000 3.63 3.50 3.15
$100,000 but less than
$250,000 3.09 3.00 2.70
$250,000 but less than
$500,000 2.04 2.00 1.80
$500,000 but less than
$1,000,000 1.52 1.50 1.35
$1,000,000 or more 0 0 0
</TABLE>
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<PAGE> 33
From time to time, dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. The
Distributor, at its own expense, will also provide additional compensation to
dealers in connection with sales of Shares of the Funds. Such compensation will
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more funds of the Group, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of such Shares. Compensation will include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will also include the following types of non-cash compensation
offered through sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging at luxury resorts at an exotic location, (2)
tickets for entertainment events (such as concerts, cruises and sporting events)
and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may
not use sales of a Fund's Shares to qualify for this compensation to the extent
such may be prohibited by the laws of any state or any self-regulatory agency,
such as the NASD. None of the aforementioned compensation is paid for by any
Fund or its Shareholders.
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Shares of a
Fund by or on behalf of:
(1) Accounts for which FSC, the Adviser, banks and trust
companies or one of their affiliates acts in a fiduciary, advisory, agency,
custodial (other than for individual retirement accounts), or similar capacity;
(2) Officers, trustees, directors, employees and retired
employees (including spouses and children under the age of 21 of the foregoing)
of FSC, the Adviser, the Group, BISYS and any affiliates thereof;
(3) Purchasers pursuant to the terms of a payroll deduction
plan, a 401(k) plan or a 403(b) plan which by its terms permits purchases of
Shares of the Funds;
(4) Purchasers using solely the proceeds from a distribution
from an account for which the Adviser or an affiliate serves in a trust,
fiduciary or agency capacity (this waiver only applies to the initial purchase
of Shares with such proceeds);
(5) Brokers, dealers and agents for their own account, who
have a sales agreement with the Distributor, and their employees (and their
spouses and children under the age of 21);
(6) Orders placed on behalf of other investment companies
distributed by The BISYS Group, Inc. or its affiliated companies, including the
Distributor;
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<PAGE> 34
(7) Investment advisers or financial planners regulated by a
federal or state governmental authority who are purchasing Shares for their own
account or for an account for which they are authorized to make investment
decisions (i.e., a discretionary account) and who charge a management,
consulting or other fee for their services, and clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of a broker or agent; and
(8) Investors purchasing Shares with proceeds from a
redemption of shares of another open-end investment company (other than the
Group) on which a sales charge was paid if (i) such redemption occurred with
sixty (60) days prior to the date of the purchase order and (ii) satisfactory
evidence of the purchaser's eligibility is provided to the Distributor at the
time of purchase (e.g., a confirmation of the redemption).
The Distributor may change or eliminate the foregoing waivers at any
time or from time to time without notice thereof. The Distributor may also
periodically waive all or a portion of the sales charge for all investors with
respect to a Fund.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of a Fund and one or more of the
other Funds. For example, if a Shareholder concurrently purchases Shares in the
Diversified Equity Fund at the total public offering price of $25,000 and Shares
in the Income Fund at the total public offering price of $30,000, the sales
charge on the Shares of the Funds so sold would be that applicable to a $55,000
purchase as shown in the tables above, i.e., 4.00% for the Shares of the
Diversified Equity Fund and 3.50% for Shares of the Income Fund. This privilege,
however, may be modified or eliminated at any time or from time to time by the
Group without notice thereof.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the intention of such investor to purchase
Shares of a Fund at a designated total public offering price within a designated
13-month period. Each purchase of Shares under a Letter of Intent will be made
at the net asset value plus the sales charge applicable at the time of such
purchase to a single transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases of Shares made not
more than 90 days prior to the date such investor signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included. This program may be
modified or eliminated at any time or from time to time by the Group without
notice. For further information about letters of intent, interested investors
should contact the Group at (800) 766-8938. A Letter of Intent is not a binding
obligation upon the investor to purchase the full amount indicated. The minimum
initial investment under a Letter of Intent is 5% of such amount. Shares
purchased with the first 5% of such amount will be held in escrow (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the Shares actually purchased if the full
amount indicated is not purchased, and such escrowed
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<PAGE> 35
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Shares, whether paid in cash or reinvested in
additional Shares, are not subject to escrow. The escrowed Shares will not be
available for disposal by the investor until all purchases pursuant to the
Letter of Intent have been made or the higher sales charge has been paid. When
the full amount indicated has been purchased, the escrow will be released. An
adjustment will be made to reflect any reduced sales charge applicable to Shares
purchased during the 90-day period prior to the date the Letter of Intent was
entered into at the conclusion of the 13-month period and in the form of
additional Shares credited to the Shareholder's account at the then current
public offering price applicable to a single purchase of the total amount of the
total purchases. Additionally, if the total purchases within the 13-month period
exceed the amount specified, a similar adjustment will be made to reflect
further reduced sales charges applicable to such purchases.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to
purchase Shares of a Fund at the public offering price applicable to the total
of (a) the total public offering price of the Shares of the Fund then being
purchased plus (b) an amount equal to the then current net asset value of the
purchaser's combined holdings of the Shares of all of the Funds. For example, if
a Shareholder held Shares of the Special Equity Fund and the Income Fund with a
total net asset value of $200,000 and wanted to invest $60,000 in the Income
Equity Fund, the sales charge applicable to such $60,000 investment in the
Income Equity Fund would be 2.00%. The "purchaser's combined holdings" described
in the preceding sentence shall include the combined holdings of the purchaser,
the purchaser's spouse and children under the age of 21 and the purchaser's
retirement plan accounts. To receive the applicable public offering price
pursuant to the right of accumulation, Shareholders must, at the time of
purchase, give the Transfer Agent sufficient information to permit confirmation
of qualification. This right of accumulation, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for Shares of any of the other Funds
at respective net asset values upon the payment of a sales charge equal to the
difference, if any, between the sales charge payable upon purchase of Shares of
such Fund and the sales charge previously paid on the Fund Shares to be
exchanged. With respect to every exchange, the amount to be exchanged must meet
the applicable minimum investment requirements and the exchange must be made in
states where it is legally authorized.
An exchange is considered a sale of Shares for federal income tax
purposes. However, a Shareholder may not include any sales charge on Shares of a
Fund as a part of the cost of those Shares for purposes of calculating the gain
or loss realized on an exchange of those Shares within 90 days of their
purchase.
The Group may at any time modify or terminate the foregoing exchange
privileges. The Group, however, will give shareholders 60 days' advance written
notice of any such modification.
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<PAGE> 36
A Shareholder wishing to exchange his or her Shares may do so by
contacting the Group at (800) 766-8938 or by providing written instructions to
the Group. Any Shareholder who wishes to make an exchange should obtain and
review the current prospectus of the Fund in which he or she wishes to invest
before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all
or part of a Customer's Shares may be redeemed in accordance with instructions
and limitations pertaining to his or her account at a Bank. For example, if a
Customer has agreed with a Bank to maintain a minimum balance in his or her
account with the Bank, and the balance in that account falls below that minimum,
the Customer may be obliged to redeem, or the Bank may redeem on behalf of the
Customer, all or part of the Customer's Shares of a Fund to the extent necessary
to maintain the required minimum balance.
Redemption by Mail
A written request for redemption must be received by the Group, at the
address shown on the front page of this Prospectus, in order to honor the
request. The Transfer Agent will require a signature guarantee by an eligible
guarantor institution. The signature guarantee requirement will be waived if the
following conditions apply: (1) the redemption check is payable to the
Shareholder(s) of record, and (2) the redemption check is mailed to the
Shareholder(s) at the address of record or mailed or wired to a commercial bank
account previously designated on the Account Registration Form. There is no
charge for having redemption proceeds mailed to a designated bank account. To
change the address to which a redemption check is to be mailed, a written
request therefor must be received by the Transfer Agent. In connection with such
request, the Transfer Agent will require a signature guarantee by an eligible
guarantor institution.
For purposes of this policy, the term "eligible guarantor institution"
shall include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Group and having the payment of redemption requests sent electronically directly
to a domestic commercial bank account previously designated by the Shareholder
on the Account Registration Form or mailed directly to the Shareholder at the
Shareholder's address as recorded by the Transfer Agent. Under most
circumstances, such payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. The Group may reduce the
amount of a wire redemption payment
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by the then-current wire redemption charge of the Funds' custodian. There is
currently no charge for having payment of redemption requests mailed or sent
electronically to a designated bank account. For telephone redemptions, call the
Group at (800) 766-8938.
Neither the Group, the Funds nor their service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with a Fund's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. Each Fund will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, such Fund or its
service providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, verification of account name and account number or tax
identification number, and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due to temporary adverse
conditions, Shareholders are unable to effect telephone transactions,
Shareholders may also mail the redemption request to the Group at the address
shown on the front page of this Prospectus.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund, with an
account balance in such Fund of $5,000 or more, to make regular monthly or
quarterly redemptions of Shares. With Shareholder authorization, the Transfer
Agent will automatically redeem Shares at the net asset value on the dates of
the withdrawal and have a check in the amount specified mailed to the
Shareholder. The required minimum withdrawal is $25 monthly. To participate in
the Auto Withdrawal Plan, Shareholders should call (800) 766-8938 for more
information. Purchases of additional Shares concurrent with withdrawals may be
disadvantageous to certain Shareholders because of tax liabilities and sales
charges. For a Shareholder to change the Auto Withdrawal instructions, the
request must be made in writing to the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, each Fund will attempt to honor requests from
Shareholders for next day payments upon redemption of Shares if the request for
redemption is received by the Distributor before the Valuation Time on a
Business Day or, if the request for redemption is received after the Valuation
Time, to honor requests for payment on the second Business Day. Each Fund will
attempt to so honor redemption requests unless it would be disadvantageous to
that Fund or the Shareholders of that Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner.
At various times, the Group may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Group may delay
the forwarding of proceeds for up to 10 days or more until payment has been
collected for the purchase of such Shares. The Group intends to pay cash for all
Shares redeemed, but under abnormal conditions which make
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<PAGE> 38
payment in cash unwise, the Group may make payment wholly or partly in portfolio
securities at their then market value equal to the redemption price. In such
cases, an investor may incur brokerage costs in converting such securities to
cash.
Due to the relatively high cost of handling small investments, each
Fund reserves the right to redeem, at net asset value, the Shares of that Fund
of any Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market price of such
Shares, the deduction of any sales charge or the establishment of an account by
an employee of the Adviser or one of its affiliates, by using the Auto Invest
Plan or by participating in a payroll deduction plan), the account of such
Shareholder has a value of less than $1,000 for at least ___ months.
Accordingly, an investor purchasing Shares of a Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
there-after redeems some of his or her Shares. In addition, a former employee of
the Adviser or a person who established an account by payroll deduction but
stops making investments in that Fund under that plan may be subject to such
involuntary redemption if the value of his or her account is below $1,000.
Before a Fund exercises its right to redeem such Shares and to send the
proceeds to the Shareholder, the Shareholder will be given notice that the value
of the Shares in his or her account is less than the minimum amount and will be
allowed not less than 60 days to make an additional investment in an amount
which will increase the value of the account to at least $1,000.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and "NET ASSET
VALUE" in the Statement of Additional Information for examples of when the Group
may suspend the right of redemption.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for each of the Funds, other than the Special Equity Fund,
is declared monthly at the close of business on the day of declaration and is
generally paid monthly. A dividend for the Special Equity Fund is declared
quarterly at the close of business on the day of declaration and is generally
paid quarterly. Each such dividend consists of an amount of accumulated
undistributed net income of that Fund as determined necessary or appropriate by
the appropriate officers of the Group.
Shareholders will automatically receive all income dividends and
capital gains distributions in additional full and fractional Shares of that
particular Fund at the net asset value as of the date of payment, unless the
Shareholder elects to receive dividends or distributions in cash. Such election,
or any revocation thereof, must be made in writing to the Transfer Agent at 3435
Stelzer Road, Columbus, Ohio 43219, and will become effective with respect to
dividends and distributions having record dates after its receipt by the
Transfer Agent.
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Distributable net realized capital gains for each Fund are distributed
at least annually. Dividends are paid in cash not later than seven Business Days
after a Shareholder's complete redemption of his or her Shares in a Fund.
If a Shareholder elects to receive distributions in cash, and checks
(1) are returned and marked as "undeliverable" or (2) remain uncashed for six
months, the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in that Fund at the
per share net asset value determined as of the date of payment of the
distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
Each of the Funds is treated as a separate entity for federal income
tax purposes and intends each year to qualify and elect to be treated as a
"regulated investment company" under the Internal Revenue Code of 1986 (the
"Code") for so long as such qualification is in the best interest of that Fund's
Shareholders. Qualification as a regulated investment company under the Code
requires, among other things, that the regulated investment company distribute
to its shareholders at least 90% of its investment company taxable income. Each
Fund contemplates declaring as dividends all or substantially all of that Fund's
investment company taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. If
distributions during a calendar year were less than the required amount, that
Fund would be subject to a nondeductible 4% excise tax on the deficiency.
A distribution will be treated as paid on December 31 of a calendar
year if it is declared in October, November or December with a record date in
such month and paid by a Fund during January of the following calendar year.
Such distributions will be treated as received by Shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by the Fund
bear to its gross income. Since all of the Income Fund's net investment income
is expected to be derived from earned interest and short-term capital gains, it
is anticipated that no part of any distribution from such Fund will be eligible
for the dividends received deduction for corporations.
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The excess of net long-term capital gains over short-term capital
losses realized and distributed by a Fund and designated as capital gain
dividends, whether paid in cash or reinvested in Fund shares, will be taxable to
Shareholders. Capital gain dividends paid from the proceeds of sales of assets
held by a Fund for more than one year will generally be taxed at a maximum
federal income tax rate of 20%. Net capital gains from assets held for one year
or less will be taxed as ordinary income. Distributions will be subject to these
capital gains rates regardless of how long a Shareholder has held Fund shares.
Prior to purchasing Shares, investors should carefully consider the
effect of dividends or capital gains distributions which are expected to be
declared or have been declared, but have not been paid. Any such dividends or
capital gains distributions paid shortly after a purchase of Shares prior to the
record date will have the effect of reducing the per share net asset value of
the Shares by the amount of the dividends or distributions. All or a portion of
such dividends or distributions, although in effect a return of capital, is
subject to tax.
Additional information regarding federal taxes is contained in the
Statement of Additional Information under the heading "ADDITIONAL
INFORMATION--Additional Tax Information." However, the information contained in
this Prospectus and the additional material in the Statement of Additional
Information are only brief summaries of some of the important tax considerations
generally affecting the Funds and their Shareholders. Accordingly, potential
investors are urged to consult their tax advisers concerning the application of
federal, state and local taxes as such laws and regulations affect their own tax
situation.
Shareholders will be advised at least annually as to the federal and
state income tax consequences of distributions made to them during the year.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board
of Trustees. At any given time all Trustees of the Group may not have been
elected by shareholders of the Group. The Group will be managed by the Trustees
in accordance with the laws of Massachusetts governing business trusts. The
Trustees, in turn, elect the officers of the Group to supervise its day-to-day
operations.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of BISYS or BISYS Fund Services Inc., the sole
general partner of BISYS, receives any compensation from the Group for acting as
a Trustee of the Group. The officers of the Group receive no compensation
directly from the Group for performing the duties of their offices. BISYS
receives fees from the Group for acting as Administrator and under the
Distribution Plan discussed below, may receive fees under the Administrative
Services Plan discussed below, and may retain all or a portion of any sales load
imposed upon purchases of Shares. BISYS Fund
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Services, Inc. receives fees from each of the Funds for acting as Transfer Agent
and for providing certain fund accounting services.
INVESTMENT ADVISER
1st Source Bank, 100 North Michigan Street, South Bend, Indiana 46634,
is the investment adviser of each Fund. The Adviser is a wholly owned subsidiary
of 1st Source Corporation, a publicly held bank holding company ("FSC"). The
Adviser, which was founded in 1936, and its affiliates administer and manage, on
behalf of their clients, trust assets which as of September 30, 1998, totalled
approximately $____ billion. Of such amount, approximately $___ million are
managed on behalf of personal trust customers and approximately $___ million are
managed on behalf of employee benefit plans. The Adviser has over 60 years of
banking experience and as of September 30, 1998, had, on a consolidated basis
with FSC, over $____ billion in assets.
Subject to the general supervision of the Board of Trustees of the
Group and in accordance with the investment objectives and restrictions of the
Funds, the Adviser manages, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for the Income Equity Fund,
the Special Equity Fund and the Income Fund, and, through the Sub-Advisers, the
Diversified Equity Fund.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Group, the Adviser receives a fee from
each of the Funds, computed daily and paid monthly, at the following rates: with
respect to the Income Equity Fund, the annual rate of eighty one-hundredths of
one percent (0.80%) of such Fund's average daily net assets; with respect to the
Diversified Equity Fund, the annual rate of ninety-nine one-hundredths of one
percent (0.99%) of such Fund's average daily net assets; with respect to the
Special Equity Fund, the annual rate of eighty one-hundredths of one percent
(0.80%) of such Fund's average daily net assets; and with respect to the Income
Fund, the annual rate of fifty-five one-hundredths of one percent (0.55%) of
such Fund's average daily net assets.
The Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends. The Adviser may not seek reimbursement
of such voluntarily reduced fees after the end of the fiscal year in which the
fees were reduced. The reduction of such fee will cause the yield and total
return of that Fund to be higher than they would otherwise be in the absence of
such a reduction.
Ralph Shive is the portfolio manager of the Income Equity Fund. Mr.
Shive has served as Vice President and an Investment Officer of the Adviser
since September, 1989. Generally, Mr. Shive has worked as an analyst and
portfolio manager for 20 years after receiving his BBA from Southern Methodist
University. Prior to joining the Adviser, he was employed by a brokerage firm
and a private investment partnership in Dallas, Texas. He is a Chartered
Financial Analyst and manages the Income Equity Fund as well as individual
portfolios with a focus on "value" investing.
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Brian A. Bythrow is the portfolio manager of the Special Equity Fund.
Mr. Bythrow joined the Adviser as an Investment Officer on April 3, 1998 as a
portfolio manager and became primarily responsible for the day-to-day management
of the Special Equity Fund. Prior thereto and since May, 1996, Mr. Bythrow
served as an equity analyst with First of America Investment Corp. From January,
1995 to May, 1996, Mr. Bythrow worked as a credit analyst with Shoreline Bank,
and from July, 1994 to December, 1994, Mr. Bythrow was a financial adviser with
Pentad Securities. Prior thereto, Mr. Bythrow served as an officer in the United
States Air Force. Mr. Bythrow received his BS from the U.S. Air Force Academy
and MBA from California State University Sacramento and is currently working on
his Chartered Financial Analyst certification.
Pascal M. Romano is the portfolio manager of the Income Fund. Mr.
Romano became the portfolio manager of the Income Fund effective January 26,
1998. Prior to that date, Mr. Romano had served as Assistant Vice President,
Trust Officer and a portfolio manager with Citizens Banking Corporation since
January,1996. From 1985 to December, 1995, Mr. Romano was employed by Alexander
Hamilton Life Insurance Company, where for the last three years he served as
Assistant Vice President and a portfolio manager. Mr. Romano is a Chartered
Financial Analyst and has over 13 years of investment management experience with
an emphasis on fixed income securities.
THE SUB-ADVISERS
Pursuant to the terms of its Investment Advisory Agreement with the
Group, the Adviser has entered into Sub-Investment Advisory Agreements with each
of: Miller Anderson, One Tower Bridge, Suite 1100, West Conshohocken,
Pennsylvania 19428; Loomis, 3 First National Plaza, Suite 5450, Chicago,
Illinois 60600; and Standish, One Financial Center, Boston, Massachusetts 02111.
Pursuant to the terms of such Sub-Investment Advisory Agreements, each of the
Sub-Advisers has been retained by the Adviser to manage the day-to-day
investment and reinvestment of a designated portion of the assets of the
Diversified Equity Fund, subject to the direction and control of the Group's
Board of Trustees, and the Adviser is responsible for selecting and monitoring
each Sub-Adviser and reporting the activities of each Sub-Adviser to the
Company's Board of Trustees.
Miller Anderson was founded in 1969 and is a wholly owned subsidiary of
Morgan Stanley, Dean Witter, Discover & Co. Miller Anderson provides advice
primarily to institutions, including other investment companies, and currently
has approximately $____ billion in assets under management, of which
approximately $____ billion is managed using Miller Anderson's value style as
described above. Robert J. Marcin, CFA, is primarily responsible for the
day-to-day management of that portion of the Diversified Equity Fund's portfolio
managed by Miller Anderson. Mr. Marcin has been a Partner with Miller Anderson
since 1994, and has had more than 14 years of investment experience.
Loomis is a limited partnership, the sole general partner of which is
Loomis, Sayles & Company, Incorporated, One Financial Center, Boston,
Massachusetts 02111. All of the outstanding shares of Loomis, Sayles & Company,
Incorporated are owned by New England Investment Companies, L.P., a
publicly-traded limited partnership ("NEIC"). As a result of the merger of New
England Mutual Life Insurance Company with and into Metropolitan Life
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<PAGE> 43
Insurance Company ("MET") on August 30, 1996, MET holds approximately 55% of the
outstanding limited partnership units of NEIC. Loomis was founded in 1926 and
has approximately $__ billion in assets under management. The Chicago office of
Loomis was founded in 1952, and has currently approximately __ clients and $__
billion in assets under management. Jerry Castellini is primarily responsible
for the day-to-day management of that portion of the Diversified Equity Fund's
portfolio managed by Loomis. Mr. Castellini has been Managing Partner of Loomis
since January, 1994, a Director since February, 1995 and has had more than 16
years of investment experience.
Standish is a Massachusetts corporation founded in 1933 that is owned
and operated by its Directors. Standish currently manages over $44 billion for
more than 450 clients including individuals, endowments, pension plans,
insurance companies, banks and other registered investment companies. _________
is primarily responsible for the day-to-day management of that portion of the
Diversified Equity Fund's portfolio managed by Standish. Mr. __________ has been
a Managing Director of Standish since ______ and has _____ years of investment
management experience.
For its services provided and expenses assumed pursuant to its
Sub-Investment Advisory Agreement with the Adviser, each of Miller Anderson,
Loomis and Standish receives from the Adviser a fee (computed daily and paid
quarterly as a percentage of that portion of the Diversified Equity Fund's
average daily net assets managed by that Sub-Adviser) at the following annual
rates: for Miller Anderson, 0.625% up to $25,000,000 and 0.375% of the excess
over $25,000,000; for Loomis, 0.40% of average daily net assets managed; and for
Standish, 0.45% of average daily net assets managed.
Proposed "Multi-Manager" Arrangement for the Diversified Equity Fund
The Adviser is currently seeking to implement a "multi-manager"
arrangement with respect to the Diversified Equity Fund, which, if implemented,
would permit the Adviser, subject to the approval of the Board of Trustees, to
add, replace or terminate one or more sub-advisers and appoint additional
sub-advisers, without receiving shareholder approval. Such a "multi-manager"
arrangement is intended to facilitate the efficient operation of the Diversified
Equity Fund by giving the Adviser the flexibility to add new sub-advisers
without incurring the considerable time and expense of shareholder meetings
convened solely for the purpose of approving such changes. At a meeting held on
October 16, 1998, shareholders of the Diversified Equity Fund approved the
adoption of the "multi-manager" arrangement. Before initiating the
"multi-manager" arrangement, it is also necessary for the Fund to obtain
exemptive relief from the SEC from the provisions of the 1940 Act that require
shareholder approval of any sub-advisory agreements and any material amendments
thereto. The Group has submitted an exemptive application to the SEC seeking
such exemptive relief, however, there can be no guarantee that this exemptive
relief will be granted.
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ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as each Fund's
principal underwriter and distributor (the "Administrator" or the "Distributor,"
as the context indicates). BISYS and its affiliated companies, including BISYS
Fund Services, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banks and other
financial organizations.
The Administrator generally assists in all aspects of a Fund's
administration and operation. For expenses assumed and services provided as
administrator pursuant to its management and administration agreement with the
Group, the Administrator receives a fee from each Fund equal to the lesser of a
fee computed daily and paid periodically, calculated at an annual rate of twenty
one-hundredths of one percent (0.20%) of that Fund's average daily net assets or
such other fee as may be agreed upon in writing by the Group and the
Administrator. The Administrator may periodically voluntarily reduce all or a
portion of its administration fee with respect to a Fund to increase the net
income of such Fund available for distribution as dividends. The Administrator
may not seek reimbursement of such reduced fees at a later date. The voluntary
reduction of such fee will cause the yield and total return of that Fund to be
higher than they would otherwise be in the absence of such fee reduction.
The Distributor acts as agent for each of the Funds in the distribution
of their Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but receives compensation under the
Distribution and Shareholder Service Plan described below and may retain all or
a portion of any sales charge imposed upon the purchase of Shares. See "HOW TO
PURCHASE AND REDEEM SHARES--Sales Charges."
EXPENSES
The Adviser and the Administrator each bear all expenses in connection
with the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for a Fund. Each Fund will bear the following
expenses relating to its operations: organizational expenses, taxes, interest,
any brokerage fees and commissions, fees and expenses of the Trustees of the
Group, Commission fees, state securities notification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to the
Fund's current shareholders, outside auditing and legal expenses, advisory fees,
fund accounting fees, fees and out-of-pocket expenses of the custodian and
Transfer Agent, costs for independent pricing services, certain insurance
premiums, costs of maintenance of the Group's existence, costs of shareholders'
reports and meetings, distribution expenses incurred pursuant to the
Distribution and Shareholder Service Plan described below, administrative
services expenses incurred pursuant to the Administrative Services Plan
described below and any extraordinary expenses incurred in the Fund's operation.
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DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which each Fund is
authorized to pay BISYS, as Distributor, a fee in an amount not to exceed on an
annual basis 0.25% of the average daily net asset value of that Fund (the "12b-1
Fee"). Payments of the 12b-1 Fee to BISYS pursuant to the Plan will be used (i)
to compensate Participating Organizations (as defined below) for providing
distribution assistance relating to Shares of a Fund, (ii) for promotional
activities intended to result in the sale of Shares of the Funds such as to pay
for the preparation, printing and distribution of prospectuses to other than
current shareholders, and (iii) to compensate Participating Organizations for
providing shareholder services with respect to their customers who are, from
time to time, beneficial and record holders of Shares of the Fund.
Participating Organizations include banks, broker-dealers and other
financial institutions (including BISYS, FSC, the Adviser and their affiliates).
Such fee paid to BISYS may exceed the actual costs incurred by BISYS in
providing such services and/or compensating such Participating Organizations. In
addition, from time to time, BISYS may periodically voluntarily reduce all or a
portion of its fee under the Plan with respect to a Fund to increase the net
income of that Fund available for distribution as dividends. BISYS may not seek
reimbursement of such reduced fees after the end of the fiscal year in which the
fees were reduced. The voluntary reduction of such fee will cause the yield and
total return of that Fund to be higher than they would otherwise be in the
absence of such a fee reduction.
BISYS may enter into, from time to time, other Rule 12b-1 Agreements
with selected dealers pursuant to which such dealers will provide certain
services in connection with the distribution of a Fund's Shares such as those
described above.
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan (the "Services
Plan") pursuant to which each Fund is authorized to pay compensation to banks
and other financial institutions (each a "Service Organization"), which may
include the Adviser, its correspondent and affiliated banks, and BISYS, which
agree to provide certain ministerial, record keeping and/or administrative
support services for their customers or account holders (collectively,
"customers") who are the beneficial or record owner of Shares of that Fund. In
consideration for such services, a Service Organization receives a fee from a
Fund, computed daily and paid monthly, at an annual rate of up to 0.25% of the
average daily net asset value of Shares of that Fund owned beneficially or of
record by such Service Organization's customers for whom the Service
Organization provides such services.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Service Organizations receiving such
compensation to perform certain ministerial, record keeping and/or
administrative support services with respect to the beneficial or record owners
of Shares of the Funds, such as processing dividend and distribution payments
from the Fund on behalf of customers, providing periodic statements to customers
showing their positions in the Shares of the Fund, providing sub-accounting with
respect to Shares beneficially owned by
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<PAGE> 46
such customers and providing customers with a service that invests the assets of
their accounts in Shares of the Fund pursuant to specific or pre-authorized
instructions. As of the date hereof, no such servicing agreements have been
entered into by the Group with respect to the Funds.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform
the investment advisory services for each Fund contemplated by its investment
advisory agreement with the Group, as described in this Prospectus, without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Group. Future changes in Federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which the Adviser could
continue to perform such services for the Funds. See "MANAGEMENT OF THE
GROUP--Glass-Steagall Act" in the Statement of Additional Information for
further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as a Massachusetts business trust on January 8,
1992. The Group consists of several funds organized as separate series of
shares. Each share represents an equal proportionate interest in a fund with
other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the fund as
are declared at the discretion of the Trustees (see "Miscellaneous" below).
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held, and will vote in
the aggregate and not by series except as otherwise expressly required by law.
For example, Shareholders of each Fund will vote in the aggregate with other
shareholders of the Group with respect to the election of Trustees. However,
Shareholders of a Fund will vote as a fund, and not in the aggregate with other
shareholders of the Group, for purposes of approval of the Group's investment
advisory agreement with respect to that Fund and the Plan.
Overall responsibility for the management of the Funds is vested in the
Board of Trustees of the Group. See "MANAGEMENT OF THE GROUP--Trustees of the
Group." Individual Trustees are elected by the shareholders of the Group,
although Trustees may, under certain circumstances, fill vacancies, including
vacancies created by expanding the size of the Board. Trustees may be removed by
the Board of Trustees or shareholders in accordance with the provisions of the
Declaration of Trust and By-Laws of the Group and Massachusetts law. See
"ADDITIONAL INFORMATION--Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances,
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to elect Trustees, amend the Declaration of Trust, the investment advisory
agreement, the Plan or a Fund's fundamental policies and to satisfy certain
other requirements. To the extent that such a meeting is not required, the Group
does not intend to have an annual or special meeting.
The Group has undertaken that the Trustees will call a special meeting
of shareholders for purposes of considering the removal of one or more Trustees
upon written request therefor from shareholders holding not less than 10% of the
outstanding votes of the Group. At such a meeting, a quorum of shareholders
(constituting a majority of votes attributable to all outstanding shares of the
Group), by majority vote, has the power to remove one or more Trustees.
As of September 30, 1998, the Adviser possessed, on behalf of its
underlying accounts, voting or investment power with respect to more than 25% of
the outstanding Shares of each Fund.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263,
serves as the custodian for each of the Funds.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219-3035, serves as the Funds' transfer agent pursuant to a Transfer Agency
Agreement with the Group and receives a fee for such services. BISYS Fund
Services, Inc. also provides certain accounting services for each Fund pursuant
to a Fund Accounting Agreement and receives a fee for such services equal to the
greater of (a) a fee computed at an annual rate of 0.03% of the Fund's average
daily net assets or (b) $50,000 minus the fee paid by such Fund under its
Management and Administration Agreement with BISYS. See "Management of the
Group--Transfer Agency and Fund Accounting Services" in the Statement of
Additional Information for further information.
While BISYS Fund Services, Inc. is a distinct legal entity from BISYS
(the Group's administrator and distributor), BISYS Fund Services, Inc. is
considered to be an affiliated person of BISYS under the 1940 Act due to, among
other things, the fact that BISYS Fund Services, Inc. is the general partner of
BISYS.
THE YEAR 2000 ISSUE
The Funds rely extensively on various computer systems in carrying out
their business activities, including the computer systems employed by the
Adviser, the Sub-Advisers, the Administrator and Distributor, the Transfer Agent
and the Custodian (collectively, the "Service Providers"). In this connection,
the Funds are aware of the so-called "Year 2000 Issue" which involves the
potential problems that may be confronted by computer systems users the day
after December 31, 1999, when computers using date-sensitive software must be
able to properly identify the Year 2000 in their systems. In the event that a
computer system fails to make the proper identification of the Year 2000, this
could result in a system failure or miscalculations causing disruptions of
operations such as pricing errors and account maintenance failures. The Funds
are working with the Service Providers to take steps that are reasonably
designed to
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address the Year 2000 Issue with respect to the computer systems relied upon by
the Funds. The Funds have no reason to believe that these steps will not be
sufficient to avoid any material adverse impact on the Funds, although there can
be no assurances of this. The costs or consequences of incomplete or untimely
resolution of the Year 2000 Issue are unknown to the Funds and the Service
Providers at this time but could have a material adverse impact on the
operations of the Funds and the Service Providers.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual
reports audited by independent accountants.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to the fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. Determinations by the Board of Trustees of
the Group as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of a Fund means
the affirmative vote, at a meeting of Shareholders duly called, of the lesser of
(a) 67% or more of the votes of Shareholders of that Fund present at a meeting
at which the holders of more than 50% of the votes attributable to Shareholders
of record of that Fund are represented in person or by proxy, or (b) the holders
of more than 50% of the outstanding votes of Shareholders of that Fund.
Inquiries regarding any of the Funds may be directed in writing to the
Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
766-8938.
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<PAGE> 49
INVESTMENT ADVISER
1st Source Bank
100 North Michigan Street
South Bend, Indiana 46634
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
AUDITORS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, Ohio 43215
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<PAGE> 50
TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................3
FEE TABLE.....................................................5
FINANCIAL HIGHLIGHTS..........................................6
PERFORMANCE INFORMATION.......................................9
INVESTMENT OBJECTIVES AND POLICIES...........................11
INVESTMENT RESTRICTIONS......................................23
VALUATION OF SHARES..........................................24
HOW TO PURCHASE AND REDEEM SHARES............................25
DIVIDENDS AND TAXES..........................................35
MANAGEMENT OF THE GROUP......................................37
GENERAL INFORMATION..........................................43
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
ANY FUND OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
LOGO
INCOME EQUITY FUND
DIVERSIFIED EQUITY FUND
SPECIAL EQUITY FUND
INCOME FUND
1ST SOURCE BANK
Investment Adviser
Prospectus dated
October __, 1998
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<PAGE> 51
1st Source Monogram Income Equity Fund
1st Source Monogram Diversified Equity Fund
1st Source Monogram Special Equity Fund
1st Source Monogram Income Fund
Each an Investment Portfolio of
The Coventry Group
Statement of Additional Information
October ___, 1998
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the prospectus for the 1st Source Monogram Income Equity
Fund, 1st Source Monogram Diversified Equity Fund, 1st Source Monogram Special
Equity Fund and 1st Source Monogram Income Fund dated the same date as the date
hereof (the "Prospectus"), hereinafter referred to collectively as the "Funds"
and singly, a "Fund". The Funds are separate investment portfolios of The
Coventry Group (the "Group"), an open-end management investment company. This
Statement of Additional Information is incorporated in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing the Funds at
3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning toll free (800)
766-8938.
<PAGE> 52
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which currently offers its shares in separate series. This Statement of
Additional Information deals with four of such portfolios, 1st Source Monogram
Diversified Equity Fund (the "Diversified Equity Fund"), 1st Source Monogram
Income Equity Fund (the "Income Equity Fund"), 1st Source Monogram Special
Equity Fund (the "Special Equity Fund") and 1st Source Monogram Income Fund (the
"Income Fund"). Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectus.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of a Fund should be made without first reading the
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives and
policies of each Fund as set forth in the Prospectus.
BANK OBLIGATIONS. Each of the Funds may invest in bank obligations such
as bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and demand and time deposits will be those of domestic banks and savings and
loan associations, if (a) at the time of investment the depository institution
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
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COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
The Funds will purchase commercial paper consisting of issues rated at
the time of purchase by one or more appropriate nationally recognized
statistical rating organizations ("NRSRO") (e.g., Standard & Poor's Corporation
and Moody's Investors Service, Inc.) in one of the two highest rating categories
for short-term debt obligations. The Funds may also invest in commercial paper
that is not rated but that is determined by the Adviser or the applicable
Sub-Adviser, as the case may be, to be of comparable quality to instruments that
are so rated by an NRSRO that is neither controlling, controlled by, or under
common control with the issuer of, or any issuer, guarantor, or provider of
credit support for, the instruments. For a description of the rating symbols of
the NRSROs, see the Appendix.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Income Fund may invest, are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time within 30
days. While such notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns), must satisfy, for
purchase by the Income Fund, the same criteria as set forth above for commercial
paper for such Fund. The Adviser will consider the earning power, cash flow, and
other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status and ability to meet payment on demand. In
determining average weighted portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest rate adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
FOREIGN INVESTMENT. Investments in securities issued by foreign
issuers, including ADRs, may subject the Funds to investment risks that differ
in some respects from those related to investment in obligations of U.S.
domestic issuers or in U.S. securities markets. Such risks include future
adverse political and economic developments, possible seizure, nationalization,
or expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, or
the adoption of other foreign governmental restrictions. A Fund will acquire
such securities only when the Adviser or the applicable Sub-Adviser, as the case
may be, believes the risks associated with such investments are minimal.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of
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the U.S. Treasury; others are supported by the right of the issuer to borrow
from the Treasury; others are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still others are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
VARIABLE AND FLOATING RATE SECURITIES. The Income Fund may acquire
variable and floating rate securities, subject to such Fund's investment
objectives, policies and restrictions. A variable rate security is one whose
terms provide for the adjustment of its interest rate on set dates and which,
upon such adjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate security is one whose terms provide
for the adjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Such securities are frequently not rated
by credit rating agencies; however, unrated variable and floating rate
securities purchased by the Income Fund will be determined by the Adviser to be
of comparable quality at the time of purchase to rated instruments eligible for
purchase under such Fund's investment policies. In making such determinations,
the Adviser will consider the earning power, cash flow and other liquidity
ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate security purchased by the
Income Fund, the Income Fund may resell the security at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Income Fund to dispose of a variable or floating rate security
in the event the issuer of the security defaulted on its payment obligations and
the Income Fund could, as a result or for other reasons, suffer a loss to the
extent of the default. To the extent that there exists no readily available
market for such security and the Income Fund is not entitled to receive the
principal amount of a note within seven days, such a security will be treated as
an illiquid security for purposes of calculation of such Fund's limitation on
investments in illiquid securities, as set forth in the Income Fund's investment
restrictions. Variable or floating rate securities may be secured by bank
letters of credit.
RESTRICTED SECURITIES. Securities in which the Funds may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), such as securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the Federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
make a market in such Section 4(2) securities, thus providing liquidity. Any
such restricted securities will be considered to be illiquid for purposes of a
Fund's limitations on investments in illiquid securities unless, pursuant to
procedures adopted by the
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Board of Trustees of the Group, the Adviser or Subadviser, as the case may be,
has determined such securities to be liquid because such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable. Each
Fund will limit its investment in Section 4(2) securities to not more than 10%
of its net assets.
OPTIONS TRADING. Each Fund may purchase and write (sell) put and call
options. A put option gives the purchaser the right to sell the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. A call option
gives the purchaser of the option the right to buy, and a writer has the
obligation to sell, the underlying security at the stated exercise price at any
time prior to the expiration of the option, regardless of the market price of
the security. The premium paid to the writer is consideration for undertaking
the obligations under the option contract. Put and call options purchased by the
Funds will be valued at the last sale price, or in the absence of such a price,
at the mean between bid and asked price.
When a Fund writes a call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the mean between bid and asked price. If an option expires on the stipulated
expiration date or if the Fund enters into a closing purchase transaction, it
will realize a gain (or a loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If a call option is exercised,
the Fund may deliver the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received and the Fund will realize a gain or loss.
Each Fund may also purchase or sell (write) index options. Index
options (or options on securities indices) are similar in many respects to
options on securities except that an index option gives the holder the right to
receive, upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
FUTURES CONTRACTS. As discussed in the Prospectus, each of the Funds
may enter into futures contracts. This investment technique is designed
primarily to hedge against anticipated future changes in market conditions which
otherwise might adversely affect the value of securities which a Fund holds or
intends to purchase. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
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The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid securities, to cover its performance under such contracts. A Fund may
lose the expected benefit of futures transactions if interest rates, securities
prices or foreign exchange rates move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting the Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will maintain in a segregated
account cash or liquid securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. A Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, the Income Fund
may purchase securities on a "when-issued" basis (i.e., for delivery beyond the
normal settlement date at a stated price and yield). When such Fund agrees to
purchase securities on a "when-issued" basis, the Fund's custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the Income Fund's custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such a case,
such Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Income Fund's commitment. It may be expected that the
Income Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. In addition, because the Income Fund will set aside cash or liquid
portfolio securities to satisfy its purchase commitments in the manner described
above, such Fund's liquidity and the ability of the Adviser to manage it might
be affected in the event its commitments to purchase "when-issued" securities
ever exceeded 25% of the value of its total assets. Under normal market
conditions, however, the
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Income Fund's commitment to purchase "when-issued" or "delayed-delivery"
securities will not exceed 25% of the value of its total assets.
When the Income Fund engages in "when-issued" transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may result
in the Income Fund's incurring a loss or missing the opportunity to obtain a
price considered to be advantageous. The Income Fund will engage in
"when-issued" delivery transactions only for the purpose of acquiring portfolio
securities consistent with such Fund's investment objectives and policies and
not for investment leverage.
MORTGAGE-RELATED SECURITIES. The Income Fund may, consistent with its
investment objective and policies, invest in mortgage-related securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or
issued by nongovernmental entities.
Mortgage-related securities, for purposes of the Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by nongovernmental issuers such as commercial banks,
savings and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If the Income Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the average life of
the security and lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-related security's
average maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
security's return to the Income Fund. In addition, regular payments received in
respect of mortgage-related securities include both interest and principal. No
assurance can be given as to the return the Income Fund will receive when these
amounts are reinvested.
The Income Fund may also invest in mortgage-related securities which
are collateralized mortgage obligations structured on pools of mortgage
pass-through certificates or mortgage loans. Mortgage-related securities will be
purchased only if rated in the three highest bond rating
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categories assigned by one or more appropriate NRSROs, or, if unrated, which the
Adviser deems to be of comparable quality.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. FNMA is
a government-sponsored organization owned entirely by private stockholders.
Fannie Maes are guaranteed as to timely payment of the principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from banks and registered broker-dealers which the
Adviser or the applicable Sub-Adviser, as the case may be, deems creditworthy
under guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain continually the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). This requirement will be continually
monitored by the Adviser. If the seller were to default on its repurchase
obligation or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were
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delayed pending court action. Additionally, there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under the
regular procedures normally in effect for custody of a Fund's securities subject
to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by that Fund's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each of
the Funds may borrow funds by entering into reverse repurchase agreements in
accordance with that Fund's investment restrictions. Pursuant to such
agreements, a Fund would sell portfolio securities to financial institutions
such as banks and broker-dealers, and agree to repurchase the securities at a
mutually agreed-upon date and price. Each Fund intends to enter into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid securities
consistent with the Fund's investment restrictions having a value equal to the
repurchase price (including accrued interest), and will subsequently continually
monitor the account to ensure that such equivalent value is maintained at all
times. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by such Fund. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that such Fund bears directly in connection with its own operations.
Investment companies in which the Funds may investment may also impose a sales
or distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by such Fund and, therefore, will be borne directly by shareholders.
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INVESTMENT RESTRICTIONS
Each Fund's investment objective is a non-fundamental policy and may be
changed without a vote of the holders of a majority of such Fund's outstanding
Shares. In addition to the fundamental investment policies listed in the
Prospectus, the following investment restrictions may be changed with respect to
a particular Fund only by a vote of the majority of the outstanding Shares of
that Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares").
In addition to the investment restrictions set forth in the Prospectus,
each of the Funds may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities;"
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); and
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of a Fund. Each Fund may not:
1. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act, or pursuant to any exemptions
therefrom;
2 Engage in any short sales; and
3. Mortgage or hypothecate the Fund's assets in excess of one-third of
the Fund's total assets.
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase
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<PAGE> 61
agreements with maturities in excess of seven days and other instruments in such
Fund which are not readily marketable to exceed the limit set forth in such
Fund's Prospectus for its investment in illiquid securities, the Fund will act
to cause the aggregate amount of such securities to come within such limit as
soon as reasonably practicable. In such an event, however, such Fund would not
be required to liquidate any portfolio securities where the Fund would suffer a
loss on the sale of such securities.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose remaining maturities at the time of
acquisition were one year or less.
The portfolio turnover rates for each of the Diversified Equity Fund,
the Income Equity Fund, the Special Equity Fund, and the Income Fund for the
fiscal period ended June 30, 1998, were ______%, ______%, _______% and _______%,
respectively.
The portfolio turnover rate may vary greatly from year to year as well
as within a particular year, and may also be affected by cash requirements for
redemptions of Shares. High portfolio turnover rates will generally result in
higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's Shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Time on
each Business Day of that Fund. A "Business Day" of a Fund is a day on which the
New York Stock Exchange is open for trading and any other day (other than a day
on which no Shares of that Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which there is sufficient
trading in portfolio instruments that such Fund's net asset value per share
might be materially affected. The New York Stock Exchange will not open in
observance of the following holidays: New Year's Day, Martin Luther King, Jr.'s
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas.
Investments in securities for which market quotations are readily
available are valued based upon their current available prices in the principal
market in which such securities are normally traded. Unlisted securities for
which market quotations are readily available are valued at such market value.
Securities and other assets for which quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Trustees of the Group. Short-term
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<PAGE> 62
securities (i.e., with maturities of 60 days or less) are valued at either
amortized cost or original cost plus accrued interest, which approximates
current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each of the Funds are sold on a continuous basis by BISYS,
and BISYS has agreed to use appropriate efforts to solicit all purchase orders.
In addition to purchasing Shares directly from BISYS, Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at the Adviser or the Adviser's affiliated entities (collectively,
"Entities"). Customers purchasing Shares of the Funds may include officers,
directors, or employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical, or (ii) it is not reasonably
practical for the Group to determine the fair value of its net assets.
MANAGEMENT OF THE GROUP
TRUSTEES AND OFFICERS
Overall responsibility for management of the Group rests with its Board
of Trustees. The Trustees elect the officers of the Group to supervise actively
its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
pages and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name, Address and Age With the Group During Past 5 Years
- --------------------- ---------------------------- ---------------------------------
<S> <C> <C>
Walter B. Grimm* Chairman, President and From June 1992 to present,
3435 Stelzer Road Trustee employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 52
</TABLE>
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<PAGE> 63
<TABLE>
<S> <C> <C>
Maurice G. Stark Trustee Retired. Until December 31, 1994, Vice
505 King Avenue President-Finance and Treasurer,
Columbus, Ohio 43201 Battelle Memorial Institute (scientific
Age: 62 research and development service
corporation).
Michael M. Van Buskirk Trustee From June 1991 to present, Executive
37 West Board Street Vice President of The Ohio Bankers'
Suite 1001 Association (trade association); from
Columbus, Ohio 43215-4162 September 1987 to June 1991, Vice
Age: 50 President-Communications, TRW
Information Systems Group (electronic
and space engineering).
John H. Ferring IV Trustee From 1979 to present, President and
105 Bolte Lane Owner of Plaze, Incorporated, St.
St. Clair, Missouri Clair, Missouri
Age: 45
J. David Huber Vice President From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services
Columbus, Ohio 43219
Age: 51
Jeffrey C. Cusick Vice President From July 1995 to present,
3435 Stelzer Road employee of BISYS Fund Services; from
Columbus, Ohio 43219 October 1981 to July 1995, employee of
Age: 38 Federated Administrative Services.
Paul T. Kane Treasurer From December 1997 to present, employee
3435 Stelzer Road of BISYS Fund Services; from March 1985
Columbus, Ohio 43219 to December 1997, employee of Fidelity
Age: 41 Investments.
</TABLE>
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<PAGE> 64
<TABLE>
<S> <C> <C>
George L. Stevens Secretary From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services; from
Columbus, Ohio 43219 September 1995 to September 1996,
Age: 47 Independent Consultant; from September
1989 to September 1995, Senior Vice
President, AmSouth Bank, N.A.
Alaina V. Metz Assistant Secretary From June 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May 1989 to
Columbus, Ohio 43219 June 1995, employee of Alliance Capital
Age: 30 Management.
Richard B. Ille Assistant Secretary From July 1990 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, Ohio 43219
Age: 33
<FN>
- --------------
* Mr. Grimm is considered to be an "interested person" of the Group as defined in the 1940 Act.
</TABLE>
As of the date of this Statement of Additional Information, the Group's
Officers and Trustees, as a group, own less than 1% of the Funds' outstanding
Shares.
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services receives
fees from the Funds for acting as Administrator. BISYS Fund Services Ohio, Inc.
receives fees from the Funds for acting as transfer agent and for providing
certain fund accounting services. Messrs. Huber, Kane Stevens, Grimm, Ille and
Cusick and Ms. Metz are employees of BISYS Fund Services.
Trustees of the Group not affiliated with BISYS Fund Services receive
from the Group an annual fee of $1,000, plus $2,250 for each regular meeting of
the Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
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<PAGE> 65
For the twelve - month period ended March 31, 1998, the Trustees
received the following compensation from the Group and from certain other
investment companies (if applicable) that have the same investment adviser as
the Funds or an investment adviser that is an affiliated person of the Group's
investment adviser:
<TABLE>
<CAPTION>
Pension or Est. Annual Total Compensation
Aggregate Retirement Benefits Benefits Upon From Registrant and
Compensation Accrued As Part of Retirement Fund Complex
Name of Trustee from the Funds Fund Expenses Paid to Trustees
- --------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Walter B. Grimm $0 $0 $0 $0
Maurice G. Stark $__ $0 $0 $__
Michael Van Buskirk $__ $0 $0 $__
Chalmers P. Wylie* $__ $0 $0 $__
John H. Ferring IV** $0 $0
<FN>
* Mr. Wylie resigned as a Trustee effective May 14, 1998.
** Mr. Ferring was elected as a Trustee effective May 14, 1998.
</TABLE>
INVESTMENT ADVISER
Investment advisory and management services are provided to the Funds
by 1st Source Bank (the "Adviser"), pursuant to an Investment Advisory Agreement
dated as of October __, 1998. Under the terms of the Investment Advisory
Agreement, the Adviser has agreed to provide, either directly or through one or
more subadvisers, investment advisory services as described in the Prospectus of
the Funds. For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, each Fund pays the Adviser a fee, computed daily
and paid monthly, at the following annual rates: (1) for the Diversified Equity
Fund, ninety-nine one-hundredths of one percent (0.99%) of such Fund's average
daily net assets; (2) for both the Income Equity Fund and the Special Equity
Fund, eighty one-hundredths of one percent (0.80%) of such Fund's average daily
net assets; and (3) for the Income Fund, fifty-five one-hundredths of one
percent (0.55%) of such Fund's average daily net assets. The Adviser may from
time to time voluntarily reduce all or a portion of its advisory fee with
respect to a Fund to increase the net income of that Fund available for
distribution as dividends.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Adviser earned the amounts indicated below with respect to
its investment advisory services to the indicated Funds pursuant to the
Investment Advisory Agreement.
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<PAGE> 66
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
June 30, 1998 June 30, 1997(1)
<S> <C>
Diversified Equity Fund $ 579,272
Income Equity Fund 207,742
Special Equity Fund 166,740
Income Fund 210,181
<FN>
- ----------------------
1 Commenced operations September 23, 1996, September 25, 1996, September 20,
1996 and September 24, 1996, respectively.
</TABLE>
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect until October __, 2000, and year to year thereafter for
successive annual periods ending on October __, if, as to each Fund, such
continuance is approved at least annually by the Group's Board of Trustees or by
vote of a majority of the outstanding Shares of the relevant Fund (as defined
under "GENERAL INFORMATION Miscellaneous" in the Funds' Prospectus), and a
majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Investment Advisory Agreement by votes cast in person at a meeting called for
such purpose. The Investment Advisory Agreement is terminable as to a Fund at
any time on 60 days' written notice without penalty by the Trustees, by vote of
a majority of the outstanding Shares of that Fund, or by the Adviser. The
Investment Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
The Adviser has licensed the name "1st Source Monogram" to the Funds on
a royalty-free basis, and the Adviser has reserved to itself the right to grant
the non-exclusive right to use the name "1st Source Monogram" to any other
person. At such time as the Investment Advisory Agreement is no longer in
effect, the Adviser may require the Funds to cease using the name "1st Source
Monogram."
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<PAGE> 67
SUB-ADVISERS
Pursuant to the terms of the Investment Advisory Agreement, the
Adviser has entered into three separate Sub-Investment Advisory Agreements each
dated as of October __, 1998 (collectively, the "Sub-Advisory Agreements"). The
first Sub-Advisory Agreement is with Miller Anderson & Sherrerd LLP, One Tower
Bridge, Suite 1100, West Conshohocken, Pennsylvania 19428 ("Miller Anderson").
The second Sub-Advisory Agreement is with Loomis, Sayles & Company, L.P., 3
First National Plaza, Suite 5450, Chicago, Illinois 60600 ("Loomis"). The third
Sub-Advisory Agreement is with Standish, Ayer & Wood, Inc., One Financial
Center, Boston, Massachusetts 02111 ("Standish"). Pursuant to the terms of such
Sub-Investment Advisory Agreements, Miller Anderson, Loomis and Standish have
each been retained by the Adviser to manage the investment and reinvestment of a
portion of the assets of the Diversified Equity Fund, subject to the direction
and control of the Adviser and the Group's Board of Trustees.
Under this arrangement, the Sub-Advisers are responsible for the
day-to-day management of the Diversified Equity Fund's assets, investment
performance, policies and guidelines, and maintaining certain books and records,
and the Adviser is responsible for selecting and monitoring the performance of
each of the Sub-Advisers, and for reporting the activities of the Sub-Advisers
in managing the Diversified Equity Fund to the Group's Board of Trustees. For
their services provided and expenses assumed pursuant to their respective
Sub-Investment Advisory Agreement with the Adviser, the Sub-Advisers receive
from the Adviser a fee (computed daily and paid quarterly as a percentage of the
Diversified Equity Fund's average daily net assets managed by that Sub-Adviser)
at the following annual rates: for Miller Anderson, 0.625% up to $25,000,000 and
0.375% of the excess over $25,000,000; for Loomis, 0.40% of average daily net
assets managed; and for Standish, 0.45% of average daily net assets managed.
Miller Anderson was founded in 1969 and is wholly owned by Morgan
Stanley, Dean Witter, Discover & Co.
Loomis was founded in 1926 and established its Chicago office in 1952.
Loomis' sole general partner is Loomis, Sayles & Company, Incorporated.
Standish was founded in 1933 and is owned and operated by its
Directors.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Sub-Advisers earned the amounts indicated below with respect
to their subinvestment advisory services to the Diversified Equity Fund pursuant
to the Sub-Investment Advisory Agreements:
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<PAGE> 68
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
----------------- -------------------
Sub-Adviser June 30, 1998 June 30, 1997(1)
----------- ------------- ----------------
<S> <C> <C>
Miller Anderson $ 109,119
Loomis 89,219
Columbus Circle 121,527
Investors(2)
Standish(3) N/A N/A
<FN>
- ----------------------
1 Commenced operations September 23, 1996.
2 Columbus Circle Investors ceased serving as a sub-investment adviser
effective October __, 1998.
3 Standish began serving as a sub-investment adviser effective October ___,
1998.
</TABLE>
Unless sooner terminated, each of the Sub-Investment Advisory
Agreements continue in effect as to the Diversified Equity Fund until October
___, 2000, and thereafter for successive one-year periods ending October __, of
each year if such continuance is approved at least annually by the Group's Board
of Trustees or by vote of a majority of the outstanding shares of such Fund (as
defined under "GENERAL INFORMATION -- Miscellaneous" in the Funds' Prospectus),
and a majority of the Trustees who are not parties to the Sub-Investment
Advisory Agreements or interested persons (as defined in the 1940 Act) of any
party to the Sub-Investment Advisory Agreements by votes cast in person at a
meeting called for such purpose. Each of the Sub-Investment Advisory Agreements
are terminable as to the Diversified Equity Fund at any time on 60 days' written
notice without penalty by the Fund, by vote of a majority of the outstanding
shares of that Fund, or on 60 days' prior written notice from the Sub-Adviser.
Such Agreements also terminate automatically in the event of any assignment, as
defined in the 1940 Act.
Each of the Sub-Investment Advisory Agreements provide that the
respective Sub-Advisers shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Group in connection with the performance
of their duties, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the
respective Sub-Advisers in the performance of their duties, or from reckless
disregard of their duties and obligations thereunder.
PROPOSED "MULTI-MANAGER" ARRANGEMENT FOR THE DIVERSIFIED EQUITY FUND
The Adviser is currently seeking to implement a "multi-manager"
arrangement with respect to the Diversified Equity Fund, which, if implemented,
would permit the Adviser, subject
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<PAGE> 69
to the approval of the Board of Trustees, to add, replace or terminate one or
more sub-advisers and appoint additional sub-advisers, without receiving
shareholder approval. Such a "multi-manager" arrangement is intended to
facilitate the efficient operation of the Diversified Equity Fund by giving the
Adviser the flexibility to add new sub-advisers without incurring the
considerable time and expense of shareholder meetings convened solely for the
purpose of approving such changes. At a meeting held on October 16, 1998,
shareholders of the Diversified Equity Fund approved the adoption of the
"multi-manager" arrangement. Before initiating the "multi-manager" arrangement,
it is also necessary for the Fund to obtain exemptive relief from the SEC from
the provisions of the 1940 Act that require shareholder approval of any
sub-advisory agreements and any material amendments thereto. The Group has
submitted an exemptive application to the SEC seeking such exemptive relief,
however, there can be no guarantee whether this exemptive relief will be
granted.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement with respect to each
Fund, other than the Diversified Equity Fund, the Adviser determines, subject to
the general supervision of the Board of Trustees of the Group and in accordance
with each such Fund's investment objective and restrictions, which securities
are to be purchased and sold by a Fund, and which brokers are to be eligible to
execute such Fund's portfolio transactions. Pursuant to the Sub-Investment
Advisory Agreements, the Sub-Advisers determine, subject to the supervision of
the Adviser and the overall general supervision of the Group's Board of Trustees
and in accordance with the Diversified Equity Fund's investment objectives and
policies, which securities are to be purchased and sold by such Fund, and which
brokers are to be eligible to execute such Fund's portfolio transactions.
Purchases and sales of portfolio securities with respect to the Income
Fund usually are principal transactions in which portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
generally include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include the
spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. Transactions in the over-the-counter market are generally
principal transactions with dealers. With respect to the over-the-counter
market, the Group, where possible, will deal directly with dealers who make a
market in the securities involved except in those circumstances where better
price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser or the applicable Sub-Adviser,
as the case may be, in its best judgment and in a manner deemed fair and
reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, brokers and dealers who provide supplemental investment research
to the Adviser
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<PAGE> 70
or the applicable Sub-Adviser, as the case may be, may receive orders for
transactions on behalf of the Funds. The Adviser and each Sub-Adviser are
authorized to pay a broker-dealer who provides such brokerage and research
services a commission for executing each such Fund's brokerage transactions
which is in excess of the amount of commission another broker would have charged
for effecting that transaction if, but only if, the Adviser or Sub-Adviser, as
the case may be, determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of that particular transaction or in terms of all of the
accounts over which it exercises investment discretion. Any such research and
other statistical and factual information provided by brokers to a Fund or to
the Adviser or Sub-Adviser, as the case may be, is considered to be in addition
to and not in lieu of services required to be performed by such Adviser or
Sub-Adviser under its respective agreement regarding management of the Fund. The
cost, value and specific application of such information are indeterminable and
hence are not practicably allocable among the Funds and other clients of the
Adviser or Sub-Adviser, as the case may be, who may indirectly benefit from the
availability of such information. Similarly, the Funds may indirectly benefit
from information made available as a result of transactions effected for such
other clients. Under the Investment Advisory Agreement and Sub-Advisory
Agreements, the Adviser and Sub-Advisers are permitted to pay higher brokerage
commissions for brokerage and research services in accordance with Section 28(e)
of the Securities Exchange Act of 1934. In the event the Adviser and/or the
Sub-Advisers do follow such a practice, they will do so on a basis which is fair
and equitable to the Group and the Funds.
While the Adviser and the Sub-Advisers generally seek competitive
commissions, the Group may not necessarily pay the lowest commission available
on each brokerage transaction, for reasons discussed above. For the fiscal year
ended June 30, 1998, the Funds paid the following brokerage commissions in
connection with their respective portfolio transactions:
<TABLE>
<CAPTION>
Fund Brokerage Commissions
---- ---------------------
<S> <C>
Diversified Equity Fund $
Income Equity Fund
Special Equity Fund
Income Fund
</TABLE>
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of the Funds, execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, the Sub-Advisers, BISYS, or
their affiliates, and will not give preference to the Adviser's correspondents
with
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<PAGE> 71
respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for the other Funds, other funds of the Group or any other investment company or
account managed by the Adviser or any of the Sub-Advisers. Any such other fund,
investment company or account may also invest in the same securities as the
Group on behalf of the Funds. When a purchase or sale of the same security is
made at substantially the same time on behalf of a Fund and another fund of the
Group, investment company or account, the transaction will be averaged as to
price and available investments will be allocated as to amount in a manner which
the Adviser or the Sub-Adviser, as the case may be, believes to be equitable to
the Fund and such other fund, investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by a Fund. To the extent permitted by
law, the Adviser and the Sub-Advisers may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for the other Funds or
for other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement and the Sub- Advisory Agreements,
in making investment recommendations for the Funds, neither the Adviser nor any
Sub-Adviser will inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Group is a customer of the
Adviser, any Sub-Adviser, any of their parents or subsidiaries or affiliates
and, in dealing with its customers, the Adviser, the Sub-Advisers, their
respective parents, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Funds or any
other fund of the Group.
For the fiscal year ended June 30, 1998, the Diversified Equity Fund
held securities of its regular brokers or dealers, as defined in Rule 10b-1
under the 1940 Act, or their parent companies. As of June 30, 1998, such Fund
held $________ of common stock of Merrill, Lynch, Pierce, Fenner & Smith.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act
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<PAGE> 72
when it adopted its regulation and interpretation authorizing bank holding
companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies. In the BOARD OF GOVERNORS case, the
Supreme Court also stated that if a national bank complied with the restrictions
imposed by the Board in its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
investment companies, a national bank performing investment advisory services
for an investment company would not violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the Prospectus, this Statement of
Additional Information and the Investment Advisory Agreement without violation
of applicable statutes and regulations. Future changes in either Federal or
state statutes and regulations relating to the permissible activities of banks
or bank holding companies and the subsidiaries or affiliates of those entities,
as well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict the
Adviser from continuing to perform such services for the Group. In addition,
current state securities laws on the issue of the registration of banks as
brokers or dealers may differ from the interpretation of federal law, and banks
and financial institutions may be required to register as dealers pursuant to
the laws of a specific state. Depending upon the nature of any changes in the
services which could be provided by the Adviser, the Board of Trustees of the
Group would review the Group's relationship with the Adviser and consider taking
all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or the Adviser's
affiliated and correspondent banks in connection with Customer purchases of
Shares of any of the Funds, those banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Group's method of operations would affect its
net asset value per share or result in financial losses to any Customer.
ADMINISTRATOR
BISYS serves as administrator (the "Administrator") to the Funds
pursuant to a Management and Administration Agreement dated as of October __,
1998 (the "Administration Agreement"). The Administrator assists in supervising
all operations of each Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, by the Sub-Advisers under the Sub-Advisory
Agreements, by The Fifth Third Bank under the Custody Agreement and by BISYS
Fund Services, Inc. under the Transfer Agency Agreement and Fund Accounting
Agreement). The Administrator is a broker-dealer registered with the Commission,
and is a member of the National Association of Securities Dealers, Inc. The
Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery
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<PAGE> 73
and office supplies; prepare the periodic reports to the Commission on Form
N-SAR or any replacement forms therefor; compile data for, assist the Group or
its designee in the preparation of, and file all of the Funds' federal and state
tax returns and required tax filings other than those required to be made by the
Funds' custodian and Transfer Agent; prepare compliance filings pursuant to
state securities laws with the advice of the Group's counsel; assist to the
extent requested by the Group with the Group's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statement (on Form N-1A
or any replacement therefor); compile data for, prepare and file timely Notices
to the Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and
maintain the financial accounts and records of each Fund, including calculation
of daily expense accruals; and generally assist in all aspects of the Funds'
operations other than those performed by the Adviser under the Investment
Advisory Agreement, by the Sub-Advisers under the Sub-Investment Advisory
Agreements, by The Fifth Third Bank under the Custody Agreement and by BISYS
Fund Services, Inc. under the Transfer Agency and Fund Accounting Agreements.
Under the Administration Agreement, the Administrator may delegate all or any
part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to a fee calculated daily and paid periodically, at the annual rate equal
to twenty one-hundredths of one percent (.20%) of that Fund's average daily net
assets.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Administrator earned and voluntarily waived the amounts
indicated below with respect to its services to the indicated Funds pursuant to
the Administration Agreement:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
----------------- -------------------
June 30, 1998 June 30, 1997(1)
------------- ----------------
Fees Fees Fees Fees
Earned Waived Earned Waived
------ ------ ------ ------
<S> <C> <C> <C> <C>
Diversified Equity Fund $105,323 --
Income Equity Fund 51,936 --
Special Equity Fund 41,685 $2,171
Income Fund 76,430 --
<FN>
- ------------------
1 Commenced operations September 23, 1996, September 25, 1996, September 20,
1996 and September 24, 1996, respectively.
</TABLE>
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<PAGE> 74
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on October __, 2001. The Administration
Agreement thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
any Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
DISTRIBUTOR
BISYS serves as agent for each of the Funds in the distribution of its
Shares pursuant to a Distribution Agreement dated as of October __, 1998 (the
"Distribution Agreement"). Unless otherwise terminated, the Distribution
Agreement will continue in effect until October __, _____, and year to year
thereafter for successive annual periods ending on October __, if, as to each
Fund, such continuance is approved at least annually by (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding shares of that Fund,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group, but may retain all or a portion of the
sales charge imposed upon sales of Shares of each of the Funds.
For the fiscal year ended June 30, 1998, BISYS as distributor received
the following amounts in commissions for sales of shares of the Funds and
reallowed the indicated amounts to other dealers:
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<PAGE> 75
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30, 1998
-------------
Commissions Amounts Reallowed
Received to Dealers
-------- ----------
<S> <C> <C>
Diversified Equity Fund
Income Equity Fund
Special Equity Fund
Income Fund
</TABLE>
As described in the Prospectus, the Group has adopted a Distribution
and Shareholder Service Plan (the "Plan") with respect to the Funds pursuant to
Rule 12b-1 under the 1940 Act under which each Fund is authorized to pay BISYS
in an amount not in excess, on an annual basis, of 0.25% of the average daily
net asset value of the Shares of that Fund (the "12b-1 Fee"). Payments of the
12b-1 Fee to BISYS will be used (i) to compensate Participating Organizations
(as defined below) for providing distribution assistance relating to a Fund's
Shares, (ii) for promotional activities intended to result in the sale of Shares
and distribution of prospectuses to other than current shareholders, and (iii)
to compensate Participating Organizations for providing shareholder services
with respect to their customers who are, from time to time, beneficial and
record holders of Shares. Participating Organizations include banks (including
affiliates of the Adviser), broker-dealers, the Adviser, BISYS and other
institutions. Payments to such Participating Organizations may be made pursuant
to agreements entered into with BISYS.
As required by Rule 12b-1, the Plan was approved by the initial
Shareholder of each of the Funds and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of any of the Funds and
who have no direct or indirect financial interest in the operation of the Plan
(the "Independent Trustees"). The Plan may be terminated as to a Fund by vote of
a majority of the Independent Trustees, or by vote of majority of the
outstanding Shares of that Fund. Any change in the Plan that would materially
increase the distribution cost to a Fund requires Shareholder approval. The
Trustees review quarterly a written report of such costs and the purposes for
which such costs have been incurred. The Plan may be amended by vote of the
Trustees including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. For so long as the Plan is in effect, selection
and nomination of those Trustees who are not interested persons of the Group
shall be committed to the discretion of such disinterested persons. All
agreements with any person relating to the implementation of the Plan may be
terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of the
majority of the outstanding Shares of the Fund. The Plan will continue in effect
for successive one-year periods, provided that each such
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<PAGE> 76
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees, and (ii) by a vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose. The Board of
Trustees has a duty to request and evaluate such information as may be
reasonably necessary for them to make an informed determination of whether the
Plan should be implemented or continued. In addition the Trustees in approving
the Plan must determine that there is a reasonable likelihood that the Plan will
benefit each Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests of each Fund since it encourages Fund growth and maintenance of
Fund assets. As a Fund grows in size, certain expenses, and therefore total
expenses per Share, may be reduced and overall performance per Share may be
improved.
BISYS may enter into, from time to time, Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares including, but not limited
to, those discussed above.
For the fiscal year ended June 30, 1998 and for the fiscal period ended
June 30, 1997, the Funds incurred the following amounts pursuant to the Plan for
payments to have been made to BISYS for certain distribution and shareholder
services described above, all of which were voluntarily waived by BISYS:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Period Ended
----------------- -------------------
June 30, 1998 June 30, 1997(1)
------------- ----------------
Fees Incurred
<S> <C>
Diversified Equity Fund $131,653
Income Equity Fund 64,713
Special Equity Fund 52,106
Income Fund 95,550
<FN>
- ------------------
1 Commenced operations September 23, 1996, September 25, 1996, September 20,
1996 and September 24, 1996, respectively.
</TABLE>
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<PAGE> 77
ADMINISTRATIVE SERVICES PLAN
As described in the Prospectus, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
correspondent and affiliated banks, and BISYS (a "Service Organization"), to
provide certain ministerial, record keeping, and administrative support services
to their customers who own of record or beneficially Shares in a Fund. Payments
to such Service Organizations are made pursuant to Servicing Agreements between
the Group and the Service Organization. The Services Plan authorizes each Fund
to make payments to Service Organizations in an amount, on an annual basis, of
up to 0.25% of the average daily net asset value of that Fund. The Services Plan
has been approved by the Board of Trustees of the Group, including a majority of
the Trustees who are not interested persons of the Group (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Services Plan or in any Servicing Agreements thereunder (the "Disinterested
Trustees"). The Services Plan may be terminated as to a Fund by a vote of a
majority of the Disinterested Trustees. The Trustees review quarterly a written
report of the amounts expended pursuant to the Services Plan and the purposes
for which such expenditures were made. The Services Plan may be amended by a
vote of the Trustees, provided that any material amendments also require the
vote of a majority of the Disinterested Trustees. For so long as the Services
Plan is in effect, selection and nomination of those Disinterested Trustees
shall be committed to the discretion of the Group's Disinterested Trustees. All
Servicing Agreements may be terminated at any time without the payment of any
penalty by a vote of a majority of the Disinterested Trustees. The Services Plan
will continue in effect for successive one-year periods, provided that each such
continuance is specifically approved by a majority of the Board of Trustees,
including a majority of the Disinterested Trustees. As of the date hereof, the
Group has not entered into any such servicing agreements.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263
(the "Custodian"), has been selected to serve as the Funds' custodian pursuant
to the Custody Agreement dated as of October __, 1998. The Custodian's
responsibilities include safeguarding and controlling the Funds' cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Funds' investments.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc. serves as transfer agent and dividend
disbursing agent (the "Transfer Agent") for all of the Funds pursuant to the
Transfer Agency Agreement dated as of October __, 1998. Pursuant to such
Agreement, the Transfer Agent, among other things, performs the following
services in connection with each Fund's shareholders of record: maintenance of
shareholder records for each of the Fund's shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of shares of the
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<PAGE> 78
Funds on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. For such services the Transfer Agent receives a fee
based on the number of shareholders of record.
In addition, BISYS Fund Services, Inc. provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement dated as of
October __, 1998. BISYS Fund Services, Inc. receives a fee from each Fund for
such services equal to the greater of (a) a fee computed at an annual rate of
three one-hundredths of one percent (.03%) of that Fund's average daily net
assets, or (b) $50,000 minus the fee paid by such Fund under its Management and
Administration Agreement with BISYS of the same date. Under such Agreement,
BISYS Fund Services, Inc. maintains the accounting books and records for each
Fund, including journals containing an itemized daily record of all purchases
and sales of portfolio securities, all receipts and disbursements of cash and
all other debits and credits, general and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Fund, including calculation of the net asset
value per share, calculation of the dividend and capital gain distributions, if
any, and of yield, reconciliation of cash movements with the Fund's custodian,
affirmation to the Fund's custodian of all portfolio trades and cash
settlements, verification and reconciliation with the Fund's custodian of all
daily trade activity; provides certain reports; obtains dealer quotations,
prices from a pricing service or matrix prices on all portfolio securities in
order to mark the portfolio to the market; and prepares an interim balance
sheet, statement of income and expense, and statement of changes in net assets
for each Fund.
AUDITORS
PricewaterhouseCoopers L.L.P., 100 East Broad Street, Columbus, Ohio
43215, has been selected as independent auditors for the Funds for their current
fiscal year. PricewaterhouseCoopers L.L.P. performs an annual audit of the
Funds' financial statements and provides other related services. Reports of
their activities are provided to the Group's Board of Trustees.
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
is counsel to the Group.
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<PAGE> 79
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Group is a Massachusetts business trust organized on January 8,
1992. The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of shares, which are shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, Rule 18f-2 also
provides that the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of the Group voting
without regard to series.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Group.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Group for acts or obligations of the Group, which
are binding only on the assets and property of the Group, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Group or the Trustees. The Declaration of Trust provides for
indemnification out of Group property for all loss and expense of any
shareholder held personally liable for the obligations of the Group. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to
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<PAGE> 80
circumstances in which the Group itself would be unable to meet its obligations,
and thus should be considered remote.
As of ___________, 1998, the following is the only entity known to the
Group who owns of record or beneficially 5% or more of the outstanding Shares of
any Fund: 1st Source Bank, P. O. Box 1602, South Bend, Indiana 46634 owned of
record and beneficially _____% of the issued and outstanding Shares of the
Income Fund, ______% of the issued and outstanding Shares of the Income Equity
Fund, ______% of the issued and outstanding Shares of the Diversified Equity
Fund and ______% of the issued and outstanding Shares of the Special Equity
Fund.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
ADDITIONAL TAX INFORMATION
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to Shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
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<PAGE> 81
Each of the Funds is treated as a separate entity for federal income
tax purposes and intends each year to qualify and elect to be treated as a
"regulated investment company" under the Code, for so long as such qualification
is in the best interest of that Fund's shareholders. To qualify as a regulated
investment company, each Fund must, among other things: diversify its
investments within certain prescribed limits; derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities, or currencies; and, distribute to its Shareholders at least 90% of
its investment company taxable income for the year. In general, a Fund's
investment company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net mid-term or net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, a Fund
would be subject to a non-deductible excise tax equal to 4% of the deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and thus to be relieved of all or substantially all of its federal
income tax liability, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, a Fund may be subject to the tax laws of such states or
localities. In addition, if for any taxable year a Fund does not qualify for the
special tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal tax at regular corporate rates
(without any deduction for distributions to its Shareholders). In such event,
dividend distributions would be taxable to Shareholders to the extent of
earnings and profits, and would be eligible for the dividends received deduction
for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
The excess of net long-term capital gains over short-term capital
losses realized and distributed by a Fund and designated as capital gain
dividends, whether paid in cash or reinvested in Fund shares, will be taxable to
Shareholders. Capital gain dividends paid from the proceeds of sales of assets
held by a Fund for more than one year will generally be taxed at a maximum
federal income tax rate of 20%. Net capital gains from assets held for one year
or less will be taxed as
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<PAGE> 82
ordinary income. Distributions will be subject to these capital gains rates
regardless of how long a Shareholder has held Fund shares.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by the
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Income Fund's net investment income is expected to be derived
from earned interest, it is anticipated that no distributions from that Fund
will qualify for the 70% dividends received deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities, if any. It is expected that,
because less than 50% in value of each Fund's total assets at the end of its
fiscal year will be invested in stocks or securities of foreign corporations,
none of the Funds will be entitled under the Code to pass through to its
Shareholders their pro rata share of the foreign taxes paid by the Fund. Any
such taxes will be taken as a deduction by such Fund.
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of a Fund by the Shareholder, if such Shareholder (1) fails
to furnish the Group with a correct taxpayer identification number, (2)
under-reports dividend or interest income, or (3) fails to certify to the Group
that he or she is not subject to such withholding. An individual's taxpayer
identification number is his or her Social Security number.
Information as to the Federal income tax status of all distributions
will be mailed annually to each Shareholder.
MARKET DISCOUNT. If a Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously
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<PAGE> 83
taken into account) or (ii) the amount of the principal payment with respect to
such period. Generally, market discount accrues on a daily basis for each day
the debt security is held by a Fund at a constant rate over the time remaining
to the debt security's maturity or, at the election of the Fund, at a constant
yield to maturity which takes into account the semi-annual compounding of
interest. Gain realized on the disposition of a market discount obligation must
be recognized as ordinary interest income (not capital gain) to the extent of
the "accrued market discount."
ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by a Fund may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts
and certain options (namely, nonequity options and dealer equity options) in
which a Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by a
Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund, and
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that a Fund may make with respect to
its straddle positions may also affect the amount, character and timing of the
recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to a Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
Shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders as ordinary
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<PAGE> 84
income or long-term capital gain may be increased or decreased substantially as
compared to a fund that did not engage in such transactions.
CONSTRUCTIVE SALES. Certain Code provisions may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If a Fund enters
into certain transactions in property while holding substantially identical
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code.
SECTION 988 GAINS OR LOSSES. Gains or losses attributable to
fluctuations in exchange rates which occur between the time a Fund accrues
income or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
and certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its Shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to Shareholders, rather than as an
ordinary dividend, reducing each Shareholder's basis in his or her Fund shares.
PASSIVE FOREIGN INVESTMENT COMPANIES. A Fund may invest in shares of
foreign corporations that may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute investment-type assets,
or 75% or more of its gross income is investment-type income. If a Fund receives
a so-called "excess distribution" with respect to PFIC stock, the Fund itself
may be subject to a tax on a portion of the excess distribution, whether or not
the corresponding income is distributed by the Fund to Shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC shares. The Fund
will itself be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
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<PAGE> 85
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund would be required to include in its gross income its share
of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains would be treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
YIELD
As summarized in the Prospectus under the heading "Performance
Information," yields of the Funds will be computed by annualizing net investment
income per share for a recent 30-day period and dividing that amount by a Fund
Share's maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value premium or
discount of fixed income securities (except for obligations backed by mortgages
or other assets) and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The yield will vary from
time to time depending upon market conditions, the composition of the particular
Fund's portfolio and operating expenses of the Group allocated to each Fund.
These factors and possible differences in the methods used in calculating yield
should be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's Shares and to the
relative risks associated with the investment objectives and policies of each of
the Funds.
For the 30-day period ended June 30, 1998, the yields for the Income
Equity Fund and the Income Fund were ____% and ____%, respectively, assuming the
imposition of the maximum sales charge, and _____% and _____%, respectively,
excluding the effect of any sales charge.
CALCULATION OF TOTAL RETURN
As summarized in the Prospectus under the heading "Performance
Information," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in that Fund all additional Shares which would have been purchased if
all dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $1,000 as of the end of the period by multiplying the total number
of Shares owned at the end of the period by the net asset value per
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<PAGE> 86
share on the last trading day of the period; (3) assuming redemption at the end
of the period; and (4) dividing this account value for the hypothetical investor
by the initial $1,000 investment and annualizing the result for periods of less
than one year.
For the one year, five year and ten year periods ended June 30, 1998,
and the respective periods from commencement of operations to June 30, 1998, the
average annual total returns for the Diversified Equity Fund, the Income Equity
Fund, the Special Equity Fund and the Income Fund are set forth in the following
table. Such performance information includes the prior performance of the
respective collective investment funds ("CIFs") for such Funds during those
periods which had been restated to reflect the current fees for those Funds.
These CIFs were operated with the same investment objective and used investment
strategies and techniques that are in all material respects equivalent to those
used for the Funds. During the time period of their existence the CIFS were not
registered under the 1940 Act and therefore were not subject to certain
investment restrictions that are imposed under the 1940 Act. If the CIFs had
been registered under the 1940 Act, their performance may have been adversely
affected.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
With Maximum Sales Load (1) Without Sales Load
Since Fund 1 Year 5 Years 10 Years Since Fund 1 year 5 Years 10 Years
Fund Inception Inception
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified
Equity(2)
Income Equity(3)
Special Equity(3)
Income(2)
<FN>
- -------------
1 The maximum sales load for the Diversified Equity, Income Equity and
Special Equity Funds is 5.00%. For the Income Fund, the maximum sales
load is 4.00%.
2 Commenced operations June 30, 1985.
3 Commenced operations November 30, 1985.
</TABLE>
Of course, past performance is no guarantee as to future performance.
DISTRIBUTION RATES
Each of the Funds may from time to time advertise current distribution
rates which are calculated in accordance with the method disclosed in the
Prospectus.
-36-
<PAGE> 87
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson
Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today
and local periodicals. In addition to performance information, general
information about these Funds that appears in a publication such as those
mentioned above may be included in advertisements, sales literature and reports
to shareholders. The Funds may also include in advertisements and reports to
shareholders information discussing the performance of the Adviser in comparison
to other investment advisers and to other banking institutions.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of dollar
cost averaging); (2) discussions of general economic trends; (3) presentations
of statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for one or more of the Funds within the Group;
(5) descriptions of investment strategies for one or more of such Funds; (6)
descriptions or comparisons of various investment products, which may or may not
include the Funds; (7) comparisons of investment products (including the Funds)
with relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations; and
(9) testimonials describing the experience of persons that have invested in one
or more of the Funds. The Group may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and total
return are functions of a Fund's quality, composition and maturity, as well as
expenses allocated to such Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's effective yield and total return to Customers.
-37-
<PAGE> 88
MISCELLANEOUS
Individual Trustees are generally elected by the Shareholders and,
subject to removal by the vote of two-thirds of the Board of Trustees, serve for
a term lasting until the next meeting of shareholders at which Trustees are
elected. Such meetings are not required to be held at any specific intervals.
Generally, shareholders owning not less than 20% of the outstanding shares of
the Group entitled to vote may cause the Trustees to call a special meeting.
However, the Group has represented to the Commission that the Trustees will call
a special meeting for the purpose of considering the removal of one or more
Trustees upon written request therefor from shareholders owning not less than
10% of the outstanding votes of the Group entitled to vote. At such a meeting, a
quorum of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesperson, dealer, or other person is authorized
to give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements of the Funds appearing in the Annual Report to
Shareholders for the fiscal year ended June 30, 1998 have been audited by
PricewaterhouseCoopers LLP, and are incorporated by reference herein.
-38-
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.............................................2
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS.............................2
INVESTMENT RESTRICTIONS....................................................10
PORTFOLIO TURNOVER.........................................................11
NET ASSET VALUE...............................................................11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................12
MANAGEMENT OF THE GROUP.......................................................12
TRUSTEES AND OFFICERS......................................................12
INVESTMENT ADVISER.........................................................15
SUBADVISERS................................................................17
PORTFOLIO TRANSACTIONS.....................................................19
GLASS-STEAGALL ACT.........................................................21
ADMINISTRATOR..............................................................22
DISTRIBUTOR................................................................24
ADMINISTRATIVE SERVICES PLAN...............................................27
CUSTODIAN..................................................................27
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES...............................27
AUDITORS...................................................................28
LEGAL COUNSEL..............................................................28
ADDITIONAL INFORMATION........................................................29
DESCRIPTION OF SHARES......................................................29
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES...............................30
ADDITIONAL TAX INFORMATION.................................................30
YIELD......................................................................35
CALCULATION OF TOTAL RETURN................................................35
DISTRIBUTION RATES.........................................................36
PERFORMANCE COMPARISONS....................................................37
MISCELLANEOUS..............................................................38
FINANCIAL STATEMENTS.......................................................38
</TABLE>
-39-
<PAGE> 90
PART C
------
OTHER INFORMATION
-----------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Included in Part A:
Financial Highlights of the Funds
Incorporated by Reference in Part B (to be filed by
amendment):
Independent Auditors' Report dated August __, 1998
Statement of Assets and Liabilities at June 30, 1998
Statement of Operations for the year ended June 30, 1998
Statement of Changes in Net Assets for the period ended June
30, 1997 and the year ended June 30, 1998
Schedule of Portfolio Investments as of June 30, 1998
Notes to Financial Statements
Financial Highlights for the period from commencement of
operations to June 30, 1997 and for the year ended June 30,
1998
(b) EXHIBITS
(1) Declaration of Trust(1)
(2) (a) By-Laws(2)
- ----------
1 Filed with initial Registration Statement on January 8, 1992.
2 Filed with Post-Effective Amendment No. 2 on September 4, 1992.
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<PAGE> 91
(b) Establishment and Designation of Series of
Shares (1st Source Monogram Income Equity
Fund; 1st Source Monogram Diversified Equity
Fund; 1st Source Monogram Special Equity Fund
and 1st Source Monogram Income Fund)3
(3) Not Applicable
(4) Certificates for Shares are not issued. Articles IV,
V, VI and VII of the Declaration of Trust, previously
filed as Exhibit 1 hereto, define rights of holders
of Shares.
(5) (a) Investment Advisory Agreement between
Registrant and 1st Source Bank (with respect
to the 1st Source Monogram Funds)(3)
(b) Sub-Investment Advisory Agreement between 1st
Source Bank and Miller Anderson & Sherrerd
LLP (with respect to 1st Source Monogram
Diversified Equity Fund)(3)
(c) Sub-Investment Advisory Agreement between 1st
Source Bank and Loomis, Sayles & Company,
L.P. (with respect to 1st Source Monogram
Diversified Equity Fund)(3)
(d) Sub-Investment Advisory Agreement between 1st
Source Bank and Standish, Ayer & Wood, Inc.
(with respect to 1st Source Monogram
Diversified Equity Fund)(3)
(6) Distribution Agreement between Registrant and BISYS
Fund Services(3)
(7) Not Applicable
(8) Custody Agreement between Registrant and The Fifth
Third Bank (with respect to the 1st Source Monogram
Funds)(3)
(9) (a) Management and Administration Agreement
between the Registrant and BISYS Fund
Services (with respect to the 1st Source
Monogram Funds)(3)
- ----------
3 To be filed by amendment.
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<PAGE> 92
(b) Fund Accounting Agreement between the
Registrant and BISYS Fund Services Ohio, Inc.
(with respect to the 1st Source Monogram
Funds)(3)
(c) Transfer Agency Agreement between the
Registrant and BISYS Fund Services Ohio, Inc.
(with respect to the 1st Source Monogram
Funds)(3)
(10) Not Applicable
(11) Consent of Independent Auditors(3)
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15)
(a) Distribution and Shareholder Services Plan
(with respect to the 1st Source Monogram
Funds)(3)
(b) Distribution Servicing Agreement (with
respect to the 1st Source Monogram Funds)3
(16) Not Applicable
(18) Not Applicable
(27) Financial Data Schedules
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF RECORD HOLDERS
As of July 2, 1998, the number of record holders of each
series of the Registrant was as follows:
<TABLE>
<S> <C>
Brenton U.S. Government Money Market Fund 655
Brenton Intermediate U.S. Government Securities
Fund 52
Brenton Value Equity Fund 488
</TABLE>
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<PAGE> 93
<TABLE>
<S> <C>
The Shelby Fund 27
The Willamette Value Fund 763
</TABLE>
ITEM 27. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust states as follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof; and
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative or other, including appeals),
actual or threatened; and the words "liability" and "expenses"
shall include, without limitation, attorneys fees, costs,
judgments, amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court
or other body before which a proceeding was brought that he
engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of
the Trust; or
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
or (b)(ii) resulting in a payment by a Trustee or officer,
unless there has been a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved
in the conduct of his office:
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<PAGE> 94
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (1) vote
of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the
Disinterested Trustees then in office acts on the
matter) or (2) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such person. Nothing contained
herein shall affect any rights to indemnification to which personnel of
the Trust other than Trustees and officers may be entitled by contract
or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a)
of this Section 4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
acts on the matter) or an independent legal counsel in a
written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has
been exempted from being an Interested Person by any rule, regulation
or order of the Commission), or (ii) involved in the claim, action,
suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such
C-5
<PAGE> 95
indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a
claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by
trustees, officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS AND THEIR
OFFICERS AND DIRECTORS
(a) 1st Source Bank, South Bend, Indiana ("FSB"), is the
investment adviser for 1st Source Monogram Special Equity
Fund, 1st Source Monogram Income Fund, 1st Source Monogram
Diversified Equity Fund and 1st Source Monogram Income Equity
Fund. FSB is a wholly-owned subsidiary of 1st Source
Corporation. To the knowledge of the Registrant, none of the
directors or officers of FSB, except those set forth below, is
or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain
officers and directors of FSB also hold positions with FSB's
parent, First Source Corporation. Set forth below are the
names and principal businesses of the directors of FSB who are
engaged in any other business, profession, vocation, or
employment of a substantial nature.
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
<S> <C> <C>
Rev. E. William Beauchamp Director Executive Vice President University
of Notre Dame South Bend, IN 46556
Paul R. Bowles Director Former Senior Vice President-Clark
Equipment Company 1202 East Jefferson
South Bend, IN 46617 (off-highway
components and construction
machinery manufacturing)
Philip J. Faccenda Director President
Bear Financial, Inc.
</TABLE>
C-6
<PAGE> 96
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
<S> <C> <C>
1222 E. Erskine Manor Hill
South Bend, IN 46617
(venture capital)
Chairman, President, Chief Executive
Daniel B. Fitzpatrick Director Officer and Director
Quality Dining, Inc.
P.O. Box 416
South Bend, IN 46624
(quick service and casual dining
restaurant operator)
Terry L. Gerber Director President and Chief Executive
Officer
Gerber Manufacturing Company, Inc.
1417 Olivia Circle
South Bend, IN 46614
(manufacturer of police and
emergency outerwear)
Lawrence E. Hiler Director President
Hiler Industries
P.O. Box 639
La Porte, IN 46350
(metal casting)
Anne M. Hillman Director Civic Leader
3904 Nall Court
South Bend, IN 46614
Hollis E. Hughes, Jr. Director Executive Director
United Way of
St. Joseph County
3517 E. Jefferson
P.O. Box 6396
South Bend, IN 46660
H. Thomas Jackson Director Chairman
Bornemann Coated Fabrics
Bornemann Products
P.O. Box 208
</TABLE>
C-7
<PAGE> 97
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
<S> <C> <C>
Bremen, IN 46506
(vinyl sales)
William P. Johnson Director Chairman & CEO
Goshen Rubber Co., Inc.
1525 S. 10th
Goshen, IN 46527
(manufacturer of automotive rubber
parts)
Craig A. Kapson Director President
Jordan Ford, Toyota, Volvo, Lincoln
Mercury
609 E. Jefferson
Mishawaka, IN 46545
(automobile sales)
David L. Lerman Director President
Steel Warehouse Company, Inc.
2722 West Tucker Drive
South Bend, IN 46624
(warehouse storage)
Richard J. Pfeil Director Chairman and President
Koontz-Wagner Electric Co.
3801 Voorde Drive
South Bend, IN 46628
(electrical equipment repair,
construction and installation)
John T. Phair Director Vice President
The Holladay Corporation
220 Colfax, Suite 200
South Bend, IN 46601
(property management)
Mark D. Schwabero Director Executive Vice President
Bosch Braking Systems Corp.
401 N. Bendix Drive
South Bend, IN 46634
(manufacturers of automotive brakes
and brake
</TABLE>
C-8
<PAGE> 98
<TABLE>
<CAPTION>
Name Position with FSB Principal Occupation
- ---- ----------------- --------------------
components)
<S> <C> <C>
Elmer H. Tepe Director President
E.H. Tepe Co.
c/o 1st Source Corporation
100 North Michigan Street
South Bend, IN 46634
(holding company)
</TABLE>
(b) Miller Anderson and Sherrerd LLP, West Conshohocken,
Pennsylvania ("Miller Anderson") is a sub-investment adviser
for 1st Source Monogram Diversified Equity Fund. Miller
Anderson is wholly owned by Morgan Stanley, Dean Witter,
Discover & Co., 1585 Broadway, New York, New York 10036. The
business and other connections of Miller Anderson's Officers
and Directors are set forth in the Uniform Application for
Investment Adviser Registration ("Form ADV") of Miller
Anderson as currently on file with the Commission and which is
incorporated by reference herein.
(c) Loomis Sayles & Company, L.P., Chicago, Illinois ("Loomis") is
a sub-investment adviser for 1st Source Monogram Diversified
Equity Fund. The sole general partner of Loomis is Loomis
Sayles & Company, Incorporated, One Financial Center, Boston,
Massachusetts 02111. The business and other connections of the
Officers and Directors of Loomis are set forth in the Form ADV
of Loomis as currently on file with the Commission and which
is incorporated by reference herein.
(d) Standish, Ayer & Wood, Inc., One Financial Center, Boston,
Massachusetts 02111 ("Standish") is a sub-investment adviser
for 1st Source Monogram Diversified Equity Fund. The business
and other connections of the Officers and Directors of
Standish are set forth in the Form ADV of Standish as
currently on file with the Commission and which is
incorporated by reference herein.
ITEM 29. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor for Registrant. BISYS Fund
Services also distributes the securities of the Alpine Equity
Trust, the American Performance Funds, the AmSouth Mutual
Funds, The ARCH Fund, Inc., The BB&T Mutual Funds Group, ESC
Strategic
C-9
<PAGE> 99
Funds, Inc., the Eureka Funds, Fountain Square Funds, Hirtle
Callaghan Trust, HSBC Family of Funds, INTRUST Funds Trust,
The Infinity Mutual Funds, Inc., The Kent Funds, Magna Funds,
MMA Praxis Mutual Funds, Meyers Investment Trust, M.S.D.&T
Funds, Pacific Capital Funds, Parkstone Group of Funds, the
Parkstone Advantage Funds, Pegasus Funds, Puget Sound Asset
Management, The Republic Funds Trust, The Republic Advisors
Funds Trust, The Riverfront Funds, Inc., SBSF Funds, Inc. dba
Key Mutual Funds, Sefton Funds, The Sessions Group, Summit
Investment Trust, Variable Insurance Funds, The Victory
Portfolios, The Victory Variable Funds and The Vintage Funds,
Inc.
(b) Partners of BISYS Fund Services, as of July 31, 1998, were as
follows
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Bisys Fund Services Registrant
- ---------------- ------------------- ----------
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, New Jersey 07424
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(a) In connection with the 1st Source Monogram Funds, the
accounts, books, and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and rules promulgated thereunder are in
the possession of 1st Source Bank, 100 North Michigan Street,
South Bend, Indiana 46634 (records relating to its function as
investment adviser for the 1st Source Monogram Funds); Miller
Anderson & Sherrerd LLP, One Tower Bridge, Suite 1100, West
Conshohocken, Pennsylvania 19428 (records relating to its
functions as a sub-investment adviser to 1st Source Monogram
Diversified Equity
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<PAGE> 100
Fund); Loomis Sayles & Company, L.P., 3 First National Plaza,
Suite 5450, Chicago, Illinois 60600 (records relating to its
functions as a sub-investment adviser to 1st Source Monogram
Diversified Equity Fund); Standish, Ayer & Wood, Inc., One
Financial Center, Boston, Massachusetts 02111 (records
relating to its functions as a sub-investment adviser to 1st
Source Monogram Diversified Equity Fund); BISYS Fund Services,
3435 Stelzer Road, Columbus, Ohio 43219 (records relating to
its functions as general manager, administrator and
distributor), and BISYS Fund Services Ohio, Inc., 3435 Stelzer
Road, Columbus, Ohio 43219 (records relating to its functions
as transfer agent).
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom
a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders, upon request
and without charge, in the event that the information
called for by Item 5A of Form N-1A has been presented
in the Registrant's latest annual report to
shareholders.
(d) Registrant undertakes to call a meeting of
Shareholders for the purpose of voting upon the
question of removal of a Trustee or Trustees when
requested to do so by the holders of at least 10% of
the Registrant's outstanding shares of beneficial
interest and in connection with such meeting to
comply with the shareholders communications
provisions of Section 16(c) of the Investment Company
Act of 1940.
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<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 40 to its Registration Statement o be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington
in the District of Columbia on the 21st day of August, 1998.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
-----------------------------
Walter B. Grimm**
By: /s/ Jeffrey L. Steele
-----------------------------------------------
Jeffrey L. Steele, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ Walter B. Grimm Chairman, President August 21, 1998
- ---------------------------- and Trustee
Walter B. Grimm** (Principal Executive
Officer)
/s/ John H. Ferring IV Trustee August 21, 1998
- ----------------------------
John H. Ferring IV****
/s/ Maurice G. Stark Trustee August 21, 1998
- ----------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee August 21, 1998
- ----------------------------
Michael M. Van Buskirk*
<PAGE> 102
/s/ Paul T. Kane Treasurer August 21, 1998
- ---------------------------- (Principal
Paul T. Kane*** Financial and
Accounting Officer)
By: /s/ Jeffrey L. Steele
------------------------
Jeffrey L. Steele,
as attorney-in-fact
* Pursuant to power of attorney filed with Pre-Effective Amendment No. 3 on
April 6, 1992.
** Pursuant to power of attorney filed with Post-Effective Amendment No. 26 on
May 1, 1996.
*** Pursuant to power of attorney filed with Post-Effective Amendment No. 37 on
June 1, 1998.
**** Pursuant to power of attorney filed with Post-Effective Amendment No. 39 on
July 31, 1998.
<PAGE> 103
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED
WITH
POST-EFFECTIVE AMENDMENT NO. 40
TO THE
REGISTRATION STATEMENT
OF
THE COVENTRY GROUP
<PAGE> 104
INDEX TO EXHIBITS
(FOR POST-EFFECTIVE AMENDMENT NO. 40)
-------------------------------------
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- ------------ ---------------
27 Financial Data Schedules
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<CIK> 0000882748
<NAME> THE COVENTRY GROUP
<SERIES>
<NUMBER> 1
<NAME> THE 1ST SOURCE MONOGRAM INCOME EQUITY FUND
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
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<INVESTMENTS-AT-VALUE> 52620623
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<ASSETS-OTHER> 0
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<PAID-IN-CAPITAL-COMMON> 40256128
<SHARES-COMMON-STOCK> 4164289
<SHARES-COMMON-PRIOR> 3190928
<ACCUMULATED-NII-CURRENT> 56183
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<ACCUMULATED-NET-GAINS> 4461160
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 1147471
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<NAME> THE COVENTRY GROUP
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<NAME> THE 1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
<S> <C>
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<PERIOD-START> JUL-01-1997
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<INVESTMENTS-AT-VALUE> 98480019
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<ACCUM-APPREC-OR-DEPREC> 22420223
<NET-ASSETS> 98083218
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<NET-INVESTMENT-INCOME> (161686)
<REALIZED-GAINS-CURRENT> 13166299
<APPREC-INCREASE-CURRENT> 8399708
<NET-CHANGE-FROM-OPS> 21404321
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 9785732
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<NUMBER-OF-SHARES-SOLD> 1643723
<NUMBER-OF-SHARES-REDEEMED> 1502834
<SHARES-REINVESTED> 873495
<NET-CHANGE-IN-ASSETS> 23093709
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6344389
<OVERDISTRIB-NII-PRIOR> 1421
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<GROSS-EXPENSE> 1530344
<AVERAGE-NET-ASSETS> 88220774
<PER-SHARE-NAV-BEGIN> 11.80
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 3.00
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.47
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.31
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882748
<NAME> THE COVENTRY GROUP
<SERIES>
<NUMBER> 3
<NAME> THE 1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 33655338
<INVESTMENTS-AT-VALUE> 37531967
<RECEIVABLES> 2673
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 8010
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<PAYABLE-FOR-SECURITIES> 2056003
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<PAID-IN-CAPITAL-COMMON> 33866811
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<OVERDISTRIBUTION-GAINS> 2303588
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<DIVIDEND-INCOME> 122383
<INTEREST-INCOME> 322881
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<EXPENSES-NET> 432316
<NET-INVESTMENT-INCOME> 12948
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</TABLE>
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<NAME> THE COVENTRY GROUP
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<NUMBER> 4
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</TABLE>
