As filed with the Securities and Exchange Commission on July 2, 1999
Securities Act No. 33-44964
Investment Company Act File No. 811-6526
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
--
Post-Effective Amendment No. 53 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 55 [X]
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THE COVENTRY GROUP
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(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
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(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 470-8000
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Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, D.C. 20006
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(Name and Address of Agent for Service)
With 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)(2) of Rule 485 or on such earlier date as the
Commission may designate pursuant to paragraph (a)(3) of Rule 485.
Kensington Strategic Realty Fund
Prospectus
_______, 1999
Kensington Investment Group, Inc.
Investment Adviser
Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary and Fund Expenses
Investment Objective, Strategies and Risks
Shareholder Information
Fund Management
Capital Structure
Financial Highlights
<PAGE>
RISK/RETURN SUMMARY AND FUND EXPENSES
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Risk/Return Summary of the Kensington Strategic Realty Fund
Investment Objective The Fund seeks high current income
relative to equity investment alternatives,
plus long term growth of capital
Principal Investment Strategies The Fund invests primarily in real estate
securities, including securities issued by
real estate investment trusts, master
limited partnerships and other real estate
companies. Investments in these issuers
include common, convertible and preferred
stock and debt securities, rights or
warrants to purchase common stock, and
limited partnership interests. The Fund may
engage in transactions, which may include
short sales, designed to hedge its portfolio
against market declines. The Fund may also
utilize limited portfolio leverage in
pursuit of its objectives.
Principal Investment Risks Because the value of the Fund's
investments will fluctuate with market
conditions, so will the value of your
investment in the Fund. You could lose
money on your investment in the Fund, or
the Fund could underperform other
investments. Some of the Fund's
holdings may underperform its other
holdings. The Fund will be
significantly exposed to the risks of
the real estate market. The Fund will
also be non-diversified, which means
that it is more vulnerable to risks
affecting a particular issuer than a
diversified fund would be.
Additionally, the Fund can buy
securities with borrowed money (a form
of leverage), which can magnify the
Fund's gains and losses.
Who may want to invest? Consider investing in the Fund if you
are:
- seeking quarterly income
- wishing to add a growth component to
your portfolio
- willing to accept the risks of
investing in real estate-related
securities in exchange for
potentially higher long term returns
This Fund will not be appropriate for
anyone:
- pursuing a short-term goal or investing
emergency reserves
- seeking safety of principal
Risk/Return Summary and Fund Expenses
Fund Performance
Because the Fund commenced operations only on ________, 1999, it does not yet
have performance figures that reflect a full calendar year.
Fees and Expenses Class A Class B Class C
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As an investor in the
Fund, you will pay the Shareholder
following fees and Transaction
expenses. Shareholder Fees (fees
transaction fees are paid paid by you
from your account. Annual directly)
Fund operating expenses
are paid out of Fund
assets, and are reflected Maximum sales
in the share price. charge (load) 5.75%1 0.00% 0.00%
on purchases
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Maximum deferred
sales charge None 5.00% None
(load)
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Annual Fund
Operating
Expenses
(expenses paid
from
Fund assets)
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Management fee 1.50% 1.50% 1.50%
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Distribution and
Service (12b-1) fee 0.25% 1.00% 1.00%
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Other expenses3 1.17% 1.17% 1.17%
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Total Fund
Operating
expenses3 2.92% 3.67% 3.67%
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Fee Waiver
and/or
Expense 0.17% 0.17% 0.17%
Reimbursement4
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Net Expenses3 2.75% 3.50% 3.50%
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1 Lower sales charges are available depending upon the amount invested. See
"Distribution Arrangements."
2 The management fee is a fulcrum-type performance fee that increases or
decreases from the base fee of 1.50% depending on the Fund's performance
relative to that of the NAREIT Composite Index during the preceding twelve
months. The Adviser will receive the base fee for periods when the Fund's
performance for the past twelve months equals that of the Index. Through
performance adjustments equal to 15% of the difference between the
performance of the Fund and that of the Index during the previous twelve
months, the fee can range from a minimum of 0.50% to a maximum of 2.50%.
This fee arrangement may result in higher fees than those paid by other
investment companies. The Adviser may receive the maximum fee even if the
Fund's absolute performance is negative, and it may receive the minimum
fee even when the Fund has significant positive performance.
3 "Other expenses" are based on estimated amounts for the current fiscal
year.
4 The Adviser has contractually agreed, until _________, 2002, to waive fees
and/or reimburse the Fund to the extent necessary to maintain Total Fund
Operating Expenses for Class A, B and C shares at 2.75%, 3.50% and 3.50%,
respectively, provided that these limits do not apply to increases due to
performance fee adjustments. For the first 36 full months of the Fund's
operations, the Fund will pay or repay fees that were waived or reimbursed
to the extent such payments or repayments would not cause the expenses of
a Class to exceed the above limits.
<PAGE>
Risk/Return Summary and Fund Expenses
Expense Example
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison purposes only, your
actual costs are likely to be different.
1 3
The Fund Year Years
Class A $278 $853
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Class B $353 $1,074
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Class C $353 $1,074
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<PAGE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
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KENSINGTON STRATEGIC REALTY FUND
Ticker Symbol: _________
Investment Objective, Policies and Strategy
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Investment Objective
The Fund's investment objective is to seek high current income relative to
equity investment alternatives, plus long term growth of capital.
Policies and Strategies
The Fund will pursue its objective by investing primarily in securities of
companies in the real estate industry, such as real estate investment trusts
("REITs"), master limited partnerships and other real estate firms. Its
investments in these issuers may include common, preferred and convertible
stock, debt obligations and other senior securities, rights and warrants to
purchase securities, and limited partnership interests.
The Adviser will use a variety of strategies in managing the Fund's
investments. It may engage in transactions designed to hedge against changes in
the price of the Fund's portfolio securities, such as purchasing put options or
selling securities short. The Fund may also leverage its portfolio by borrowing
money to purchase securities, and it may lend its portfolio securities to
generate additional income. The Fund may also purchase restricted securities
(securities which are deemed to be not readily marketable).
Under normal market conditions, at least 65% of the Fund's assets will be
invested in securities of issuers engaged primarily in the real estate business.
A Fund will deem an issuer to be primarily in the real estate business if it
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or if it has at least 50% of its assets invested in real estate. Real
estate companies may include REITs, real estate operating companies, companies
operating businesses that own a substantial amount of real estate (such as
hotels and assisted living facilities) and development companies. For liquidity,
the Fund will normally invest a portion of its assets in high quality debt
securities (securities rated within the top two rating categories by a
nationally recognized rating agency), money market instruments and repurchase
agreements. For temporary defensive purposes, under unusual market conditions,
the Fund may invest in these instruments without limit. During periods that the
Fund is investing defensively, it will not be pursuing its investment objective.
The Fund will not be a diversified investment company, which means that it
may invest greater proportions of its assets in individual issuers than a
diversified investment company.
The Fund may determine to limit its from time to time, depending on the
range of attractive investment opportunities available to it. While the Fund may
close to new investors at any time, it will specifically close to new investors
upon reaching $150 million in net asset value and must remain closed for at
least 90 days thereafter. If a decision is made subsequently to reopen the Fund
to new investors, the Fund will permanently close to new investors upon reaching
a net asset value equal to 0.5% of the then current market capitalization of the
NAREIT Composite Index. Any closing of the Fund under these provisions will
occur beginning 45 days after the close of the quarter in which the Fund reaches
a size which triggers such closing. Existing shareholders may continue to make
additional investments after any such closing.
Principal Risks of Investing in the Fund
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An investment in the Fund is subject to investment risks, and you can lose
money on your investment. More specifically, the Fund may be affected by the
following types of risks:
The Fund's real estate security investments expose it to the risks of the
commercial real estate market. Real estate values (and the values of real
estate-related securities) fluctuate with changes in general and local economic
conditions such as overbuilding, employment conditions, operating costs and
factors affecting particular neighborhoods. Real estate values are also affected
by changes in interest rates and governmental actions such as tax and zoning
changes, rent restrictions, and infrastructure maintenance. The value of REIT
securities can, additionally, be affected by changes in tax law for REITs, or
failure of a particular REIT to qualify for favorable tax treatment.
While the Fund intends to comply with tax laws applicable to investment
companies which require it to be diversified as to at least half of its assets,
the Fund's non-diversified status means that it is able to concentrate up to
half it portfolio in the securities of a few issuers. Should the Fund pursue
this strategy, it would be more exposed to risks affecting those issuers than if
it held a more diversified portfolio.
The Fund may borrow amounts up to one-third of the value of its assets and
may use borrowed funds to purchase securities for the Fund. This practice, known
as "leveraging," will increase returns to the Fund if the additional securities
purchased increase in value more than the interests and other costs of
borrowing. If the additional securities lose value, however, the loss to the
Fund will be greater than if borrowed funds had not been used to make the
purchase. Thus, leveraging is considered to increase risk.
Although the Fund's loans of portfolio securities will be fully
collateralized and marked to market throughout the period of the loan, the Fund
may experience delays in getting the securities returned and may not receive
mark-to-market payments if the borrower enters bankruptcy or has other financial
problems. Short sales can cause a loss to the Fund if the price of the security
sold short increases between the date of the short sale and the date on which
the Fund must settle the transaction. Restricted securities are not registered
for public sale and thus cannot easily be disposed of by the Fund, particularly
at a desirable price. Because they are not publicly traded, they may also be
difficult to price accurately.
The Fund pays the Adviser a fee based on the Fund's performance relative
to the NAREIT Composite Index. This arrangement could provide an incentive to
the Adviser to seek special opportunities that may involve greater risks than if
a non-performance fee arrangement had been adopted. Conversely, the Adviser
could be motivated to avoid risk in order to minimize fluctuations in its
performance based fee.
Equity Risk: The value of the equity securities held by the Fund, and thus
of the Fund's shares, can fluctuate -- at times dramatically. The prices of
equity securities are affected by various factors, including market conditions,
political and other events, and developments affecting the particular issuer or
its industry or geographic sector.
Market Risk: The Fund's portfolio securities can be affected by events
that affect the securities markets generally or particular segments of the
market in which the Fund has invested. Factors that are part of market risk
include interest rate fluctuations, quality of instruments in the Fund's
portfolio, national and international economic and political conditions and
general market conditions and market psychology.
Interest Rate Risk: In addition to the sensitivity of real estate-related
securities to changes in interest rates, the value of the Fund's investments in
debt instruments will tend to fall if current interest rates increase and to
rise if current interest rates decline.
Credit Risk: The value of the Fund's debt instruments will generally
decline if the credit rating of the issuer declines, while their value will be
favorably affected by an increased credit rating. Also, an issuer whose credit
rating has declined may be unable to make payments of principal and/or interest.
Hedging Risks: The Fund's hedging activities, although they are designed
to help offset negative movements in the markets for the Fund's investments,
will not always be successful. Moreover, they can also cause the Fund to lose
money or fail to get the benefit of a gain. Among other things, these negative
effects can occur if the market moves in a direction that the Fund's investment
adviser does not expect or if the Fund cannot close out its position in a
hedging instrument.
Special Risks for Tax-Exempt and Retirement Plan Investors. The Fund's
activities may generate "unrelated business taxable income" ("UBTI"). Qualified
pension, profit-sharing, stock bonus, Keogh Plans, Individual Retirement
Accounts ("IRAs") and other tax-exempt entities may therefore be required to
report a portion of their share of the Fund's income as UBTI and to pay tax on
that income.
Year 2000 Risk: Like other funds and business organizations around the
world, the Fund could be adversely affected if the computer systems used by the
Adviser, and the Fund's other service providers do not properly process and
calculate date related information for the year 2000 and beyond. In addition,
Year 2000 issues may adversely affect companies in which the Fund invests where,
for example, such companies incur substantial costs to address Year 2000 issues
or suffer losses caused by the failure to adequately or timely do so.
The Fund has been advised that the Adviser and the Fund's other service
providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent, Custodian
and Distributor) have developed and are implementing clearly defined and
documented plans intended to minimize risks to services critical to the Fund's
operations associated with Year 2000 issues. Internal efforts include a
commitment to dedicate adequate staff and funding to identify and remedy Year
2000 issues, and specific actions such as taking inventory of software systems,
determining inventory items that may not function properly after December 31,
1999, reprogramming or replacing such systems, and retesting for Year 2000
readiness. The Fund's Adviser and service providers are likewise seeking
assurances from their respective vendors and suppliers that such entities are
addressing any Year 2000 issues, and each provider intends to engage, where
appropriate, in private and industry or "streetwide" interface testing of
systems for Year 2000 readiness.
In the event that any systems upon which the Fund is dependent are not
Year 2000 ready by December 31, 1999, administrative errors and account
maintenance failures would likely occur.
While the ultimate costs or consequences of incomplete or untimely
resolution of Year 2000 issues by the Adviser or the Fund's service providers
cannot be accurately assessed at this time, the Fund currently has no reason to
believe that the Year 2000 plans of the Adviser and the Fund's service providers
will not be completed by December 31, 1999, or that the anticipated costs
associated with full implementation of their plans will have a material adverse
impact on either their business operations or financial condition of those of
the Fund. The Fund and the Adviser will continue to closely monitor developments
relating to this issue, including development by the Adviser and the Fund's
service providers of contingency plans for providing back-up computer services
in the event of a systems failure or the inability of any provider to achieve
Year 2000 readiness. Separately, the Adviser will monitor potential investment
risk related to Year 2000 issues.
<PAGE>
SHAREHOLDER INFORMATION
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Pricing of Fund Shares
- ----------------------
How NAV is Calculated
The NAV for each class of shares is calculated by adding the total value of the
Fund's investments and other assets attributable to each class, subtracting the
liabilities for that class, and then dividing that figure by the number of
outstanding shares of the class:
NAV of Class =
Total Assets - Liabilities
--------------------------
Number of Shares of Class
Outstanding
Per share net asset value (NAV) for each class of shares of the Fund is
determined and its shares are priced at the close of regular trading on the New
York Stock Exchange, normally at 4:00 p.m. Eastern time on days the Exchange is
open.
Your order for purchase or sale of a class of shares is priced at the next NAV
for that class calculated after your order is accepted by the Fund plus any
applicable sales charge as noted in the section on "Distribution
Arrangements/Sales Charges." This is what is known as the offering price.
The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees.
Purchasing and Adding to Your Shares
You may purchase the Fund through the Distributor or through investment
representatives, who may charge additional fees and may require higher minimum
investments or impose other limitations on buying and selling shares. If you
purchase shares through an investment representative, that party is responsible
for transmitting orders by close of business and may have an earlier cut-off
time for purchase and sale requests. Consult your investment representative for
specific information.
Account Minimum Minimum
type Initial Subsequent
Investment
Class A, B
or C $ 100
Regular $ 25,000
(non-retirement)
Retirement $ 15,000 $ 100
Automatic
Investment $ 100 $ 100
Plan
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
The Fund may waive its minimum purchase requirement and the Distributor may
reject a purchase order if it considers it in the best interest of the Fund and
its shareholders.
Instructions for Opening or Adding to an Account
- ------------------------------------------------
By Regular Mail
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Kensington Strategic Realty
Fund."
3. Mail to: Kensington Strategic Realty Fund, P.O. Box _______, Columbus, OH
43218-2301
Subsequent:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2 Include the following information on a piece of paper:
o Fund name
o Share class
o Amount invested
o Account name
o Account number
Include your account number on your check.
3. Mail to: Kensington Strategic Realty Fund, P.O. Box ______, Columbus, OH
43218-2301
By Overnight Service
See instructions 1-2 above for subsequent investments.
3. Send to: Kensington Strategic Realty Fund
Attn: Shareholder Services, 3435 Stelzer Road, Columbus, OH 43219.
By Wire Transfer
Note: Your bank may charge a wire transfer fee.
Prior to wiring funds and in order to ensure that wire orders are invested
promptly, investors must call the Fund at _____________ to obtain instructions
regarding the bank account number to which the funds should be wired and other
pertinent information.
You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time with
60 days notice.
<PAGE>
Automatic Investment Plan
You can make automatic investments in the Fund from your bank account. Automatic
investments can be as little as $500.
To invest regularly from your bank account:
- Complete the Automatic Investment
Plan portion on your Account
Application.
Make sure you note:
o The name and address of the bank account
o Your checking or savings account number
o The amount you wish to invest automatically (minimum $500)
o How often you want to invest (every month, twice a month, 4 times a year
or once a year)
o Attach a voided personal check or savings deposit slip.
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Dividends and Distributions
The Fund will pay dividends from any income quarterly. All dividends and
distributions will be automatically reinvested unless you request otherwise.
There are no sales charges for reinvested dividends and distributions. Capital
gains are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution.
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Selling Your Shares
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You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares" below.
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Withdrawing Money from Your Fund Investment
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
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Instructions for selling shares
By telephone 1. Call ____________ with instructions as
(unless you have to how you wish to receive your funds
declined telephone (mail, check or wire).
sales privileges) Note: IRA redemptions must be requested
by mail.
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By mail 1. Call _____________ to request
redemption forms or write a letter of
instruction indicating:
o your Fund and account number
o amount you wish to redeem o address where your check
should be sent o account owner(s) signature
2. Mail to:
Kensington Strategic Realty Fund
P.O. Box ___________
Columbus, OH 43218-2301
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Wire transfer Call _______________ to request a wire
You must indicate transfer.
this option on your
application. If you call by 4 p.m. Eastern time, your
payment will normally be wired to your bank on the
next business day.
The Fund may charge a
wire transfer fee.
Note: Your financial
institution may also
charge a separate fee.
Automatic Withdrawal Plan
You can receive automatic payments from your account on a monthly, quarterly or
annual basis. The minimum withdrawal is $50. To activate this feature:
o Make sure you've checked the appropriate box on the Account Application.
Or call ______________.
o Minimum balance required to start this program is $10,000.
o Include a voided personal check.
o If the value of your account falls below $5000, you may be asked to add
sufficient funds to bring the account back to $5000, or the Fund may close
your account and mail the proceeds to you.
General Policies On Redeeming Shares
Redemptions In Writing Required
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of
the following.
o Your account registration or the name(s) in your account has changed
within the last 10 business days
o The check is not being mailed to the address on your account
o The check is not being made payable to the owner of the account
o The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
Verifying Telephone Redemptions
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
Redemptions Within 10 Business Days of Initial Investment When you have made
your initial investment by check, you cannot redeem any portion of it until the
Transfer Agent is satisfied that the check has cleared (which may require up to
10 business days). You can avoid this delay by purchasing shares with a
certified check or wire transfer.
Refusal of Redemption Request
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
Redemption In Kind
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect the Fund's
operations (for example, more than 1% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.
Closing of Small Accounts
If your account falls below $5000, the Fund may ask you to increase your
balance. If it is still below $5000 after 60 days, the Fund may close your
account and send you the proceeds at the current NAV.
Undeliverable Redemption Checks
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in the Fund.
Distribution Arrangements/Sales Charges
This section describes the sales charges and fees you will pay as an investor in
the Funds and ways to qualify for reduced sales charges.
Class A Shares Class B Shares Class C Shares
Sales Charge (Load) Front-end sales No sales No sales charge
charge; reduced charge.
sales charges
available.
Distribution and Subject to Subject to Subject to
Service (12b-1) annual annual annual
Fee distribution and distribution distribution
shareholder and and shareholder
servicing fees shareholder servicing fees
of up to .25% of servicing of up to 1.00%
Fund's total fees of up to of Fund's total
assets 1.00% of assets
applicable to Fund's total applicable to
Class A shares. assets Class C shares.
applicable to
Class B
shares.
Fund Expenses Lower annual Higher annual Higher annual
expenses that expenses than expenses than
Class C shares Class A Class A shares
shares.
Calculation of Sales Charges
Class A Shares
Class A shares of the Fund are sold at their public offering price. This price
includes the initial sales charge. Therefore, part of the money you invest will
be used to pay the sales charge. The remainder is invested in Fund shares. The
sales charge decreases with larger purchases. There is no sales charge on
reinvested dividends and distributions.
The current sales charge rates for Class A shares of the Fund are as follows:
Sales Charge Sales Charge
as a % of as a % of
Your Investment Offering Price Your Investment
- ------------------------------------------------------------
Up to $50,000 5.75% 6.10%
- ------------------------------------------------------------
$50,000 up to $99,999 5.00% 5.26%
- ------------------------------------------------------------
$100,000 up to $249,999 4.00% 4.17%
- ------------------------------------------------------------
$250,000 up to $499,999 3.00% 3.09%
- ------------------------------------------------------------
$500,000 up to $999,999 2.50% 2.56%
- ------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00%
- ------------------------------------------------------------
* In the case of investments of $1 million or more, a 0.25% redemption fee
will be assessed on shares redeemed within 12 months of purchase
(excluding shares purchased with reinvested dividends and/or
distributions).
Class B. Shares
Class B shares are sold at NAV, without any upfront sales charge. Therefore, all
the money you invest is used to purchase Fund shares. However, if you sell your
Class B shares before the 6th anniversary of their purchase, you will have to
pay a contingent deferred sales charge ("CDSC") at the time of redemption. The
CDSC will be based upon the lower of the NAV at the time of purchase or the NAV
at the time of redemption according to the schedule below. There is no CDSC on
reinvested dividends or distributions.
CONTINGENT DEFERRED SALES CHARGE
Years Since Purchase CDSC
- -------------------- ----
1 5.00%
2 4.00%
3 3.00%
4 3.00%
5 2.00%
6 1.00%
7 0.00%
If you sell some but not all of your Class B shares, certain shares not subject
to the CDSC (i.e., shares purchased with reinvested dividends) will be redeemed
first, followed by shares subject to the lowest CDSC (typically, shares held for
the longest time).
Conversion Feature - Class B Shares
o Class B shares automatically convert to Class A shares of the Fund after
8 years from the end of the month of purchase.
o After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares, which will increase
your investment return compared to the Class B shares.
o You will not pay any sales charge or fees when your shares convert, nor will
the transaction give rise to any tax.
Class C Shares
- --------------
Class C shares are sold at NAV, with no sales charge. Therefore, the entire
amount of your purchase price is invested in Class C shares. A CDSC of 1.00% is
applied to redemptions of Class C shares within one year of the date of
purchase. Class C shares have no conversion feature.
Sales Charge Reductions
Reduced sales charges on purchases of Class A shares are available to
shareholders with investments of $100,000 or more. In addition, you may qualify
for reduced sales charges under the following circumstances.
o Letter of Intent. You inform the Fund in writing that you intend to purchase
enough shares over a 13-month period to qualify for a reduced sales charge.
You must include a minimum of 5% of the total amount you intend to purchase
with your letter of intent.
o Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for reduced
sales charges, your added investment will qualify for the reduced sales
charge.
o Combination Privilege. Combine accounts of multiple funds or accounts of
immediate family household members (spouse and children under 21) to achieve
reduced sales charges.
Sales Charge Waivers - Class A Shares
The following qualify for waivers of front end sales charges when purchasing
Class A shares:
(1) accounts owned by Trustees of the Company, officers, directors, employees
and retired employees of (a) the Adviser and its affiliates and (b) The
BISYS Group, Inc. and its affiliates, and spouses and children under the
age of 21 of each of the foregoing;
(2) accounts owned by employees (and their spouses and children under the age
of 21) of any broker-dealer with whom the Distributor enters into a dealer
agreement to sell Shares of the Funds.
(3) Accounts opened in connection with "wrap fee" programs sponsored by
broker-dealers or other financial organizations.
For items listed above, shareholders must notify the Distributor that they are
entitled to a waiver of the sales charge. The waiver will be granted subject to
confirmation of the investor's situation.
CDSC Waivers - Class B Shares
- -----------------------------
[The CDSC applicable to redemptions of Class B Shares will be waived under
certain circumstances, including the following:
o Distributions from retirement plans if the distributions are made following
the death or disability of shareholders or plan participants.
o Redemptions from accounts other than retirement accounts following the death
or disability of the shareholder.
o Returns of excess contributions to retirement plans.
Distributions of less than 12% of the annual account value under an
o Automatic Withdrawal Plan.
Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.]
The Distributor and the Adviser, at their expense, may provide compensation
to dealers in connection with sales of Shares of the Fund
.
Distribution and Service (12b-1) Fees
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of a Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from the assets attributable to each Class of shares at the rates
applicable to the particular class, on an ongoing basis, and will increase the
cost of your investment.
The Distributor may use the 12b-1 fees paid by each class to pay for
distribution-related expenses. Amounts up to .25% out of the 12b-1 fee payable
by each class of shares may be used for shareholder servicing fees. The total of
distribution and shareholder service payments by a particular class may not
exceed the 12b-1 fee limit for that class.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.
Individual Retirement Account ("IRA")
An IRA enables individuals, even if they participate in an employer-sponsored
retirement plan, to establish their own retirement programs. 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 IRA distribution requests must be made in writing to BISYS Fund Services.
Any additional deposits to an IRA must distinguish the type and year of the
contribution.
For more information on an IRA call the Fund at ____________. Shareholders are
advised to consult a tax adviser regarding IRA contribution and withdrawal
requirements and restrictions.
Dividends, Distributions and Taxes
Any income the Fund receives in the form of dividends is paid out, less
expenses, to its shareholders. Income dividends are usually paid quarterly.
Capital gains for the Fund are distributed at least annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
Dividends are taxable as ordinary income. If the Fund designates a distribution
as a long-term capital gains distribution, it will be taxable to you at your
long-term capital gains rate, regardless of how long you have owned your Fund
shares.
Some dividends are taxable in the calendar year in which they are declared, even
though your account statement may reflect them as being distributed in the
following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a tax penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules or shareholders that are subject to back-up withholding. To avoid
withholding, make sure you provide your correct Tax Identification Number
(Social Security Number for most investors) on your account application.
FUND MANAGEMENT
- ---------------
The Investment Adviser
Kensington Investment Group, Inc. ("Kensington") is an SEC registered investment
adviser which specializes in traded and non-traded real estate securities
portfolio management. Kensington was founded in 1993 by principals who have been
active in real estate securities research trading and investment since 1985.
Kensington provides discretionary investment management services for assets
totaling $______ as of June 30, 1999 for private limited partnerships, separate
accounts and registered investment company clients.
Kensington is located at 4 Orinda Way, Suite 220D, Orinda, CA 94563.
The Investment Committee
Kensington's principal owners are John Kramer, Paul Gray and Craig Kirkpatrick.
This group leads the firm's investment strategy formation and implementation.
Their backgrounds are described below.
JOHN P. KRAMER, PRESIDENT
Mr. Kramer is involved in all aspects of the organization and is primarily
responsible for directing the firm's investment policies. Mr. Kramer was
previously Executive Vice President at Liquidity Fund Investment Corporation
where he was responsible for directing the research, marketing and trading
activities of the firm. Prior to joining Liquidity Fund in 1985, Mr. Kramer
was an associate with Federal Reserve Chairman Alan Greenspan's economic
consulting firm, Townsend-Greenspan & Co. in New York City, and an account
executive at Sutro & Co., Inc. and Prudential-Bache Securities in San
Francisco. He received a B.A. in 1980 from the State University of New York,
Oneonta, in Economics, graduating as class valedictorian. Mr. Kramer
received his Masters Degree in Business Administration from the University of
California Berkeley in 1986, receiving an award for his work in real estate
finance while at the Business School.
PAUL GRAY, EXECUTIVE VICE PRESIDENT
Mr. Gray is the Portfolio Manager and is responsible for securities investment
decisions on behalf of Kensington's portfolios. Prior to joining the Adviser in
1994, Mr. Gray was a partner and founder of Golden State Financial Services, a
mortgage brokerage company. Prior to founding Golden State Financial Services in
[DATE], Mr. Gray was a senior analyst for Liquidity Fund Investment Corporation
where he managed their REIT portfolios and developed the models used to evaluate
real estate securities. While at Liquidity, he served as Director of Research
for the National Real Estate Index where he was instrumental in designing the
methodology and systems used to track real estate values throughout the United
States. Mr. Gray received a Bachelor of Science in Finance and Real Estate in
1988 from the Business School at the University of California at Berkeley.
CRAIG M. KIRKPATRICK, EXECUTIVE VICE PRESIDENT
Mr. Kirkpatrick has been involved in the research and trading of real estate
securities since 1985. He is a member of Kensington's investment committee and
involved in Kensington's daily corporate business affairs. Mr. Kirkpatrick was
previously employed as Vice President at Liquidity Fund Investment Corporation
from 1985-1993 responsible for the research and trading of non-traded real
estate securities. Prior to joining Liquidity Fund, Mr. Kirkpatrick was with
Crocker Bank in the finance department, acting as a liaison between the Finance
Division and World Banking Division. Mr. Kirkpatrick received a Bachelor of
Science in Finance from the Business School at the University of California at
Berkeley in 1984.
<PAGE>
The Portfolio Manager
Paul Gray serves as Portfolio Manager for the Fund and is responsible for the
day-to-day management of the Fund's portfolio. Mr. Gray oversees Kensington's
research and trading staff.
The Distributor and Administrator
BISYS Fund Services is the Fund's distributor and BISYS Fund Services Ohio, Inc.
is the Fund's administrator. Their address is 3435 Stelzer Road, Columbus, OH
43219
The Statement of Additional Information has more detailed information about the
Fund's service providers.
CAPITAL STRUCTURE
The Coventry Group was organized as a Massachusetts business trust on January 8,
1992 and overall responsibility for the management of the Funds is vested in the
Board of Trustees. Shareholders are entitled to one vote for each full share
held and a proportionate fractional vote for any fractional shares held and will
vote in the aggregate and not by series or class except as otherwise expressly
required by law.
<PAGE>
For more information about the Fund, the following documents are available free
upon request:
Annual/Semi-annual Reports:
The Fund's annual and semi-annual reports to shareholders will contain
additional information on the Fund's investments. In the annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Fund, including its operations and investment policies. It
is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
You can get free copies of Reports and the SAI, or request other information and
discuss your questions about the Fund by contacting a broker that sells the
Fund. Or contact the Fund at:
Kensington Strategic Realty Fund
P.O. Box 182301
Columbus, Ohio 43218-2301
Telephone: [________________]
- --------------------------------------------------------------------------------
You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
o For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6526.
<PAGE>
Kensington Strategic Realty Fund
an
Investment Portfolio of
The Coventry Group
Statement of Additional Information
__________, 1999
This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the prospectus for Kensington Strategic Realty Fund
("Fund") dated ___________, 1998 ("Prospectus"). The Fund is a separate
investment portfolio 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 Fund at 3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning
toll free (800) 713-4276.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
THE COVENTRY GROUP............................................................1
INVESTMENT OBJECTIVE AND POLICIES.............................................1
Additional Information on Portfolio Instruments.........................1
Investment Restrictions................................................15
Portfolio Turnover.....................................................17
NET ASSET VALUE..............................................................17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................19
Matters Affecting Redemption...........................................19
MANAGEMENT OF THE GROUP......................................................20
Trustees and Officers..................................................20
Investment Adviser and Sub-Adviser.....................................24
Portfolio Transactions.................................................26
Banking Laws...........................................................28
Administrator..........................................................28
Distributor............................................................32
Custodian..............................................................35
Transfer Agency and Fund Accounting Services...........................36
Independent Auditors...................................................37
Legal Counsel..........................................................37
ADDITIONAL INFORMATION.......................................................37
Description of Shares..................................................37
Vote of a Majority of the Outstanding Shares...........................38
Additional Tax Information.............................................38
Yields and Total Returns ..............................................48
Performance Comparisons................................................51
Principal Shareholders.................................................52
Miscellaneous..........................................................52
FINANCIAL STATEMENTS.........................................................53
APPENDIX....................................................................A-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
KENSINGTON STRATEGIC REALTY FUND
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. This Statement of Additional
Information deals with the portfolio called Kensington Strategic Realty Fund
("Fund"). Kensington Investment Group, Inc. ("Adviser") serves as investment
adviser to the Fund. Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectus of the
Fund. Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of the Fund should be made without first reading the
Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies of
the Fund as set forth in the Prospectus.
REAL ESTATE SECURITIES. The Fund is authorized to invest in the senior and
common securities of REITs and other real estate companies, including preferred
stock, convertible preferred stock, and corporate debt. A REIT is a corporation
or a business trust that would otherwise be taxed as a corporation, which meets
the definitional requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). The Code permits a qualifying REIT to deduct dividends paid ,
thereby effectively eliminating corporate level federal income tax and making
the REIT a pass-through vehicle for federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things, invest
substantially all of its assets in interests in real estate (including mortgages
and other REITs) or cash and government securities, derive most of its income
from rents from real property or interest on loans secured by mortgages on real
property; and distribute to shareholders annually 95% or more of its otherwise
taxable income.
REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership of
land and buildings and derives its income primarily from rental income. An
equity REIT may also realize capital gains (or losses) by selling real estate
properties in its portfolio and have appreciated (or depreciated) in value. A
mortgage REIT invests primarily in mortgages on real estate, which may secure
construction, development or long-term loans. A mortgage REIT generally derives
its income primarily from interest payments on the credit it has extended. A
hybrid REIT combines the characteristics of equity REITs and mortgage REITs,
generally by holding both ownership interests and mortgage interests in real
estate. It is anticipated, although not required, that under normal
circumstances a majority of the Fund's investments in REITs will consist of
equity REITs.
Investments in REITs may be subject to certain of the same risks
associated with the direct ownership of real estate. These risks include:
declines in the value of real estate generally; changes in neighborhood or
property appeal; environmental clean-up costs; condemnation or casualty losses;
risks related to general and local economic conditions, over-building and
competition; increases in property taxes and operating expenses; lack of
availability of mortgage funds; high or extended vacancy rates; and rent
controls or variations in rental income. Rising interest rates may cause REIT
investors to demand a higher annual return, which may cause a decline in the
prices of REIT equity securities. Rising interest rates also generally increase
the costs of obtaining financing, which could cause the value of the Fund's
investments to decline. During periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors may elect to prepay, and
such prepayment may diminish the yield on securities issued by those REITs. In
addition, mortgage REITs may be affected by the borrowers' ability to repay its
debt to the REIT when due. Equity REIT securities may be affected by the ability
of tenants to pay rent. In addition, REITs may not be diversified. REITs are
subject to the possibility of failing to qualify for tax-free pass-through of
income and failing to maintain exemption under the 1940 Act. Also, equity REITs
may be dependent upon management skill and may be subject to the risks of
obtaining adequate financing for projects on favorable terms.
MORTGAGE-RELATED SECURITIES. The Fund may invest up to 15% of its assets
in commercial mortgage-backed securities (CMBS). Holders of these securities
receive payments derived from the interest and principal on an underlying pool
of commercial loans. The Fund may purchase all grades of CMBS, including those
rated below investment grade.
BANK OBLIGATIONS. The Fund may invest in bank obligations such as bankers'
acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Bankers' acceptances
invested in by the Fund will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those of domestic and foreign banks and savings and loan
associations, provided that (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 Bank Insurance Fund or the Savings Association Insurance Fund.
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 Fund may purchase commercial paper consisting of issues rated at the
time of purchase within the three highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO"). The Fund may also
invest in commercial paper that is not rated but is determined by the Adviser
under guidelines established by the Group's Board of Trustees, to be of
comparable quality.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes
are unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic readjustments in the interest rate according to the terms
of the instrument. They are also referred to as variable rate demand notes.
Because master demand notes are direct lending arrangements between Fund and the
issuer, they are not normally traded. Although there is no secondary market in
the notes, the Fund may demand payment of principal and accrued interest at any
time or during specified periods not exceeding one year, depending upon the
instrument involved, and may resell the note at any time to a third party. The
Adviser will consider the earning power, cash flow, and other liquidity ratios
of the issuers of such notes and will continuously monitor their financial
status and ability to meet payment on demand.
VARIABLE AND FLOATING RATE NOTES. A variable rate note is one whose terms
provide for the readjustment of its interest rate on set dates and which, upon
such readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate note is one whose terms provide for
the readjustment of its interest rate whenever a specified interest rate changes
and which, at any time, can reasonably be expected to have a market value that
approximates its par value. Such notes are frequently not rated by credit rating
agencies; however, unrated variable and floating rate notes purchased by the
Fund will be determined by the Adviser under guidelines approved by the Group's
Board of Trustees to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. In
making such determinations, the Adviser will consider the earning power, cash
flow and other liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate notes may be secured by bank letters of
credit.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
FUTURES CONTRACTS. The Fund may invest in futures contracts and options
thereon (stock index futures contracts or interest rate futures or options) to
hedge or manage risks associated with the Fund's securities investments.
Although techniques other than sales and purchases of futures contracts could be
used to reduce the Fund's exposure, the Fund may be able to hedge its exposure
more effectively and perhaps at a lower cost through using futures contracts.
A stock index futures contract is an agreement in which one party agrees
to take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the index value (which assigns relative values to
the common stocks included in the index) at the close of the last trading day of
the contract and the price at which the agreement is originally made. No
physical delivery of the underlying stock in the index is contemplated.
To enter into a futures contract, an amount of cash and cash equivalents,
equal to the market value of the futures contract, is deposited in a segregated
account with the Fund's Custodian and/or in a margin account with a broker to
collateralize the position. Brokerage fees are also incurred when a futures
contract is purchased or sold.
Although futures contracts typically require future delivery of and
payment for financial instruments, the futures contracts are usually closed out
before the delivery date. Closing out an open Futures contract sale or purchase
is effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical type of financial
instrument and the same delivery date. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain; if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the contract.
As an example of an offsetting transaction in which the financial
instrument is not delivered, the contractual obligations arising from the sale
of one contract of September Treasury Bills on an exchange may be fulfilled at
any time before delivery of the contract is required (e.g., on a specified date
in September, the "delivery month") by the purchase of one contract of September
Treasury Bills on the same exchange. In such instance the difference between the
price at which the futures contract was sold and the price paid for the
offsetting purchase, after allowance for transaction costs, represents the
profit or loss to the Fund.
Positions in futures contracts may be closed out only on an exchange that
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
the Fund had insufficient cash, it might have to sell portfolio securities to
meet daily margin requirements at a time when it would be disadvantageous to do
so. In addition, the Fund might be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
hedge or manage risks effectively.
The Fund will not purchase or sell futures contracts (or related options
thereon) if, immediately after the transaction, the aggregate initial margin
deposits and premiums paid by the Fund on its open futures and options positions
that do not constitute bona fide hedging transactions, as defined by applicable
rules, exceed 5% of the liquidation value of the Fund after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered
The Fund will not enter into futures contracts for speculation and will
only enter into futures contracts which are traded on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal futures exchanges in the United States are the Board of Trade of
the City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission. Futures are also traded in various overseas markets.
The Fund may enter into real estate related futures contracts as a hedge
against changes in prevailing levels of real estate stock values in order to
establish more definitely the effective return on securities held or intended to
be acquired by the Fund. The Fund's hedging may include sales of futures as an
offset against the effect of expected declines in real estate stock values, and
purchases of futures in anticipation of purchasing underlying index stocks prior
to the availability of sufficient assets to purchase such stocks or to offset
potential increases in the prices of such stocks. When selling options or
futures contracts, the Fund will segregate cash and liquid securities to cover
any related liability.
The Fund may enter into stock index futures contracts. A stock index
contract such as the S&P 500 (RIX??) Stock Index Contract, for example, is an
agreement to take or make delivery at a specified future date of an amount of
cash equal to $500 multiplied by the difference between the value of the stock
index at purchase and at the close of the last trading day of the contract. In
order to close long positions in the stock index contracts prior to their
settlement date, the Fund will enter into offsetting sales of stock index
contracts.
Using stock index contracts in anticipation of market transactions
involves certain risks. Although the Fund may intend to purchase or sell stock
index contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for the contracts at any
particular time. In addition, the price of stock index contracts may not
correlate perfectly with the movement in the stock index due to certain market
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the stock index
and movements in the price of stock index contracts, a correct forecast of
general market trends may not result in a successful anticipatory hedging
transaction.
Futures Contracts Generally. Persons who trade in futures contracts may be
broadly classified as "hedgers" and "speculators." Hedgers, such as the Fund,
whose business activity involves investment or other commitments in debt
securities, equity securities, or other obligations, use the futures markets
primarily to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities and obligations held or expected to
be acquired by them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates or securities prices,.
The Fund's futures transactions will be entered into for traditional
hedging purposes; that is, futures contracts will be sold to protect against a
decline in the price of securities that the Fund owns, or futures contracts will
be purchased to protect the Fund against an increase in the price of securities
it has a fixed commitment or expectation to purchase.
"Margin" with respect to futures and futures contracts is the amount of
funds that must be deposited by the Fund with a broker in order to initiate
futures trading and to maintain the Fund's open positions in futures contracts.
A margin deposit ("initial margin") is intended to assure the Fund's performance
of the futures contract. The margin required for a particular futures contract
is set by the exchange on which the contract is traded, and may be significantly
modified from time to time by the exchange during the term of the contract.
Futures contracts are customarily purchased and sold on margins that may range
upward from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin deposit
("margin variation"). However, if the value of a position increases because of
favorable price changes in the futures contract so that the margin deposit
exceeds the required margin, the broker will pay the excess to the Fund. In
computing daily net asset values, the Fund will mark to market the current value
of its open futures contracts. The Fund expects to earn interest income on its
margin deposits.
The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in interest rates, which in turn
are affected by fiscal and monetary policies and national and international
political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances such as: variations in
speculative market demand for futures and for securities or currencies,
including technical influences in futures trading; and differences between the
financial instruments being hedged and the instruments underlying the standard
futures contracts available for trading, with respect to interest rate levels,
maturities, and creditworthiness of issuers. A decision of whether, when, and
how to hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or interest
rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain to the investor. For example, if at the time of purchase, 10% of the value
of the futures contract is deposited as margin, a subsequent 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline. Furthermore, in
the case of a futures contract purchase, in order to be certain that the Fund
has sufficient assets to satisfy its obligations under a futures contract, the
Fund segregates and commits to back the futures contract with cash or liquid
securities equal in value to the current value of the underlying instrument less
the margin deposit.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Successful use of futures by the Fund is subject to the Adviser's ability
to predict movements correctly in the direction of the market. There is
typically an imperfect correlation between movements in the price of the future
and movements in the price of the securities that are the subject of the hedge.
In addition, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Due to the possibility of
price distortion in the futures market and because of the imperfect correlation
between the movements in the cash market and movements in the price of futures,
a correct forecast of general market trends or interest rate movements by the
Adviser may still not result in a successful hedging transaction over a short
time frame.
The trading of futures contracts is also subject to the risk of trading
halts, suspension, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruption of normal trading activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
CALL OPTIONS. The Fund may write (sell) "covered" call options and
purchase options to close out options previously written by it. Such options
must be listed on a National Securities Exchange and issued by the Options
Clearing Corporation. The purpose of writing covered call options is to generate
additional premium income for the Fund. This premium income will serve to
enhance the Fund's total return and will reduce the effect of any price decline
of the security involved in the option. Covered call options will generally be
written on securities which, in the opinion of the Adviser, are not expected to
make any major price moves in the near future but which, over the long term, are
deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a security
at a specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by repurchasing an option identical to that
previously sold. To secure his obligation to deliver the underlying security in
the case of a call option, a writer is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation. The Fund will write only covered call options and will
normally not write a covered call option if, as a result, the aggregate market
value of all portfolio securities covering all call options would exceed 25% of
the market value of its net assets.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with the Fund's
investment objective. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options, which the Fund will not do), but
capable of enhancing the Fund's total return. When writing a covered call
option, the Fund, in return for the premium, gives up the opportunity for profit
from a price increase in the underlying security above the exercise price, but
retains the risk of loss should the price of the security decline. Unlike one
who owns securities not subject to an option, the Fund has no control over when
it may be required to sell the underlying securities, since it may be assigned
an exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security during the option
period. If the call option is exercised, the Fund will realize a gain or loss
from the sale of the underlying security. The security covering the call will be
maintained in a segregated account of the Fund's Custodian.
The premium received is the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser, in determining whether a
particular call option should be written on a particular security, will consider
the reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for such option. The premium received by the Fund
for writing covered call options will be recorded as a liability in the Fund's
statement of assets and liabilities. This liability will be adjusted daily to
the option's current market value, which will be the latest sale price at the
time at which the net asset value per share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale, the latest asked
price. The liability will be extinguished upon expiration of the option, the
purchase of an identical option in a closing transaction, or delivery of the
underlying security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit the Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If
the Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will seek to effect a closing transaction prior
to, or concurrently with, the sale of the security. There is, of course, no
assurance that the Fund will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. The Fund will pay
transaction costs in connection with the writing of options to close out
previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, the Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
The Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
WRITING COVERED PUT OPTIONS. The Fund may write covered put options. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) has the obligation to buy, the underlying security at the exercise
price during the option period. So long as the obligation of the writer
continues, the writer may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the writer to make payment of the
exercise price against delivery of the underlying security. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options.
The Fund may write put options only on a covered basis, which means that
the Fund would maintain in a segregated account cash and liquid securities in an
amount not less than the exercise price at all times while the put option is
outstanding. (The rules of the Options Clearing Corporation currently require
that such assets be deposited in escrow to secure payment of the exercise
price.) The Fund would generally write covered put options in circumstances
where the Advisor wishes to purchase the underlying security for the Fund's
portfolio at a price lower than the current market price of the security. In
such event the Fund would write a put option at an exercise price which, reduced
by the premium received on the option, reflects the lower price it is willing to
pay. Since the Fund would also receive interest on debt securities maintained to
cover the exercise price of the option, this technique could be used to enhance
current return during periods of market uncertainty. The risk in such a
transaction would be that the market price of the underlying security would
decline below the exercise price less the premiums received.
PURCHASING PUT OPTIONS. The Fund may purchase put options. As the holder
of a put option, the Fund has the right to sell the underlying security at the
exercise price at any time during the option period. The Fund may enter into
closing sale transactions with respect to such options, exercise them, or permit
them to expire. The Fund may purchase put options for defensive purposes in
order to protect against an anticipated decline in the value of its securities
or currencies. An example of such use of put options is provided below.
The Fund may purchase a put option on an underlying security (a
"protective put") owned as a defensive technique in order to protect against an
anticipated decline in the value of the security. Such hedge protection is
provided only during the life of the put option when the Fund, as the holder of
the put option, is able to sell the underlying security at the put exercise
price regardless of any decline in the underlying security's market price 's
exchange value. For example, a put option may be purchased in order to protect
unrealized appreciation of a security where the Advisor deems it desirable to
continue to hold the security because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security is eventually sold.
The Fund may also purchase put options at a time when the Fund does not
own the underlying security. By purchasing put options on a security it does not
own, the Fund seeks to benefit from a decline in the market price of the
underlying security . If the put option is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price during the life of the put option, the Fund will lose
its entire investment in the put option. In order for the purchase of a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale transaction.
The Fund will commit no more than 5% of its assets to premiums when
purchasing put options. The premium paid by the Fund when purchasing a put
option will be recorded as an asset in the Fund's statement of assets and
liabilities. This asset will be adjusted daily to the option's current market
value, which will be the latest sale price at the time at which the Fund's net
asset value per share is computed (close of trading on the New York Stock
Exchange), or, in the absence of such sale, the latest bid price. The asset will
be extinguished upon expiration of the option, the selling (writing) of an
identical option in a closing transaction, or the delivery of the underlying
security upon the exercise of the option.
PURCHASING CALL OPTIONS. The Fund may purchase call options. As the holder
of a call option, the Fund has the right to purchase the underlying security at
the exercise price at any time during the option period. The Fund may enter into
closing sale transactions with respect to such options, exercise them, or permit
them to expire. The Fund may purchase call options for the purpose of increasing
its current return or avoiding tax consequences which could reduce its current
return. The Fund may also purchase call options in order to acquire the
underlying securities. Examples of such uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of acquiring the
underlying securities for its portfolio. Utilized in this fashion, the purchase
of call options enables the Fund involved to acquire the securities at the
exercise price of the call option plus the premium paid. At times the net cost
of acquiring securities in this manner may be less than the cost of acquiring
the securities directly. This technique may also be useful to the Fund in
purchasing a large block of securities that would be more difficult to acquire
by direct market purchases. So long as it holds such a call option rather than
the underlying security itself, the Fund is partially protected from any
unexpected decline in the market price of the underlying security and in such
event could allow the call option to expire, incurring a loss only to the extent
of the premium paid for the option.
The Fund will commit no more than 5% of its assets to premiums when
purchasing call options. The Fund may also purchase call options on underlying
securities it owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for this purpose
where tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options may also be purchased at times to
avoid realizing losses that would result in a reduction of the Fund's current
return. For example, where the Fund has written a call option on an underlying
security having a current market value below the price at which such security
was purchased by the Fund, an increase in the market price could result in the
exercise of the call option written by the Fund and the realization of a loss on
the underlying security with the same exercise price and expiration date as the
option previously written.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to
options on fixed income or equity securities or options on currencies, except
that options on futures contracts give the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put), rather than
to purchase or sell the futures contract, at a specified exercise price at any
time during the period of the option. Upon exercise of the option, the delivery
of the futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
futures margin account which represents the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference on the expiration date between the exercise price of the
option and the closing level of the securities upon which the futures contracts
are based. Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
As an alternative to purchasing call and put options on futures, the Fund
may purchase call and put options on the underlying securities. Such options
would be used in a manner identical to the use of options on futures contracts.
To reduce or eliminate the leverage then employed by the Fund or to reduce or
eliminate the hedge position then currently held by the Fund, the Fund may seek
to close out an option position by selling an option covering the same
securities or contract and having the same exercise price and expiration date.
RESTRICTED AND ILLIQUID SECURITIES. Restricted securities are subject to
restrictions on resale under federal securities law. Under criteria established
by the Fund's Trustees, certain restricted securities are determined to be
liquid. To the extent that restricted securities are not determined to be
liquid, the Fund will limit their purchase, together with other illiquid
securities including non-negotiable time deposits, and repurchase agreements
providing for settlement in more than seven days after notice, to no more than
15% of its net assets.
Restricted securities in which the Fund may invest may include commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933. Section 4(2) commercial paper is restricted
as to disposition under federal securities law, and is generally sold to
institutional investors, such as the Fund, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus providing liquidity. The Adviser
believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by the
Trustees of the Fund are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by the
Trustees, including Section 4(2) commercial paper, as determined by the Adviser,
as liquid and not subject to the investment limitations applicable to illiquid
securities.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may invest in
securities issued by the other investment companies. The Fund currently intends
to limit its investments in accordance with applicable law. Among other things,
such law would limit these investments so that, as determined immediately after
a securities purchase is made by a Fund: (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 the Fund; and (d) not more than 10% of the outstanding voting stock
of any one closed-end investment company will be owned by the Fund together with
all other investment companies that have the same investment adviser. 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 a Fund bears directly in connection with its own operations.
Investment companies in which a Fund may invest may also impose a sales or
distribution charge in connection with the purchase or redemption of their
Shares and other types of commissions or charges. Such charges will be payable
by the Fund and, therefore, will be borne directly by Shareholders.
REPURCHASE AGREEMENTS. Securities held by a Fund may be subject to
repurchase agreements. These transactions permit a Fund to earn income for
periods as short as overnight. The Fund could receive less than the repurchase
price on any sale of such securities. Under the terms of a repurchase agreement,
a Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation and registered broker-dealers and other financial
institutions which the Adviser or Sub-Adviser deems creditworthy under
guidelines approved by the Group's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by 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. The seller under a
repurchase agreement will be required to maintain continually the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that a Fund would be entitled, as against a claim by such seller or its receiver
or trustee in bankruptcy, to retain the underlying securities, although the
Board of Trustees of the Group believes that, under the regular procedures
normally in effect for custody of the Funds' 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 the Funds' 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 Investment Company Act
of 1940 ("1940 Act").
DIVERSIFICATION. The Fund is a "non-diversified" management investment
company, as defined in the 1940 Act. Therefore, it is not subject to the
diversifications requirements of the 1940 Act which generally limit investments,
as to 75% of a fund's total assets, to no more than 5% in securities in a single
issuer and 10% of an issuer's voting securities. Similar diversification
requirements, as to 50% of the Fund's total assets, will however be applicable
to the Fund under the Internal Revenue Code, which also provide that the Fund
may not invest more than 25% of its total assets in issuers controlled by the
Funds and determined to be in a similar business.
LEVERAGE. The Fund can buy securities with borrowed money (a form of
leverage). Leverage exaggerates the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio securities. These borrowings
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased; in certain cases, interest costs may
exceed the return received on the securities purchased. For borrowings for
investment purposes, including reverse repurchase agreements (see below), the
1940 Act requires the Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300%
of the amount borrowed. If the required coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell some of
its portfolio holding within three days to reduce the amount of its borrowings
and restore the 300% asset coverage, even though it may be disadvantageous from
an investment standpoint to sell securities at that time. The Fund also may be
required to maintain minimum average balances in connection with such borrowing
or pay a commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
REVERSE REPURCHASE AGREEMENTS AND LEVERAGE. The Fund may enter into
reverse repurchase agreements which involve the sale of a security by the Fund
and its agreement to repurchase the security at a specified time and price. This
is another form of leverage. The Fund will maintain in a segregated account with
its custodian cash, cash equivalents, or liquid securities in an amount
sufficient to cover its obligations under reverse repurchase agreements with
broker-dealers (but not with banks). Under the 1940 Act, reverse repurchase
agreements are considered borrowings by the Fund; accordingly, the Fund will
limit its investments in these transactions, together with any other borrowings,
to no more than one-third of its total assets. The use of reverse repurchase
agreements by the Fund creates leverage which increases the Fund's investment
risk. If the income and gains on securities purchased with the proceeds of these
transactions exceed the cost, the Fund's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the costs, earnings or net asset value would decline faster
than otherwise would be the case. If the 300% asset coverage required by the
1940 Act should decline as a result of market fluctuation or other reasons, the
Fund may be required to sell some of its portfolio securities within three days
to reduce the borrowings (including reverse repurchase agreements) and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. The Fund intends to enter
into reverse repurchase agreements only if the income from the investment of the
proceeds is greater than the expense of the transaction, because the proceeds
are invested for a period no longer than the term of the reverse repurchase
agreement.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend securities if such loans
are secured continuously by liquid assets consisting of cash, U.S. Government
securities or other liquid, high-grade debt securities or by a letter of credit
in favor of the Fund at least equal at all times to 100% of the market value of
the securities loaned, plus accrued interest. While such securities are on loan,
the borrower will pay the Fund any income accruing thereon. Loans will be
subject to termination by the Fund in the normal settlement time, currently
three Business Days after notice, or by the borrower on one day's notice (as
used herein, "Business Day" shall denote any day on which the New York Stock
Exchange and the custodian are both open for business). Any gain or loss in the
market price of the borrowed securities that occurs during the term of the loan
inures to the lending Fund and its shareholders. The Funds may pay reasonable
finders' and custodial fees in connection with loans. In addition, the Funds
will consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and the Funds will not lend their securities to
any director, officer, employee, or affiliate of the Adviser, the Sub-Adviser,
the Administrator or the Distributor, unless permitted by applicable law. Loans
of portfolio securities risks, such as delays or an inability to regain the
securities or collateral adjustments in the event the borrower defaults or
enters into bankruptcy.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may
purchase securities on a delayed delivery or "when-issued" basis and enter into
firm commitment agreements (transactions whereby the payment obligation and
interest rate are fixed at the time of the transaction but the settlement is
delayed). The Fund will not purchase securities the value of which is greater
than 5% of its net assets on a when-issued or firm commitment basis. The Fund,
as purchaser, assumes the risk of any decline in value of the security beginning
on the date of the agreement or purchase, and no interest accrues to the Fund
until it accepts delivery of the security. The Fund will not use such
transactions for leveraging purposes and, accordingly, will segregate cash, cash
equivalents, or liquid securities in an amount sufficient to meet its payment
obligations thereunder. Although these transactions will not be entered into for
leveraging purposes, to the extent the Fund's aggregate commitments under these
transactions exceed its holdings of cash and securities that do not fluctuate in
value (such as short-term money market instruments), the Fund temporarily will
be in a leveraged position (i.e., it will have an amount greater than its net
assets subject to market risk). Should market values of the Fund's portfolio
securities decline while the Fund is in a leveraged position, greater
depreciation of its net assets would likely occur than were it not in such a
position. As the Fund's aggregate commitments under these transactions increase,
the opportunity for leverage similarly increases. The Fund will not borrow money
to settle these transactions and, therefore, will liquidate other portfolio
securities in advance of settlement if necessary to generate additional cash to
meet its obligations thereunder.
SHORT SALES The Fund may from time to time sell securities short. A sort
sale is a transaction in which the Fund sells securities it does not own (but
has borrowed) in anticipation of a decline in the market price of the
securities. To complete a short sale, the Fund must arrange through a broker to
borrow the securities to be delivered to the buyer. The proceeds received by the
Fund from the short sale are retained by the broker until the Fund replaces the
borrowed securities. In borrowing the securities to be delivered to the buyer,
the Fund becomes obligated to replace the securities borrowed at their market
price at the time of replacement, whatever that price may be. The Fund may have
to pay a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash or obligations of the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"). In addition, the Fund will
place in a segregated account with its custodian an amount of cash or U.S.
Government Securities equal to the difference, if any, between (a) the market
value of the securities sold at the time they were sold short, and (b) any cash
or U.S. Government Securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (a) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short, and (b)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
The Fund will incur a loss as a result of a short sale (other than a short
sale against the box, see below) if the price of the security increases between
the date of the short sale and the date on which the Fund replaces the borrowed
security. Possible losses from such short sales differ from losses that could be
incurred from a purchase of a security, because losses from such short sales may
be unlimited, whereas losses from purchases of a security can equal only the
total amount invested. Short sales will be limited to no more than 25% of the
value of the Fund's assets.
SHORT SALES AGAINST THE BOX The Fund may enter into a short sale of a
security such that, so long as the short position is open, the Fund will own an
equal amount of preferred stock or debt securities, convertible or exchangeable
without payment of further consideration, into an equal number of shares of the
common stock sold short. This kind of short sales, which is described as one
"against the box," will be entered into by the Fund for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
the sale. The proceeds of the sale will be held by the broker until the
settlement date, when the Fund delivers the convertible securities to close out
its short position. Although, prior to delivery, the Fund will have to pay an
amount equal to any dividends paid on the common stock sold short, the Fund will
receive the dividends from the preferred stock or interest from the debt
securities convertible into the stock sold short, plus a portion of the interest
earned from the proceeds of the short sale. The Fund will deposit, in a
segregated account with its custodian, convertible preferred stocks or
convertible debt securities in connection with short sales against the box.
Investment Restrictions
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The following are fundamental investment restrictions of the Fund:
1. The Fund has elected to qualify as a non-diversified series of the Trust.
2. The Fund will invest more than 25% of the value of its assets in securities
of issuers in the real estate industry.
Additionally, the Fund may not:
3. borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
4. issue senior securities, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
5. engage in the business of underwriting securities issued by others, except to
the extent that a Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities;
6. purchase or sell real estate, which does not include securities of companies
which deal in real estate or mortgages or investments secured by real estate or
interests therein, except that the Fund reserves freedom of action to hold and
to sell real estate acquired as a result of the Fund's ownership of securities;
7. purchase physical commodities or contracts relating to physical commodities;
8. make loans to other persons, except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase of
debt instruments or interests in indebtedness in accordance with a Fund's
investment objective and policies may be deemed to be loans.
Portfolio Turnover
- ------------------
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less. The turnover rate for the Fund is not expected to exceed 200%.
NET ASSET VALUE
The net asset value of Shares of the Fund is determined and the Shares are
priced as of the Valuation Time on each Business Day of the Company. A "Business
Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is
open for trading and any other day except days on which there are not sufficient
changes in the value of the Fund's portfolio securities that the Fund's net
asset value might be materially affected and days during which no Shares are
tendered for redemption and no orders to purchase Shares are received.
Currently, the NYSE is closed on New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Portfolio equity securities for which market quotations are readily
available are valued based upon their last sales prices in their principal
market. Lacking any sales, these securities are valued at the mean between the
most recent bid and asked quotations. Debt securities with remaining maturities
of 60 days or less will be valued at their amortized cost. Other debt securities
are generally valued by pricing agents based on valuations supplied by
broker-dealers or calculated by electronic methods. Other securities and assets
for which quotations are not readily available, including restricted securities
and securities purchased in private transactions, are valued at their fair value
in the best judgment of the Adviser under the supervision of the Group's Board
of Trustees.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Fund are the existence of restrictions upon the
sale of the security by the Fund, the absence of a market for the security, the
extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
As noted, the Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will be reviewed by the Group under the
general supervision of the Group's Board of Trustees. Several pricing services
are available, one or more of which may be used by the Adviser from time to
time.
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
- -------------------------------------
Fund Shares are sold on a continuous basis by BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services (the "Distributor") and BISYS Fund
Services has agreed to use appropriate efforts to solicit all purchase orders.
The Group may suspend the right of redemption or postpone the date of
payment for Shares with respect to the Fund during any period when (a) trading
on the New York Stock Exchange (the "Exchange") is restricted by applicable
rules and regulations of the Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Commission has by order
permitted such suspension for the protection of security holders of the Group or
the Fund, or (d) the Commission has determined that an emergency exists as a
result of which (i) disposal by the Group or the Fund of securities owned by it
is not reasonably practical, or (ii) it is not reasonably practical for the
Group or the Fund to determine the fair value of its net assets.
The Group may redeem Shares of the Fund involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940 Act.
(See "General Policies on Redeeming Shares" in the Prospectus.)
MANAGEMENT OF THE GROUP
Trustees and Officers
- -------------------------
Overall responsibility for management of the Group rests with its Board of
Trustees, which is elected by the Shareholders of the Group. The Trustees elect
the officers of the Group to supervise actively its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses, ages
and principal occupations during the past five years are as follows:
<PAGE>
- --------------------------------------------------------------------------------
Position(s) Held Principal Occupation
Name, Address & Age With the Group During Past 5 Years
- --------------------------- ------------------- ------------------------
Walter B. Grimm* Chairman, President and From June 1992 to
3435 Stelzer Road Trustee present, employee of
Columbus, OH 43219 BISYS Fund Services,
Age: 52 from 1987 to June 1992,
President of Leigh
Investments (investment
firm).
Maurice G. Stark Trustee Retired. Until December
505 King Avenue 31, 1994, Vice
Columbus, Ohio 43201 President-Finance and
Age: 62 Treasurer, Battelle
Memorial Institute
(scientific research and
development service
corporation).
Michael M. Van Buskirk Trustee From June 1991 to
37 West Broad Street present, Executive Vice
Suite 1001 President of The Ohio
Columbus, Ohio 43215 Bankers' Association
Age: 50 (trade association);
from September 1987 to
June 1991, Vice President
Communications, TRW
Information Systems Group
(electronic and space
engineering).
John H. Ferring IV Trustee From 1979 to present,
105 Bolte Lane President and owner of
St. Clair, Missouri 63077 Plaze, Inc., St. Clair,
Age: 45 Missouri.
J. David Huber Vice President From June 1987 to
3435 Stelzer Road present, employee of
Columbus, Ohio 43219 BISYS Fund Services.
Age: 51
Jennifer J. Brooks Vice President From October 1988 to
3435 Stelzer Road present, employee of
Columbus, Ohio 43219 BISYS Fund Services.
Age: 32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Paul Kane Treasurer From December 1997 to
3435 Stelzer Road present, employee of
Columbus, Ohio 43219 BISYS Fund Services;
Age: 41 from March to December
1997, Director of
Shareholder Reporting
for Fidelity Investments.
George L. Stevens Secretary From September 1996 to
3435 Stelzer Road present, employee of
Columbus, Ohio 43219 BISYS Fund Services;
from September 1995 to
September 1996,
Independent Consultant;
from September 1989 to
September 1995, Senior
Vice President, AmSouth
Bank, N.A.
Alaina V. Metz Assistant Secretary From 1995 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services; from May 1989
Age: 30 to June 1995, employee
of Alliance Capital
Management.
- ----------------------------
* Mr. Grimm is considered to be an "interested person" of the Group
as defined in the 1940 Act.
As of the date of this Statement of Additional Information, the Group's
officers and Trustees, as a group, own less than 1% of either Fund's outstanding
Shares.
The officers of the Group receive no compensation directly from the Group
for performing the duties of their offices. BISYS Fund Services may receive fees
pursuant to the Distribution and Shareholder Services Plan and the
Administrative Services Plan. BISYS Fund Services Ohio, Inc. ("BISYS") receives
fees from the Fund for acting as administrator and transfer agent and for
providing certain fund accounting services. Messrs. Huber, Kane, Stevens, Grimm,
Ms. Metz and Ms. Brooks are employees of BISYS.
Trustees of the Group not affiliated with BISYS or 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
or BISYS Fund Services do not receive compensation from the Group.
Investment Adviser
- ------------------
Investment advisory services for the Funds are provided by Kensington
Investment Group, Inc., 4 Orinda Way, Suite 220D, Orinda, CA 94563. Pursuant to
an Investment Advisory Agreement dated as of _________, 1999 (the "Agreement"),
the Adviser has agreed to provide investment advisory services to the Fund as
described in the Prospectus. For the services provided pursuant to the
Agreement, the Fund pays the Adviser a base fee computed daily and paid monthly,
at an annual rate, calculated as a percentage of the Fund's average daily net
assets, of 1.50%. The management fee is a fulcrum-type performance fee that
increases or decreases from the base fee of 1.50% depending on the Fund's
performance relative to that of the NAREIT Composite Index during the preceding
twelve months. The Adviser will receive the base fee for periods when the Fund's
performance for the past twelve months equals that of the Index. Through
performance adjustments equal to 15% of the difference between the performance
of the Fund and that of the Index during the previous twelve months, the fee can
range from a minimum of 0.50% to a maximum of 2.50%. This fee arrangement may
result in higher fees than those paid by other investment companies. The Adviser
may receive the maximum fee even if the Fund's absolute performance is negative,
and it may receive the minimum fee even when the Fund has significant positive
performance. The Adviser may periodically waive all or a portion of its advisory
fee to increase the net income of the Fund available for distribution as
dividends.
Unless sooner terminated, the Agreement will continue in effect until
____, 2001, and from year to year thereafter, if such continuance is approved at
least annually by the Group's Board of Trustees or by vote of a majority of the
outstanding Shares of the Fund and a majority of the Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act of
any party to the Agreement by votes cast in person at a meeting called for such
purpose. (See "Vote of a Majority of the Outstanding Shares," below). The
Agreement is terminable at any time on 60 days' written notice without penalty
by the Trustees, by vote of a majority of the outstanding Shares of the Fund, or
by the Adviser. The Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the 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 Agreement was approved by both the Trustees and the independent
Trustees at a meeting held __________, 1999.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreement, the Adviser determine,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with the Fund's investment objective and restrictions, which
securities are to be purchased and sold by the Fund, and which brokers are to be
eligible to execute the Fund's portfolio transactions. Certain purchases and
sales of portfolio securities with respect to the Fund are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities generally include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers may include the spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. Transactions in the over-the-counter market are generally principal
transactions with dealers. With respect to the over-the-counter market, the
Adviser, where possible, will deal directly with dealers who make a market in
the securities involved except in those circumstances where better price and
execution are available elsewhere.
Firms with which portfolio transactions for the Fund will be conducted are
selected based on a number of factors such as reputation, capital strength size
and difficulty of order, sale of Fund shares and research provided to the
Adviser. The Adviser may cause the Fund to pay commissions higher than those
another broker-dealer would have charged if the Adviser believes the commission
paid is reasonable relative to the value of the brokerage and research services
received by the Adviser. Research services so received by the Adviser may be
useful to the Adviser in providing services to clients other than the Fund, and
not all such services are used by the Adviser in connection with the Fund.
Similarly, research services provided to the Adviser by broker-dealers through
which transactions are executed for clients other than the Fund may be used by
the Adviser in providing services to the Fund.
Investment decisions for the Fund are made independently from those for
other accounts managed by the Adviser. Any such account may also invest in the
same securities as the Fund. Securities purchased for the Fund may not be
purchased for other accounts, and vice versa. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another account, the transaction will be averaged as to price, and available
investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Fund and such other account. In some instances,
this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained by the Fund. To the extent permitted
by law, the Adviser may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for the other accounts in order to
obtain best execution.
Administrator
- -------------
BISYS serves as administrator ("Administrator") to the Fund pursuant to a
Management and Administration Agreement dated _________, 1999 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of the Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, the Custodian under the Custodian Agreement and
by BISYS 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 and provide the Fund with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities to
handle the Fund's affairs. These services include, among other things: assisting
in the selection of and conducting and overseeing relations with various service
providers to the Fund; maintaining the Fund's regulatory compliance calendar;
preparing the periodic reports to the Commission on Form N-SAR or any
replacement forms therefor; coordinating and supervising the preparation and
filing of the Fund's tax returns; monitoring the Fund's compliance with its
status under the Internal Revenue Code; preparing compliance filings pursuant to
state securities laws; developing and preparing, with the assistance of the
Adviser, the Fund's Annual and Semi-Annual Reports and other communications to
Shareholders; assisting Fund counsel in the preparation and filing the Fund's
Registration Statement and any proxy materials; preparing and filing timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
calculating the Fund's expenses, controlling its disbursements, calculating
various measures of performance and operations; and generally assisting in all
aspects of the Fund's operations other than those performed by the Adviser,
under the Investment Advisory Agreement, by the Custodian under the Custodian
Agreement, by BISYS Fund Services as Distributor, or by BISYS under the Transfer
Agency Agreement or Fund Accounting Agreement. Under the Administration
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives fees from the Fund for its services as
Administrator and for its services under the Transfer Agency Agreement and Fund
Accounting Agreement pursuant to an Omnibus Fee Agreement. In addition to
certain out-of-pocket expenses, these fees include: asset-based fees of 0.18% of
the Fund's average daily net assets up to $1 billion and 0.10 for such assets in
excess of $1 billion; per account fees of $25 per shareholder account. These
asset-based and per-account fees are subject to an annual minimum fee of
$125,000, and an additional annual amount of $25,000 is charged for each class
of shares in addition to the initial class. The Administrator may periodically
waive all or a portion of its fee with respect to the Fund in order to increase
the net income of the Fund available for distribution as dividends.
Unless sooner terminated as provided therein, the Administration Agreement
will continue in effect until ______________. The Administration Agreement
thereafter shall be renewed automatically for successive ____-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. If the Administrator is replaced for any other reason, the
Administrator shall receive a cash payment equal to fees that would be due for
the balance of the term based on the average previous twelve months' Fund assets
and number of shareholder accounts.
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 a
Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
<PAGE>
Distributor
- -----------
BISYS Fund Services Limited Partnership ("BISYS Fund Services) serves as
distributor to the Funds pursuant to the Distribution Agreement dated _________,
1999 (the "Distribution Agreement"). Unless otherwise terminated, the
Distribution Agreement will continue in effect with respect to the Fund until
__________, 2001, and thereafter, if such continuance is approved at least
annually (i) by the Group's Board of Trustees or by the vote of a majority of
the outstanding Shares of the 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 will terminate automatically 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. The Distributor receives no compensation
under the Distribution Agreement with the Group, but may receive compensation
from the Fund under the Service and Distribution Plan described below.
The Group has adopted a Service and Distribution Plan for each class of
Shares of the Fund (the "Plan") pursuant to Rule 12b-1 under the 1940 Act under
which the Fund is authorized to compensate the Distributor for payments it makes
to banks, other institutions and broker-dealers, and for expenses the
Distributor and any of its affiliates or subsidiaries incur (with all of the
foregoing organizations being referred to as "Participating Organizations") for
providing administration, distribution or shareholder service assistance.
Payments to such Participating Organizations may be made pursuant to agreements
entered into with the Distributor. The Plan authorizes the Fund to make payments
to the Distributor amounts not to exceed, on an annual basis, 0.25% of the
average daily net assets of Class A Shares of the Fund and 1.00% of Class C
Shares. Each Class is authorized to pay a Shareholder Service Fee of up to 0.25%
of its average daily net assets. [Will there be a separate non-12b-1 service
fee, or is there a 0.25% of service fee as part of overall 12b-1 fee?] As
required by Rule 12b-1, the Plan was approved by the Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan ("Independent Trustees") at a meeting held on ____________, 1999. The Plan
may be terminated with respect to a Class by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding Shares of the
Class. The Trustees review quarterly a written report of such costs and the
purposes for which such costs have been incurred. The Plan may be amended by
vote of the Trustees including a majority of the Independent Trustees, cast in
person at a meeting called for that purpose. However, any change in the Plan
that would materially increase the distribution cost to a Class requires
approval by a majority of the Shareholders of that Class. For so long as the
Plan is in effect, selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees. 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, with respect to a Class, by vote of a
majority of the outstanding Shares of that Class. The Plan will continue in
effect with respect to a Class for successive one-year periods, provided that
each such continuance is specifically approved (i) by the vote of a majority of
the Independent Trustees, and (ii) by the vote of a majority of the entire Board
of Trustees cast in person at a meeting called for that purpose. The Board of
Trustees has a duty to request and evaluate such information as may be
reasonably necessary for it to make an informed determination of whether the
Plan should be implemented or continued. In addition, for each Class, the
Trustees, in approving the Plan, must determine that there is a reasonable
likelihood that the Plan will benefit the Class and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the best
interests of each Class since it encourages Fund growth. As the Fund grows in
size, certain expenses, and, therefore, total expenses per Share, may be reduced
and overall performance per Share may be improved.
Custodian
- ---------
Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey
08540-6231, serves as the Funds' custodian ("Custodian"). The Custodian is an
affiliate of Bear, Stearns & Co. Inc. and Bear, Stearns Securities Corp.,
entities with which the Fund may transact other business including loans of
portfolio securities and repurchase agreements.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS, in addition to its service as Administrator, also serves as
Transfer Agent and Dividend Disbursing Agent for the Fund. pursuant to a
Transfer Agency Agreement dated __________, 1999. Pursuant to such Agreement,
the Transfer Agent, among other things, performs the following services in
connection with the Fund's Shareholders of record: maintenance of shareholder
records for the Fund's Shareholders of record; processing shareholder purchase
and redemption orders; processing transfers and exchanges of Shares of the Fund
on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. The Fund pays the Transfer Agent for these services
pursuant to the Omnibus Fee Agreement (see "Administrator").
In addition, BISYS provides certain fund accounting services to the Fund
pursuant to Fund Accounting Agreement dated __________, 1999. Fees for these
services are also paid pursuant to the Omnibus Fee Agreement (see
"Administrator"). Under the Fund Accounting Agreement, BISYS maintains the
accounting books and records for the 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 net income and
capital gains, if any, and of yield, verification and reconciliation of the
Fund's daily trade activity with the Custodian; 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 the Fund.
Independent Auditors
- --------------------
[Name and address of auditor] has been selected as independent auditors
for the Fund for the fiscal year ended __________, 2000.
Legal Counsel
- -------------
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
is counsel to the Group.
<PAGE>
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust, organized on January 8, 1992.
The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of Shares, which are Shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of Shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued Shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption, and to establish separate classes of Shares.
Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the 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 each fund
are entitled to receive the assets available for distribution belonging to that
fund, and a proportionate distribution, based upon the relative asset values of
the respective funds, of any general assets not belonging to any particular fund
which are available for distribution, subject to any differential class
expenses.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding Shares of that fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants (for funds
having the same independent accountants), the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of the Group voting without regard to individual funds. Rule 18f-3
under the 1940 Act provides that Shareholders of each class shall have exclusive
voting rights on matters submitted to Shareholders relating solely to
distribution and shareholder service arrangements.
Under Massachusetts law, Shareholders could, under certain circumstances,
be held personally liable for the obligations of the Group. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees or
officers of the Group for acts or obligations of the Group, which are binding
only on the assets and property of the Group, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Group or the Trustees. The Declaration of Trust provides for indemnification
out of Group property for all loss and expense of any shareholder held
personally liable for the obligations of the Group. The risk of a shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which the Group itself would be unable to meet its obligations,
and thus should be considered remote.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Fund or a Class means the
affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a)
67% or more of the votes of Shareholders of the Fund or Class, as applicable,
present at a meeting at which the holders of more than 50% of the votes
attributable to Shareholders of record of the Fund or Class, as applicable are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Fund or Class, as applicable.
Additional Tax Information
- --------------------------
TAXATION OF THE FUND. The Fund intends to qualify annually and to elect to
be treated as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and any net
tax-exempt interest income each taxable year.
As a regulated investment company, the Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to Shareholders. The Fund intends
to distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the one-year period ending on October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
the Fund in October, November or December to Shareholders of record on a date in
such a month and paid by the Fund during January of the following calendar year.
Such distributions will be treated as received by Shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received. To prevent application of the excise tax,
the Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable
income generally will be taxable to a U.S. Shareholder as ordinary income. A
portion of the Fund's income may consist of dividends paid by U.S. corporations
and, accordingly, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Properly designated
distributions of net capital gains, if any, generally are taxable to
Shareholders as long-term capital gains, regardless of how long the Shareholder
has held the Fund's Shares, and are not eligible for the dividends-received
deduction. Shareholders receiving distributions in the form of additional
Shares, rather than cash, generally will have a cost basis in each such Share
equal to the net asset value of a Share of the Fund on the reinvestment date.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and Shareholders receiving distributions in the form of
additional Shares will receive a report as to the net asset value of those
Shares.
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a taxable distribution reduce the net asset value below a Shareholder's
cost basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
DISCOUNT SECURITIES. Investments by the Fund in securities that are issued
at a discount will result in income to the Fund equal to a portion of the excess
of the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held, even though the Fund receives
no cash interest payments. This income is included in determining the amount of
income which the Fund must distribute to maintain its status as a regulated
investment company and to avoid the payment of federal income tax and the 4%
excise tax.
Some of the debt securities may be purchased by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
Generally, the gain realized on the disposition of any debt security acquired
after April 30, 1993 having market discount will be treated as ordinary income
to the extent it does not exceed the accrued market discount on such debt
security.
Federal Tax Treatment of Futures Contracts. Except for transactions the
Fund identified as hedging transactions, the Fund is required for federal income
tax purposes to recognize as income for each taxable year its net unrealized
gains and losses on futures contracts as of the end of the year as well as those
actually realized during the year. Identified hedging transactions would not be
subject to the mark to market rules and would result in the recognition of
ordinary gain or loss. Otherwise, unless transactions in futures contracts are
classified as part of a "mixed straddle," any gain or loss recognized with
respect to a futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year.
Sales of futures contracts which are intended to hedge against a change in
the value of securities held by the Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income, i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. It is anticipated that any net gain realized from the
closing out of futures contracts will be considered gain from the sale of
securities and therefore be qualifying income for purposes of the 90%
requirement.
The Fund will distribute to shareholders annually any net long-term
capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end of the Investment Company's fiscal year)
on futures transactions. Such distributions will be combined with distributions
of capital gains realized on the Fund's other investments and shareholders will
be advised of the nature of the payments.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by the Fund for selling a
call option is not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If the Fund enters
into a closing transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain or loss. If a
call option written by the Fund is exercised, thereby requiring the Fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a call option that is purchased by the Fund, if
the option is sold, any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option is added to the basis of the
purchased security.
Certain options in which the Fund may invest are "section 1256 contracts".
Gains or losses on section 1256 contracts generally are considered 60% long-term
and 40% short-term capital gains or losses; however, foreign currency gains or
losses (as discussed below) arising from certain Section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by the
Fund at the end of each taxable year (and, generally, for purposes of the 4%
excise tax, on October 31 of each year) are "marked-to-market" (that is, treated
as sold at fair market value), resulting in unrealized gains or losses being
treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, 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.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or capital
gain, may be increased or decreased as compared to a fund that did not engage in
such hedging transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, offsetting notional principal contract or
forward contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options and forward
contracts and short sales) in stock, partnership interests, certain actively
traded trust instruments and certain debt instruments. Constructive sale
treatment does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the taxable year, if certain
conditions are met.
Unless certain constructive sales rules (discussed more fully above)
apply, the Fund will not realize gain or loss on a short sale of a security
until it closes the transaction by delivering the borrowed security to the
lender. Pursuant to Code Section 1233, all or a portion of any gain arising from
a short sale may be treated as short-term capital gain, regardless of the period
for which the Fund held the security used to close the short sale. In addition,
the Fund's holding period of any security, which is substantially identical to
that which is sold short, may be reduced or eliminated as a result of the short
sale. Recent legislation, however, alters this treatment by treating certain
short sales against the box and other transactions as a constructive sale of the
underlying security held by the Fund, thereby requiring current recognition of
gain, as described more fully above. Similarly, if the Fund enters into a short
sale of property that becomes substantially worthless, the Fund will recognize
gain at that time as though it had closed the short sale. Future Treasury
regulations may apply similar treatment to other transactions with respect to
property that becomes substantially worthless.
The diversification requirements applicable to the Fund's assets may limit
the extent to which the Fund will be able to engage in transactions in options
and other hedging transactions.
SALE OF SHARES. Upon the sale or other disposition of Fund Shares, or upon
receipt of a distribution in complete liquidation of the Fund, a Shareholder
generally will realize a taxable capital gain or loss which may be eligible for
reduced capital gains tax rates, generally depending upon the Shareholder's
holding period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including Shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the Shares. In
such a case, the basis of the Shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a Shareholder on a disposition of Fund
Shares held by the Shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the Shareholder with respect to such Shares.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all reportable payments, including dividends,
capital gain distributions and redemptions payable to Shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate Shareholders and certain other
Shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the Shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of an
investment in the Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
OTHER TAXATION. The Group is organized as a Massachusetts business trust
and, under current law, neither the Group nor any fund is liable for any income
or franchise tax in the Commonwealth of Massachusetts, provided that each fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund Shareholders may be subject to state and local taxes on Fund
distributions. In many states, Fund distributions which are derived from
interest on certain U.S. Government obligations may be exempt from taxation.
Yields and Total Returns
- ------------------------
YIELD CALCULATIONS. Yields on each Class of Fund Shares will be computed
by dividing the net investment income per share (as described below) earned by
the Class during a 30-day (or one month) period by the maximum offering price
per share on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. The net
investment income per share of a Class earned during the period is based on the
average daily number of Shares of that Class outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
a - b
------
Yield = 2 [(cd + 1)exp(6) - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding during the
period that were Entitled to receive dividends.
d = maximum offering price per Share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by the Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is held by the Fund. Interest earned on any
debt obligations held by the Fund is calculated by computing the yield to
maturity of each obligation held by the Fund based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last Business Day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by the Fund. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Undeclared earned income will be subtracted from the net asset value per
share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, the Adviser, Administrator or Distributor
may voluntarily waive all or a portion of their fees with respect to the Fund or
a Class. Such waiver would cause the yield of a Class to be higher than it would
otherwise be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. Average annual total return is a measure of the
change in value of an investment in a Class of Shares of the Fund over the
period covered, which assumes any dividends or capital gains distributions are
reinvested in Shares of that Class immediately rather than paid to the investor
in cash. The Fund computes the average annual total return for each Class by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
Average Annual ERV
Total Return = [ (P) exp (1/n) - 1]
P
P
Where: ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
The Fund computes its aggregate total return for each Class by determining
the aggregate compounded rate of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(------] - 1]
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Performance Comparisons
- -----------------------
Investors may judge the Fund's performance by comparing it 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., Standard & Poor's
Corporation and the National Association of Real Estate Investment Trusts
("NAREIT"), and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds or
Ibbotson Associates, Inc. Comparisons may also be made to indices or data
published in IBC/Donaghue's MONEY FUND REPORT, a nationally-recognized money
market fund reporting service, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, and U.S.A. Today. In addition to
performance information, general information about the Fund that appears in a
publication, such as those mentioned above, may be included in advertisements
and in reports to Shareholders. The Fund may also include in advertisements and
reports to Shareholders information comparing the performance of the Adviser to
other investment advisers; such comparisons may be published by or included in
Nelsons Directory of Investment Managers, Roger's, Casey/PIPER Manager Database,
CDA/Cadence, or Chase Global Data and Research.
Current yields or performance will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, the yield or
performance of a Class may not be directly comparable to bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of the quality, composition and maturity of the Fund's
portfolio, as well as expenses allocated to the Fund and each Class. Fees
imposed upon customer accounts by third parties for cash management services
will reduce the effective yield to customers.
From time to time, the Fund may include general comparative information,
such as statistical data regarding inflation, securities indices or the features
or performance of alternative investments, in advertisements, sales literature
and reports to shareholders. The Fund 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 the
Fund.
Miscellaneous
- -------------
The Fund may include information in its Annual Report and Semi-Annual
Report to Shareholders that (1) describes general economic trends, (2) describes
general trends within the financial services industry or the mutual fund
industry, (3) describes past or anticipated portfolio holdings for the Fund or
(4) describes investment management strategies for the Fund. Such information is
provided to inform Shareholders of the activities of the Fund for the most
recent fiscal year or half-year and to provide the views of the Adviser and/or
Group officers regarding expected trends and strategies.
The Financial Statements of the Fund will be provided in semi-annual
(unaudited) and annual reports to Shareholders.
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Shareholders owning not less than 10% of the outstanding Shares of the Group
entitled to vote may cause the Trustees to call a special meeting, including for
the purpose of considering the removal of one or more Trustees. Any Trustee may
be removed at any meeting of Shareholders by vote of two-thirds of the Group's
outstanding shares. The Declaration of Trust provides that the Trustees will
assist shareholder communications to the extent required by Section 16(c) of the
1940 Act in the event that a Shareholder request to hold a special meeting is
made.
The Prospectus and this Statement of Additional Information omit certain
of the information contained in the Registration Statement filed with the
Commission. Copies of such information may be obtained from the Commission upon
payment of any 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 salesman, 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.
<PAGE>
APPENDIX
The nationally recognized statistical rating organizations (individually,
an "NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Fund include Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") and Duff & Phelps, Inc. ("D&F"). Set forth
below is a description of the relevant ratings of each such NRSRO. The
description of each NRSRO's ratings is as of the date of this Statement of
Additional Information, and may subsequently change.
LONG TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
Fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Description of the three highest long-term debt ratings by D&P:
AAA Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong. AA Risk is modest
but may vary slightly from time to time AA- because of economic
conditions.
A+ Protection factors are average but adequate. However, risk factors
are more A variable and greater in periods of economic stress. A-
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries. - High rates of
return on Fund employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayments of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
D&P's description of the short-term debt ratings (D&P incorporates gradations of
"1+" (one plus) and "1-" (one minus) to assist investors in recognizing quality
differences within the highest rating category):
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets
is good. Risk factors are small.
<PAGE>
PART C
------
OTHER INFORMATION
-----------------
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust(1).
(a)(2) Establishment and Designation of Series and Classes of Shares
(Kensington Strategic Realty Fund), included herewith.
(b) By-Laws(2).
(c) Certificates for Shares are not issued. Articles IV, V, VI and
VII of the Declaration of Trust, previously filed as Exhibit (a)
hereto, define rights of holders of Shares(1).
(d) Investment Advisory Agreement between Registrant and Kensington
Investment Group, included herewith.
(e) Distribution Agreement between Registrant and BISYS Fund
Services, included herewith.
(f) Not Applicable.
(g) Custody Agreement between Registrant and Custodial Trust Company,
to be provided by amendment.
(h)(1) Administration Agreement between the Registrant and BISYS Fund
Services Ohio, Inc., included herewith.
(h)(2) Fund Accounting Agreement between the Registrant and BISYS Fund
Services Ohio, Inc., included herewith.
(h)(3) Transfer Agency Agreement between the Registrant and BISYS Fund
Services Ohio, Inc., included herewith.
(h)(4) Omnibus Fee Agreement between Registrant and BISYS Fund Services
Ohio, Inc., included herewith.
(h)(5) Expense Limitation Agreement between the Registrant and
Kensington Investment Group, Inc., included herewith. (i) To be
provided by amendment.
(j) Not Applicable.
(k) Not Applicable.
(l) Not Applicable.
(m) To be provided by amendment.
(n) Not Applicable.
(o) To be provided by amendment.
- ------------------
1. Filed with initial Registration Statement on January 8, 1992.
2. Filed with Post-Effective Amendment No. 2 on September 4, 1992.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust states as follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof; and
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil,
criminal, administrative or other, including appeals), actual
or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof, or the
Shareholders by reason of a final adjudication by a court or
other body before which a proceeding was brought that he
engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of
the Trust; or
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
or (b)(ii) resulting in a payment by a Trustee or officer,
unless there has been a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved
in the conduct of his office: (A) by the court or other body
approving the settlement or other disposition; or (B) based
upon a review of readily available facts (as opposed to a full
trial-type inquiry) by (1) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office acts on
the matter) or (2) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased
to be such Trustee or officer and shall inure to the benefit of the
heirs, executors, administrators and assigns of such person. Nothing
contained herein shall affect any rights to indemnification to which
personnel of the Trust other than Trustees and officers may be
entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph
(a) of this Section 4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf
of the recipient to repay such amount if it is ultimately determined
that he is not entitled to indemnification under this Section 4.3,
provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees acts
on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an Interested Person of the Trust (including anyone
who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), or (ii) involved in the
claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act, and therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND THEIR
OFFICERS AND DIRECTORS
Incorporated by reference to the responses in the current Form 10-K
of UST Corp., on file with the Commission.
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor for Registrant. BISYS Fund
Services also distributes the securities of Alpine Equity
Trust, American Performance Funds, the AmSouth Mutual Funds,
The BB&T Mutual Funds Group, ESC Strategic Funds, Inc., The
Eureka Funds, Fifth Third Funds, Governor Funds, Gradison
Custodian Trust, Gradison Growth Trust, Gradison-McDonald Cash
Reserves Trust, Gradison-McDonald Municipal Custodian Trust,
Hirtle Callaghan Trust, HSBC Funds Trust, HSBC Mutual Funds
Trust, INTRUST Funds Trust, The Infinity Mutual Funds, Inc.,
The Kent Funds, Magna Funds, MMA Praxis Mutual Funds,
Mercantile Mutual Funds, Inc., Meyers Investment Trust,
M.S.D.&T Funds, Pacific Capital Funds, The Parkstone Advantage
Fund, Puget Sound Alternative Investment Series Trust, The
Republic Funds Trust, The Republic Advisors Funds Trust,
Sefton Funds Trust, SSgA International Liquidity Fund, Summit
Investment Trust, Variable Insurance Funds, The Victory
Portfolios, The Victory Variable Insurance Funds and The
Vintage Mutual Funds, Inc.
(b) Partners of BISYS Fund Services, as of June 1, 1999, were as
follows:
Name and Principal Position and Offices Position and Offices
Business Address with Underwriter with 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
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(a) 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 Kensington Investment
Group, Inc. (records relating to its function as investment
adviser); BISYS Fund Services, 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its functions as transfer
agent, administrator, fund accounting agent and distributor).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS.
None
<PAGE>
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. 53 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Washington in the District of Columbia on the 2nd day of July, 1999.
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
/w/ Walter B. Grimm Chairman, President and Trustee July 2, 1999
- --------------------------
Walter B. Grimm**
/w/ John H. Ferring IV Trustee July 2, 1999
- --------------------------
John H. Ferring IV***
/s/ Maurice G. Stark Trustee July 2, 1999
- --------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee July 2, 1999
- --------------------------
Michael M. Van Buskirk*
/s/ Gary R. Tenkman Treasurer (Principal Financial July 2, 1999
- -------------------------- Accounting Officer)
Gary R. Tenkman****
<PAGE>
By: /s/ Jeffrey L. Steele
--------------------------------------
Jeffrey L. Steele, as attorney-in-fact
<PAGE>
* 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.
39 on July 31, 1998.
**** Pursuant to power of attorney filed with Post-Effective Amendment No.
46 on May 14, 1999.
The Coventry Group
Establishment and Designation of One Series and Three Classes of Shares
of Beneficial Interest, Par Value $0.01 Per Share
RESOLVED, that pursuant to Section 5.11 of the Declaration of Trust of The
Coventry Group (the "Trust") dated January 8, 1992, ("Declaration"), one
separate series of the shares of beneficial interest of the Trust shall hereby
be established, relating to the Trust's new investment portfolios (the "Fund");
and
FURTHER RESOLVED, that pursuant to Section 5.13 of the Declaration, the
Fund shall have such classes of shares of beneficial interest (each, a "Class")
as provided below; and
FURTHER RESOLVED, that the Fund and initial Classes shall have the
following designations and Shares of the Fund or Class, as applicable, shall
have the following special and relative rights:
1. The Fund shall be designated "Kensington Strategic Realty Fund."
2. The Fund shall have initially have three Classes, designated Class A,
Class B and Class C, each, and any additional Classes, to have such special and
relative rights, and be subject to such liabilities, as may be provided from
time to time in the Trust's registration statement under the Securities Act of
1933 and the Investment Company Act of 1940, as amended from time to time.
3. The Fund shall be authorized to invest in cash, securities, instruments
and other property as from time to time described in the Fund's then currently
effective prospectus and registration statement under the Securities Act of
1933. Each share of beneficial interest ("Share") of the Fund shall be
redeemable. Except for matters that are voted separately by Class, each Share of
the Fund shall be entitled to one vote (or fraction thereof in respect of a
fractional Share) on matters on which Shares of the Fund shall be entitled to
vote. Subject to paragraph 4, each Share of the Fund shall represent a pro rata
beneficial interest in the assets allocated to the Fund and shall be subject to
a pro rata share of expenses allocated to the Fund; and, subject to paragraph 4,
shall be entitled to receive its pro rata share of net assets of the Fund upon
liquidation of the Fund, all as provided in the Declaration or in accordance
with applicable law, regulation or regulatory policy
4. Shares of each Class of the Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional Share) on matters on which Shares of
the Class shall be entitled to vote, shall represent a pro rata beneficial
interest in the assets allocated to the Fund subject to such expenses as are
allocated to the Class, and shall be entitled to receive a pro rata share of net
assets of the Class upon liquidation of the Fund, all as provided in the
Declaration or in accordance with applicable law, regulation or regulatory
policy.
5. Each Share of the Fund and of each Class shall have the voting rights
provided to shareholders in the Declaration and shall vote with shareholders of
other series of the Trust with respect to matters affecting the Trust generally.
With respect to matters concerning the Fund (but not other series of the Trust),
Shares of the Fund and all Classes shall vote as a group, except that a Class
shall vote separately as a group on a matter to the extent required by the
Declaration, applicable law, regulation or regulatory policy or when the matter
affects only that Class or affects that Class in a manner that is different from
other Classes. In each case of separate voting, the Trustees shall determine
whether, for the matter to be effectively acted upon in accordance with the
Declaration, or applicable law, rule or regulatory policy, as applicable, as to
the Fund or a Class, the applicable percentage (as specified in the Declaration,
or the Act and the rules thereunder) of the shares of the Fund or a Class alone
must be voted in favor of the matter, or whether the required favorable vote of
such applicable percentage of the shares must include shares of other Classes of
the Fund and/or other series of the Trust, as well.
6. The assets and liabilities of the Trust shall be allocated to the Fund
and among the Classes as set forth in Sections 5.11 and 5.13 of the Declaration;
except that costs of establishing the Fund and of the registration and public
offering of the Fund's Shares shall be treated in accordance with applicable law
and generally accepted accounting principles.
7. The Trustees shall have the right at any time and from time to time to
reallocate assets and expenses or to change the designation of the Fund and
Classes hereby created, or to otherwise change the special and relative rights
of the Fund and each Class, provided that such change shall not adversely affect
the rights of the Shareholders of the Fund or any Class.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
____ day of __________, 1999.
------------------------
Walter B. Grimm
------------------------
Maurice G. Stark
------------------------
Michael M. Van Buskirk
------------------------
John H. Ferring IV
THE COVENTRY GROUP
on behalf of
KENSINGTON STRATEGIC INCOME FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on , 1999, between Kensington Investment
Group, Inc. (the "Adviser") and The Coventry Group. (the "Group") on behalf of
Kensington Strategic Income Fund (the "Fund").
WHEREAS, the Group is a Massachusetts business trust of the series type
organized under a Declaration of Trust dated January 8, 1992, (the
"Declaration") and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end, diversified management investment
company, and the Fund is a series of the Group;
WHEREAS, the Group wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Group and the Adviser as follows:
1. Appointment. The Group hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Trustees
of the Group, the Adviser will (a) provide a program of continuous investment
management for the Fund in accordance with the Fund's investment objectives,
policies and limitations as stated in the Fund's prospectus and Statement of
Additional Information included as part of the Group's Registration Statement
filed with the Securities and Exchange Commission, as they may be amended from
time to time, copies of which shall be provided to the Adviser by the Group; (b)
make investment decisions for the Fund; and (c) place orders to purchase and
sell securities for the Fund.
In performing its investment management services to the Fund
hereunder, the Adviser will provide the Fund with ongoing investment guidance
and policy direction, including oral and written research, analysis, advice,
statistical and economic data and judgments regarding individual investments,
general economic conditions and trends and long-range investment policy. The
Adviser will determine the securities, instruments, repurchase agreements,
options and other investments and techniques that the Fund will purchase, sell,
enter into or use, and will provide an ongoing evaluation of the Fund's
portfolio. The Adviser will determine what portion of the Fund's portfolio shall
be invested in securities and other assets, and what portion if any, should be
held uninvested.
The Adviser further agrees that, in performing its duties hereunder, it
will:
(a) comply with the 1940 Act and all rules and regulations thereunder, the
Advisers Act, the Internal Revenue Code (the "Code") and all other applicable
federal and state laws and regulations, and with any applicable procedures
adopted by the Trustees;
(b) use reasonable efforts to manage the Fund so that it will qualify, and
continue to qualify, as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for the Fund
directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Fund's prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements;
(d) furnish to the Group whatever statistical information the Group may
reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Adviser will keep the Group and the Trustees
informed of developments materially affecting the Fund's portfolio and shall, on
the Adviser's own initiative, furnish to the Group from time to time whatever
information the Adviser believes appropriate for this purpose;
(e) make available to the Group's administrator (the "Administrator"), and
the Group, promptly upon their request, such copies of its investment records
and ledgers with respect to the Fund as may be required to assist the
Administrator and the Group in their compliance with applicable laws and
regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding the Fund as they may reasonably request;
(f) immediately notify the Group in the event that the Adviser or any of
its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Group immediately of any material fact known to the Adviser
respecting or relating to the Adviser that is not contained in the Group's
Registration Statement regarding the Fund, or any amendment or supplement
thereto, but that is required to be disclosed thereon, and of any statement
contained therein that becomes untrue in any material respect;
(g) in making investment decisions for the Fund, use no inside information
that may be in its possession or in the possession of any of its affiliates, nor
will the Adviser seek to obtain any such information.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 3, the Adviser shall pay the compensation and expenses
of all its Trustees, officers and employees who serve as officers and executive
employees of the Group (including the Group's share of payroll taxes), and the
Adviser shall make available, without expense to the Fund, the service of its
Trustees, officers and employees who may be duly elected officers of the Group,
subject to their individual consent to serve and to any limitations imposed by
law.
The Adviser shall not be required to pay any expenses of the Fund
other than those specifically allocated to the Adviser in this section 3. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Group's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund: organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; cost of insurance relating to
fidelity coverage for the Group's officers and employees; fees and expenses of
the Fund's Administrator or of any custodian, subcustodian, transfer agent,
registrar, or dividend disbursing agent of the Fund; payments to the
Administrator for maintaining the Fund's financial books and records and
calculating its daily net asset value; other payments for portfolio pricing or
valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates; other expenses in
connection with the issuance, offering, distribution or sale of securities
issued by the Fund; expenses relating to investor and public relations; expenses
of registering shares of the Fund for sale and fees related to notification and
other filings required by states in which Fund shares are sold; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities or other assets of the Fund, or of
entering into other transactions or engaging in any investment practices with
respect to the Fund; expenses of printing and distributing prospectuses,
Statements of Additional Information, reports, notices and dividends to
stockholders; costs of stationery or other office supplies; any litigation
expenses; costs of stockholders' and other meetings; the compensation and all
expenses (specifically including travel expenses relating to the Fund's
business) of officers, Trustees and employees of the Group who are not
interested persons of the Adviser; and travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Group who are officers, Trustees
or employees of the Adviser to the extent that such expenses relate to
attendance at meetings of the Board of Trustees of the Group with respect to
matters concerning the Fund, or any committees thereof or advisers thereto.
4. Compensation.
-------------
(a) As compensation for the services provided and expenses assumed by the
Adviser under this Agreement, the Group will arrange for the Fund to pay the
Adviser, for the period ending eleven full months after the effective date of
this Agreement a fee, calculated daily and paid at the end of each calendar
month, at a rate equal on an annual basis to 1.50% of the Fund's average daily
net assets. Commencing with the end of the twelfth full month after the
effective date of this Agreement, the Fund will pay the Adviser a Total Fee that
is calculated daily and paid at the end of each calendar month , such Total Fee
to be composed of (1) a Base Fee and (2) a Performance Adjustment that will add
to or subtract from the Base Fee depending on the performance of Class A shares
of the Fund relative to the National Association of Real Estate Investment Trust
("NAREIT") Composite Index ("Index") for the preceding twelve month period. A
Performance Adjustment will be made at the end of the each calendar month
thereafter, based on the performance of Class A shares relative to the Index for
the preceding twelve months, to determine the Total Fee payable for that month.
The Base Fee will be at an annual rate equal to 1.50% of the Fund's average
daily net assets for the previous twelve month period. The Performance
Adjustment will be a positive or negative amount equal to 15% (rounded to the
third decimal place) of the difference between the performance of Class A shares
of the Fund and the performance of the Index for the previous twelve month
period. The Total Fee rate, composed of the Base Fee and the Performance
Adjustment, will be at an annual rate not less than 0.50% or greater than 2.50%
of the Fund's average daily net assets.
(b) The investment performance of the Fund's Class A shares and the
investment record of the Index will be calculated in accordance with applicable
law and regulation, including Rule 205-1 under the 1940 Act. The investment
performance of the Fund's Class A shares will be measured by comparing (i) the
opening net asset value of one Class A share of the Fund on the first business
day of the applicable twelve month period with (ii) the closing net asset value
of one Class A share of the Fund as of the last business day of such period. The
investment record of the Index will determined by comparing the level of the
Index on the first day of the applicable twelve month period with its level on
the last business day of such period.
(c) The "average daily net assets" of the Fund shall mean the average of
the values placed on the Fund's net assets as of 4:00 p.m. (New York time) on
each day on which the net asset value of the Fund is determined consistent with
the provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully
determines the value of its net assets as of some other time on each business
day, as of such other time. The value of net assets of the Fund and of its
Classes shall always be determined pursuant to the applicable provisions of the
Declaration and the Registration Statement. If, pursuant to such provisions, the
determination of net asset value of the Fund or a Class is suspended for any
particular business day, then for the purposes of this section 4, the value of
the net assets of the Fund or Class, as applicable, as last determined shall be
deemed to be the value of its net assets as of the close of the New York Stock
Exchange, or as of such other time as the value of the net assets of the Fund or
such Class may lawfully be determined, on that day. If the determination of the
net asset value of the shares of the Fund or a Class has been so suspended for a
period including any month end when the Adviser's compensation is payable
pursuant to this section, then the Adviser's compensation payable at the end of
such month shall be computed on the basis of the value of the net assets of the
Fund or Class, as applicable, as last determined (whether during or prior to
such month). If the Fund or Class determines the value of its net assets more
than once on any day, then the last such determination thereof on that day shall
be deemed to be the sole determination thereof on that day for the purposes of
this section 4.
(d) The computation of the Performance Adjustment will not be cumulative.
A positive fee rate will apply even though the performance of a Class A share
has been behind that of the Index, and conversely, a negative fee rate will
apply for a month even though the performance of a Class A share over some
period of time shorter than the preceding twelve months has been ahead of that
of the Index.
5. Books and Records. The Adviser agrees to maintain such books and
records with respect to its services to the Fund as are required by Section 31
under the 1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and Rule
31a-2 under the 1940 Act and otherwise in connection with its services hereunder
are the property of the Group and will be surrendered promptly to the Group upon
its request. And the Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall
exercise its best judgment in rendering the services provided by it under this
Agreement. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund or the holders of the Fund's shares
in connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Group, the Fund or to holders of the Fund's
shares to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or by reason of the Adviser's reckless disregard of its obligations and
duties under this Agreement. As used in this Section 6, the term "Adviser" shall
include any officers, Trustees, employees or other affiliates of the Adviser
performing services with respect to the Fund.
7. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and that nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies or to
other series of investment companies, including the Group (whether or not their
investment objectives and policies are similar to those of the Fund) or from
engaging in other activities, provided such other services and activities do
not, during the term of this Agreement, interfere in a material manner with the
Adviser's ability to meet its obligations to the Fund hereunder. When the
Adviser recommends the purchase or sale of a security for other investment
companies and other clients, and at the same time the Adviser recommends the
purchase or sale of the same security for the Fund, it is understood that in
light of its fiduciary duty to the Fund, such transactions will be executed on a
basis that is fair and equitable to the Fund. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the Adviser
nor any of its Trustees, officers or employees shall act as a principal or agent
or receive any commission. If the Adviser provides any advice to its clients
concerning the shares of the Fund, the Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Group or the Fund.
8. Duration and Termination. This Agreement shall continue until , 2001,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Trustees or (ii) a vote of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities (as defined in the 1940 Act), provided that
in either event the continuance is also approved by a majority of the Trustees
who are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated: (a) at any time without penalty by
the Fund upon the vote of a majority of the Trustees or by vote of the majority
of the Fund's outstanding voting securities, upon sixty (60) days' written
notice to the Adviser or (b) by the Adviser at any time without penalty, upon
sixty (60) days' written notice to the Group. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. Amendments. Except to the extent permitted by applicable law,
regulation or regulatory policy, no provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and, except to the extent permitted by applicable law,
regulation or regulatory policy, no amendment of this Agreement shall be
effective until approved by an affirmative vote of (i) a majority of the
outstanding voting securities of the Fund, and (ii) a majority of the Trustees,
including a majority of Trustees who are not interested persons of any party to
this Agreement, cast in person at a meeting called for the purpose of voting on
such approval, if such approval is required by applicable law.
10. Proxies. Unless the Group gives written instructions to the contrary,
the Adviser shall vote all proxies solicited by or with respect to the issuers
of securities in which assets of the Fund may be invested. The Adviser shall use
its best good faith judgment to vote such proxies in a manner which best serves
the interests of the Fund's shareholders.
11. Name Reservation. The Group acknowledges and agrees that the Adviser
has property rights relating to the use of the term "Kensington" and has
permitted the use of such term by the Group and the Fund. The Group agrees that:
(i) it will use the term "Kensington" only as a component of the name of the
Fund and any other series for which the Adviser serves as investment adviser,
and for no other purposes; (ii) it will not purport to grant to any third party
any rights in such name; (iii) at the request of the Adviser, the Group will
take such action as may be required to provide its consent to use of the term by
the Adviser, or any affiliate of the Adviser to whom the Adviser shall have
granted the right to such use; and (iv) the Adviser may use or grant to others
the right to use the term, or any abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, including a grant of
such right to any other investment company. Upon termination of this Agreement,
the Group shall, upon request of the Adviser, cease to use the term "Kensington"
as part of the name of the Fund or any series of the Group or in any way not
consented to by the Adviser. In the event of any request by the Adviser that use
of the term "Kensington" shall cease, the Group shall cause its officers,
Trustees and stockholders to take any and all such actions which the Adviser may
request to effect such request and to reconvey to the Adviser any and all rights
to the term "Kensington."
12. Shareholder List. The Group grants to Adviser the unconditional right
to receive, at any time and at no cost to the Adviser, the list of the
registration information pertaining to the shareholders of the Fund
("Shareholder List"). The Shareholder List shall be provided in a printed as
well as an electronic format and shall include the name, last known address and
number of shares held for each shareholder as of the date produced. In addition,
the list shall include, where applicable, identification of beneficial ownership
of shares held of record by depositories, custodians, brokers, or other
institutional holders.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by the laws of the State of
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Adviser as an
agent of the Group or the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of , 1999.
THE COVENTRY GROUP
on behalf of Kensington Strategic Income Fund
By:__________________________________
President
KENSINGTON INVESTMENT GROUP, INC.
By:__________________________________
President
DISTRIBUTION AGREEMENT
AGREEMENT made this ________day of ________________, _____________ between
THE COVENTRY GROUP (the "Trust"), a Massachusetts business trust having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and
BISYS FUND SERVICES LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES
("Distributor"), having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company, organized
as a Massachusetts business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each currently existing Kensington
series of the Trust advised by Kensington Investment Group and such additional
series advised by Kensington Investment Group that are hereafter created
(individually referred to herein as a "Fund" and collectively as the "Funds");
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Funds then in effect
under the Securities Act of 1933, as amended (the "Securities Act"). As used in
this Agreement, the term "registration statement" shall mean Parts A (the
prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders
for the sale of the Shares and will undertake such advertising and promotion, as
it believes reasonable in connection with such solicitation. The Trust
understands that Distributor is now and may in the future be the distributor of
the shares of several investment companies or series (together, "Companies")
including Companies having investment objectives similar to those of the Trust.
The Trust further understands that investors and potential investors in the
Trust may invest in shares of such other Companies. The Trust agrees that
Distributor's duties to such Companies shall not be deemed in conflict with its
duties to the Trust under this paragraph 1.2.
Distributor shall, at its own expense, finance appropriate
activities which it deems reasonable, which are primarily intended to result in
the sale of the Shares, including, but not limited to, advertising, compensation
of underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Funds.
1.5 Distributor will transmit any orders received by it for purchase
or redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) a monthly itemized list of the securities in
the Funds, (c) monthly balance sheets as soon as practicable after the end of
each month, and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
Commission under the Securities Act have been carefully prepared in conformity
with requirements of said Act and rules and regulations of the Commission
thereunder. The registration statement and prospectus contain all statements
required to be stated therein in conformity with said Act and the rules and
regulations of said Commission and all statements of fact contained in any such
registration statement and prospectus are true and correct. Furthermore, neither
any registration statement nor any prospectus includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of the
Shares. The Trust may, but shall not be obligated to, propose from time to time
such amendment or amendments to any registration statement and such supplement
or supplements to any prospectus as, in the light of future developments, may,
in the opinion of the Trust's counsel, be necessary or advisable. If the Trust
shall not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Trust of a written request from
Distributor to do so, Distributor may, at its option, terminate this Agreement.
The Trust shall not file any amendment to any registration statement or
supplement to any prospectus without giving Distributor reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit the Trust's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus, of whatever
character, as the Trust may deem advisable, such right being in all respects
absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Trust's
agreement to indemnify Distributor, its partners or employees, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any statements or representations as are contained in
any prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in paragraph 1.10 shall
not be deemed to cover any liability to the Trust or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
Agreement. The Trust's agreement to indemnify Distributor, its partners and
employees and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust being notified of any action brought against
Distributor, its partners or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Trust at its
principal office in Columbus, Ohio and sent to the Trust by the person against
whom such action is brought, within 10 days after the summons or other first
legal process shall have been served. The failure to so notify the Trust of any
such action shall not relieve the Trust from any liability which the Trust may
have to the person against whom such action is brought by reason of any such
untrue, or allegedly untrue, statement or omission, or alleged omission,
otherwise than on account of the Trust's indemnity agreement contained in this
paragraph 1.11. The Trust will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Trust and
approved by Distributor, which approval shall not be unreasonably withheld. In
the event the Trust elects to assume the defense of any such suit and retain
counsel of good standing approved by Distributor, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Trust does not elect to assume the defense of any
such suit, or in case Distributor reasonably does not approve of counsel chosen
by the Trust, the Trust will reimburse Distributor, its partners and employees,
or the controlling person or persons named as defendant or defendants in such
suit, for the fees and expenses of any counsel retained by Distributor or them.
The Trust's indemnification agreement contained in this paragraph 1.11 and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares.
This Agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Trust agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the Securities Act free and harmless from and against
any and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands, or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or Trustees
or any such controlling person, may incur under the Securities Act or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Trust, its officers or Trustees or such controlling person
resulting from such claims or demands, shall arise out of or be based upon any
untrue, or alleged untrue, statement of a material fact contained in information
furnished in writing by Distributor to the Trust and used in the answers to any
of the items of the registration statement or in the corresponding statements
made in the prospectus, or shall arise out of or be based upon any omission, or
alleged omission, to state a material fact in connection with such information
furnished in writing by Distributor to the Trust required to be stated in such
answers or necessary to make such information not misleading. Distributor's
agreement to indemnify the Trust, its officers and Trustees, and any such
controlling person, as aforesaid, is expressly conditioned upon Distributor
being notified of any action brought against the Trust, its officers or
Trustees, or any such controlling person, such notification to be given by
letter or telegram addressed to Distributor at its principal office in Columbus,
Ohio, and sent to Distributor by the person against whom such action is brought,
within 10 days after the summons or other first legal process shall have been
served. Distributor shall have the right of first control of the defense of such
action, with counsel of its own choosing, satisfactory to the Trust, if such
action is based solely upon such alleged misstatement or omission on
Distributor's part, and in any other event the Trust, its officers or Trustees
or such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action. The failure to so
notify Distributor of any such action shall not relieve Distributor from any
liability which Distributor may have to the Trust, its officers or Trustees, or
to such controlling person by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account of
Distributor's indemnity agreement contained in this paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act or if and so long as a current prospectus as required by Section
10(b)(2) of said Act is not on file with the Commission; provided, however, that
nothing contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Agreement and Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or
for additional information;
(b) in the event of the issuance by the Commission of any
stop order suspending the effectiveness of the
registration statement or prospectus then in effect or
the initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration
statement or prospectus then in effect or which requires
the making of a change in such registration statement or
prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus
which may from time to time be filed with the
Commission.
For purposes of this section, informal requests by or acts of
the Staff of the Commission shall not be deemed actions of or requests by the
Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the State of
Ohio.
2. Fee.
Distributor shall receive from the Fund identified in the
Distribution and Shareholder Service Plan attached as Schedule A hereto (the
"Distribution Plan Funds") a distribution fee at the rate and upon the terms and
conditions set forth in such Plan. The distribution fee shall be accrued daily
and shall be paid on the first business day of each month, or at such time(s) as
the Distributor shall reasonably request.
3. Sale and Payment.
Shares of a Fund may be subject to a sales load and may be subject
to the imposition of a distribution fee pursuant to the Distribution and
Shareholder Service Plan referred to above. To the extent that Shares of a Fund
are sold at an offering price which includes a sales load or at net asset value
subject to a contingent deferred sales load with respect to certain redemptions
(either within a single class of Shares or pursuant to two or more classes of
Shares), such Shares shall hereinafter be referred to collectively as "Load
Shares" (in the case of Shares that are sold with a front-end sales load or
Shares that are sold subject to a contingent deferred sales load), "Front-End
Load Shares" or "CDSL Shares" and individually as a "Load Share," a "Front-End
Load Share" or a "CDSL Share." A Fund that contains Front-End Load Shares shall
hereinafter be referred to collectively as "Load Funds" or "Front-End Load
Funds" and individually as a "Load Fund" or a "Front-end Load Fund." A Fund that
contains CDSL Shares shall hereinafter be referred to collectively as "Load
Funds" or "CDSL Funds" and individually as a "Load Fund" or a "CDSL Fund." Under
this Agreement, the following provisions shall apply with respect to the sale
of, and payment for, Load Shares.
3.1 Distributor shall have the right to purchase Load Shares at
their net asset value and to sell such Load Shares to the public against orders
therefor at the applicable public offering price, as defined in Section 4
hereof. Distributor shall also have the right to sell Load Shares to dealers
against orders therefor at the public offering price less a concession
determined by Distributor, which concession shall not exceed the amount of the
sales charge or underwriting discount, if any, referred to in Section 4 below.
3.2 Prior to the time of delivery of any Load Shares by a Load Fund
to, or on the order of, Distributor, Distributor shall pay or cause to be paid
to the Load Fund or to its order an amount in Boston or New York clearing house
funds equal to the applicable net asset value of such Shares. Distributor may
retain so much of any sales charge or underwriting discount as is not allowed by
Distributor as a concession to dealers.
4. Public Offering Price.
The public offering price of a Load Share shall be the net asset
value of such Load Share, plus any applicable sales charge, all as set forth in
the current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Trust and the then-current prospectus of the Load Fund.
5. Issuance of Shares.
The Trust reserves the right to issue, transfer or sell Load Shares
at net asset value (a) in connection with the merger or consolidation of the
Trust or the Load Fund(s) with any other investment company or the acquisition
by the Trust or the Load Fund(s) of all or substantially all of the assets or of
the outstanding Shares of any other investment company; (b) in connection with a
pro rata distribution directly to the holders of Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Load Shares pursuant to any exchange and reinvestment privileges described in
any then-current prospectus of the Load Fund; and (e) otherwise in accordance
with any then-current prospectus of the Load Fund.
6. Term, Duration and Termination.
This Agreement shall become effective with respect to each Fund
listed on Schedule A hereof as of the date first written above (or, if a
particular Fund is not in existence on such date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed) and, unless
sooner terminated as provided herein, shall continue until __________, 2001.
Thereafter, if not terminated, this Agreement shall continue with respect to a
particular Fund automatically for successive one-year terms, provided that such
continuance is specifically approved at least annually by (a) the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting for the purpose of voting on such approval and (b) by the vote of the
Trust's Board of Trustees or the vote of a majority of the outstanding voting
securities of such Fund. This Agreement is terminable without penalty, on not
less than sixty days' prior written notice, by the Trust's Board of Trustees, by
vote of a majority of the outstanding voting securities of the Trust or by the
Distributor. This Agreement will also terminate automatically in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as ascribed to such terms in the 1940 Act.)
7. Limitation of Liability of the Trustees and Shareholders.
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees, and this Agreement has been signed and delivered by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in the Trust's Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
written above.
THE COVENTRY GROUP BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: _______________________________ By: ___________________________________
Title: ______________________________ Title:
Dated: ________________________
<PAGE>
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
Dated: __________________________
<PAGE>
SCHEDULE B
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
NAME OF DISTRIBUTION PLAN FUND
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this ____ day of _________________, 1999, by
and between THE COVENTRY GROUP, a Massachusetts business trust (the "Company")
having its principal place of business at 3435 Stelzer Road, Columbus, Ohio
43219, and BISYS FUND SERVICES OHIO, INC. (the "Administrator"), an Ohio
corporation having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services for
each currently existing Kensington series of the Company advised by Kensington
Investment Group as set forth in Schedule A hereto, and such additional
Kensington series advised by Kensington Investment Group that are hereafter
created and identified in such Schedule A (individually referred to herein as a
"Portfolio" and collectively as the "Portfolios").
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. Retention of the Administrator. The Company hereby retains the
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. Administrative Services. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Company,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Company with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Company with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and Trustees' meetings) for handling the
affairs of the Portfolios and such other services as the Administrator shall,
from time to time, determine to be necessary to perform its obligations under
this Agreement. In addition, at the request of the Board of Trustees, the
Administrator shall make reports to the Company's Trustees concerning the
performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator shall:
(a) calculate contractual Portfolio expenses and control all
disbursements for the Company, and as appropriate compute the
Portfolios' yields, total return, expense ratios, Portfolio turnover
rate and, if required, Portfolio average dollar-weighted maturity;
(b) maintain the Company's regulatory compliance calendar and ensure
that all necessary actions on that calendar are taken in a timely
manner by the persons responsible therefor;
(c) assist Company counsel with the preparation and filing of
prospectuses, statements of additional information, registration
statements and proxy materials;
(d) prepare such reports, applications and documents (including reports
regarding the sale and redemption of Shares as may be required in
order to comply with Federal and state securities law) as may be
necessary or desirable to satisfy state notice filing requirements
related to the offer and sale of the Portfolios' Shares, monitor the
sale of Portfolio Shares for compliance with state securities laws,
and file with the appropriate state securities authorities the
registration statements and reports for the Company and the
Portfolios' Shares as may be necessary or convenient to comply with
applicable requirements of state securities authorities to enable
the Company to make a continuous offering of the Portfolios' Shares;
(e) develop and prepare, with the assistance of the Portfolios'
investment adviser, communications to Shareholders, including the
annual report to Shareholders, coordinate the mailing of
prospectuses, notices, proxy statements, proxies and other reports
to Shareholders, and supervise and facilitate the proxy solicitation
process for all shareholder meetings, including the tabulation of
shareholder votes;
(f) administer contracts on behalf of the Company with, among others,
the Company's investment adviser, distributor, custodian, transfer
agent and fund accountant;
(g) supervise the Company's transfer agent with respect to the payment
of dividends and other distributions to the Portfolios'
Shareholders;
(h) calculate performance data of the Portfolios for dissemination to
information services covering the investment company industry;
(i) coordinate and supervise the preparation and filing of the Company's
and/or Portfolios' tax returns;
(j) examine and review the operations and performance of the various
organizations providing services to any Portfolio, including,
without limitation, the Company's investment adviser, distributor,
custodian, fund accountant, transfer agent, outside legal counsel
and independent public accountants, and at the request of the Board
of Trustees, report to the Board on the performance of
organizations;
(k) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing of
the Company's semi-annual and annual reports to Shareholders;
(l) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives, policies
and structure;
(m) provide individuals reasonably acceptable to the Company's Board of
Trustees to serve as officers of the Company, who will be
responsible for the management of certain Company affairs as
determined by the Company's Board of Trustees;
(n) advise the Company and its Board of Trustees on matters concerning
the Company and its affairs;
(o) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Company in
accordance with the requirements of Rules 17g-1 and 17d-1(7) under
the 1940 Act as such bonds and policies are approved by the
Company's Board of Trustees;
(p) monitor and advise the Company and the Portfolios on their
registered investment company status under the Internal Revenue Code
of 1986, as amended;
(q) perform all administrative services and functions of the Company and
each Portfolio to the extent administrative services and functions
are not provided to the Company or such Portfolio pursuant to the
Company's or such Portfolios' investment advisory agreement,
distribution agreement, custodian agreement, transfer agent
agreement and fund accounting agreement;
(r) furnish advice and recommendations with respect to other aspects of
the business and affairs of the Portfolios as the Company and the
Administrator shall determine desirable; and
(s) prepare and file with the SEC the semi-annual report for the Company
on Form N-SAR and all required notices pursuant to Rule 24f-2.
The Administrator shall perform such other services for the Company that
are mutually agreed upon by the parties from time to time. Such services may
include performing internal audit examinations; mailing the annual reports of
the Portfolios; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the
Company will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the items
which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Trustees of the
Company to perform services on behalf of the Company.
(B) The Company. The Company assumes and shall pay or cause to be paid all
other expenses of the Company not otherwise allocated herein, including, without
limitation, organization costs, taxes, expenses for legal and auditing services,
the expenses of preparing (including typesetting), printing and mailing reports,
prospectuses, statements of additional information, proxy solicitation material
and notices to existing Shareholders, all expenses incurred in connection with
issuing and redeeming Shares, the costs of custodial services, the cost of
initial and ongoing registration of the Shares under Federal securities laws,
the cost of notice filings and any other filings that are necessary under state
securities laws, fees and out-of-pocket expenses of Trustees who are not
affiliated persons of the Administrator or the Investment Adviser to the Company
or any affiliated corporation of the Administrator or the Investment Adviser,
insurance, interest, brokerage costs, litigation and other extraordinary or
nonrecurring expenses, and all fees and charges of investment advisers to the
Company.
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Company shall pay to the Administrator compensation at an annual
rate specified in the Omnibus Fee Agreement between the Company and the
Administrator dated as of ___________________, 1999 (the "Fee Agreement").
The Company shall also reimburse the Administrator for its reasonable
out-of-pocket expenses, including the travel and lodging expenses incurred by
officers and employees of the Administrator in connection with attendance at
Board meetings.
If this Agreement becomes effective subsequent to the first day of a month
or terminates before the last day of a month, the Administrator's compensation
for that part of the month in which this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Administrator's compensation for the preceding month shall
be made promptly.
(B) Survival of Compensation Rights. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of the
Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
directors, officers, employees and other agents of the Administrator as well as
the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence and
without negligence, the Company assumes full responsibility and shall indemnify
the Administrator and hold it harmless from and against any and all actions,
suits and claims, whether groundless or otherwise, and from and against any and
all losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation expenses)
arising directly or indirectly out of the Administrator's actions taken or
nonactions with respect to the performance of services hereunder. The indemnity
and defense provisions set forth herein shall indefinitely survive the
termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold the
Administrator harmless, the Company shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Company promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Company, but failure to do so in good faith shall not affect the rights
hereunder.
The Company shall be entitled to participate at its own expense or, if it
so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and retain counsel, the Administrator shall bear the fees
and expenses of any additional counsel retained by it. If the Company does not
elect to assume the defense of a suit, it will reimburse the Administrator for
the reasonable fees and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Company at any time for instructions
and may consult counsel for the Company or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Company until receipt of written notice thereof from the Company.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that directors, officers, employees
and Shareholders of the Company are or may be or become interested in the
Administrator, as officers, employees or otherwise and that partners, officers
and employees of the Administrator and its counsel are or may be or become
similarly interested in the Company, and that the Administrator may be or become
interested in the Company as a Shareholder or otherwise.
ARTICLE 7. Duration of this Agreement. The Term of this Agreement shall be
as specified in Schedule A hereto.
ARTICLE 8. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts of such subcontractor as if such acts were its own. This
Agreement shall be binding upon, and shall ensure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
ARTICLE 9. Amendments. This Agreement may be amended by the parties hereto
only if such amendment is specifically approved (i) by the vote of a majority of
the Trustees of the Company, and (ii) by the vote of a majority of the Trustees
of the Company who are not parties to this Agreement or interested persons of
any such party, cast in person at a Board of Trustees meeting called for the
purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set forth
herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Company does not conflict with or violate any requirements of
its Declaration of Trust or then current prospectuses, or any rule, regulation
or requirement of any regulatory body.
ARTICLE 10. Certain Records. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Company and will be made
available to or surrendered promptly to the Company on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. Definitions of Certain Terms. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the last address furnished by the other party to the party giving notice: if
to the Company, at_________________________________, Attention:
____________________; and if to the Administrator at 3435 Stelzer Road,
Columbus, Ohio 43219, Attention: William J. Tomko.
ARTICLE 13. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Ohio and the applicable provisions of the 1940
Act. To the extent that the applicable laws of the State of Ohio, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
ARTICLE 14. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. Limitation of Liability of the Trustees and Shareholders. It
is expressly agreed that the obligations of the Company hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Company personally, but shall bind only the trust property of
the Company. The execution and delivery of this Agreement have been authorized
by the Trustees, and this Agreement has been signed and delivered by an
authorized officer of the Company, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Company as provided in the Company's Agreement and Declaration of Trust.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE COVENTRY GROUP
By_______________________________
Title:_____________________________
BISYS FUND SERVICES OHIO, INC.
By:_______________________________
Title:______________________________
<PAGE>
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF _________________________
BETWEEN THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
Portfolios: This Agreement shall apply to all Portfolios of the Company that are
advised by Kensington Investment Group either currently existing or
hereafter created. The current Portfolios of the Company that are
advised by Kensington Investment Group are set forth below:
Kensington _____________________ Fund
Term: Pursuant to Article 7, the term of this Agreement shall commence on
_____________, 1999 and shall remain in effect through ___________,
2002 ("Initial Term"). Thereafter, unless otherwise terminated as
provided herein, this Agreement shall be renewed automatically for
successive two-year periods ("Rollover Periods"). This Agreement may
be terminated without penalty (i) by provision of a notice of
nonrenewal in the manner set forth below, (ii) by mutual agreement
of the parties or (iii) for "cause," as defined below, upon the
provision of 60 days advance written notice by the party alleging
cause. Written notice of nonrenewal must be provided within 60 days
of the end of the Initial Term or any Rollover Period, as the case
may be.
For purposes of this Agreement, "cause" shall mean (a) a material
breach of this Agreement that has not been cured within thirty (30)
days following written notice of such breach from the non-breaching
party; (b) a series of negligent acts or omissions or breaches of
this Agreement which, in the aggregate, constitute, in the
reasonable judgment of the Company's Trustees, a serious failure to
perform satisfactorily the Administrator's obligations hereunder;
(c) final, unappealable judicial, regulatory or administrative
ruling or order in which the party to be terminated has been found
guilty of criminal or unethical behavior in the conduct of its
business; (d) financial difficulties on the part of the party to be
terminated which are evidenced by the authorization or commencement
of, or involvement by way of pleading, answer, consent or
acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any
applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; (e) any
failure on the part of the Company to collect from the investment
adviser any payment or reimbursement that is due and payable by the
investment adviser to the Company (including an amount due the
Company that directly or indirectly represents amounts payable to
the Administrator in its capacity as fund administrator to the
Company) within 60 days following the due date; or (f) any failure
on the part of its affiliates under any other agreement to which the
Company is a party within 60 days following the due date. For
purposes of this definition of "cause," a material breach shall
include, but not be limited to, any failure on the part of the
Company to pay fees due and payable to the Administrator pursuant to
Article 4 hereunder within 60 days following the due date.
Notwithstanding the foregoing, after such termination for so long as
the Administrator, with the written consent of the Company, in fact
continues to perform any one or more of the services contemplated by
this Agreement or any schedule or exhibit hereto, the provisions of
this Agreement, including without limitation the provisions dealing
with indemnification, shall continue in full force and effect.
Compensation due the Administrator and unpaid by the Company upon
such termination shall be immediately due and payable upon and
notwithstanding such termination. The Administrator shall be
entitled to collect from the Company, in addition to the
compensation described in this Schedule A, the amount of all of the
Administrator's cash disbursements for services in connection with
the Administrator's activities in effecting such termination,
including without limitation, the delivery to the Company and/or its
designees of the Company's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination,
for a reasonable fee, the Administrator will provide the Company
with reasonable access to any Company documents or records remaining
in its possession.
If, for any reason other than the nonrenewal, mutual agreement of
the parties or "cause", as defined above, the Administrator is
replaced as the service provider under this Agreement, the Fund
Accounting Agreement between the parties dated as of
__________________________, 1999 or the Transfer Agency Agreement
between the parties dated as of ____________________, 1999, or if a
third party is added to perform all or a part of the services
provided by the Administrator under any of such agreements then the
Company shall make a one-time cash payment, as liquidated damages,
to the Administrator equal to the balance due the Administrator
under the Fee Agreement for the lesser of (A) the next twelve (12)
months or (B) the remainder of the then-current term of this
Agreement, assuming for purposes of calculation of the payment that
such balance shall be based upon the average amount of Fund assets
and the average number of Fund shareholder accounts for the twelve
months prior to the date the Administrator is replaced or a third
party is added.
In the event the Portfolios are merged into another legal entity in
part or in whole pursuant to any form of business reorganization or
are liquidated in part or in whole prior to the expiration of the
then-current term of this Agreement, the parties acknowledge and
agree that the liquidated damages provision set forth above shall be
applicable in those instances in which the Administrator is not
retained to provide administration services consistent with this
Agreement. The one-time cash payment referenced above shall be due
and payable on the day prior to the first day during which assets
are transferred pursuant to the plan of reorganization or
liquidation.
The parties further acknowledge and agree that, in the event the
Administrator ceases to be retained, as set forth above, (i) a
determination of actual damages incurred by the Administrator would
be extremely difficult, and (ii) the liquidated damages provision
contained herein is intended to adequately compensate the
Administrator for damages incurred and is not intended to constitute
any form of penalty.
FUND ACCOUNTING AGREEMENT
AGREEMENT made this ________ day of _________________________, between THE
COVENTRY GROUP (the "Trust"), a Massachusetts business trust having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and
BISYS FUND SERVICES OHIO, INC. ("Fund Accountant"), a corporation organized
under the laws of the State of Delaware and having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that Fund Accountant perform and Fund
Accountant is willing to perform, certain fund accounting services for each
currently existing Kensington series of the Trust advised by Kensington
Investment Group and such additional series advised by Kensington Investment
Group as the Trust and Fund Accountant may agree on from time to time
(individually referred to herein as the "Fund" and collectively as the "Funds")
and as listed on Schedule A attached hereto and made a part of this Agreement,
on the terms and conditions hereinafter set forth; and
WHEREAS, Fund Accountant is willing to perform such services on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
(a) Maintenance of Books and Records. Fund Accountant will keep
and maintain the following books and records of each Fund
pursuant to Rule 31a-1 under the Investment Company Act of
1940 (the "Rule"):
(i) Journals containing an itemized daily record in detail
of all purchases and sales of securities, all receipts
and disbursements of cash and all other debits and
credits, as required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by subsection (b)(2)(I) of the
Rule;
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8)
of the Rule.
(b) Performance of Daily Accounting Services. In addition to the
maintenance of the books and records specified above, Fund
Accountant shall perform the following accounting services
daily for each Fund:
(i) Calculate the net asset value per share utilizing prices
obtained from the sources described in subsection
1(b)(ii) below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then obtain
such prices from each Fund's investment adviser or its
designee, as approved by the Trust's Board of Trustees;
(iii) Verify and reconcile with the Funds' custodian all daily
trade activity;
(iv) Compute, as appropriate, each Fund's net income and
capital gains, dividend payables, dividend factors,
7-day yields, 7-day effective yields, 30-day yields, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to release
to shareholders, check and confirm the net asset values
and dividend factors for reasonableness and deviations,
and distribute net asset values and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the
comparison to the amortized cost basis;
(vii) Determine unrealized appreciation and depreciation on
securities held in variable net asset value Funds;
(viii)Amortize premiums and accrete discounts on securities
purchased at a price other than face value, if requested
by the Trust;
(ix) Update fund accounting system to reflect rate changes,
as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to instructions
received from the Trust's Administrator;
(xii) Determine the outstanding receivables and payables for
all (1) security trades, (2) Fund share transactions and
(3) income and expense accounts;
(xiii)Provide accounting reports in connection with the
Trust's regular annual audit and other audits and
examinations by regulatory agencies; and
(xiv) Provide such periodic reports as the parties shall agree
upon, as set forth in a separate schedule.
(c) Special Reports and Services.
(i) Fund Accountant may provide additional special reports
upon the request of the Trust or a Fund's investment
adviser, which may result in an additional charge, the
amount of which shall be agreed upon between the
parties.
(ii) Fund Accountant may provide such other similar services
with respect to a Fund as may be reasonably requested by
the Trust, which may result in an additional charge, the
amount of which shall be agreed upon between the
parties.
(d) Additional Accounting Services. Fund Accountant shall also
perform the following additional accounting services for each
Fund:
(i) Provide monthly a download (and hard copy thereof) of
the financial statements described below, upon request
of the Trust. The download will include the following
items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and federal
excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission ("SEC") on
Form N-SAR;
(C) the Trust's annual, semi-annual and quarterly (if
any) shareholder reports;
<PAGE>
(D) registration statements on Form N-1A and other
filings relating to the registration of shares,
including Form 24F-2;
(E) the Administrator's monitoring of each Trust's
status as a regulated investment company under
Subchapter M of the Internal Revenue Code, as
amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
2. Subcontracting.
Fund Accountant may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that Fund Accountant shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that Fund Accountant shall be responsible, to the extent
provided in Section 7 hereof, for all acts of such subcontractor as if such acts
were its own.
3. Compensation.
The Trust shall pay Fund Accountant for the services to be provided
by Fund Accountant under this Agreement in accordance with, and in the manner
set forth in the Omnibus Fee Agreement between the Company and Fund Accountant
dated as of __________________________, 1999 (the "Fee Agreement").
4. Reimbursement of Expenses.
In addition to paying Fund Accountant the fees described in Section
3 hereof, the Trust agrees to reimburse Fund Accountant for its out-of-pocket
expenses in providing services hereunder, including without limitation the
following:
(a) All freight and other delivery and bonding charges incurred by
Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund
Accountant in communication with the Trust, the Trust's
investment advisor or custodian, dealers or others as required
for Fund Accountant to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section l (b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly
authorized; and
(f) Any additional expenses reasonably incurred by Fund Accountant
in the performance of its duties and obligations under this
Agreement.
5. Effective Date.
This Agreement shall become effective with respect to a Fund as of
the date first written above (or, if a particular Fund is not in existence on
that date, on the date such Fund commences operation) (the "Effective Date").
6. Term.
This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, until
_____________, 2002 (the "Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be renewed automatically for
successive one-year periods ("Rollover Periods"). This Agreement may be
terminated without penalty (i) by provision of a notice of nonrenewal in the
manner set forth below, (ii) by mutual agreement of the parties or (iii) for
"cause," as defined below, upon the provision of 60 days advance written notice
by the party alleging cause. Written notice of nonrenewal must be provided
within 60 days of the end of the Initial Term or any Rollover Period, as the
case may be.
For purposes of this Agreement, "cause" shall mean (a) a material
breach if the Agreement that has not been cured within thirty (30) days
following written notice of such breach from the non-breaching party; (b) a
series of negligent acts or omissions or breaches of this Agreement which, in
the aggregate, constitute, in the reasonable judgment of the Company's Trustees,
a serious failure to perform satisfactorily Fund Accountant's obligations
hereunder; (c) a final, unappealable judicial, regulatory or administrative
ruling or order in which the party to be terminated has been found guilty of
criminal or unethical behavior in the conduct of its business; (d) financial
difficulties on the part of the party to be terminated which are evidenced by
the authorization or commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any applicable
law, other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the rights
of creditors; (e) any failure on the part of the Company to collect from the
investment adviser any payment or reimbursement that is due and payable by the
investment adviser to the Company (including an amount due the Company that
directly or indirectly represents amounts payable to the Fund Accountant in its
capacity as fund administrator to the Company) within 60 days following the due
date; or (f) any failure on the part of the Company to pay an amount that is due
and payable to the Fund Accountant or any of its affiliates under any other
agreement to which the Company is a party within 60 days following the due date.
For purposes of this definition of "cause," a material breach shall include, but
not be limited, any failure on the part of the Company to pay fees due or
reimburse expenses due and payable to the Fund Accountant pursuant to Sections 3
and 4 hereunder within 60 days following the due date.
After such termination for so long as Fund Accountant, with the
written consent of the Trust, in fact continues to perform any one or more of
the services contemplated by this Agreement or any schedule or exhibit hereto,
the provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due Fund Accountant and unpaid by the Trust upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
Fund Accountant shall be entitled to collect from the Trust, in addition to the
compensation described under Section 3 hereof, the amount of all of Fund
Accountant's cash disbursements for services in connection with Fund
Accountant's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents, or any copies thereof. Subsequent
to such termination, for a reasonable fee, Fund Accountant will provide the
Trust with reasonable access to any Trust documents or records remaining in its
possession.
If, for any reason other than the nonrenewal, mutual agreement of
the parties or "cause," as defined above, Fund Accountant is replaced as the
service provider under this Agreement, the Administration Agreement between the
parties dated as of _________________, 1999 or the Transfer Agency Agreement
between the parties dated as of ___________________, 1999 or if a third party is
added to perform all or a part of the services provided by Fund Accountant under
any of such agreements, then the Trust shall make a one-time cash payment, as
liquidated damages, to Fund Accountant equal to the balance due Fund Accountant
under the Fee Agreement for the lesser of (A) the next twelve months or (B) the
remainder of the then-current term of this Agreement, assuming for purposes of
calculation of the payment that such balance shall be based upon the average
amount of Fund assets and the average number of Fund shareholder accounts for
the twelve months prior to the date Fund Accountant is replaced or a third party
is added.
In the event the Funds are merged into another legal entity in part
or in whole pursuant to any form of business reorganization or are liquidated in
part or in whole prior to the expiration of the then-current term of this
Agreement, the parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those instances in which Fund
Accountant is not retained to provide fund accounting services consistent with
this Agreement. The one-time cash payment referenced above shall be due and
payable on the day prior to the first day during which assets are transferred
pursuant to the plan of reorganization or liquidation.
The parties further acknowledge and agree that, in the event Fund
Accountant ceases to be retained, as set forth above, (i) a determination of
actual damages incurred by Fund Accountant would be extremely difficult, and
(ii) the liquidated damages provision contained herein is intended to adequately
compensate Fund Accountant for damages incurred and is not intended to
constitute any form of penalty.
7. Standard of Care; Reliance on Records and Instructions;
Indemnification.
Fund Accountant shall use its best efforts to insure the accuracy of
all services performed under this Agreement, but shall not be liable to the
Trust for any action taken or omitted by Fund Accountant in the absence of bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties. A Fund agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Fund Accountant's actions
taken or nonactions with respect to the performance of services under this
Agreement with respect to such Fund or based, if applicable, upon reasonable
reliance on information, records, instructions or requests with respect to such
Fund given or made to Fund Accountant by a duly authorized representative of the
Trust; provided that this indemnification shall not apply to actions or
omissions of Fund Accountant in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, Fund Accountant shall give the Trust written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of Fund Accountant.
8. Record Retention and Confidentiality.
Fund Accountant shall keep and maintain on behalf of the Trust all
books and records which the Trust or Fund Accountant is, or may be, required to
keep and maintain pursuant to any applicable statutes, rules and regulations,
including without limitation Rules 31a-1 and 31a-2 under the Investment Company
Act of 1940, as amended (the "1940 Act"), relating to the maintenance of books
and records in connection with the services to be provided hereunder. Fund
Accountant further agrees that all such books and records shall be the property
of the Trust and to make such books and records available for inspection by the
Trust or by the Securities and Exchange Commission at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Trust and its shareholders; except when requested to divulge
such information by duly-constituted authorities or court process.
9. Uncontrollable Events.
Fund Accountant assumes no responsibility hereunder, and shall not
be liable, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control.
10. Reports.
Fund Accountant will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or completed by Fund
Accountant, or as subsequently agreed upon by the parties pursuant to an
amendment hereto. The Trust agrees to examine each such report or copy promptly
and will report or cause to be reported any errors or discrepancies therein no
later than three business days from the receipt thereof. In the event that
errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within ten days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and, except as provided in Section 7 hereof,
Fund Accountant shall have no liability for errors or discrepancies therein and
shall have no further responsibility with respect to such report except to
perform reasonable corrections of such errors and discrepancies within a
reasonable time after requested to do so by the Trust.
11. Rights of Ownership.
All computer programs and procedures developed to perform services
required to be provided by Fund Accountant under this Agreement are the property
of Fund Accountant. All records and other data except such computer programs and
procedures are the exclusive property of the Trust and all such other records
and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.
12. Return of Records.
Fund Accountant may at its option at any time, and shall promptly
upon the Trust's demand, turn over to the Trust and cease to retain Fund
Accountant's files, records and documents created and maintained by Fund
Accountant pursuant to this Agreement which are no longer needed by Fund
Accountant in the performance of its services or for its legal protection. If
not so turned over to the Trust, such documents and records will be retained by
Fund Accountant for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
13. Representations of the Trust.
The Trust certifies to Fund Accountant that: (1) as of the close of
business on the Effective Date, each Fund that is in existence as of the
Effective Date has authorized unlimited shares, and (2) this Agreement has been
duly authorized by the Trust and, when executed and delivered by the Trust, will
constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
14. Representations of Fund Accountant.
Fund Accountant represents and warrants that: (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
the records, and other data of the Trust and Fund Accountant's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
15. Insurance.
Fund Accountant shall notify the Trust should any of Fund
Accountant's insurance coverage be canceled or reduced. Such notification shall
include the date of change and the reasons therefor. Fund Accountant shall
notify the Trust of any material claims against Fund Accountant with respect to
services performed under this Agreement, whether or not they may be covered by
insurance, and shall notify the Trust from time to time as may be appropriate of
the total outstanding claims made by Fund Accountant under its insurance
coverage.
16. Information to be Furnished by the Trust and Funds.
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such document has been filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of Trustees
covering the approval of this Agreement, authorization
of a specified officer of the Trust to execute and
deliver this Agreement and authorization for specified
officers of the Trust to instruct Fund Accountant
thereunder.
(c) A list of all the officers of the Trust, together with
specimen signatures of those officers who are authorized to
instruct Fund Accountant in all matters.
(d) Two copies of the Prospectuses and Statements of Additional
Information for each Fund.
17. Information Furnished by Fund Accountant.
(a) Fund Accountant has furnished to the Trust the following:
(i) Fund Accountant's Articles of Incorporation; and
(ii) Fund Accountant's Bylaws and any amendments thereto.
(b) Fund Accountant shall, upon request, furnish certified copies
of corporate actions covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of Fund Accountant to execute and
deliver this Agreement; and
(ii) Authorization of Fund Accountant to act as fund
accountant for the Trust and to provide accounting
services for the Trust.
18. Amendments to Documents.
The Trust shall furnish Fund Accountant written copies of any
amendments to, or changes in, any of the items referred to in Section 16 hereof
forthwith upon such amendments or changes becoming effective. In addition, the
Trust agrees that no amendments will be made to the Prospectuses or Statements
of Additional Information of the Trust which might have the effect of changing
the procedures employed by Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes.
19. Compliance with Law.
Except for the obligations of Fund Accountant set forth in Sections
1 and 8 hereof, the Trust assumes full responsibility for the preparation,
contents and distribution of each prospectus of the Trust as to compliance with
all applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the 1940 Act and any other laws, rules and regulations of
governmental authorities having jurisdiction. Fund Accountant shall have no
obligation to take cognizance of any laws relating to the sale of the Trust's
shares. The Trust represents and warrants that no shares of the Trust will be
offered to the public until the Trust's registration statement under the
Securities Act and the 1940 Act has been declared or becomes effective.
20. Notices.
Any notice provided hereunder shall be sufficiently given when sent
by registered or certified mail to the party required to be served with such
notice, at the following address: 3435 Stelzer Road, Columbus, Ohio 43219, or at
such other address as such party may from time to time specify in writing to the
other party pursuant to this Section.
21. Headings.
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
22. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to a Fund by either of the parties hereto except by the
specific written consent of the other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
23. Governing Law.
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio.
24. Limitation of Liability of the Trustees and Shareholders.
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees, and this Agreement has been signed and delivered by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in the Trust's Agreement and Declaration of Trust.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed all as of the day and year first above written.
THE COVENTRY GROUP
By:______________________________
Title:---------------------------
BISYS FUND SERVICES OHIO, INC.
By:------------------------------
TRANSFER AGENCY AGREEMENT
AGREEMENT made this day of ___________________, between THE COVENTRY GROUP
(the "Trust"), a Massachusetts business trust having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES
OHIO, INC. ("BISYS"), a Delaware corporation having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for each
currently existing Kensington series of the Trust advised by Kensington
Investment Group and such additional Kensington series advised by Kensington
Investment Group that are hereafter created (individually referred to herein as
a "Fund" and collectively as the "Funds");
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
BISYS shall perform for the Funds the transfer agent services set
forth in Schedule A hereto. BISYS also agrees to perform for the Funds such
special services incidental to the performance of the services enumerated herein
as agreed to by the parties from time to time. BISYS shall perform such
additional services as are provided on an amendment to Schedule A hereof, in
consideration of such fees as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
2. Fees.
The Trust shall pay BISYS for the services to be provided by BISYS
under this Agreement in accordance with, and in the manner set forth in the
Omnibus Fee Agreement between the Trust and BISYS dated as of
______________________, 1999 (the "Fee Agreement").
3. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 2 hereof,
the Trust agrees to reimburse BISYS for BISYS' out-of-pocket expenses in
providing services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust and in
delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communication with the Trust, the Trust's investment adviser or
custodian, dealers, shareholders or others as required for BISYS
to perform the services to be provided hereunder;
(c) Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other forms of printed material which shall be
required by BISYS for the performance of the services to be
provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized.
4. Effective Date.
This Agreement shall become effective as of the date first written
above (the "Effective Date").
5. Term.
This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, until
____________, 2002 (the "Initial Term"). Thereafter, unless otherwise terminated
as provided herein, this Agreement shall be renewed automatically for successive
one-year periods ("Rollover Periods"). This Agreement may be terminated without
penalty (i) by provision of a notice of nonrenewal in the manner set forth
below, (ii) by mutual agreement of the parties or (iii) for "cause," as defined
below, upon the provision of 60 days advance written notice by the party
alleging cause. Written notice of nonrenewal must be provided within 60 days of
the end of the Initial Term or any Rollover Period, as the case may be.
For purposes of this Agreement, "cause" shall mean (a) a material
breach of this Agreement that has not been cured within thirty days following
written notice of such breach from the non-breaching party; (b) a series of
negligent acts or omissions or breaches of this Agreement which, in the
aggregate, constitute, in the reasonable judgment of the Company's Trustees, a
serious failure to perform BISYS's obligations hereunder; (c) a final,
unappealable judicial, regulatory or administrative ruling or order in which the
party to be terminated has been found guilty of criminal or unethical behavior
in the conduct of its business; (d) financial difficulties on the part of the
party to be terminated which are evidenced by the authorization or commencement
of, or involvement by way of pleading, answer, consent or acquiescence in, a
voluntary or involuntary case under Title 11 of the United States Code, as from
time to time is in effect, or any applicable law, other than said Title 11, of
any jurisdiction relating to the liquidation or reorganization of debtors or to
the modification or alteration of the rights of creditors; (e) any failure on
the part of the Company to collect from the investment adviser any payment or
reimbursement that is due and payable by the investment adviser to the Company
(including an amount due the Company that directly or indirectly represents
amounts payable to BISYS in its capacity as Transfer Agent to the Company)
within 60 days following the due date; or (f) any failure on the part of the
Company to pay an amount that is due and payable to BISYS or any of its
affiliates under any other agreement to which the Company is a party within 60
days following the due date. For purposes of this definition of "cause," a
material breach shall include, but not be limited to, any failure on the part of
the Company to pay fees due and payable to BISYS pursuant to Sections 2 and 3
hereunder within 60 days following the due date.
After such termination, for so long as BISYS, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees and
out-of-pocket expenses incurred by BISYS but unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' cash disbursements in connection with BISYS' activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its distributor or investment adviser and/or other parties, of the
Trust's property, records, instruments and documents, or any copies thereof. To
the extent that BISYS may retain in its possession copies of any Trust documents
or records subsequent to such termination which copies had not been requested by
or on behalf of the Trust in connection with the termination process described
above, BISYS, for a reasonable fee, will provide the Trust with reasonable
access to such copies.
If, for any reason, other than nonrenewal, mutual agreement of the
parties or "cause," as defined above, BISYS is replaced as the service provider
under this Agreement, the Administration Agreement between the parties dated as
of __________________, 1999 or the Fund Accounting Agreement between the parties
dated as of ____________________, 1999 or if a third party is added to perform
all or a part of the services provided by BISYS under any of such agreements,
then the Trust shall make a one-time cash payment, as liquidated damages to,
BISYS equal to the balance due BISYS under the Fee Agreement for the lesser of
(A) the next twelve months or (B) the remainder of the then-current term of this
Agreement, assuming for purposes of calculation of the payment that such balance
shall be based upon the average amount of Fund assets and the average number of
Fund shareholder accounts for the twelve months prior to the date BISYS is
replaced or a third party is added.
In the event the Funds are merged into another legal entity in part
or in whole pursuant to any form of business reorganization or are liquidated in
part or in whole prior to the expiration of the then-current term of this
Agreement, the parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those instances in which BISYS
is not retained to provide transfer agency services consistent with this
Agreement. The one-time cash payment referenced above shall be due and payable
on the day prior to the first day during which assets are transferred pursuant
to the plan of reorganization or liquidation.
The parties further acknowledge and agree that, in the event BISYS
ceases to be retained, as set forth above, (i) a determination of actual damages
incurred by BISYS would be extremely difficult, and (ii) the liquidated damages
provision contained herein is intended to adequately compensate BISYS for
damages incurred and is not intended to constitute any form of penalty.
6. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and shall not be liable
for any damage, loss of data, delay or any other loss whatsoever caused by
events beyond its reasonable control.
7. Legal Advice.
BISYS shall notify the Trust at any time BISYS believes that it is in
need of the advice of counsel (other than counsel in the regular employ of BISYS
or any affiliated companies) with regard to BISYS' responsibilities and duties
pursuant to this Agreement; and after so notifying the Trust, BISYS, at its
discretion, shall be entitled to seek, receive and act upon advice of legal
counsel of its choosing, such advice to be at the expense of the Trust or Funds
unless relating to a matter involving BISYS' willful misfeasance, bad faith,
gross negligence or reckless disregard with respect to BISYS' responsibilities
and duties hereunder and BISYS shall in no event be liable to the Trust or any
Fund or any shareholder or beneficial owner of the Trust for any action
reasonably taken pursuant to such advice.
8. Instructions.
Whenever BISYS is requested or authorized to take action hereunder
pursuant to instructions from a shareholder, or a properly authorized agent of a
shareholder ("shareholder's agent"), concerning an account in a Fund, BISYS
shall be entitled to rely upon any certificate, letter or other instrument or
communication, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions;
Indemnification.
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
10. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the Trust all books and
records which the Trust or BISYS is, or may be, required to keep and maintain
pursuant to any applicable statutes, rules and regulations, including without
limitation Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as
amended (the "1940 Act"), relating to the maintenance of books and records in
connection with the services to be provided hereunder. BISYS further agrees that
all such books and records shall be the property of the Trust and to make such
books and records available for inspection by the Trust or by the Securities and
Exchange Commission (the "Commission") at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Trust
and its shareholders, except when requested to divulge such information by
duly-constituted authorities or court process, or requested by a shareholder or
shareholder's agent with respect to information concerning an account as to
which such shareholder has either a legal or beneficial interest or when
requested by the Trust, the shareholder, or shareholder's agent, or the dealer
of record as to such account.
11. Reports.
BISYS will furnish to the Trust and to its properly-authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Trust in writing,
such reports at such times as are prescribed in Schedule B attached hereto, or
as subsequently agreed upon by the parties pursuant to an amendment to Schedule
B. The Trust agrees to examine each such report or copy promptly and will report
or cause to be reported any errors or discrepancies therein not later than three
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within three days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and be binding upon the Trust and
any other recipient, and BISYS shall have no liability for errors or
discrepancies therein and shall have no further responsibility with respect to
such report except to perform reasonable corrections of such errors and
discrepancies within a reasonable time after requested to do so by the Trust.
12. Rights of Ownership.
All computer programs and procedures developed to perform services
required to be provided by BISYS under this Agreement are the property of BISYS.
All records and other data except such computer programs and procedures are the
exclusive property of the Trust and all such other records and data will be
furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
13. Return of Records.
BISYS may at its option at any time, and shall promptly upon the
Trust's demand, turn over to the Trust and cease to retain BISYS' files, records
and documents created and maintained by BISYS pursuant to this Agreement which
are no longer needed by BISYS in the performance of its services or for its
legal protection. If not so turned over to the Trust, such documents and records
will be retained by BISYS for six years from the year of creation. At the end of
such six-year period, such records and documents will be turned over to the
Trust unless the Trust authorizes in writing the destruction of such records and
documents.
14. Bank Accounts.
The Trust and the Funds shall establish and maintain such bank
accounts with such bank or banks as are selected by the Trust, as are necessary
in order that BISYS may perform the services required to be performed hereunder.
To the extent that the performance of such services shall require BISYS directly
to disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
15. Representations of the Trust.
The Trust certifies to BISYS that: (a) as of the close of business on
the Effective Date, each Fund which is in existence as of the Effective Date has
authorized unlimited shares, and (b) by virtue of its Declaration of Trust,
shares of each Fund which are redeemed by the Trust may be sold by the Trust
from its treasury, and (c) this Agreement has been duly authorized by the Trust
and, when executed and delivered by the Trust, will constitute a legal, valid
and binding obligation of the Trust, enforceable against the Trust in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties.
16. Representations of BISYS.
BISYS represents and warrants that: (a) BISYS has been in, and shall
continue to be in, substantial compliance with all provisions of law, including
Section 17A(c) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), required in connection with the performance of its duties under this
Agreement; and (b) the various procedures and systems which BISYS has
implemented with regard to safekeeping from loss or damage attributable to fire,
theft or any other cause of the blank checks, records, and other data of the
Trust and BISYS' records, data, equipment, facilities and other property used in
the performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder.
17. Insurance.
BISYS shall notify the Trust should its insurance coverage with
respect to professional liability or errors and omissions coverage be canceled
or reduced. Such notification shall include the date of change and the reasons
therefor. BISYS shall notify the Trust of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify the Trust from time to time as may be
appropriate of the total outstanding claims made by BISYS under its insurance
coverage.
18. Information to be Furnished by the Trust and Funds.
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state
in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's Bylaws and any amendments thereto;
2. Certified copies of resolutions of the Board of Trustees
covering the following matters:
A. Approval of this Agreement and authorization of a
specified officer of the Trust to execute and deliver
this Agreement and authorization for specified officers
of the Trust to instruct BISYS hereunder; and
B. Authorization of BISYS to act as Transfer Agent for the
Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the following (if such documents are employed by
the Trust):
1. Prospectuses and Statement of Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of
BISYS' appointment as Transfer Agent (or as of the date on which
BISYS' services are commenced, whichever is the later date) and
as to receipt of full consideration by the Trust for all shares
outstanding, such statement to be certified by the Treasurer of
the Trust.
19. Information Furnished by BISYS.
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a specified
officer of BISYS to execute and deliver this Agreement;
2. Authorization of BISYS to act as Transfer Agent for the
Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with the
Commission pursuant to Rule 17Ad-13 under the Exchange Act.
20. Amendments to Documents.
The Trust shall furnish BISYS written copies of any amendments to, or
changes in, any of the items referred to in Section 18 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Trust agrees
that no amendments will be made to the Prospectuses or Statement of Additional
Information of the Trust which might have the effect of changing the procedures
employed by BISYS in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS hereunder unless the Trust first
obtains BISYS' approval of such amendments or changes.
21. Reliance on Amendments.
BISYS may rely on any amendments to or changes in any of the
documents and other items to be provided by the Trust pursuant to Sections 18
and 20 of this Agreement and the Trust hereby indemnifies and holds harmless
BISYS from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character which may result from actions or omissions on the
part of BISYS in reasonable reliance upon such amendments and/or changes.
Although BISYS is authorized to rely on the above-mentioned amendments to and
changes in the documents and other items to be provided pursuant to Sections 18
and 20 hereof, BISYS shall be under no duty to comply with or take any action as
a result of any of such amendments or changes unless the Trust first obtains
BISYS' written consent to and approval of such amendments or changes.
22. Compliance with Law.
Except for the obligations of BISYS set forth in Section 10 hereof,
the Trust assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
23. Notices.
Any notice provided hereunder shall be sufficiently given when sent
by registered or certified mail to the party required to be served with such
notice at the following address: 3435 Stelzer Road, Columbus, Ohio 43219, or at
such other address as such party may from time to time specify in writing to the
other party pursuant to this Section.
24. Headings.
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
25. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 25 shall not limit or in any way affect
BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1 hereof. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
26. Governing Law and Matters Relating to the Trust as a Massachusetts
Business Trust.
This Agreement shall be governed by and provisions shall be construed
in accordance with the laws of the State of Ohio. It is expressly agreed that
the obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust
personally, but shall bind only the trust property of the Trust. The execution
and delivery of this Agreement have been authorized by the Trustees, and this
Agreement has been signed and delivered by an authorized officer of the Trust,
acting as such, and neither such authorization by the Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in the Trust's
Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE COVENTRY GROUP
By_________________________________
Title:_____________________________
BISYS FUND SERVICES OHIO, INC.
By:________________________________
Title:_____________________________
Dated: _________________________
<PAGE>
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders with respect to the
Funds.
b. Set up Fund account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for Fund shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares,
through dividend reimbursement.
2. Shareholder Information Services
a. Make information available to shareholder servicing unit and other
remote access units regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or special
order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
3. Compliance Reporting
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in which
the Funds are registered.
b. Prepare and distribute appropriate Internal Revenue Service forms for
corresponding Fund and shareholder income and capital gains.
c. Issue tax-withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and purchases
made under a Letter of Intent.
b. Account for separation of shareholder investments from transaction
sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each Fund account.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each Fund shareholder.
<PAGE>
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
REPORTS
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
OMNIBUS FEE AGREEMENT
THIS AGREEMENT is made as of this __________day of _________________,
1999, by and between THE COVENTRY GROUP (the "Trust"), a Massachusetts business
trust, and BISYS FUND SERVICES OHIO, INC.
("BISYS"), an Ohio corporation.
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act") consisting
of several series of shares of beneficial interest ("Shares");
WHEREAS, the Trust and BISYS have entered into an Administration
Agreement, a Fund Accounting Agreement, and Transfer Agency Agreement each of
which is dated ____________________, 1999, concerning the provision of
administration, fund accounting and transfer agency services for the investment
portfolios of the Trust advised by Kensington Investment Group (individually
referred to herein as a "Fund" and collectively as the "Funds"); and
WHEREAS, the parties desire to set forth the compensation payable to BISYS
by the Trust under the Administration Agreement, Fund Accounting Agreement and
Transfer Agency Agreement (collectively the "Service Agreements") in a separate
written document.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. The amount of the compensation due and payable to BISYS for the
services set forth in the Service Agreements is set forth in Schedule A hereto.
Such compensation shall be payable during the term of the Service Agreements. In
addition to the foregoing, BISYS shall be reimbursed for certain out-of-pocket
expenses, as more fully set forth in the Service Agreements.
2. This Agreement shall be governed by, and its provisions shall be
construed in accordance with, the laws of the State of Ohio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed as of the day and year first written above.
THE COVENTRY GROUP
By: ____________________________
Title:__________________________
BISYS FUND SERVICES OHIO, INC.
By: _____________________________
Title:___________________________
<PAGE>
SCHEDULE A
TO THE OMNIBUS FEE AGREEMENT
DATED ___________________, 1999
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
FEES
Asset-Based Fees
Subject to the annual minimum fees set forth below, the Trust shall pay to
BISYS on the first business day of each month, or at such time(s) as BISYS shall
request and the parties hereto shall agree, a fee for each Fund computed daily
at the annual rate of:
Eighteen one-hundredths of one percent
(.18%) of each Fund's average daily
net assets up to $1 billion; and
Ten one-hundredths of one percent (.10%) of each Fund's
average daily net assets in excess of $1 billion.
Per Account Fees
Subject to the annual minimum fees set forth below, BISYS shall be
entitled to receive an annual fee of $25.00 per shareholder account.
Annual Minimum Fees
The asset-based fees and the per account fees described herein shall be
subject to an annual minimum fee of $125,000.
Multiple Classes
An additional annual fee of $25,000 shall be charged for each class of
shares that is created after the initial class.
Reimbursement of Expenses
The fees set forth above shall be in addition to the payment of
out-of-pocket expenses, as provided for in the Service Agreement.
EXPENSE LIMITATION AGREEMENT
FOR KENSINGTON STRATEGIC REALTY FUND
THIS AGREEMENT, dated as of ___________, 1999, is made and entered into by
and between The Coventry Group, a Massachusetts business trust (the "Trust"), on
behalf of its series Kensington Strategic Realty Fund (the "Fund"), and
Kensington Investment Group, Inc. (the "Adviser").
WHEREAS, the Adviser has been appointed the investment adviser of the Fund
pursuant to an Investment Advisory Agreement dated __________, 1999, between the
Trust , on behalf of the Fund, and the Adviser (the "Advisory Agreement"); and
WHEREAS, the Trust and the Adviser desire to enter into the arrangements
described herein relating to certain expenses of the Fund;
NOW, THEREFORE, the Trust and the Adviser hereby agree as follows:
1. Until ___________________, 2002, the Adviser agrees, subject to
Section 2 hereof, to limit its fee and/or reimburse other expenses
of each class of the Fund to the extent necessary to limit the
operating expenses of each class to the following annual rates (as a
percentage of the average daily net assets of the class): Class A,
2.75%, Class B, 3.50%, Class C, 3.50%
2. The limits set by Section 1 shall not apply to increases in
the advisory fees resulting from Performance Adjustments in
accordance with the terms of the Investment Advisory
Agreement. Additionally, under the conditions described below
in this Section 2, the Fund agrees to pay or repay to the
Adviser the amount of fees (including any amounts foregone
through limitation or reimbursed pursuant to Section 1 hereof)
that, but for Section 1 hereof, would have been payable by the
Fund to the Adviser pursuant to the Investment Advisory
Agreement (the "Deferred Fees"). Such repayment shall be made
monthly, but only to the extent that the operating expenses of
a Class (exclusive of Performance Adjustments, brokerage
costs, interest, taxes and dividend and extraordinary
expenses), without regard to such repayment, are at an annual
rate (as a percentage of the average daily net assets of the
Fund) below the limit set in Section 1. The amount of
Deferred Fees paid by a Class in any month shall be limited so
that the sum of (a) the amount of such payment and (b) the
other operating expenses of the Class (exclusive of
Performance Adjustments, brokerage costs, interest, taxes and
extraordinary expenses) do not exceed the limit set by Section
1. Deferred Fees with respect to any fiscal year of the Fund
shall not be payable by a Class to the extent that the amounts
payable by the Class pursuant to the foregoing provisions of
this Section 2 during the period ending ____________, 2002 are
not sufficient to pay such Deferred Fees. In no event will a
Class be obligated to pay any fees waived or deferred by the
Adviser with respect to any other Class of the Fund or any
other series of the Trust.
3. The Adviser may by notice in writing to the Trust terminate,
in whole or in part, its obligation under Section 1 to reduce
its fees with respect to a Class in any period following the
date specified in such notice (or change the percentage
specified in Section 1), but no such change shall affect the
obligation (including the amount of the obligation) of such
Class to repay amounts of Deferred Fees with respect to
periods prior to the date specified in such notice.
4. A copy of the Agreement and Declaration of Trust establishing
the Trust is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement
is executed by the Trust on behalf of the Fund by an officer
of the Trust as an officer and not individually and that the
obligations of or arising out of this Agreement are not
binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property
belonging to the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE CONVENTRY GROUP,
on behalf of its series
Kensington Strategic Realty Fund KENSINGTON INVESTMENT GROUP, INC.
By:_____________________________ By:_______________________________
Name:___________________________ Name:_____________________________
Title___________________________ Title:____________________________
