<PAGE> 1
UNITED STATES TRUST COMPANY OF BOSTON
To: All Shareholders/Boston Balanced Fund
From: Domenic Colasacco
Re: Portfolio Manager's Report - June 30, 1999
Fund NAV: $30.22
Boston Trust Logo
COMPARATIVE PERFORMANCE
<TABLE>
<CAPTION>
Annualized
Fiscal Since
Quarter Year to Year Inception
Ending Date Ended 12/1/95 to
6/30/99 6/30/99 6/30/99 6/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Boston Balanced Fund* 4.64% 4.71% 9.34% 18.53%
Standard & Poor's 500 7.05% 12.38% 22.77% 28.30%
Lehman G/C Bond Index -1.09% -2.27% 2.69% 5.85%
90 Day U.S. Treasury Bill 1.07% 2.21% 4.54% 4.93%
</TABLE>
*After all expenses at an annual rate of 1%, the Advisor's expense
limitation. Results shown are past performance which is not an indication of
future returns. Shares of the fund are not deposits or obligations of United
States Trust Company of Boston or any Bank and are not insured by the FDIC,
Federal Reserve Board or any agency. The value of the Fund's shares and returns
will fluctuate and investors may have a gain or loss when they redeem shares.
Shares of the Fund are subject to investment risks, including possible loss of
the principal amount invested. Distributed by BISYS Fund Services.
MARKET & PERFORMANCE SUMMARY - PERIOD ENDED JUNE 30, 1999
The stock market was a friendly place for most investors during the second
quarter, as all of the primary stock indices reached new highs. Moreover, a
greater percentage of investors participated, since gains were recorded by more
than just the handful of large growth companies that have propelled the major
stock averages since 1997. The best performing stock groups included previously
stagnant small and mid-sized companies, as well as corporations that operate in
mature economic sectors such as industrial commodities, capital equipment and
consumer durables. In large part, the broader based advance in stock prices
reflects stronger worldwide economic growth through the quarter along with a
resurgence in corporate profits. Understandably, the same economic trends
<PAGE> 2
THE COVENTRY GROUP
BOSTON BALANCED FUND
increased investor concern about future inflation and potential action by the
Federal Reserve to increase interest rates, which led to sharp declines in bond
values.
Boston Balanced Fund participated fully in the improved stock market
environment, rising by 4.64% for the quarter ended June 30, 1999 with an ending
net asset value of $30.22. As I outline in greater detail in the Investment
Strategy section of this letter, the Fund's above average allocation to equities
of nearly 70% aided performance, as did the superior relative gains of the
equity segment. The bond holdings declined in value along with bonds generally,
but the damage was mitigated by the comparatively short average maturity we
maintained in the portfolio.
ECONOMIC SUMMARY & OUTLOOK
- --------------------------
For the past several years we have noted that a sustained positive
economic environment was essential to support record stock market valuations.
With few exceptions, the economic news throughout the second quarter did not
disappoint investors. Early indications are that real GDP growth was in the
vicinity of 4% and that wages increased at a moderate rate of about 5%, while
productivity remained above the recent historic norm of 2% and employment was
available across most of the country for virtually everyone willing and able to
work. Additionally, fragile Asian and Latin American economies appear to have
stabilized, and the desired improvement in corporate profits has become a
reality rather than merely a forecast.
The primary concern we and many other investors have at this time is that
the best news about inflation is behind us. No longer are we likely to enjoy a
combination of rapid real GDP growth with declining inflation rates as we did
through much of 1997 and 1998. Concern about future inflation led the Federal
Reserve to increase short term interest rates by 1/4 percentage point as the
second quarter ended. The move was symbolic as much as material, intending to
demonstrate a willingness to restrict monetary policy should the favorable
combination of wage growth, productivity gains and availability of inexpensive
foreign manufactured goods deteriorate sufficiently to move the inflation rate
above the recent 2% - 3% trend. At this time, acceleration above this level over
the next year is unlikely, but rising inflation represents a far greater risk to
stock values than a potential economic recession. We will continue to monitor
inflation indicators closely, while not losing sight of the fact that the
preponderance of economic news continues to support high current stock
valuations and further gains in corporate profits.
INVESTMENT STRATEGY
- -------------------
Boston Balanced Fund's primary investment strategy decisions address: a)
the allocation between stocks and bonds; b) the average maturity and quality of
the bond segment, and c) the emphasis placed on different equity investment
styles (growth, value, economic sectors and market capitalization). Although it
is true that, in hindsight, results could have been better, during the second
quarter our investment policy favored the more correct direction for each of
these major strategy options. Specifically, stocks performed better than bonds,
supporting the comparatively high equity allocation of about 70% we maintained
in the Fund. Second, we kept the overall bond maturities shorter than average,
which alleviated the negative performance impact attributable to the bond
segment. Finally, the moves we began about a year ago within the equity holdings
toward mid-sized companies, and particularly toward more reasonably valued
stocks from the largest established growth companies, aided performance. Indeed,
the Fund's stock holdings, in the aggregate, performed better than the S & P 500
Index during the quarter.
<PAGE> 3
THE COVENTRY GROUP
BOSTON BALANCED FUND
As we know from past experience, having an advantageous investment
strategy during a particular quarter is no assurance of success in the next
period. That said, unless we revise our economic outlook, we do not anticipate a
material change in any of the strategy positions noted above in the near future.
Our view is that within a favorable economic environment stocks offer far better
potential to earn a higher total return than bonds. Most stock prices are not
unreasonably high given current levels of corporate profits and interest rates.
We also believe that the improvement in corporate profits that has evolved
throughout the first half of the year will continue at least over the next
twelve months. A positive profit trend tends to favor broad stock market
participation rather than price increases by just a handful of rapidly growing
companies. Please refer to the Schedule of Portfolio Investments for a complete
listing of individual investments as of June 30, 1999.
United States Trust Company of Boston continues to review and analyze the
status of Year 2000 related issues on portfolio holdings as well as on the
services provided by key vendors. We have reviewed the results of successful
remediation and testing of SEI, our primary computer system vendor. Further, we
have established and will monitor our internal contingency plans in the event of
interruptions to our operations. On behalf of all of us at United States Trust,
I thank you for your continued confidence in our services. Please feel free to
contact either me or my colleagues at (617) 726-7252 should you have any
questions about our investment views or your account.
Sincerely,
/s/ Domenic Colasacco
Domenic Colasacco
Portfolio Manager and President,
United States Trust Company of Boston
<PAGE> 4
THE COVENTRY GROUP
BOSTON BALANCED FUND
Value of $10,000 vs Lipper Balanced and Blended Benchmark Indices
<TABLE>
<CAPTION>
BLEND (S&P 500 + LEHMAN
BOSTON BALANCED FUND LIPPER BALANCED G/C + US TREAS.)
-------------------- --------------- -----------------------
<S> <C> <C> <C>
Dec 1, 95 10000.00 10000.00 10000.00
Mar 31, 96 10265.00 10364.00 10329.00
Jun 30, 96 10514.00 10574.00 10592.00
Sept 30, 96 10875.00 10852.00 10850.00
Dec 31, 96 11585.00 11456.00 11450.00
Mar 31, 97 11773.00 11506.00 11583.00
Jun 30, 97 13184.00 12733.00 12759.00
Sept 30, 97 13933.00 13556.00 13441.00
Dec 31, 97 14722.00 13753.00 13831.00
Mar 31, 98 16385.00 14839.00 14885.00
Jun 30, 98 16817.00 15099.00 15307.00
Sept 30, 98 15786.00 14229.00 14928.00
Dec 31, 98 17559.00 15866.00 16492.00
Mar 31, 99 17572.00 16121.00 16841.00
Jun 30, 99 18383.00 16845.00 17377.00
</TABLE>
Past performance is not predictive of future performance.
The Lipper Balanced Index is an equal weighted performance index of the 30
largest qualifying funds in the Lipper Balanced category. The index is unmanaged
and cannot be invested in directly. Returns include reinvested dividends.
The Blended Index consists of the S&P 500 Index (50%), the Lehman
Government/Corporate Index (40%) and the 90 day U.S. Treasury Bill (10%). The
S&P 500 Index is a broad market capitalization-weighted average of U.S.
companies. The Lehman Government/Corporate Index is comprised of roughly 70%
U.S. Treasury and Agency Obligations and 30% SEC registered corporate bonds. The
percentage weights which have been applied to the indices are intended to
replicate the long-term asset allocation of balanced funds generally.
<PAGE> 5
THE COVENTRY GROUP
BOSTON BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS -- (68.0%): Market Value
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
COMMUNICATION SERVICES -- (6.9%):
15,000 Aliant Communications, Inc. ........................... $ 692,813
7,500 Alltel Corp............................................ 536,250
30,000 Ameritech Corp......................................... 2,205,000
60,000 AT&T Corp.............................................. 3,348,750
60,000 Bellsouth Corp......................................... 2,812,500
7,000 MCI Worldcom, Inc. (b)................................. 603,750
------------
10,199,063
------------
CONSUMER CYCLICALS -- (8.2%):
20,000 Costco Companies, Inc. (b)............................. 1,601,250
50,000 Ford Motor Co.......................................... 2,821,875
40,000 Gannett, Inc. ......................................... 2,854,999
25,000 Johnson Controls, Inc. ................................ 1,732,813
75,000 Leggett & Platt, Inc. ................................. 2,085,938
30,000 McClatchy Newspapers, Inc., Class A.................... 993,750
------------
12,090,625
------------
CONSUMER PRODUCTS -- (6.2%):
30,000 American Greetings Corp., Class A...................... 903,750
20,000 Anheuser Busch Co., Inc. .............................. 1,418,750
10,000 Gillette Co............................................ 410,000
25,000 Procter & Gamble Co.................................... 2,231,250
100,000 Sysco Corp............................................. 2,981,250
10,000 Walt Disney Co......................................... 308,125
10,000 William Wrigley, Jr. Co................................ 900,000
------------
9,153,125
------------
ENERGY AND RESOURCES -- (2.2%):
5,000 Atlantic Richfield Co.................................. 417,813
5,000 BP Amoco, ADR.......................................... 542,500
30,000 Exxon Corp............................................. 2,313,750
------------
3,274,063
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
THE COVENTRY GROUP
BOSTON BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- JUNE 30, 1999, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
FINANCE -- (10.4%):
25,000 Bank of America Corp................................... $ 1,832,813
50,000 BankBoston Corp........................................ 2,556,250
20,000 Chubb Corp............................................. 1,390,000
40,000 Cincinnati Financial Corp.............................. 1,502,500
25,000 Fannie Mae............................................. 1,709,375
30,000 First Virginia Banks, Inc. ............................ 1,473,750
75,000 T. Rowe Price Associates, Inc. ........................ 2,878,125
35,000 Wilmington Trust Corp.................................. 2,008,125
------------
15,350,938
------------
HEALTH CARE -- (11.0%):
25,000 Becton, Dickinson & Co................................. 750,000
40,000 Johnson & Johnson...................................... 3,919,999
35,000 Medtronic, Inc. ....................................... 2,725,625
30,000 Merck & Co., Inc. ..................................... 2,220,000
28,000 Pfizer, Inc. .......................................... 3,073,000
65,000 Schering-Plough Corp................................... 3,445,000
------------
16,133,624
------------
INDUSTRIAL MATERIALS -- (0.5%):
5,000 PPG Industries, Inc. .................................. 295,312
20,000 RPM, Inc. ............................................. 283,750
5,000 Sigma-Aldrich Corp..................................... 172,188
------------
751,250
------------
PRODUCER PRODUCTS -- (6.5%):
40,000 Donaldson Co., Inc. ................................... 980,000
5,000 Eaton Corp............................................. 460,000
45,000 Emerson Electric Co.................................... 2,829,375
20,000 Grainger W.W., Inc. ................................... 1,076,250
5,000 Hubbell, Inc., Class A................................. 199,375
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 7
THE COVENTRY GROUP
BOSTON BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- JUNE 30, 1999, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PRODUCER PRODUCTS, CONTINUED
15,000 Hubbell, Inc., Class B................................. $ 680,625
40,000 Illinois Tool Works, Inc. ............................. 3,280,000
------------
9,505,625
------------
TECHNOLOGY -- (14.7%):
10,000 Applied Materials, Inc. (b)............................ 738,750
30,000 Automatic Data Processing, Inc. ....................... 1,320,000
20,000 Cisco Systems, Inc. (b)................................ 1,290,000
15,000 Hewlett-Packard Co..................................... 1,507,500
30,000 IBM Corp............................................... 3,877,500
30,000 Intel Corp............................................. 1,785,000
60,000 Lucent Technologies, Inc. ............................. 4,046,250
50,000 Microsoft Corp. (b).................................... 4,509,374
40,000 Xerox Corp............................................. 2,362,500
------------
21,436,874
------------
TRANSPORTATION -- (1.4%):
15,000 AMR Corp. (b).......................................... 1,023,750
17,000 Delta Air Lines, Inc. ................................. 979,625
------------
2,003,375
------------
Total Common Stocks.................................... 99,898,562
------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 8
THE COVENTRY GROUP
BOSTON BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- JUNE 30, 1999, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount CORPORATE BONDS -- (9.7%): Market Value
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 1,000,000 Albertson's, Inc., 6.66%, 7/21/08...................... $ 998,171
925,000 American Home Products, 7.90%, 2/15/05................. 982,110
300,000 Atlantic Richfield Co., 8.50%, 4/1/12.................. 338,305
500,000 Eaton Corp., 8.90%, 8/15/06............................ 547,220
425,000 Ford Motor Credit Corp., 7.75%, 11/15/02............... 441,124
300,000 Ford Motor Credit Corp., 6.625%, 6/30/03............... 300,773
1,000,000 Ford Motor Credit Corp., 7.20%, 6/15/07................ 1,012,481
1,000,000 General Electric Capital Corp., 7.375%, 9/15/04........ 1,039,803
1,000,000 General Electric Capital Corp., 8.30%, 9/20/09......... 1,121,974
825,000 General Motors Acceptance Corp., 9.625%, 12/15/01...... 885,313
300,000 General Motors Acceptance Corp., 8.50%, 1/1/03......... 317,478
500,000 Honeywell, Inc., 7.00%, 3/15/07........................ 503,453
1,000,000 International Lease Finance Corp., 8.25%, 1/15/00...... 1,012,412
1,000,000 Leggett & Platt, Inc., 7.185%, 4/24/02................. 1,015,067
500,000 Leggett & Platt, Inc., 6.25%, 9/9/08................... 472,060
1,000,000 Paccar Financial Corp., 6.12%, 4/17/00................. 1,000,267
1,000,000 Proctor & Gamble Co., 5.25%, 9/15/03................... 963,390
300,000 Sears Roebuck & Co., 9.46%, 6/20/00.................... 307,950
375,000 Sysco Corp., 6.50%, 6/15/05............................ 371,654
400,000 Unum Corp., 5.88%, 10/15/03............................ 384,807
300,000 Weyerhauser Co., 7.25%, 7/1/13......................... 296,922
------------
Total Corporate Bonds.................................. 14,312,734
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS -- (17.3%):
- -----------------------------------------------------------------------------------------------------
400,000 FFCB, 4.85%, 11/4/03................................... 379,364
2,000,000 FFCB, 5.39%, 9/15/04................................... 1,916,502
2,000,000 FFCB, 5.80%, 6/17/05................................... 1,928,552
3,000,000 FHLB, 5.55%, 8/17/00................................... 2,996,487
2,000,000 FHLB, 5.33%, 3/20/01................................... 1,984,262
500,000 FHLB, 6.24%, 11/18/02.................................. 498,021
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 9
THE COVENTRY GROUP
BOSTON BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- JUNE 30, 1999, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal
Amount Market Value
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
2,000,000 FHLB, 5.285%, 2/11/04.................................. $ 1,927,186
1,500,000 FHLB, 7.015%, 9/25/06.................................. 1,558,019
2,000,000 FNMA, 5.33%, 6/9/00.................................... 1,994,466
3,000,000 FNMA, 4.75%, 12/21/00.................................. 2,957,997
3,000,000 FNMA, 5.375%, 3/15/02.................................. 2,958,849
1,000,000 FNMA, 8.25%, 10/12/04.................................. 1,007,562
3,000,000 U.S. Treasury Bond, 7.50%, 11/15/16.................... 3,373,124
------------
Total U.S. Government and Government Agency
Obligations............................................ 25,480,391
------------
SHORT-TERM INVESTMENTS -- (4.6%):
- -----------------------------------------------------------------------------------------------------
6,725,429 SEI Daily Income Government II Fund.................... 6,725,429
------------
Total Short-Term Investments........................... 6,725,429
------------
TOTAL (COST $108,104,405) (A).......................... $146,417,116
============
</TABLE>
Percentages indicated are based on net assets of $147,019,557.
- ---------
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for financial
reporting purposes in excess of federal income tax purposes of $39,351. Cost for
federal income tax purposes differs from value by net unrealized appreciation
(depreciation) of securities as follows:
<TABLE>
<C> <S> <C> <C>
Unrealized appreciation................................. $ 40,184,752
Unrealized depreciation................................. (1,911,392)
------------
Net unrealized appreciation............................. $ 38,273,360
============
</TABLE>
(b) Non-income producing securities.
FFCB -- Federal Farm Credit Bank
FHLB -- Federal Home Loan Bank
FNMA -- Fannie Mae
See Notes to Financial Statements.
9
<PAGE> 10
THE COVENTRY GROUP
BOSTON BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost
$108,104,405)........................................ $146,417,116
Cash.................................................. 18,738
Receivables:
Dividends and interest.......................... 687,577
Prepaid expenses and other assets..................... 16,175
------------
Total assets.............................. $147,139,606
------------
LIABILITIES
Payables:
Advisory fees................................... $ 87,476
Administration fees............................. 1,780
Custody fees.................................... 5,747
Transfer agent fees............................. 3,711
Fund accounting fees............................ 3,569
Accrued expenses...................................... 17,766
------------
Total liabilities......................... 120,049
------------
NET ASSETS.................................................. $147,019,557
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($147,019,557/4,865,424 shares outstanding; unlimited
number of shares authorized without par value)......... $30.22
======
COMPONENTS OF NET ASSETS
Paid-in capital....................................... $103,750,315
Undistributed net investment income................... 1,378,799
Undistributed net realized gain on investments........ 3,577,732
Net unrealized appreciation on investments............ 38,312,711
------------
Net assets...................................... $147,019,557
============
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 11
THE COVENTRY GROUP
BOSTON BALANCED FUND
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Interest........................................ $ 2,522,028
Dividends....................................... 1,235,133
-----------
Total income.............................. 3,757,161
-----------
Expenses
Advisory fees................................... $ 999,704
Administration fees............................. 145,111
Fund accounting fees............................ 42,479
Transfer agent fees............................. 4,124
Custody fees.................................... 24,174
Audit fees...................................... 16,612
Trustees fees................................... 12,769
Registration fees............................... 8,929
Legal fees...................................... 6,620
Insurance....................................... 3,027
Reports to shareholders......................... 4,221
Miscellaneous................................... 6,472
-----------
Total expenses............................ 1,274,242
Less waivers/ reimbursements.................... (10,089)
-----------
Net expenses.................................... 1,264,153
-----------
NET INVESTMENT INCOME..................... 2,493,008
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions.......... 5,272,757
Net change in unrealized appreciation on
investments.......................................... 4,778,353
-----------
Net realized and unrealized gain on
investments.................................... 10,051,110
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $12,544,118
===========
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 12
THE COVENTRY GROUP
BOSTON BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN NET ASSETS FROM:
OPERATIONS
Net investment income................................. $ 2,493,008 $ 1,807,541
Net realized gain from security transactions.......... 5,272,757 3,852,396
Net change in unrealized appreciation on
investments.......................................... 4,778,353 17,971,318
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 12,544,118 23,631,255
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income................................. (2,187,510) (1,584,936)
Net realized gain from security transactions.......... (4,866,093) (1,549,116)
------------ ------------
NET DISTRIBUTIONS TO SHAREHOLDERS.................... (7,053,603) (3,134,052)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in
outstanding shares (a)............................... 19,588,393 19,409,973
------------ ------------
TOTAL INCREASE IN NET ASSETS......................... 25,078,908 39,907,176
NET ASSETS
Beginning of year..................................... 121,940,649 82,033,473
------------ ------------
END OF YEAR................................................. $147,019,557 $121,940,649
============ ============
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
----------------------- -----------------------
Shares Value Shares Value
-------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares sold................................... 840,998 $ 24,299,269 656,792 $24,300,384
Shares issued in reinvestment of
distribution................................ 253,466 7,046,375 31,030 3,134,052
Shares issued in stock split.................. -- -- 2,770,018 --
Shares redeemed............................... (404,136) (11,757,251) (147,984) (8,024,463)
-------- ------------ --------- -----------
Net increase.................................. 690,328 $ 19,588,393 3,309,856 $19,409,973
======== ============ ========= ===========
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 13
THE COVENTRY GROUP
BOSTON BALANCED FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Boston Balanced Fund (the "Fund") is a diversified series of shares of
beneficial interest of The Coventry Group (the "Group"), which was organized on
January 8, 1992 as a Massachusetts business trust, and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end investment management company. On June 18, 1999, the Fund was
reorganized and transferred from Professionally Managed Portfolios to The
Coventry Group. Due to this reorganization, the Fund will subsequently change
its fiscal year end to March 31. The investment objective of the Fund is to seek
long-term capital growth and income through an actively managed portfolio of
stocks, bonds and money market instruments. The Group is authorized to issue an
unlimited number of shares, with no par value. Prior to January 5, 1998, the
Fund was known as Boston Managed Growth Fund.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sales price at the close of regular
trading on the last business day of the period; securities traded on an
exchange or NASDAQ for which there have been no sales and other
over-the-counter securities are valued at the last reported bid price.
Securities for which quotations are not readily available are valued at
their respective fair values as determined in good faith by the Board
of Trustees. Short-term investments are stated at cost, which when
combined with accrued interest, approximates market value.
U.S. Government securities with less than 60 days remaining to maturity
when acquired by the Fund are valued on an amortized cost basis. U.S.
Government securities with more than 60 days remaining to maturity are
valued at the current market value (using the mean between the bid and
ask price) until the 60th day prior to maturity, and are then valued at
amortized cost based upon the value on such date unless the Board of
Trustees determines during such 60-day period that this amortized cost
basis does not represent fair value.
B. Federal Income Taxes. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute in a timely manner, all of its
net investment income and net capital gains to shareholders. Therefore,
no federal income tax provision is required.
C. Security Transactions and Investment Income. Security transactions are
accounted for on the trade date. Net realized gains and losses on
investments sold are recorded on the first-in, first-out basis.
Interest income is recorded on an accrual basis and includes, where
applicable, the amortization of premiums or accretion of discounts.
Dividend income is recorded on the ex-dividend date.
13
<PAGE> 14
THE COVENTRY GROUP
BOSTON BALANCED FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
D. Dividends to Shareholders. Dividends from net investment income are
declared and paid annually. Distributable net realized capital gains,
if any, are declared and distributed at least annually. The amounts of
dividends from net investment income and of distributions from net
realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting
principals. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the
components of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification.
E. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS
For the year ended June 30, 1999, United States Trust Company of Boston
(the "Adviser") provided the Fund with investment management services under an
Investment Advisory Agreement. As compensation for its services, the Adviser was
entitled to an annual fee, computed daily and paid monthly, equal to 0.75% of
the Fund's average net assets.
The Adviser, which is a Massachusetts-chartered banking and trust company,
acts as the Fund's Custodian and Transfer Agent under the Custody and Transfer
Agency Agreements with the Fund.
BISYS Fund Services (the "Administrator"), an indirect, wholly owned
subsidiary of The BISYS Group, Inc. acts as the Fund's Administrator under an
Administration Agreement. For its services, the Administrator receives an annual
fee, computed daily and paid monthly, equal to 0.20% of the Fund's average net
assets. Previous to the close of business on June 18, 1999, the date the Fund
became a series of The Coventry Group, Investment Company Administration, L.L.C.
acted as the Fund's administrator.
BISYS Fund Services (the "Distributor") acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. Previous to
the close of business on June 18, 1999, the date the Fund became a series of The
Coventry Group, First Fund Distributors, Inc. acted as the Fund's principal
underwriter.
Certain officers and trustees of the Group are also officers and/or
directors of the Administrator and Distributor.
The Fund is responsible for its own operating expenses. The Adviser has
agreed to reduce fees payable to it by the Fund to the extent necessary to limit
the Fund's aggregate annual operating expenses to 1.00% of average net assets
through June 30, 2000. Any such reductions made by the Adviser in its fees or
payments or reimbursement of expenses which are the Fund's obligation may be
subject to reimbursement by the Fund within three years provided
14
<PAGE> 15
THE COVENTRY GROUP
BOSTON BALANCED FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
the Fund is able to effect such reimbursement and remain in compliance with
applicable limitations. For the year ended June 30, 1999, the Adviser reimbursed
the Fund $635.
The Administrator voluntarily agreed to waive a portion of its fees. For
the year ended June 30, 1999 the Administrator waived $9,454.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding
short-term securities, for the year ended June 30, 1999, were $48,891,537 and
$29,913,766, respectively.
NOTE 5 - FEDERAL TAX INFORMATION (Unaudited)
Long Term Capital Gains Distributions:
During the fiscal year ended June 30, 1999, the Fund declared long-term
capital gain distributions in the amount of $4,866,093.
15
<PAGE> 16
THE COVENTRY GROUP
BOSTON BALANCED FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year Year December 1, 1995
Ended Ended Ended through
June 30, 1999 June 30, 1998(a) June 30, 1997(a) June 30, 1996(a)(b)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................... $29.21 $23.70 $19.31 $18.41
Income from investment operations:
Net investment income........... 0.52 0.46 0.47 0.25
Net realized and unrealized gain
on investments................. 2.07 5.94 4.36 0.69
------ ------ ------ ------
Total from investment operations...... 2.59 6.40 4.83 0.94
------ ------ ------ ------
Less distributions:
From net investment income...... (0.49) (0.45) (0.44) (0.04)
From net capital gains.......... (1.09) (0.44) -- --
------ ------ ------ ------
Total distributions................... (1.58) (0.89) (0.44) (0.04)
------ ------ ------ ------
Net asset value, end of period........ $30.22 $29.21 $23.70 $19.31
====== ====== ====== ======
Total return.......................... 9.34% 27.55% 25.40% 5.14%
Ratios/supplemental data:
Net assets, end of period
(millions).......................... $147.0 $121.9 $ 82.0 $ 61.8
Ratio of expenses to average net
assets:
Before expense reimbursement.... 0.95% 1.00% 1.02% 1.00%(c)
After expense reimbursement..... 0.95% 1.00% 1.00% 1.00%(c)
Ratio of net investment income to
average net assets:
Before expense reimbursement.... 1.87% 1.85% 2.24% 2.43%(c)
After expense reimbursement..... 1.87% 1.85% 2.25% 2.43%(c)
Portfolio turnover rate............... 23.61% 22.71% 30.78% 17.69%
</TABLE>
- ---------
(a) Per share data has been restated to give effect to a 4-for-1 stock split to
shareholders of record of the close on January 9, 1998.
(b) Period from commencement of operations.
(c) Annualized.
See Notes to Financial Statements.
16
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of the Boston Balance Fund of the Coventry Group
We have audited the accompanying statement of assets and liabilities of the
Boston Balance Fund of the Coventry Group (a Massachusetts business trust),
including the portfolio of investments, as of June 30, 1999, and the related
statements of operations and changes in net assets and the financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The statement of changes in net assets as of June 30, 1998 and the
financial highlights for each of the three periods in the period ended June 30,
1998 were audited by other auditors whose report dated July 31, 1998, expressed
an unqualified opinion on the statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Boston Balance Fund as of June 30, 1999, the results of its operations and the
changes in its net assets and the financial highlights for the year then ended,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
July 30, 1999
17
<PAGE> 18
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<PAGE> 19
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<PAGE> 20
Adviser, Custodian and Transfer Agent
United States Trust Company of Boston
40 Court Street
Boston, MA 02108
(617) 726-7250
-
Administrator & Distributor
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219
-
Auditors
Arthur Andersen LLP
Huntington Center
41 South High Street
Columbus, OH 43215-6150
-
Legal Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
This report is intended for the shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
Boston Trust Logo
UNITED STATES TRUST COMPANY OF BOSTON
BOSTON BALANCED FUND
ANNUAL REPORT
JUNE 30, 1999
