<PAGE>
Message From The Investment Adviser The Shelby Fund
- -------------------------------------------------------------------------------
Dear Shareholder:
Widely followed stock market indices like the Dow Jones Industrial Average,
the S&P 500, and the NASDAQ Composite achieved new highs in March. Meanwhile,
lesser-known indices that track small and medium capitalization stocks drifted
lower. Even the record setting Dow and S&P 500 could trace their results to
just a handful of rapidly rising stocks. Led mostly by technology stocks, the
S&P 500 was up 18.46% for the twelve months ending March 31, 1999.
The Shelby Fund portfolio has been almost completely restructured since the
management change on June 1, 1998. Only two stocks, representing about 1% of
the portfolio at March 31, 1999 remained from the portfolio of March 31, 1998.
The emphasis on sustainable growth is evident in the new portfolio holdings as
is the new flexibility in market capitalization. Even the timing of the
changes appears to have worked to the benefit of Shelby Fund investors.
The trend in this bifurcated market has been the friend of the Shelby Fund.
The portfolio has been restructured to include a combination of large and
small capitalization stocks all with the prospects for very fast growth of
revenues, cash flow, or earnings, which is ultimately reflected in their stock
prices. The large capitalization stocks have contributed greatly to the 10.82%
return achieved by the fund over the twelve months ending March 31, 1999 but
the portfolio also benefited from selected smaller capitalization stocks that
bucked the negative trend thanks to some outstanding financial results. For
comparison, the S&P 400 Midcap was up 0.45% and the Russell 2000 was down
16.26% during the same time period.
The reason for the divergence in returns between small and large
capitalization stocks is the subject of much debate. While the reasons the two
groups of stocks began to diverge are difficult to pinpoint, one reason for
the persistence of the phenomenon seems clear. The cost of capital available
to large companies is very low. They have abundant sources of low interest
rate debt and equity markets ready to accept any new issuance of stock. Since
small companies are trading at much lower valuations, larger companies can
acquire smaller companies with their own richly valued stock and have the
smaller companies' earnings marked up to a higher multiple. The result is an
accretive process that benefits larger companies along with economies of
scale.
Longer term, the results are potentially positive for the large companies
also. In addition to the earnings they purchase at a relative discount, they
frequently gain a better competitive position within their markets,
introduction to new markets, and innovation that might take years to develop
in-house. The acquiring company becomes stronger and Wall Street's high
expectations are met. Even higher expectations ensue.
- -------------------------------------------------------------------------------
-1-
<PAGE>
The Shelby Fund
- -------------------------------------------------------------------------------
The most important question for a flexible cap mutual fund is how long will
this trend last? With its somewhat self-fulfilling nature, it has the
potential to last for quite some time, therefore, we will keep the Shelby Fund
invested in the stocks we think have the best chance of providing above-
average growth, while also keeping a close watch on our broad market
barometers.
Sincerely,
/s/ Darrell R. Wells /s/ James C. Shircliff
Darrell R. Wells James C. Shircliff, CFA
Chairman, CEO Executive VP, Director of
SMC Capital Research
SMC Capital
/s/ Greg E. Deuser, CFA
Greg E. Deuser, CFA
Senior VP
SMC Capital
[GRAPH APPEARS HERE]
Average Annual Return*
-------------------------
1 year: 10.82%
5 year: 15.64%
10 year: 18.50%
Since inception: 15.50%
-------------------------
Past performance is not predictive
of future results.
Value of a $10,000 Investment
---------------------------------------------------------
Shelby Fund S&P 500 Russell 2000
---------------------------------------------------------
1/1/81 10000 10000 10000
3/31/81 10393 10596 10869
3/31/82 12357 9226 9287
3/31/83 16633 13287 15028
3/31/84 16447 14457 15416
3/31/85 16800 17189 17448
3/31/86 20888 23697 22915
3/31/87 24001 29860 26372
3/31/88 22835 27420 23045
3/31/89 25311 32378 26033
3/31/90 31849 38576 27475
3/31/91 41125 44124 29341
3/31/92 47666 48999 35508
3/31/93 58187 56459 40783
3/31/94 66912 57276 45272
3/31/95 70182 66199 47764
3/31/96 92201 67412 61656
3/31/97 89615 100119 64542
3/31/98 125044 148273 91659
3/31/99 138580 175644 76759
* The quoted performance of The Shelby Fund includes performance of certain
common trust funds and collective investment funds (the "Commingled Funds")
which were managed with full investment authority by principals of SMC
Capital, Inc. prior to the establishment of the Fund on July 1, 1994. The
assets of the Commingled Funds were converted into assets of the Fund upon
the establishment of the Fund. These Commingled Funds were operated with the
same investment objective and used investment strategies and
- -------------------------------------------------------------------------------
-2-
<PAGE>
The Shelby Fund
- -------------------------------------------------------------------------------
techniques that are in all material respects equivalent to those used for the
Fund. During the time period of their existence the Commingled Funds were not
registered under the Investment Company Act of 1940 (the "1940 Act") and
therefore were not subject to certain investment restrictions that are
imposed under the 1940 Act. If the Commingled Funds had been registered under
the 1940 Act, the Commingled Funds' performance may have been adversely
affected.
The performance of the Fund is measured against the Standard & Poor's 500
Index, an unmanaged index generally representative of the U.S. stock market,
the Standard & Poor's Mid Cap 400, an unmanaged index consisting of 400
domestic stocks chosen for market size, liquidity and industry group
representation, and the Russell 2000 Index, an index of small cap stocks.
These indices do not reflect the deduction of expenses associated with a
mutual fund, such as investment management and fund accounting fees. However,
the Fund's performance reflects the deduction of the fees for these value-
added services.
Performance data represents past performance and is not predictive of future
performance. Investment return and the principal value of an investment in the
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. The composition of the Fund's holdings
is subject to change.
For more complete information, including charges and expenses, call 1-800-774-
3529 for a prospectus, which you should read carefully before you invest or
send money. Shares are distributed by BISYS Fund Services.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, Shelby County Trust Bank or its affiliates, and shares are not
federally insured by the FDIC or any other agency. An investment in mutual
fund shares involves investment risks, including the possible loss of
principal.
- -------------------------------------------------------------------------------
-3-
<PAGE>
Table of Contents
Report of Independent Public Accountants
Page 5
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Schedule of Portfolio Investments
Page 9
Notes to Financial Statements
Page 11
Financial Highlights
Page 16
-4-
<PAGE>
Report of Independent Public Accountants The Shelby Fund
- -------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of the Shelby Fund of the Coventry Group
We have audited the accompanying statement of assets and liabilities of The
Shelby Fund of the Coventry Group (a Massachusetts business trust), including
the portfolio of investments, as of March 31, 1999, and the related statements
of operations and changes in net assets and the financial highlights for the
periods indicated thereon. 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.
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 March 31, 1999, by correspondence with the custodian and brokers.
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
Shelby Fund as of March 31, 1999, the results of its operations and the
changes in its net assets and the financial highlights for the periods
indicated thereon, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Louisville, Kentucky,
April 30, 1999.
- -------------------------------------------------------------------------------
-5-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Assets and Liabilities
March 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value................................................ $35,724,175
Call options purchased, at value (Premiums paid $412,650)............ 247,500
-----------
Total Investments (cost $28,246,788)............................. 35,971,675
Interest and dividends receivable.................................... 12,478
Receivables from investment securities sold.......................... 2,279,964
Prepaid expenses and other assets.................................... 2,223
-----------
Total Assets..................................................... 38,266,340
-----------
LIABILITIES:
Payable to custodian................................................. 7,653
Accrued expenses and other payables:
Investment advisory fees........................................... 32,554
Administration fees................................................ 783
Other.............................................................. 21,231
-----------
Total Liabilities................................................ 62,221
-----------
NET ASSETS:
Capital.............................................................. 30,661,493
Undistributed net investment income/(loss)........................... (2,383)
Net unrealized appreciation/(depreciation) on investment and options
transactions......................................................... 7,724,887
Accumulated net realized gains/(losses) from investment and options
transactions......................................................... (179,878)
-----------
Net Assets....................................................... $38,204,119
===========
Outstanding units of beneficial interest (shares).................... 3,314,277
===========
Net asset value--offering and redemption price per share............. $11.53
===========
</TABLE>
See notes to financial statements.
-6-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Operations
For the Year Ended March 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income.................................................... $ 119,270
Dividend income.................................................... 278,946
------------
Total income..................................................... 398,216
------------
EXPENSES:
Investment advisory fees........................................... 492,580
Administration fees................................................ 98,517
Custodian and accounting fees...................................... 43,945
Legal and audit fees............................................... 40,852
Other.............................................................. 75,541
------------
Total Expenses before expenses voluntarily reduced............... 751,435
Expenses voluntarily reduced..................................... (24,629)
------------
Net expenses..................................................... 726,806
------------
Net investment income/(loss)....................................... (328,590)
------------
REALIZED/UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS:
Net realized gains/(losses) from investment and options
transactions....................................................... 17,750,858
Net change in unrealized appreciation/(depreciation) from
investment and options transactions................................ (16,251,826)
------------
Net realized/unrealized gains/(losses) from investment and options
transactions....................................................... 1,499,032
------------
Change in net assets resulting from operations..................... $ 1,170,442
============
</TABLE>
See notes to financial statements.
-7-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income/(loss)...................... $ (328,590) $ (971,641)
Net realized gains/(losses) from investment and
options transactions.............................. 17,750,858 9,905,503
Net change in unrealized
appreciation/(depreciation) from investment and
options transactions............................. (16,251,826) 22,753,703
------------ ------------
Change in net assets resulting from operations..... 1,170,442 31,687,565
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains from investment and
options transactions.............................. (17,033,347) (12,805,702)
------------ ------------
Change in net assets from distributions to
shareholders....................................... (17,033,347) (12,805,702)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued....................... 2,812,242 5,255,254
Dividends reinvested.............................. 17,015,660 12,747,523
Cost of shares redeemed........................... (56,305,134) (36,476,993)
------------ ------------
Change in net assets from capital transactions..... (36,477,232) (18,474,216)
------------ ------------
Change in net assets............................... (52,340,137) 407,647
NET ASSETS:
Beginning of period............................... 90,544,256 90,136,609
------------ ------------
End of period..................................... $ 38,204,119 $ 90,544,256
============ ============
SHARE TRANSACTIONS:
Issued............................................ 249,362 405,539
Reinvested........................................ 1,718,753 1,002,952
Redeemed.......................................... (5,280,738) (2,883,553)
------------ ------------
Change in shares................................... (3,312,623) (1,475,062)
============ ============
</TABLE>
See notes to financial statements.
-8-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments
March 31, 1999
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks (88.4%):
Advertising (6.7%):
1,000 Grey Advertising, Inc.................................. $ 347,000
30,000 Lamar Advertising Co.(b)............................... 1,018,125
40,000 Outdoor Systems, Inc.(b)............................... 1,200,000
-----------
2,565,125
-----------
Aerospace/Defense--Equipment (1.1%):
10,000 Gulfstream Aerospace Corp.(b).......................... 433,750
-----------
Apparel Manufacturers (0.3%):
5,000 Polo Ralph Lauren, Corp.(b)............................ 99,375
-----------
Banks (3.1%):
21,000 Commerce Bancorp Inc................................... 866,250
30,000 Pointe Financial Corp.(b).............................. 300,000
-----------
1,166,250
-----------
Cable TV (4.2%):
11,000 Cablevision Systems Corp.(b)........................... 815,375
12,600 Comcast Corp. Class A.................................. 774,900
-----------
1,590,275
-----------
Commercial Services (2.7%):
10,000 ABM Industries, Inc.................................... 305,000
13,600 Fiserv, Inc.(b)........................................ 729,300
-----------
1,034,300
-----------
Computer Services (7.7%):
60,000 Checkfree Holdings Corp.(b)............................ 2,553,750
40,000 Radiant Systems, Inc.(b)............................... 380,000
-----------
2,933,750
-----------
Computer Software (5.3%):
10,000 Cisco Systems, Inc.(b)................................. 1,095,625
11,000 Microsoft Corp.(b)..................................... 985,875
-----------
2,081,500
-----------
Education Services (0.7%):
10,000 Sylvan Learning Systems, Inc.(b)....................... 273,750
-----------
Electronic Components--Semiconductors (1.1%):
10,000 Xilinx, Inc.(b)........................................ 405,625
-----------
Financial Services (5.6%):
10,000 Citigroup, Inc......................................... 638,750
10,000 Morgan Stanley Dean Witter & Co........................ 999,375
50,000 Towne Services, Inc.(b)................................ 490,625
-----------
2,128,750
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks, continued:
Food Products & Services (0.7%):
25,000 Merkert American Corp.(b).............................. $ 271,875
-----------
Health Care--General Products (0.6%):
25,400 Twinlab Corp.(b)....................................... 238,125
-----------
Instruments--Scientific (2.5%):
25,000 Dionex Corp.(b)........................................ 943,750
-----------
Insurance (2.8%):
20,000 Chicago Title Corp..................................... 727,500
20,000 Hilb, Rogal & Hamilton Co.............................. 338,750
-----------
1,066,250
-----------
Internet Content (4.2%):
10,300 At Home Corp.(b)....................................... 1,614,525
-----------
Internet Software (0.9%):
10,000 Onemain.Com Inc.(b).................................... 362,500
-----------
Leisure & Recreation (2.2%):
20,000 Speedway Motorsports, Inc.(b).......................... 825,000
-----------
Medical Equipment & Supplies (0.7%):
50,000 Pharmerica, Inc.(b).................................... 250,000
-----------
Multimedia (5.7%):
10,000 Ackerley Group......................................... 169,375
30,000 Clear Channel Communications, Inc.(b).................. 2,011,875
-----------
2,181,250
-----------
Office Supplies, Automation & Equipment (2.7%):
31,500 Staples, Inc.(b)....................................... 1,035,563
-----------
Oil--Drilling & Gas Wells (0.9%):
20,000 Noble Drilling Corp.(b)................................ 346,250
-----------
Radio (1.2%):
17,800 Infinity Broadcasting(b)............................... 458,350
-----------
Retail--Discount (4.8%):
30,000 Consolidated Stores Corporation(b)..................... 909,375
10,000 Costco Cos., Inc.(b)................................... 915,625
-----------
1,825,000
-----------
Security Services (1.1%):
25,800 Wackenhut Corp......................................... 438,600
-----------
</TABLE>
Continued
-9-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments, Continued
March 31, 1999
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks, continued:
Telecommunications (9.8%):
20,000 MCI Worldcom, Inc.(b).................................. $ 1,771,249
10,000 Qwest Communications International, Inc.(b)............ 720,938
20,000 Sinclair Broadcasting Group............................ 816,250
10,000 Young Broadcasting(b).................................. 456,250
-----------
3,764,687
-----------
Telecommunications Equipment (6.2%):
40,000 American Tower Systems(b).............................. 980,000
10,000 Lucent Technologies, Inc............................... 1,077,500
40,000 Tekelec, Inc.(b)....................................... 292,500
-----------
2,350,000
-----------
Telephone--Local (1.5%):
10,000 Telephone & Data Systems, Inc.......................... 565,000
-----------
Wireless Equipment (1.4%):
35,000 Pinnacle Holdings(b)................................... 529,375
-----------
Total Common Stocks 33,778,550
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------ -----------
<C> <S> <C>
Convertible Bonds (1.4%):
Multimedia (1.4%):
450,000 Clear Channel Communication, 2.63%, 4/1/03,
Convertible to 7,263.945 Shares...................... $ 551,250
-----------
Total Convertible Bonds 551,250
-----------
Investment Companies (1.8%):
10,000 S & P Midcap 400 Depositary Receipts.................. 686,875
-----------
Total Investment Companies 686,875
-----------
Preferred Stocks (1.9%):
Food Products & Services (1.9%):
20,000 Suiza Foods Preferred Stock, 5.50%, 4/1/28............ 707,500
-----------
Total Preferred Stocks 707,500
-----------
Total (Cost $27,834,138) (a) $35,724,175
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $38,204,119.
(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 in excess of federal income tax reporting of
$215,849. Cost for federal income tax purposes differs from market value
by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............... $ 9,147,979
Unrealized depreciation............... (1,473,791)
-----------
Net unrealized appreciation...... $ 7,674,188
===========
</TABLE>
(b) Represents non-income producing securities.
<TABLE>
<CAPTION>
Number of
Contracts Premiums
--------- --------
<S> <C> <C>
Options outstanding at end of
period consist of:
S & P 500, $82.50, 4/20/99......... 50 $412,650
</TABLE>
See notes to financial statements.
-10-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements
March 31, 1999
1. Organization:
The Coventry Group (the "Group") 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
management investment company. Between the date of organization and the date
of commencement of operations (July 1, 1994) of The Shelby Fund (the
"Fund"), a series of the Group, the Fund earned no investment income and had
no operations other than incurring organizational expenses. The Fund's
investment objective is to seek capital appreciation by investing primarily
in a diversified portfolio of equity securities.
2. Significant Accounting Principles:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements 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 for
the period. Actual results could differ from those estimates.
Securities Valuation:
Investments in common and preferred stocks, commercial paper, corporate
bonds, U.S. Government securities and U.S. Government agency securities
are valued at their market values determined on the basis of the latest
available bid quotation in the principal market (closing sales prices if
the principal market is an exchange) in which such securities are
normally traded. Investments in investment companies are valued at their
respective net asset values as reported by such companies. Securities,
including restricted securities, for which market quotations are not
readily available, are valued at fair value by the investment adviser
under the supervision of the Group's Board of Trustees.
Security Transactions and Related Income:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of premium
or discount. Dividend income is recorded on the ex-dividend date. Gains
or losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
Repurchase Agreements:
The Fund may acquire repurchase agreements from financial institutions
such as banks and broker-dealers which the investment adviser, Shelby
County Trust Bank, deems creditworthy under guidelines approved by the
Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually
Continued
-11-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
March 31, 1999
agreed-upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller, under a repurchase
agreement, is required to maintain the value of collateral held pursuant
to the agreement at not less than the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Fund's custodian or another qualified custodian. Repurchase agreements
are considered to be loans by the Fund under the 1940 Act.
Options Transactions:
The Fund may enter into options only as a hedge against fluctuations in
the value of securities which the Fund holds or intends to purchase.
When the Fund writes a covered call or put option, an amount equal to the
net premium received is included in the Fund's statement of assets and
liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. If an
option expires on its stipulated expiration date or if the Fund enters
into a closing purchase transaction, a gain or loss is realized. If a
written call option is exercised, a gain or loss is realized for the sale
of the underlying security and the proceeds from the sale are increased
by the premium originally received. If a written put option is exercised,
the cost of the security acquired is decreased by the premium originally
received.
When the Fund purchases a call or put option, an amount equal to the
premium paid is included in the Fund's statement of assets and
liabilities as an investment, and is subsequently marked-to-market to
reflect the current market value of the option. If an option expires on
the stipulated expiration date or if the Fund enters into a closing sale
transaction, a gain or loss is realized. If the Fund exercises a call
option, the cost of the security acquired is increased by the premium
paid for the call. If the Fund exercises a put option, a gain or loss is
realized from the sale of the underlying security, and the proceeds from
such sale are decreased by the premium originally paid. Written and
purchased options are non- income producing securities.
Written Option Activity:
<TABLE>
<CAPTION>
Call Options Put Options
--------------------- -------------------
Number of Number of
Contracts Premiums Contracts Premiums
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period. -- $ -- -- $ --
Options written................ 753 1,918,212 125 520,858
Options closed................. (553) (1,625,385) -- --
Options expired................ (150) (55,485) (50) (247,342)
Options exercised.............. (50) (237,342) (75) (273,516)
---- ----------- --- ---------
Options outstanding at end of
period......................... -- $ -- -- $ --
==== =========== === =========
</TABLE>
Continued
-12-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
March 31, 1999
Purchased Option Activity:
<TABLE>
<CAPTION>
Call Options Put Options
--------------------- -------------------
Number of Number of
Contracts Premiums Contracts Premiums
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period. -- $ -- -- $ --
Options purchased.............. 600 2,456,725 125 103,188
Options closed................. (350) (1,646,050) -- --
Options expired................ (100) (52,800) (125) (103,188)
Options exercised.............. (100) (345,225) -- --
---- ----------- ---- ---------
Options outstanding at end of
period......................... 50 $ 412,650 -- $ --
==== =========== ==== =========
</TABLE>
Dividends to Shareholders:
Dividends from net investment income, if any, are declared and paid
quarterly and distributable net realized capital gains, if any, are
declared and distributed at least annually for the Fund.
Dividends from net investment income and from net realized capital gains
are determined in accordance with income tax regulations, which may
differ from generally accepted accounting principles. These differences
are primarily due to differing treatments for organization costs and
deferrals of certain losses.
Federal Income Taxes:
It is the policy of the Fund to qualify as a regulated investment company
by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue
Code, and to make distributions of net investment income and net realized
capital gains sufficient to relieve it from all, or substantially all,
Federal income taxes.
During the year ended March 31, 1999, the Fund has reclassified $338,560
from accumulated undistributed net investment loss to accumulated
undistributed net realized gains from investments in compliance with
Statement of Position 93-2, "Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies". This reclassification, which has
no impact on the net asset value of the Fund, is primarily attributable
to certain differences in the computation of net investment income and
capital gains under federal tax rules and generally accepted accounting
principles. The difference of $215,849 between financial reporting and
tax cost for investments is due to certain timing differences in
recognizing capital losses under generally accepted accounting principles
and tax rules.
Continued
-13-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
March 31, 1999
Other:
Expenses that are directly related to the Fund are charged directly to
the Fund. Expenses relating to the Group are prorated to all the
investment portfolios of the Group, including the Fund, on the basis of
each Fund's relative net assets.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding short-term securities) for the
year ended March 31, 1999 were $78,267,239 and $134,115,650, respectively.
4. Related Party Transactions:
Investment advisory services are provided to the Fund by Shelby County Trust
Bank. Under the terms of the investment advisory agreement, Shelby County
Trust Bank is entitled to receive fees computed daily based on a percentage
of the average net assets of the Fund. SMC Capital, Inc. is the sub-
investment adviser for the Fund and has been engaged to provide day-to-day
investment advisory services to the Fund.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio limited partnership, and BISYS Fund Services Ohio, Inc. are
subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Fund as administrator. Such officers and trustees are paid no
fees directly by the Fund for serving as officers and trustees of the Group.
Under the terms of the administration agreement, BISYS' fees are computed
daily as a percentage of the average net assets of the Fund.
BISYS Fund Services Ohio, Inc. (the "Company"), serves the Fund as Transfer
Agent and Fund Accountant. Under the terms of the Transfer Agency and Fund
Accounting Agreements, the Company's fees are computed on the basis of the
number of shareholders and average net assets, respectively.
Fees may be voluntarily reduced to assist the Fund in maintaining
competitive expense ratios. Information regarding these transactions is as
follows for the year ended March 31, 1999:
<TABLE>
<S> <C>
Investment Advisory Fees:
Annual fee (percentage of average net assets)....................... 1.00%
Administration Fees:
Annual fee before voluntary fee reductions (percentage of average
net assets)......................................................... 0.20%
Voluntary fee reductions............................................ $24,629
Fund Accountant Fees:............................................... $31,013
Transfer Agent Fees:................................................ $36,818
</TABLE>
Continued
-14-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
March 31, 1999
5. Federal Tax Information (Unaudited):
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for
tax purposes. The Fund has incurred and will elect to defer such capital
losses of $135,756.
During the fiscal year ended March 31, 1999 the Fund declared long term
capital gain distributions in the amount of $13,631,612.
For corporate shareholders, 5.40% of the total ordinary income distributions
paid during the fiscal year ended March 31, 1999 qualify for the corporate
dividends received deduction.
-15-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Financial Highlights
Selected data for a share of beneficial interest
outstanding throughout the period indicated:
<TABLE>
<CAPTION>
Year Year Year Year July 1,
Ended Ended Ended Ended 1994 to
March 31, March 31, March 31, March 31, March 31,
1999 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 13.66 $ 11.13 $ 11.82 $ 10.99 $ 10.00
------- ------- ------- ------- -------
Investment Activities:
Net investment
income/(loss)........... (0.10) (0.15) (0.09) (0.06) 0.06
Net realized
gains/(losses) from
investment transactions. 1.07 4.40 (0.19) 3.44 1.04
------- ------- ------- ------- -------
Total from Investment
Activities............ 0.97 4.25 (0.28) 3.38 1.10
------- ------- ------- ------- -------
Distributions:
Net investment
income/(loss)........... -- -- -- -- (0.06)
Net realized
gains/(losses) from
investments............ (3.10) (1.72) (0.41) (2.55) (0.05)
------- ------- ------- ------- -------
Total Distributions.... (3.10) (1.72) (0.41) (2.55) (0.11)
------- ------- ------- ------- -------
Net Asset Value, End of
Period................... $ 11.53 $ 13.66 $ 11.13 $ 11.82 $ 10.99
======= ======= ======= ======= =======
Total Return............. 10.82% 39.31% (2.80)% 31.41% 11.04%(b)
Ratios/Supplementary
Data:
Net Assets, End of
Period (000)........... $38,204 $90,544 $90,137 $95,357 $64,157
Ratio of expenses to
average net assets..... 1.48% 1.29% 1.29% 1.33% 1.41%(c)
Ratio of net investment
income/(loss) to
average net assets..... (0.67%) (0.95%) (0.67%) (0.58%) 0.74%(c)
Ratio of expenses to
average net assets*.... 1.53% 1.34% 1.34% 1.38% 1.46%(c)
Portfolio Turnover...... 161.45% 176.66% 204.06% 292.28% 101.86%
</TABLE>
- ------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-16-
<PAGE>
INVESTMENT ADVISER
Shelby County Trust Bank
P.O. Box 249
Shelbyville, Kentucky 40066
SUB-INVESTMENT ADVISER
SMC Capital, Inc.
4350 Brownsboro Rd.
Suite 310
Louisville, Kentucky 40207
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
AUDITORS
Arthur Andersen LLP
2300 Meidinger Tower
Louisville Galleria
Louisville, Kentucky 40202
5/99
LOGO
THE SHELBY FUND
Shelby County Trust Bank
Investment Adviser
SMC Capital, Inc.
Sub-Investment Adviser
ANNUAL REPORT
TO
SHAREHOLDERS
March 31, 1999
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
