<PAGE> 1
1
As filed with the Securities and Exchange Commission on May 24, 1999
Registration No. 33-44964
Investment Company Act File No. 811-6526
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 47 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
AMENDMENT NO. 49 / X /
(Check appropriate box or boxes)
THE COVENTRY GROUP
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Office)
Registrant's Telephone Number: (614) 470-8000
-------------------------------------
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, DC 20006
-------------------------------------
(Name and Address of Agent for Services)
Copies to:
Walter B. Grimm
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant [ ] on pursuant to paragraph (b), or
to paragraph (b), or
[X] 60 days after filing pursuant [ ] on the 75th day after filing
to paragraph (a), or pursuant to paragraph (a) of
Rule 485
<PAGE> 2
CROSS REFERENCE SHEET
The enclosed materials contain the prospectus for the Willamette Value Fund
and the SAI for the Willamette Value Fund as well as the Willamette Small Cap
Growth Fund, separate investment series of the Coventry Group ("Group").
Information relating to the Group's other investment series, consisting of
Brenton U.S. Government Money Market Fund; Brenton Intermediate U.S. Government
Securities Fund; Brenton Value Equity Fund; The Shelby Fund; 1st Source Monogram
Income Equity Fund; 1st Source Monogram Diversified Equity Fund; 1st Source
Monogram Special Equity Fund; and 1st Source Monogram Income Fund is contained
in previously filed Post-Effective Amendments.
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
PART A: INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective
and Policies; Investment Restrictions;
General Information - Description of the
Group and Its Shares
5. Management of the Fund Management of the Group
5A. Management's Discussion of Fund Provided in Registrant's
Performance Annual Report to Shareholders
6. Capital Stock and Other Securities How to Purchase and Redeem
Shares; Dividends and Taxes;
General Information -
Description of the Group and
Its Shares; General
Information - Miscellaneous
7. Purchase of Securities Being Offered Valuation of Shares; How to
Purchase and Redeem Shares
8. Redemption or Repurchase How to Purchase and Redeem
Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
<TABLE>
<CAPTION>
Form N-1A Part B Item Statement of Additional Information
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Coventry Group;
Additional Information
13. Investment Objectives and Policies Investment Objectives and
Policies
14. Management of the Fund Management of the Group -
Trustees and Officers
15. Control Persons and Principal Additional Information -
Holders of Securities Description of Shares
16. Investment Advisory and Other Management of the Group
Services
17. Brokerage Allocation Management of the Group -
Portfolio Transactions
18. Capital Stock and Other Securities Additional Information -
Description of Shares
19. Purchase, Redemption and Pricing of Additional Purchase and
Securities Being Offered Redemption Information
20. Tax Status Additional Information -
Additional Tax Information
21. Underwriters Management of the Group -
Distributor
22. Calculation of Performance Data Additional Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
The Willamette Funds
Willamette Value Fund
Prospectus
July 31, 1999
Willamette Asset Managers, 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> 4
TABLE OF CONTENTS
-----------------
RISK/RETURN SUMMARY AND FUND EXPENSES
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
SHAREHOLDER INFORMATION
FUND MANAGEMENT
CAPITAL STRUCTURE
FINANCIAL HIGHLIGHTS
i
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RISK/RETURN SUMMARY AND FUND EXPENSES
================================================================================
RISK/RETURN SUMMARY OF THE WILLAMETTE VALUE FUND
INVESTMENT OBJECTIVE The Value Fund seeks above average total
return through a combination of capital
appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in equity
securities that have a record of paying
dividends and that the Adviser believes are
priced low relative to their earnings and/or
comparable securities.
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 may invest a portion of
its assets in foreign securities which can
carry additional risks such as changes in
currency exchange rates, a lack of adequate
company information and political
instability.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
o INVESTING FOR A LONG-TERM GOAL SUCH
AS RETIREMENT (FIVE YEAR INVESTMENT
HORIZON)
o LOOKING TO ADD A GROWTH COMPONENT
TO YOUR PORTFOLIO
o WILLING TO ACCEPT HIGHER RISKS OF
INVESTING IN THE STOCK MARKET IN
EXCHANGE FOR POTENTIALLY HIGHER
LONG TERM RETURNS
This Fund will not be appropriate for
anyone:
o SEEKING MONTHLY INCOME
o PURSUING A SHORT-TERM GOAL OR
INVESTING EMERGENCY RESERVES
o SEEKING SAFETY OF PRINCIPAL
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RISK/RETURN SUMMARY AND FUND EXPENSES
FUND PERFORMANCE
- ----------------
Because the Fund commenced operations only on May 26, 1998, it does not yet have
a meaningful time period for comparing its performance against a broad measure
of market performance.
FEES AND EXPENSES
- -----------------
As an investor in the Value Fund, you will pay the following fees and expenses.
Shareholder transaction fees are paid from your account. Annual Fund operating
expenses are paid out of Fund assets, and are reflected in the share price.
<TABLE>
<S> <C>
Shareholder
Transaction
Fees (fees
paid by you
directly)
Maximum sales
charge (load) 4.50%(1)
on purchases
- --------------------------------------------------------
Maximum deferred
sales charge None
(load)
Annual Fund
Operating
Expenses
(expenses paid
from
Fund assets)
- --------------------------------------------------------
Management fee 1.00%
- --------------------------------------------------------
Distribution and
Service (12b-1) fee 0.50%
- --------------------------------------------------------
Other expenses ____%
- --------------------------------------------------------
Total Fund
Operating
expenses(2) ____%
- --------------------------------------------------------
Fee Waiver and/or
Expense
Reimbursement ____%
- --------------------------------------------------------
Net Expenses(2)/ ____%
- --------------------------------------------------------
</TABLE>
- --------------------
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1 Lower sales charges are available depending upon the amount invested.
See "Distribution Arrangements."
2 The Adviser has entered into a contractual expense limitation agreement
with the Fund to limit its Total Fund Operating Expenses to ___% of its
average daily net assets for its current fiscal year. Without this
expense limitation agreement, the Total Operating Expenses for the Fund
would have been ___%.
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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.
<TABLE>
<CAPTION>
1 3 5 10
VALUE FUND Year Years Years Years
<S> <C> <C> <C> <C>
$-- $-- $-- $---
- ------------------------------------------------
- ------------------------------------------------
</TABLE>
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INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
================================================================================
WILLAMETTE VALUE FUND
Ticker Symbol: WILVX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek above average total return
through a combination of capital appreciation and dividend income.
POLICIES AND STRATEGIES
The Adviser uses a "value" investing strategy. Thus, under normal
market conditions, the Fund will invest primarily in equity securities that have
a record of paying dividends and that the Adviser believes are priced low
relative to their earnings and/or comparable securities. The Fund will invest
primarily in stock of U.S. issuers but it may also invest in stock of foreign
issuers in the form of sponsored or unsponsored depositary receipts. The Fund
has elected to be a "diversified investment company," which limits the amount it
can invest in particular issuers. Subject to these limits, the Adviser normally
expects to allocate about one-half of the Fund's total assets to the ten highest
dividend-yielding stocks in the Dow Jones Industrial Average ("DJIA"). The other
half of the Fund's total assets will normally be allocated to certain New York
Stock Exchange ("NYSE") listed issuers that are not included in the DJIA. Stocks
in this group will be selected by identifying the 400 largest capitalized NYSE
stocks that are not included in the DJIA, removing the 50 highest dividend
yielding stocks from that group and purchasing the next 25 highest dividend
yielding stocks. Each such portion of the Fund's portfolio will be rebalanced
annually, using the same criteria. In the event of bankruptcy, pending
bankruptcy, a dividend cut, or other major significant event affecting a
portfolio security, the Adviser may, but is not required to, replace the
security with the next highest dividend paying stock. The portions allocated to
either category of security may be reduced to the extent needed to maintain some
portion of the Fund's total assets in cash or cash equivalents to satisfy
redemption requests, to pay Fund expenses and for other contingencies. However,
under normal market conditions, at least 65% of the Fund's assets, and normally
more substantial portions, will be invested in these two categories of DJIA and
NYSE securities. Under abnormal market conditions, the Fund may invest without
limit in money market instruments and debt securities rated A or better by
Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Corporation
("S&P"), or deemed by the Adviser to be of comparable quality, including debt
instruments of certain non-U.S. banks and other non-U.S. issuers. If the quality
of an instrument fails below this quality, the Fund will sell the instrument
unless the Adviser determines that a sale is not in the Fund's best interest.
The Fund may additionally invest in put and call options, futures contracts and
options on futures contracts, and restricted or illiquid securities. It may also
lend its portfolio securities and may invest in securities of other investment
companies, which results in some duplication of expenses for Fund shareholders.
5
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PRINCIPAL RISKS OF INVESTING IN THE FUND
- ----------------------------------------
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:
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. The fact that the Adviser follows a specific
discipline can provide no assurance against a decline in the value of the Fund's
shares.
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.
Foreign Securities: Investments in securities of non-U.S. issuers
have special risks. These risks include international economic and political
developments, foreign government actions including restrictions on payments to
non-domestic persons such as the Fund, less regulation, less information,
currency fluctuations and interruptions in currency flow. Investments in foreign
securities also entail higher costs.
Depositary Receipts: The Fund's investments in foreign securities may
be in the form of sponsored or unsponsored depositary receipts, such as American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and European
Depositary Receipts ("EDRs"). Ownership of unsponsored depositary receipts may
not entitle the Fund to financial and other reports from the issuer of the
underlying security, and certain costs related to the receipts that would
otherwise be borne by the issuer of a sponsored depositary receipt may be passed
through, in whole or in part, to holders of the receipts
The Fund's fixed income investments are particularly subject to:
Interest Rate Risk: 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
6
<PAGE> 11
that the Fund's investment adviser does not expect or if the Fund cannot close
out its position in a hedging instrument.
Loans of Portfolio Securities: 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.
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.
7
<PAGE> 12
SHAREHOLDER INFORMATION
- -----------------------
PRICING OF FUND SHARES
- ----------------------
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares
Outstanding
You can find the Fund's NAV daily in The Wall Street Journal and other
newspapers.
Per share net asset value (NAV) for 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, sale or exchange of shares is priced at the next NAV
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.
<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM MINIMUM
INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular
(non-retirement) $1,000 $ 100
Retirement $ 250 $ ___
Automatic
Investment Plan $ 250 $ 25
</TABLE>
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.
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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 "Willamette Value Fund."
3. Mail to: The Willamette Funds, P.O. Box 182301, 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 Amount invested
o Account name
o Account number
Include your account number on your check.
3. Mail to: The Willamette Funds, P.O. Box 182301, Columbus, OH 43218-2301
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
3. Send to: The Willamette Funds,
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 (877) 945-3863 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.
9
<PAGE> 14
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account. Automatic
investments can be as little as $25, once you've invested the $250 minimum
required to open the account.
To invest regularly from your bank account:
o Complete the Automatic Investment Plan portion on your Account Application.
Make sure you note:
o Your bank name, address and account number
o Your checking or savings account number
o The amount you wish to invest automatically (minimum $25)
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.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically dividends and 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
- -------------------
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.
- -----------------------------------------------------------------------
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.
- -----------------------------------------------------------------------
INSTRUCTIONS FOR SELLING SHARES
By telephone 1. Call (877) 945-3863 with instructions as to
(unless you have how you wish to receive your funds (mail, check
declined telephone sales or wire).
privileges) Note: IRA redemptions must be requested by mail.
- --------------------------------------------------------------------------------
By mail 1. Call (877) 945-3863 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:
THE WILLAMETTE FUNDS
P.O. Box 182301
Columbus, OH 43218-2301
- --------------------------------------------------------------------------------
Wire transfer Call (877) 945-3863 to request a wire transfer.
You must indicate this
option on your If you call by 4 p.m. Eastern time, your
application. 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 $100. To activate this feature:
o Make sure you've checked the appropriate box on the Account Application. Or
call (877) 945-3863.
o [ANY MINIMUM BALANCE REQUIRED TO START THIS PROGRAM?]
o Include a voided personal check.
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<PAGE> 16
o If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
GENERAL POLICIES ON SELLING 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 [REDEMPTIONS OVER $10,000]
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 Funds reserve 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 a Fund's
operations (for example, more than 1% of the Fund's net assets). If a 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.
12
<PAGE> 17
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Fund may ask you to increase your balance.
If it is still below $500 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales Charge (Load) Front-end sales charge (not applicable to the Money
Market Fund); reduced sales charges available.
- --------------------------------------------------------------------------------
Distribution and Service Subject to annual distribution and shareholder
(12b-1) Fee servicing fees of up to .50% of the Fund's total
assets.
- --------------------------------------------------------------------------------
CALCULATION OF SALES CHARGES
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 the Fund are as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- -----------------------------------------------------------------
<S> <C> <C>
Up to $99,999 4.50% 4.71%
- -----------------------------------------------------------------
$100,000 up to $249,999 3.75% 3.90%
- -----------------------------------------------------------------
$250,000 up to $499,999 2.50% 2.56%
- -----------------------------------------------------------------
$500,000 up to $749,999 2.00% 2.04%
- -----------------------------------------------------------------
$750,000 up to $999,999 1.00% 1.01%
- -----------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00%
- -----------------------------------------------------------------
</TABLE>
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<PAGE> 18
* 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).
SALES CHARGE REDUCTIONS
Reduced sales charges 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
The following qualify for waivers of front end sales charges:
(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;
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.
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 Fund assets on an ongoing basis, and will increase the cost of your
investment.
The Distributor may use up to .25% of the 12b-1 fee for shareholder servicing
and up to .25% for distribution.
14
<PAGE> 19
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.
EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in the Fund for shares of another Willamette Fund,
usually without paying additional sales charges (see "Notes" below). No
transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to The Willamette Funds, P.O.
Box 182301, Columbus, OH 43218-2301or by calling (877) 945-3863. Please provide
the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged
o The name of the Fund from which the exchange is to be made
o The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
NOTES ON EXCHANGES
To prevent disruption in the management of the Fund, due to market timing
strategies, exchange activity may be limited to 4 exchanges within a calendar
year.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
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.
15
<PAGE> 20
For more information on an IRA call the Fund at (877) 945-3863.
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.
An exchange of Fund shares is considered a sale, and any related gains may be
subject to applicable 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
Willamette Asset Managers, Inc., 220 NW 2nd Avenue, Suite 950, Portland, Oregon
9720, is the investment adviser for the Fund. The Adviser is an affiliate of
Phillips & Company Securities Inc. ("Phillips"), and Willamette Securities,
Inc., each, a registered broker-dealer.
PORTFOLIO MANAGER
James Todd Smith serves as portfolio manager for the Fund and is primarily
responsible for the day-to-day management of the Fund's portfolios. Mr. Smith
has served as Compliance Officer
16
<PAGE> 21
of Phillips since 1995, Chief Financial Officer of Phillips since 1997 and has
over 14 years of investment experience.
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 except as otherwise expressly required
by law.
FINANCIAL HIGHLIGHTS
- --------------------
[TO BE PROVIDED].
17
<PAGE> 22
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 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:
THE WILLAMETTE FUNDS
P.O. BOX 182301
COLUMBUS, OHIO 43218-2301
TELEPHONE: (877) 945-3863
- -------------------------------------------------------------------------------
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.
18
<PAGE> 23
35
WILLAMETTE VALUE FUND
WILLAMETTE SMALL CAP GROWTH FUND
Investment Portfolios 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 prospectuses for the Willamette Value Fund and
Willamette Small Cap Growth Fund ("Funds") dated ____________ and April 1, 1999,
respectively ("Prospectuses"). Each 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 Prospectuses. Copies of the Prospectuses may be obtained by writing the
Funds at 3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning toll free
(800) 713-4276.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration statement becomes
effective.
<PAGE> 24
36
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
THE COVENTRY GROUP . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . 1
Additional Information on Portfolio Instruments . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . 15
Portfolio Turnover . . . . . . . . . . . . . . . . . . . 17
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . 19
Matters Affecting Redemption . . . . . . . . . . . . . . 19
MANAGEMENT OF THE GROUP . . . . . . . . . . . . . . . . . . . . . 20
Trustees and Officers . . . . . . . . . . . . . . . . . 20
Investment Adviser 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
</TABLE>
<PAGE> 25
37
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. This Statement of Additional
Information deals with the portfolios called Willamette Value Fund ("Value
Fund") and Willamette Small Cap Growth Fund ("Growth Fund") (collectively,
"Funds"). Willamette Asset Managers, Inc. ("Adviser") serves as investment
adviser to both Funds. The Bank of New York ("Sub-Adviser") manages the assets
of Growth Fund. Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectuses of
the Funds. Capitalized terms not defined herein are defined in the Prospectuses.
No investment in Shares of the Funds should be made without first reading the
Prospectuses.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies of
the Funds as set forth in the Prospectuses.
BANK OBLIGATIONS. Each Fund may invest in bank obligations such as bankers'
acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Bankers' acceptances
invested in by the Funds will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those of domestic and foreign banks and savings and loan
associations, 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.
Value Fund may invest only in Bank Instruments that are either issued by an
institution having capital, surplus and undivided profits over $100 million, or
insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance
Fund ("SAIF"). In addition to domestic instruments such as bankers' acceptances
and certificates of deposit, Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs")
and Eurodollar Time Deposits ("ETDs").
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.
A 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"). A Fund may also invest
in commercial paper that is not rated but is determined by the Adviser or
Sub-Adviser under guidelines established by the Group's Board of Trustees, to be
of comparable quality.
<PAGE> 26
38
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes
are unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic readjustments in the interest rate according to the terms
of the instrument. They are also referred to as variable rate demand notes.
Because master demand notes are direct lending arrangements between a Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, a Fund may demand payment of principal and accrued interest at any
time or during specified periods not exceeding one year, depending upon the
instrument involved, and may resell the note at any time to a third party. The
Adviser or Sub-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 a Fund
will be determined by the Adviser or Sub-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 or Sub-Adviser will
consider the earning power, cash flow and other liquidity ratios of the issuers
of such notes (such issuers include financial, merchandising, bank holding and
other companies) and will continuously monitor their financial condition.
Although there may be no active secondary market with respect to a particular
variable or floating rate note purchased by a Fund, a 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 a Fund to dispose of a variable or floating
rate note in the event the issuer of the note defaulted on its payment
obligations and a Fund could, as a result or for other reasons, suffer a loss to
the extent of the default. Variable or floating rate notes may be secured by
bank letters of credit.
U.S. GOVERNMENT OBLIGATIONS. The Funds may invest in U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (collectively, "U.S. Government Obligations").
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Funds will invest
in the obligations of such agencies or instrumentalities only when the Adviser
or Sub-Adviser believes that the credit risk with respect thereto is minimal.
FOREIGN INVESTMENTS. The Funds may invest in certain obligations or
securities of foreign issuers, including American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"),
other similar depositary receipts, Yankee Obligations, and U.S. dollar
<PAGE> 27
39
denominated securities issued by foreign branches of U.S. and foreign banks.
These investments may subject a Fund to investment risks that differ in some
respects from those related to investment in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
possible seizure, nationalization, or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source or other taxes, and the adoption of other
foreign governmental restrictions.
Additional risks include less publicly available information, the risk that
companies may not be subject to the accounting, auditing and financial reporting
standards and requirements of U.S. companies, the risk that foreign securities
markets may have less volume and that therefore many securities traded in these
markets may be less liquid and their prices more volatile than U.S. securities,
and the risk that custodian and brokerage costs may be higher. Foreign issuers
of securities or obligations are often subject to accounting treatment and
engage in business practices different from those respecting domestic issuers of
similar securities or obligations. Foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks. Certain of these investments may
subject the Funds to currency fluctuation risks.
DEPOSITARY RECEIPTS. A Fund's investments may include securities of foreign
issuers in the form of sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs") and European Depositary Receipts
("EDRs"). ADRs are depositary receipts typically issued by a United States bank
or trust company which evidence ownership of underlying securities issued by a
foreign
4
<PAGE> 28
7
corporation. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by United States banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation. Generally, depositary receipts in
registered form are designed for use in the United States securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. Depositary receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored depositary receipts may not entitle
the Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored depositary
receipts.
FUTURES CONTRACTS. As discussed in the Prospectus, each 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. 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 and thereby ensure that the
use of such futures is unleveraged. Positions in futures contracts may be closed
out only on an exchange that provides a secondary market for such futures.
However, there can be no assurance that a liquid secondary market will exist for
any particular futures contract at any specific time. Thus, it may not be
possible to close a futures position. In the event of adverse price movements, a
Fund would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if a Fund had insufficient cash, it might
have to sell portfolio securities to meet daily margin requirements at a time
when it would be disadvantageous to do so. In addition, a Fund might be required
to make delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on a Fund's ability to hedge or manage risks effectively.
Successful use of futures by a Fund is also subject to the Adviser's or
Sub-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 or Sub-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
<PAGE> 29
40
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.
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.
The purchase and sale of futures contracts or related options will not be a
primary investment technique of the Funds. A 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.
CALL OPTIONS. Each 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 a Fund. This premium income will serve to enhance
a 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 or Sub-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 particular 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. A Fund will write only covered call options and will
normally not write a covered call option if, as a result, the aggregate market
value of all portfolio securities covering all call options would exceed 15% of
the market value of its net assets.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objective. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options, which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but retains
the risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Fund has no control over when it may be
required to sell the underlying securities, since it may be assigned an exercise
notice at any time prior to the expiration of its obligation as a writer. If a
call option which a Fund has written expires, the Fund will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period. If the call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of the Funds' Custodian.
The premium received is the market value of an option. The premium a Fund
will receive from writing a call option will reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
<PAGE> 30
41
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser or Sub-Advisr, in determining
whether a particular call option should be written on a particular security,
will consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for such option. The premium received
by a Fund for writing covered call options will be recorded as a liability in
the Fund's statement of assets and liabilities. This liability will be adjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the net asset value per share of 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 a Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no assurance
that a Fund will be able to effect such closing transactions at a favorable
price. If a Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. A 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 a Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, a Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
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 a Fund.
RESTRICTED AND ILLIQUID SECURITIES. Restricted securities are subject to
restrictions on resale under federal securities law. Under criteria established
by the FundS' Trustees, certain restricted securities are determined to be
liquid. To the extent that restricted securities are not determined to be
liquid, each 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.
<PAGE> 31
41
Restricted securities in which a 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 Funds, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Funds through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Adviser believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by the
Trustees of the Funds are quite liquid. The Funds intend, therefore, to treat
the restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Adviser, as liquid and not subject to the investment limitations applicable to
illiquid securities.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may invest in
securities issued by the other investment companies. Each 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
<PAGE> 32
42
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 1940 Act.
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 involve risks, such as delays or an inability to regain
the securities or collateral adjustments in the event the borrower defaults or
enters into bankruptcy.
AFFILIATED TRANSACTIONS. The Funds are authorized to execute portfolio
transactions through, and to pay commissions to, Phillips & Company Securities,
Inc. ("Phillips"), a broker-dealer affiliated with the Adviser, and to purchase
securities in underwritings in which Phillips is a member of the underwriting
syndicate. A Fund will not acquire portfolio securities issued by, or enter into
repurchase agreements or reverse repurchase agreements with, the Adviser, the
Distributor or their affiliates.
<PAGE> 33
43
Investment Restrictions
- -----------------------
The following are fundamental investment restrictions of each Fund. Each
Fund has elected to qualify as a diversified series of the Trust. Additionally,
neither Fund may:
borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection with
the disposition of portfolio securities;
purchase or sell real estate, which does not include securities of
companies which deal in real estate or mortgages or investments secured by real
estate or interests therein, except that each Fund reserves freedom of action to
hold and to sell real estate acquired as a result of the Fund's ownership of
securities;
purchase physical commodities or contracts relating to physical
commodities;
make loans to other persons, except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase of
debt instruments or interests in indebtedness in accordance with a Fund's
investment objective and policies may be deemed to be loans.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each 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 each Fund is not expected to exceed 75%.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of Shares of each 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 a 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
<PAGE> 34
44
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 or Sub-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 a 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 or Sub-Adviser
from time to time.
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 a 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
<PAGE> 35
45
customary weekend and holiday closings, (c) the Commission has by order
permitted such suspension for the protection of security holders of the Group or
a Fund, or (d) the Commission has determined that an emergency exists as a
result of which (i) disposal by the Group or a Fund of securities owned by it is
not reasonably practical, or (ii) it is not reasonably practical for the Group
or a Fund to determine the fair value of its net assets.
The Group may redeem Shares of a Fund involuntarily if redemption appears
appropriate in light of the Group's responsibilities under the 1940 Act. See
"HOW TO PURCHASE AND REDEEM 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:
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age the Group During Past 5 Years
--------------------- ----------- -------------------
<S> <C> <C>
Walter B. Grimm* Chairman, President and From June 1992 to present,
3435 Stelzer Road Trustee employee of BISYS Fund Services,
Columbus, Ohio 43219 from 1987 to June 1992, President
Age: 52 of Leigh Investments (investment
firm).
Maurice G. Stark Trustee Retired. Until December 31,
505 King Avenue 1994, Vice President-Finance and
Columbus, Ohio 43201 Treasurer, Battelle Memorial
Age: 62 Institute (scientific research
and development service
corporation).
Michael M. Van Buskirk Trustee From June 1991 to present,
37 West Broad Street Executive Vice President of The
Suite 1001 Ohio Bankers' Association (trade
Columbus, Ohio 43215 association); from September 1987
Age: 50 to June 1991, Vice President -
Communications, TRW Information
Systems Group (electronic and
space engineering).
</TABLE>
<PAGE> 36
46
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age the Group During Past 5 Years
--------------------- ----------- -------------------
<S> <C> <C>
John H. Ferring IV Trustee From 1979 to present,
105 Bolte Lane President and owner of Plaze, Inc.,
St. Clair, Missouri 63077 St. Clair, Missouri
Age: 45
J. David Huber Vice President From June, 1987 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 51
Jennifer J. Brooks Vice President From October, 1988 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 32
Paul Kane Treasurer From December 1997 to present, employee
3435 Stelzer Road of BISYS Fund Services; from March 1985 to
Columbus, Ohio 43219 December 1997, Director of Shareholder
Age: 41 Reporting for Fidelity Investments.
George L. Stevens Secretary From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from September 1995 to September
Age: 47 1996, Independent Consultant;
from September 1989 to September
1995, Senior Vice President, AmSouth
Bank, N.A.
</TABLE>
<PAGE> 37
47
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age the Group During Past 5 Years
--------------------- ----------- -------------------
<S> <C> <C>
Alaina V. Metz Assistant Secretary From 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May
Columbus, Ohio 43219 1989 to June 1995, employee of
Age: 30 Alliance Capital Management.
</TABLE>
- ----------------------------
*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 FS receives fees from the
Funds for acting as Administrator and may receive fees pursuant to the
Distribution and Shareholder Services Plan and the Administrative Services Plan.
BISYS Fund Services Ohio, Inc. receives fees from the Funds for acting as
transfer agent and for providing certain fund accounting services. Messrs.
Huber, Kane, Stevens, Grimm, Ms. Metz and Ms. Brooks are employees of BISYS.
Trustees of the Group not affiliated with BISYS Fund Services receive from
the Group an annual fee of $1,000, plus $2,250 for each regular meeting of the
Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone, and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
Investment Adviser and Sub-Adviser
- ----------------------------------
Investment advisory services for the Funds are provided by Willamette Asset
Managers, Inc., 220 NW 2nd Avenue, Suite 950, Portland, Oregon 97209. Pursuant
to an Investment Advisory Agreement dated as of May 22, 1998 (the "Value
Agreement"), the Adviser has agreed to provide investment advisory services to
Value Fund as described in the Prospectus of Value Fund. For the services
provided pursuant to the Value Agreement, Value Fund pays the Adviser a fee
computed daily and paid monthly, at an annual rate, calculated as a percentage
of Value Fund's average daily net assets, of 1.00%. The Adviser may periodically
waive all or a portion of its advisory fee to increase the net income of Value
Fund available for distribution as dividends.
The Adviser provides general management supervision to Growth Fund pursuant
to an Investment Advisory Agreement dated as of April 1, 1999 ("Growth
Agreement"). For services provided under the Growth Agreement, Growth Fund pays
the Adviser a fee computed daily and paid monthly at an annual rate, as
calculated a percentage of Growth Fund's average daily net assets, of 1.20%. Out
of its fees from Growth Fund, the Adviser pays the fee of the Sub-Adviser.
Unless sooner terminated, the Value Agreement and the Growth Agreement will
continue in effect until May 22, 2000 and March 31, 2001, respectively, and
<PAGE> 38
48
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 applicable Fund (as defined under "INVESTMENT RESTRICTIONS" in the
Prospectuses), 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. Each
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 Value Fund,
or by the Adviser. Each Agreement also terminates automatically in the event of
any assignment, as defined in the 1940 Act.
Each 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 applicable 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 Bank of New York, 48 Wall Street, New York, New York 10286, provides
portfolio management services, as Sub-Adviser, to Growth Fund pursuant to a
Sub-Investment Advisory Agreement with the Group and the Adviser, dated as of
April 1, 1999. For its services to Growth Fund, the Adviser pays the Sub-Adviser
a fee computed daily and paid monthly at an annual rate calculated as a
percentage of Growth Fund's average daily net assets, of 0.45%. The
Sub-Investment Advisory AGreement will continue in effect, unless sooner
terminated, until March 31, 2001, and has provisions for continuation and
termination similar to those of the Investment Advisory Agreements. The
Sub-Investment Advisory Agreement may also be terminated by the Adviser.
The Value Agreement was approved by both the Trustees and the independent
Trustees at a meeting held February 28, 1998. The Growth Agreement and the
Sub-Investment Advisory Agreement were so approved at a meeting held November
13, 1998.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreements and the Sub-Investment
Advisory Agreement, the Adviser and Sub-Adviser determine, subject to the
general supervision of the Board of Trustees of the Group and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Funds, and which brokers are to be eligible to execute
the Funds' portfolio transactions. Certain purchases and sales of portfolio
securities with respect to the Funds 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 and
Sub-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.
<PAGE> 39
49
Investment decisions for the Funds are made independently from those for
other accounts managed by the Adviser and the Sub-Adviser. Any such account may
also invest in the same securities as a Fund. When a purchase or sale of the
same security is made at substantially the same time on behalf of a 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 or
Sub-Adviser believes to be equitable to the applicable Fund and such other
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by a Fund.
To the extent permitted by law, the Adviser or Sub-Adviser may aggregate the
securities to be sold or purchased for a 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 Funds pursuant to a
Management and Administration Agreement dated May 22, 1998 (the "Administration
Agreement"). The Administrator assists in supervising all operations of the
Funds (other than those performed by the Adviser and Sub-Adviser under the
Investment Advisory Agreement and Sub-Investment Advisory Agreement, the
Custodian under the Custodian Agreement and by BISYS Fund Services Ohio under
the Transfer Agency Agreement and Fund Accounting Agreement). The Administrator
is a broker-dealer registered with the Commission, and is a member of the
National Association of Securities Dealers, Inc. The Administrator provides
financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Funds with the Funds'
preparation of their Annual and Semi-Annual Reports to Shareholders and their
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts and records of the Funds, including calculation of daily
expense accruals; and generally assist in all aspects of the Funds' operations
other than those performed by the Adviser, under the Investment Advisory
Agreements, by the Sub-Adviser under the Sub-Advisory Agreement, by the
Custodian under the Custodian Agreement or by BISYS Fund Services Ohio, Inc.
under the Transfer Agency Agreement or Fund Accounting Agreement. Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to the lesser of (1) a fee calculated daily and paid periodically, at the
annual rate equal to 0.13% of the first $250 million, 0.115% of the next $250
million, 0.095% of the next $250 million, and 0.08% over $750 million of each
<PAGE> 40
50
Fund's average daily net assets or (2) such other fee as may be agreed upon in
writing by the Group and the Administrator. The Administrator may periodically
waive all or a portion of its fee with respect to each 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 May 31, 2001. The Administration Agreement
thereafter shall be renewed automatically for successive three-year terms,
unless written notice not to renew is given by the non-renewing party to the
other party at least 60 days prior to the expiration of the then-current term.
The Administration Agreement is terminable with respect to a particular Fund
only upon mutual agreement of the parties to the Administration Agreement and
for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by 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.
Distributor
- -----------
BISYS Fund Services L.P. serves as distributor to the Funds pursuant to the
Distribution Agreement dated May 22, 1998, (the "Distribution Agreement").
Unless otherwise terminated, the Distribution Agreement will continue in effect
with respect to a Fund until May 31, 2000, 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 each Fund under the Service and Distribution Plan described below.
As described in the Prospectus, the Group has adopted a Service and
Distribution Plan for each Fund (the "Plan") pursuant to Rule 12b-1 under the
1940 Act under which each Fund is authorized to pay 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 each Fund to make
payments to the Distributor in an amount not to exceed, on an annual basis,
0.50% of the Fund's average daily net assets. Each Fund is authorized to pay a
Shareholder Service Fee of up to 0.25% of its average daily net assets. As
<PAGE> 41
51
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 Funds
and who have no direct or indirect financial interest in the operation of the
Plan ("Independent Trustees") at meetings held on February 19, 1998 (Value Fund)
and November 13, 1998 (Growth Fund). The Plan may be terminated with respect to
a Fund by vote of a majority of the Independent Trustees, or by vote of a
majority of the outstanding Shares of the Fund. The Trustees review quarterly a
written report of such costs and the purposes for which such costs have been
incurred. The Plan may be amended by vote of the Trustees including a majority
of the Independent Trustees, cast in person at a meeting called for that
purpose. However, any change in the Plan that would materially increase the
distribution cost to a Fund requires approval by that Fund's Shareholders. 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
Fund, by vote of a majority of the outstanding Shares of that Fund. The Plan
will continue in effect with respect to a Fund 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 Fund, the Trustees, in approving the Plan, must determine
that there is a reasonable likelihood that the Plan will benefit the Fund and
its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the best
interests of each Fund since it encourages Fund growth. 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
- ---------
Union Bank of California, 475 Sansome Street, San Francisco, California
94111, serves as the Funds' custodian.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Fund Services, Inc. serves as Transfer Agent and Dividend Disbursing
Agent ("BISYS Fund Services Ohio" or the "Transfer Agent") for the Funds,
pursuant to the Transfer Agency Agreement dated May 22, 1998. Pursuant to such
Agreement, the Transfer Agent, among other things, performs the following
services in connection with the Funds' Shareholders of record: maintenance of
shareholder records for each of the Funds' Shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of Shares of the Funds on the shareholder files and records; processing dividend
payments and reinvestments; and assistance in the mailing of shareholder reports
and proxy solicitation materials. For such services the Transfer Agent receives
a fee based, in part, on the number of shareholders of record.
In addition, BISYS Fund Services Ohio, Inc. provides certain fund
accounting services to the Funds pursuant to the Fund Accounting Agreement dated
<PAGE> 42
52
May 22, 1998. BISYS Fund Services Ohio receives a fee from each Fund for such
services in an amount computed daily and paid periodically at an annual rate of
three one-hundredths of one percent (.03%) of the Fund's average daily net
assets. Under such Agreement, BISYS Fund Services Ohio maintains the accounting
books and records for each Fund, including journals containing an itemized daily
record of all purchases and sales of portfolio securities, all receipts and
disbursements of cash and all other debits and credits, general and auxiliary
ledgers reflecting all asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received, and other required
separate ledger accounts; maintains a monthly trial balance of all ledger
accounts; performs certain accounting services for the Funds, including
calculation of the net asset value per Share, calculation of the dividend and
capital gain distributions, if any, and of yield, reconciliation of cash
movements with the Custodian, affirmation to the Custodian of all portfolio
trades and cash settlements, verification and reconciliation with the Custodian
of all daily trade activity; provides certain reports; obtains dealer
quotations, prices from a pricing service or matrix prices on all portfolio
securities in order to mark the portfolio to the market; and prepares an interim
balance sheet, statement of income and expense, and statement of changes in net
assets for each Fund.
Independent Auditors
- --------------------
Ernst & Young LLP, 10 West Broad Street, Suite 2300, Columbus, Ohio 43215,
has been selected as independent auditors for the Funds for the fiscal year
ended March 31, 1999. William R. Wasco will perform an annual audit of each
Fund's financial statements and provide other services related to filings with
respect to securities regulations. Reports of their activities will be provided
to the Group's Board of Trustees.
Legal Counsel
- -------------
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006, is
counsel to the Group.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust, organized on January 8, 1992.
The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of Shares, which are Shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of Shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued Shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption, and to establish separate classes of Shares.
Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this Statement of
<PAGE> 43
53
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 a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of a Fund present at a meeting at which the holders
of more than 50% of the votes attributable to Shareholders of record of the Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of the Fund.
Additional Tax Information
- --------------------------
TAXATION OF THE FUND. Each Fund intends to qualify annually and to elect to
be treated as a regulated investment company under the Internal Revenue Code of
<PAGE> 44
54
1986, as amended (the "Code").
To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which 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, a Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to Shareholders. Each Fund intends to
distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts 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, a 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 a Fund in
October, November or December to Shareholders of record on a date in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be treated as received by Shareholders in the calendar year
in which the distributions are declared, rather than the calendar year in which
the distributions are received. To prevent application of the excise tax, each
Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS. Dividends paid out of a Fund's investment company taxable
income generally will be taxable to a U.S. Shareholder as ordinary income. A
portion of each Fund's income may consist of dividends paid by U.S. corporations
and, accordingly, a portion of the dividends paid by a Fund may be eligible for
the corporate dividends-received deduction. 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,
<PAGE> 45
55
generally will have a cost basis in each such Share equal to the net asset value
of a Share of the particular 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 a 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 a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
DISCOUNT SECURITIES. Investments by a Fund in securities that are issued at
a discount will result in income to the Fund equal to a portion of the excess of
the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held, even though the Fund receives
no cash interest payments. This income is included in determining the amount of
income which a Fund must distribute to maintain its status as a regulated
investment company and to avoid the payment of federal income tax and the 4%
excise tax.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
Generally, the gain realized on the disposition of any debt security acquired
after April 30, 1993 having market discount will be treated as ordinary income
to the extent it does not exceed the accrued market discount on such debt
security.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a call
option is not included in income at the time of receipt. If the option expires,
the premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by a Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a call option that is purchased by a Fund, if the
option is sold, any resulting gain or loss will be a capital gain or loss, and
will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option is added to the basis of the
purchased security.
Certain options in which a Fund may invest are "section 1256 contracts".
Gains or losses on section 1256 contracts generally are considered 60% long-term
and 40% short-term capital gains or losses; 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 a Fund
<PAGE> 46
56
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are "marked-to-market" (that is, treated as
sold at fair market value), resulting in unrealized gains or losses being
treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of engaging in hedging transactions
are not entirely clear. Hedging transactions may increase the amount of
short-term capital gain realized by a Fund which is taxed as ordinary income
when distributed to Shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
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, a 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,
a 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 a Fund held the security used to close the short sale. In addition, a
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 a Fund, thereby requiring current recognition of
gain, as described more fully above. Similarly, if a Fund enters into a short
sale of property that becomes substantially worthless, the Fund will recognize
<PAGE> 47
57
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 each Fund's assets may limit
the extent to which a Fund will be able to engage in transactions in options and
other hedging transactions.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
Each Fund may invest in shares of foreign corporations (including through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If a Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to Shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which a Fund held the PFIC shares. The Fund
itself will be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market a Fund's PFIC shares at the end of each taxable year, with the
result that unrealized gains are treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
SALE OF SHARES. Upon the sale or other disposition of Fund Shares, or upon
receipt of a distribution in complete liquidation of a 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
<PAGE> 48
58
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.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.
BACKUP WITHHOLDING. A 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 a Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER TAXATION. The Group is organized as a Massachusetts business trust
and, under current law, neither the Group nor any fund is liable for any income
or franchise tax in the Commonwealth of Massachusetts, provided that each fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund Shareholders may be subject to state and local taxes on their Fund
distributions. In many states, Fund distributions which are derived from
interest on certain U.S. Government obligations may be exempt from taxation.
<PAGE> 49
59
Yields and Total Returns
- ------------------------
YIELD CALCULATIONS. As summarized in the Prospectus of the Funds under the
heading "PERFORMANCE INFORMATION", yields on Fund Shares will be computed by
dividing the net investment income per share (as described below) earned by a
Fund 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 earned during the period is based on the average
daily number of Shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
a - b
Yield = 2 [(------- + 1)exp(6) - 1]
cd
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 a 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 a 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.
<PAGE> 50
60
During any given 30-day period, the Adviser, the Sub-Adviser, Administrator
or Distributor may voluntarily waive all or a portion of their fees with respect
to a Fund. Such waiver would cause the yield of that Fund to be higher than it
would otherwise be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. As summarized in the Prospectus of the Funds
under the heading "PERFORMANCE INFORMATION", average annual total return is a
measure of the change in value of an investment in a Fund over the period
covered, which assumes any dividends or capital gains distributions are
reinvested in Shares immediately rather than paid to the investor in cash. A
Fund computes the average annual total return 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 = [(------)exp (1/n) - 1]
P
Where: ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
A Fund computes its aggregate total return 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]
P
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical
$1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of
$1,000.
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
<PAGE> 51
61
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Performance Comparisons
- -----------------------
Investors may judge a 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. and Standard & Poor's Corporation, and
to data prepared by Lipper Analytical Services, Inc., a widely recognized
independent service which monitors the performance of mutual funds or Ibbotson
Associates, Inc. Comparisons may also be made to indices or data published in
IBC/Donaghue's MONEY FUND REPORT, a nationally-recognized money market fund
reporting service, Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, and U.S.A. Today. In addition to performance
information, general information about the Funds that appears in a publication,
such as those mentioned above, may be included in advertisements and in reports
to Shareholders. The Funds may also include in advertisements and reports to
Shareholders information comparing the performance of the Adviser or the
Sub-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, a Fund's yield or
performance 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 a Fund's portfolio, as
well as expenses allocated to a Fund. Fees imposed upon customer accounts by
third parties for cash management services will reduce a Fund's effective yield
to customers.
From time to time, the Funds may include general comparative information,
such as statistical data regarding inflation, securities indices or the features
or performance of alternative investments, in advertisements, sales literature
and reports to shareholders. The Funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of a Fund.
Miscellaneous
- -------------
The Funds may include information in their Annual Reports and Semi-Annual
Reports to Shareholders that (1) describes general economic trends, (2)
describes general trends within the financial services industry or the mutual
fund industry, (3) describes past or anticipated portfolio holdings for the
Funds or (4) describes investment management strategies for the Funds. Such
information is provided to inform Shareholders of the activities of the Funds
for the most recent fiscal year or half-year and to provide the views of the
Adviser, the Sub-Adviser, and/or Group officers regarding expected trends and
strategies.
The Financial Statements of the Willamette Value fund appearing in the
Semi-Annual (unaudited) report to Shareholders for the period ended September
30, 1998, are incorporated herein by reference.
<PAGE> 52
62
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 Prospectuses 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 Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectuses and this Statement of Additional Information.
APPENDIX
The nationally recognized statistical rating organizations (individually,
an "NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P") and Duff & Phelps, Inc. ("D&F"). Set
forth below is a description of the relevant ratings of each such NRSRO. The
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
<PAGE> 53
63
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
Description of the three highest long-term debt ratings by S&P (S&P may
apply a plus (+) or minus (-) to a particular rating classification to show
relative standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Description of
the three highest long-term debt ratings by D&P;
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong. AA Risk is
modest but may vary slightly from time to time AA- because of
economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods of
A- economic stress.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit) Moody's
description of its three highest short-term debt ratings:
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.
<PAGE> 54
64
- 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> 55
PART C
------
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements
--------------------
1. Reference N-30D filed on May 24, 1999
<PAGE> 56
(b) Exhibits
--------
(1) Declaration of Trust(1)
(2) (a) By-Laws(1)
(b) Form of Establishment and Designation
of Series of Shares(3)
(3) Not Applicable
(4) Certificates for Shares are not issued.
Articles IV, V, VI and VII of the Declaration
of Trust, previously filed as Exhibit 1
hereto, define rights of holders of Shares.
(5) (a) Investment Advisory Agreement between
Registrant and Willamette Asset
Managers, Inc.(2)
(b) Investment Advisory Agreement between
Registrant and Willamette Asset
Managers, Inc.(3)
(c) Sub-Advisory Agreement between
Willamette Asset Managers and
Bank of New York.(3)
(6) Distribution Agreement between Registrant and
BISYS Fund Services, Limited Partnership(2)
(7) Not Applicable
(8) Custodian Agreement between Registrant and
Union Bank of California.(1)
(9) (a) Administration Agreement between the
Registrant and BISYS Fund Services,
Limited Partnership.(2)
(b) Fund Accounting Agreement between
the Registrant and BISYS Fund
Services Ohio, Inc.(2)
(c) Transfer Agency Agreement between
the Registrant and BISYS Fund
Services, Inc.(2)
(10) Opinion and Consent of Counsel(2)
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Amended Service and Distribution Plan(3)
(16) Not Applicable
(17) The Financial Data Schedule regarding the
Willamette Value Funds Annual report dated
March 31, 1999.
(18) Not Applicable
- ------------------
1. Filed with initial Registration Statement on January 8, 1992.
2. Incorporated by reference to Post-Effective Amendment No. 33 to Registrant's
Registration Statement (File No. 33-44964) filed electronically with the
Securities and Exchange Commission on March 13, 1998.
3. Incorporated by reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement (File No. 33-44964) filed electronically with the
Securities and Exchange Commission on December 17, 1998.
Item 25. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
Not applicable.
Item 26. Number of Record Holders
- -------- ------------------------
Not applicable.
<PAGE> 57
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. 47 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 24th day of May, 1999.
THE COVENTRY GROUP
By: WALTER B. GRIMM
-----------------------------
Walter B. Grimm, President***
By: Jeffrey L. Steele
--------------------------------------
Jeffrey L. Steele, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
WALTER B. GRIMM Chairman, President May 24, 1999
- --------------------- and Trustee
Walter B. Grimm*** (Principal Executive
Officer)
JOHN H. FERRING IV Trustee May 24, 1999
- ---------------------
John H. Ferring IV**
MAURICE G. STARK Trustee May 24, 1999
- ---------------------
Maurice G. Stark*
MICHAEL M. VAN BUSKIRK Trustee May 24, 1999
- ----------------------
Michael M. Van Buskirk*
PAUL KANE Treasurer
- --------------------- (Principal
Paul Kane Financial and
Accounting Officer)
By: Jeffrey L. Steele
---------------------------
Jeffrey L. Steele, as attorney-in-fact
- --------------------------------------
* Pursuant to power of attorney filed with Pre-Effective Amendment No. 3
on April 6, 1992.
** Pursuant to power of attorney filed with Post-Effective Amendment No.
39 on July 31, 1998.
*** Pursuant to power of attorney filed with Post-Effective
Amendment No. 26 on May 1, 1996.
