<PAGE> 1
As filed with the Securities and Exchange Commission on October 8, 1999
Securities Act No. 33-44964
Investment Company Act File No. 811-6526
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
--
Post-Effective Amendment No. 62 [X]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 64 [X]
--
THE COVENTRY GROUP
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(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
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(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 470-8000
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Jane A. Kanter, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, D.C. 20006
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(Name and Address of Agent for Service)
With Copies to:
Walter B. Grimm
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
It is proposed that this filing will become effective on October 9, 1999
pursuant to paragraph (b) of Rule 485.
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QUESTIONS?
Call 1-877-833-7116 or your
investment representative.
[The Counter Bond Fund Logo]
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PROSPECTUS
DATED OCTOBER 9, 1999
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PROPRIETARY CAPITAL LLC
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> 3
THE COUNTER BOND FUND TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
Carefully review this 3 Investment Objective
important section for a 3 Principal Investment Strategies
summary of the Fund's 3 Principal Investment Risks
investment, risks and fees. 4 Who May Want to Invest?
5 Fund Performance -- Fees and Expenses
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
[ICON]
This section contains 6 Investment Objective
details on the Fund's 6 Policies and Strategies
investment strategies and 7 Principal Risks of Investing in the Fund
risks.
SHAREHOLDER INFORMATION
[ICON]
Consult this section to 9 Pricing of Fund Shares
obtain details on how shares 9 Purchasing and Adding to Your Shares
are valued, how to purchase, 10 Dividends and Distributions
sell and exchange shares, 11 Selling Your Shares
related charges and payments 12 General Policies on Redeeming Shares
of dividends.
FUND MANAGEMENT
[ICON]
Review this section for 13 The Investment Adviser
details on the people and 13 Portfolio Managers
organizations who oversee 13 The Distributor and Administrator
the Fund and their
investments.
CAPITAL STRUCTURE
[ICON]
Review this section for 14 Appendix A The Index
details on the selected
financial statements of the
Fund.
</TABLE>
2
<PAGE> 4
RISK/RETURN SUMMARY AND FUND EXPENSES
RISK/RETURN SUMMARY OF
THE COUNTER BOND FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital appreciation during periods
of rising long-term domestic interest rates.
PRINCIPAL The Fund invests primarily in the Interest-Only securities ("IO's") which
INVESTMENT STRATEGIES are issued under the Stripped Mortgage-Backed Securities Programs ("SMBS")
of the Federal National Mortgage Association ("FNMA" or "Fannie Mae"), and
the Federal Home Loan Mortgage Association ("FHLMC" or "Freddie Mac"). If an
SMBS program is initiated by the Government National Mortgage Association
("GNMA" or "Ginnie Mae") the Fund will consider investing also in IO's
issued by the GNMA program. The Fund's portfolio will be invested to mirror
the characteristics of the Proprietary Capital-Counter Bond Index (see "The
Index").
PRINCIPAL Interest-only securities issued under the SMBS programs described above
INVESTMENT RISKS represent an ownership interest in the interest portion of mortgage payments
generated by a specific pool of mortgage collateral. The interest payment is
determined by the coupon rate and the remaining principal balance on the
designated mortgage collateral. If the principal balance of the mortgage
collateral declines at a faster pace than anticipated, as occurs in periods
of falling interest rates, the Fund, as IO holder, will receive less in
payments on these securities than anticipated and the value of the Fund's IO
holdings will decline. Changes in the prepayment rates of mortgage-related
securities vary from time to time and may cause changes in the amount of
interest earned and distributed to shareholders in the form of quarterly
dividends.
The Fund is designed to deal with a specific type of risk -- that occurring
in a rising interest rate environment. There can be no assurance that such
an environment will occur or will persist for any length of time. There also
can be no assurance that the Fund's strategy will be successful in that
environment. This strategy also may not be advisable for particular
investors and the Fund is thus available only to "accredited investors".
The value of the Fund's investments will fluctuate with market conditions,
so will the value of your investment in the Fund. Because the Fund intends
to invest in order to mirror the Index, it will not take defensive positions
in order to minimize losses during adverse market conditions. 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.
</TABLE>
3
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RISK/RETURN SUMMARY AND FUND EXPENSES
- -
RISK/RETURN SUMMARY OF
THE COUNTER BOND FUND
CONTINUED
<TABLE>
<S> <C>
WHO MAY Consider investing in the Fund if you are:
WANT TO INVEST? - invested in a portfolio that has exposure to rising domestic long- term
Only "accredited investors," interest rates and wish to add an investment that can offset this exposure
as defined by federal - willing to accept the risks of investing in non-principal bearing
securities rules, are mortgage-related securities in exchange for potentially higher long term
eligible to purchase shares returns
of the Fund - willing to accept the risk of investing in a security whose value is
impacted by changes in the condition of the residential housing market
This Fund will not be appropriate for any investor:
- pursuing a short-term goal or investing emergency reserves
- seeking safety of principal
- seeking stable current income
</TABLE>
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES
FUND PERFORMANCE
Because the Fund commenced operations on October 11, 1999, it does not yet
have performance figures that reflect a full calendar year.
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION FEES
(FEES PAID BY YOU DIRECTLY)
Maximum sales charge (load)
on purchases None
Maximum deferred sales charge (load) None
Annual Fund Operating Expenses
(expenses paid from Fund assets)
Management Fee 0.80%
Distribution and Service (12b-1) fee None
Other Expenses(1) 0.61%
Total Fund Operating Expenses 1.41%
Fee Waiver and/or
Expense Reimbursement(2) 0.36%
Net Expenses 1.05%
</TABLE>
(1) "Other Expenses" are based on estimated
amounts for the current fiscal year.
(2) The Adviser has entered into a
contractual expense limitation agreement for
its current fiscal year.
As an investor in the
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.
EXPENSE EXAMPLE
<TABLE>
<CAPTION>
1 3
YEAR YEARS
<S> <C> <C>
THE FUND $107 $411
</TABLE>
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:
- $10,000 investment*
- 5% annual return
- redemption at the end of
each period
- 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.
* The Fund's minimum
investment is $100,000. The
$10,000 figure used in the
example is required to permit
standardized comparisons with
other funds.
5
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[logo]
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
THE COUNTER BOND FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide investors with capital appreciation during periods
of rising long-term domestic interest rates.
POLICIES AND STRATEGIES
The Fund will pursue its objective by investing primarily in the
interest-only ("IO") class of stripped mortgage-backed securities ("SMBS")
issued by FNMA and FHLMC. GNMA has not initiated an SMBS program to date. If
such a program is created, the Fund will consider investing in IO's issued
under the GNMA program. FNMA and FHLMC have issued securities backed by GNMA
certificates under their SMBS programs.
Each SMBS issue is typically structured into two separate classes of pass
through certificates, each of which entitles the holder to different
proportions of interest and principal payments from a specific underlying
mortgage pool The SMBSs in which the Fund invests have one class that is
entitled to receive only interest payments (IO certificates) while the second
class receives only principal payments ("principal-only" or "PO"
certificates). Under normal market conditions, at least 90% of the Fund's
total assets will be invested in IO's. In selecting IO's for purchase by the
Fund, the Adviser seeks to replicate the Average Coupon Rate and Average
Maturity of the Proprietary Capital-Counter Bond Index (see "The Index.") The
remainder of the Fund's assets will be invested in U.S. Government securities
with remaining maturities of less than 270 days at the time of purchase by
the Fund, and in commercial paper, money market mutual funds and other money
market instruments rated in the top two rating categories by a nationally
recognized statistical rating organization, and in repurchase agreements.
The Fund may also borrow money and enter into reverse repurchase agreements,
primarily to satisfy redemption requests (see "Delayed Settlement," below).
It is intended that the Fund will invest to mirror the Index under all market
conditions and that the Fund will, therefore, not take defensive positions in
order to attempt to minimize losses during adverse market conditions.
THE INDEX. The Counter Bond Index ("Index") is a portfolio of IO securities
issued under the SMBS programs of FNMA and FHLMC. If GNMA initiates SMBS
programs, the Index will include IO's from GNMA programs if they meet the
criteria of the Index. The Index was created by the Adviser. The Index is
systematically adjusted quarterly to drop and add IO securities based on a
pre-determined formula designed to make the Index continually reflect the
current interest rate environment. For information regarding the rules and
past performance of the index, please see Appendix A.
A NOTE ABOUT FNMA AND FHLMC. FNMA is a government-sponsored corporation owned
entirely by private stockholders. FNMA is under the general regulation of the
Department of Housing and Urban Development. FNMA purchases conventional
mortgages (i.e.,mortgages that are not insured or guaranteed by any
government agency) from approved organizations such as commercial banks,
state and federal savings and loan associations, mutual savings banks, credit
unions and mortgage bankers. FNMA issues certificates ("MBS certificates")
collateralized by pools of these mortgages. The certificates pass through
principal and interest payments on the underlying pool of mortgages to
certificate holders.
SMBS certificates are typically backed by a trust holding MBS certificates.
Scheduled monthly payments of principal and interest on MBS securities are
guaranteed by FNMA. Its obligations under SMBS certificates are primary and
on a par with its obligations regarding the underlying MBS
certificates -- i.e., FNMA is obligated to pass through payments on the
underlying instruments regardless of whether it has received those payments.
The obligations of FNMA, however, are not backed by the full faith and credit
of the U.S. Treasury.
6
<PAGE> 8
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
POLICIES AND STRATEGIES
CONTINUED
FHLMC is a corporate instrumentality of the U.S. Government. Its stock is
owned by the twelve Federal Home Loans Banks. FHLMC issues various types of
"pass-through securities" representing beneficial ownership interests in
discrete pools of mortgage-backed securities, including GNMA pass-through
certificates and other mortgage-related pass-through securities. For its IO
classes of securities, FHLMC guarantees to each holder the timely payment of
interest at the applicable "coupon rate" for the IO. Securities issued by
FHLMC are not backed by the full faith and credit of the U.S. Treasury.
Neither agency makes any guarantee as to the rate of principal repayment, or
guarantees that a specific total dollar amount will be paid on an IO or that
the yield will equal the purchase price of the IO.
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:
MARKET AND LIQUIDITY RISK: There can be no assurance of a secondary market
for any specific IO. If a secondary market does exist, there can be no
assurance of the degree of liquidity of this market. Therefore, certain IO's
held by the Fund may have a limited secondary market, have little or no
liquidity and experience significant price volatility. Generally, the longer
the remaining term of such an IO, the greater the price volatility of the
security. The price volatility of IO's held by the Fund would cause
volatility in the Fund's share price to the extent of its holdings in such
IO's and limited liquidity of these securities can make it difficult for the
Fund to sell the IO's at a reasonable price. Due to these risks, the Fund's
investments in IO's and other securities that cannot be disposed of at
approximately the value the Fund has placed on them in the ordinary course of
business within 7 days are limited to 15% of the Fund's net assets.
YIELD RISK: Yield (or net interest) to the Fund will represent interest
received less amortization of its portfolio securities. The Fund's yield will
depend almost entirely on the yield of its IO investments. The effective
yield on an IO depends upon its purchase price and the rate at which
principal payments reduce the outstanding principal balance of the underlying
mortgage loans. The yields on IO's are extremely sensitive to prepayment
experience on the underlying mortgage loans, including the timing of
principal payments. If prepayments or the timing of principal payments varies
from what was anticipated, the yield on an IO can be significantly affected
even if the average repayment rate is consistent with expectations. In
general, the earlier the repayment of any portion of principal, the greater
the effect on yield to maturity.
PREPAYMENT RISK: The interest payments on IO's are related to the remaining
balance of the underlying mortgage loans. If the balances of mortgages
underlying an IO are repaid faster than anticipated (i.e., accelerated
prepayments), the yield to the Fund will decrease. Moreover, prepayments
could increase to a level that could cause the Fund to have a negative yield,
resulting in a decline in share value. Prepayments may be caused by
refinancing, homeowner turnover, default, and curtailments. Although
prepayments tend to increase with declining interest rates and decrease as
interest rates rise, there can be no assurance that this will occur or that
IO securities will increase in value as prepayments decline during periods of
rising long-term interest rates.
RESIDENTIAL HOUSING PRICE RISK: While mortgage prepayment rates are affected
primarily by homeowner refinancings, housing turnover also affects rates of
prepayment. When turnover increases, prepayment levels increase. Therefore,
rising home prices, which can increase turnover levels, could create the
potential for prepayment rates to increase in periods of rising domestic
long-term interest rates. In addition, falling home prices could increase the
level of mortgage defaults. Since defaults are a contributor to mortgage
prepayments, in periods of rapidly falling home prices, rising default levels
will cause an increase in prepayments levels.
7
<PAGE> 9
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PRINCIPAL RISKS OF INVESTING IN THE FUND
CONTINUED
FOCUSED PORTFOLIO RISK: Because the Fund's portfolio will be so heavily
invested in IO's, factors affecting IO's will affect the Fund much more
substantially than if its portfolio were more diversified.
DELAYED SETTLEMENT: In some cases, settlement for an IO sold by the Fund may
be delayed for two weeks or more while the necessary computations about the
underlying mortgage pool necessary to establish the pool's remaining
principal amount as of the settlement date are determined by FNMA or FHLMC.
If the Fund sells such IO's to meet redemption requests, it may need to
borrow money or enter into reverse repurchase agreements to satisfy
redemptions. These borrowings involve added costs to the Fund.
SUITABILITY CONSIDERATIONS: Because of the risk factors of IO investments and
their unique characteristics compared with other fixed income investments,
the Fund will sell its shares only to Accredited Investors, as defined in
Regulation D under the Securities Act of 1933. Investors should have
sufficient knowledge and experience in financial and business matters to
evaluate the characteristics of IO securities and the affect of a Fund
investment on their overall investment portfolio. No investor should purchase
shares of the Fund unless he or she understands and has sufficient financial
resources to bear the market, liquidity, prepayment, yield, focused portfolio
and other risks associated with an investment in the Fund.
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 financial institutions, mortgage
servicers, and SMBS issuers which collect and/or report interest and
principal data on the underlying mortgages of the securities in which the
Fund invests.
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 or
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.
8
<PAGE> 10
[logo]
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
----------------------------------------
HOW NAV IS CALCULATED
The NAV for each class of
shares is calculated by
adding the total value of
the Fund's investments and
other assets attributable
to each class, subtracting
the liabilities for that
class, and then dividing
that figure by the number
of outstanding shares of
the class:
NAV =
Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
---------------------------
Per share net asset value (NAV) for
each class of shares of the Fund is
determined and its shares are priced
at the close of regular trading on the
New York Stock Exchange, normally at
4:00 p.m. Eastern time on days the
Exchange is open.
Your order for purchase or sale of a
class of shares is priced at the next
NAV for that class calculated after
your order is accepted by the Fund
plus any applicable sales charge as
noted in the section on "Distribution
Arrangements/Sales Charges." This is
what is known as the offering price.
The Fund's securities are generally
valued at current market prices. If
market quotations are not available,
prices will be based on fair value as
determined by the Fund's Trustees.
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT
INVESTMENT INVESTMENT
<S> <C> <C>
THE FUND $100,000 $50,000
</TABLE>
All purchases must be in U.S. dollars.
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.
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.
9
<PAGE> 11
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
INVESTMENTS MAY BE MADE ONLY 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 1-877-833-7116 to obtain
instructions regarding the bank account number to which the funds should be
wired and other pertinent information.
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DIVIDENDS AND DISTRIBUTIONS
The Fund will pay any dividends 30 days after the end of each dividend
quarter. All dividends and distributions will be automatically reinvested
unless you request otherwise. There are no sales charges for reinvested
dividends and distributions. Capital gains are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION.
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10
<PAGE> 12
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING 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 your proceeds
will be sent either by
U.S. mail or wire transfer
within three business days
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.
-------------------------------------------
BY TELEPHONE (unless you have declined telephone sales privileges)
1. Call 1-877-833-7116 with instructions as to how you wish to receive your
funds (U.S. mail or wire transfer).
BY MAIL
1. Call 1-877-833-7116 to request redemption forms or write a letter of
instruction indicating:
- the name of the Fund and your account number
- amount you wish to redeem
- address where your check should be sent
- account owner(s) signature
2. Mail to: The Counter Bond Fund, P.O. Box 182230, Columbus, OH 43218-2230
WIRE TRANSFER
Call 1-877-833-7116 to request a wire transfer.
Note: Your financial institution may charge a wire fee.
If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank within three business days.
11
<PAGE> 13
SHAREHOLDER INFORMATION
GENERAL POLICIES ON REDEEMING SHARES
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect the Fund's
operations. If the Fund deems it advisable for the benefit of all
shareholders, redemption in kind will consist of securities equal in market
value to your shares. When you convert these securities to cash, you will pay
brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $50,000 due to redemptions, the Fund may ask you
to increase your balance. If it is still below $50,000 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
The Fund imposes no initial or deferred sales charges on an investment in
Fund shares. It also has adopted no 12b-1 plan that would impose
distribution-related charges on the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives less expenses, is paid out in the form of
dividends to its shareholders. Income dividends, if any, are usually paid
quarterly 30 days after the end of a dividend quarter. Capital gains for the
Fund are distributed at least annually. Dividends and distributions are
treated in the same manner for federal income tax purposes whether you
receive them in cash or in additional shares.
Dividends are taxable as ordinary income. If the Fund designates a
distribution as a long-term capital gains distribution, it will be taxable to
you at your long-term capital gains rate, regardless of how long you have
owned your Fund shares.
Some dividends are taxable in the calendar year in which they are declared,
even though your account statement may reflect them as being distributed in
the following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a tax penalty on certain pre-retirement distributions from
retirement accounts. Consult your tax adviser about the federal, state and
local tax consequences in your particular circumstances.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with
IRS rules or shareholders that are subject to back-up withholding. To avoid
withholding, make sure you provide your correct Tax Identification Number
(Social Security Number for most investors) on your account application.
12
<PAGE> 14
[LOGO]
FUND MANAGEMENT
- -
THE INVESTMENT ADVISER
Proprietary Capital LLC ("Adviser"), a registered investment adviser located
at 1675 Larimer Street, Suite 425, Denver, Colorado 80202 serves as
investment adviser to the Fund. The Adviser, incorporated in 1997 in the
State of Delaware, specializes in managing portfolios of mortgage-related
securities with concentration in those securities which exhibit greater
sensitivity to changes in prepayment levels. The two main principals of the
Adviser have over 32 years of experience in dealing with institutional
mortgage products. As of June, 30, 1999, assets managed on a discretionary
and non-discretionary basis are approximately $45 million. The Fund is the
Adviser's first registered investment company client.
- -
PORTFOLIO MANAGERS
The Fund's portfolio managers are Bryan Roche and Craig Cohen, both managing
partners of the Adviser.
Mr. Roche has over 16 years' experience in underwriting, sales, trading,
financing and operations involving mortgage-related securities and their
derivatives, corporate, government and municipal bonds. Mr. Roche, a graduate
of Deerfield Academy and of the University of Colorado (1982), began his
career at Kidder Peabody, in New York City, where he was a proprietary U.S.
Government bond trader. He joined Boettcher & Co. in Denver, Colorado as
Senior Vice President, supervising institutional/retail fixed income
departments. When Boettcher was purchased by Kemper Securities, he became
Kemper's Institutional Fixed-Income Sales Manager. Mr. Roche founded
Summitview Capital, a broker-dealer specializing in fixed income securities,
in 1992 and negotiated this firm's sale to Piper Jaffray, Inc in 1995, where
he became Managing Director of Fixed Income.
Mr. Cohen, a 1983 graduate of the University of Florida, began his financial
career at PaineWebber, in Los Angeles, in 1984, where he worked with
institutions on mortgage-related securities transactions. He continued in
this field after joining Dean Witter Reynolds in 1985, where he was the
firm's top mortgage salesman from 1986-88 and also began an extensive effort
to build mortgage-related securities pricing models. Joining Oppenheimer &
Co. in 1990, he managed high-yield mortgage-related securities portfolios and
developed strategies for hedging servicing rights with derivative
mortgage-related securities. In 1995, he joined Kemper Securities where he
was involved in sales of mortgage-related securities to institutional
customers and developed a database and monthly publication regarding
prepayments. Over the past five years, Mr. Cohen has developed models for
pricing mortgage-related securities in different interest rate environments,
as well as a database for evaluating the prepayment behavior of homeowners.
- -
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.
13
<PAGE> 15
[LOGO]
CAPITAL STRUCTURE
- -
The Coventry Group was organized as a Massachusetts business trust on January
8, 1992 and overall responsibility for the management of the Funds is vested
in the Board of Trustees. Shareholders are entitled to one vote for each full
share held and a proportionate fractional vote for any fractional shares held
and will vote in the aggregate and not by series or class except as otherwise
expressly required by law.
APPENDIX A
THE INDEX
The Index was introduced by Proprietary Capital LLC on July 1, 1999. The
historical performance of the Index shown in the table below represents
back-tested data from Lehman Brothers for the period from March 31, 1994
through June 30, 1999 and actual Index data for the period from July 1, 1999
to September 30, 1999. A summary of the annualized total returns are as
follows:
<TABLE>
<CAPTION>
10-YEAR TREASURY 10-YEAR TREASURY COUNTER BOND INDEX
PERIOD YIELD CHANGE TOTAL RETURN TOTAL RETURN
<S> <C> <C> <C>
1/99 - 9/99 1.23% -5.97% 49.96%
-----------------------------------------------------------------------------------------------
1998 -1.09% 12.63% -26.45%
-----------------------------------------------------------------------------------------------
1997 -0.68% 10.87% -3.82%
-----------------------------------------------------------------------------------------------
1996 0.85% 0.12% 37.45%
-----------------------------------------------------------------------------------------------
1995 -2.25% 23.96% -28.84%
-----------------------------------------------------------------------------------------------
4/94 - 12/94 1.08% -2.48% 30.16%
</TABLE>
THE INDEX IS NOT THE PERFORMANCE OF THE COUNTER BOND FUND OR OF ANY PORTFOLIO
ACTUALLY MANAGED BY THE ADVISER. Thus, the Index does not reflect factors
that can affect the performance of a managed account or a fund, such as cash
reserve levels, amounts available for investment and levels of redemptions at
various times. The quoted performance of the Index is not adjusted to reflect
any costs or expenses associated with investing in the Fund nor do the
performance figures necessarily reflect any investment restrictions imposed
by law on registered mutual funds. If they did, total returns would have been
lower. Furthermore, historical performance is not indicative of future
performance of either the Index or The Counter Bond Fund.
14
<PAGE> 16
CAPITAL STRUCTURE
- -
ABOUT THE INDEX. The Counter Bond Index for the third quarter of 1999 will be
comprised of 28 different securities. As of July 15, 1999, these 28
securities represented approximately $27.5 billion outstanding par amount,
compared to the entire SMBS universe made up of a total of 301 different
securities amounting to approximately $75 billion outstanding par amount. The
Index, therefore, represents approximately 37% of the universe (in par
amount) while comprising only 9.3% of the total securities.
INDEX RULES -- CRITERIA, SECURITY SELECTION AND TOTAL RETURN. The selection
of securities in and total return calculations of the Index follow the
process described below:
1) The Index will a be rolling index, reset on a quarterly basis, thus
designed to represent current market interest rates.
2) Closing prices for FNMA 30-year pass-through certificates, as quoted on
Bloomberg Financial Services, from the last business day of the previous
calendar quarter will be used to determine Coupon Rates that will
comprise the Index for the current calendar quarter.
3) Normally, four Coupon Rates (evenly weighted as to their contribution to
the Index) will be set for the Index each quarter based on the following
rules:
A) The 2 coupons which close above and closest to 100 (premium), and
B) The 2 coupons which close below and closest to 100 (discount).
4) The securities representing each Coupon Rate will be selected from the
most liquid and widely-quoted Interest-Only ("IO") securities included
in reports supplied monthly by the major IO market makers.
A) In periods of rapidly changing interest rates, there is the potential
for no securities to exist for a given coupon rate. During these
instances, 3 Coupon Rates will be used for Index construction.
5) The Total Return for each security will be calculated as follows:
(Ending Value minus Beginning Value)/Beginning Value
A) Beginning Value = (Beginning Factor x $10,000,000) x (Beginning
Price/100) + Accrued Interest
B) Ending Value = (New Factor x $10,000,000) x (Ending Price/100) +
Interest Payment + Accrued Interest
C) All securities are assumed to settle on the 12th day of each calendar
month
6) Total Return for each Coupon Rate will be determined by the arithmetic
average of the total returns of each security within its coupon rate.
7) When securities from four Coupon Rates comprise the Index, the Total
Return for the Index will be the arithmetic average of the 4 coupon
rates.
8) During periods when securities from 3 Coupon Rates are used to make up
the Index, a 50% weighting will be given to the sole discount or premium
Coupon Rate, and a 25% weighting for each other Coupon Rate.
15
<PAGE> 17
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders will contain
additional information on the Fund's investments. In the annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
YOU CAN OBTAIN 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 COUNTER BOND FUND
P.O. BOX 182230
COLUMBUS, OHIO 43218-2230
TELEPHONE: 1-877-833-7116
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:
- - For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 call 1-800-SEC-0330 for information.
- - Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6526
<PAGE> 18
THE COUNTER BOND FUND
an
Investment Portfolio of
The Coventry Group
Statement of Additional Information
October 9, 1999
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the prospectus for The Counter Bond Fund
("Fund") dated October 9,1999 ("Prospectus"). The Fund is a separate
investment portfolio of The Coventry Group (the "Group"), an open-end management
investment company. This Statement of Additional Information is incorporated in
its entirety into the Prospectus. Copies of the Prospectus may be obtained by
writing the Fund at 3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning
toll free 1-877-833-7116.
<PAGE> 19
TABLE OF CONTENTS
-----------------
Page
----
THE COVENTRY GROUP...........................................................1
INVESTMENT OBJECTIVE AND POLICIES............................................1
Additional Information on Portfolio Instruments.....................1
Investment Restrictions............................................15
Portfolio Turnover.................................................17
NET ASSET VALUE.............................................................17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................19
Matters Affecting Redemption.......................................19
MANAGEMENT OF THE GROUP.....................................................20
Trustees and Officers..............................................20
Investment Adviser and Sub-Adviser.................................24
Portfolio Transactions.............................................26
Banking Laws.......................................................28
Administrator......................................................28
Distributor........................................................32
Custodian..........................................................35
Transfer Agency and Fund Accounting Services.......................36
Independent Auditors...............................................37
Legal Counsel......................................................37
ADDITIONAL INFORMATION......................................................37
Description of Shares..............................................37
Vote of a Majority of the Outstanding Shares.......................38
Additional Tax Information.........................................38
Yields and Total Returns...........................................48
Performance Comparisons............................................51
Principal Shareholders.............................................52
Miscellaneous......................................................52
FINANCIAL STATEMENTS........................................................53
APPENDIX....................................................................A-1
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
THE COUNTER BOND FUND
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. This Statement of Additional
Information deals with the portfolio called The Counter Bond Fund ("Fund").
Proprietary Capital LLC ("Adviser") serves as investment adviser to the Fund.
Much of the information contained in this Statement of Additional Information
expands upon subjects discussed in the Prospectus of the Fund. Capitalized terms
not defined herein are defined in the Prospectus. No investment in Shares of the
Fund should be made without first reading the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objective and policies
of the Fund as set forth in the Prospectus.
INTEREST-ONLY SECURITIES. Stripped Mortgage-Backed Securities ("SMBS")
were first introduced by the Federal National Mortgage Association ("FNMA") in
1986. Since that date, as of June 30, 1999, approximately $195 billion of
government agency-backed SMBS certificates have been issued, with approximately
$75 billion currently outstanding. Since inception, the average issue size,
representing 406 issues, has been $472,493,580. In recent years, new issue sizes
have ranged from $1,000,000,000 to $4,000,000,000. For the six months ended June
30, 1999, approximately $9,600,000,000 of SMBS certificates have been issued in
a total of seven trusts.
Each SMBS is usually structured into two independent classes, each
receiving different proportions of the interest and principal distributions on a
pool of mortgage assets. The predominant structure is for one class to receive
all of the interest payments from the underlying mortgage assets
("Interest-Only" or "IO" class), while the other class receives all of the
principal payments ("Principal-Only" or "PO" class).
The yield on IO securities, therefore, derives from interest payments
on the remaining outstanding balance of a specific pool of mortgage collateral
and thus is dependent on the size of the remaining balance and the rate of
decline as well as the timing of declines in that balance. Generally speaking, a
decline in long-term interest rates will cause an increase in the rate at which
the outstanding mortgage balance underlying an SMBS declines, as homeowners
<PAGE> 21
refinance their mortgages at an increased pace and housing turnover increases.
When the mortgage balance declines more rapidly than anticipated, the interest
payments collected from the mortgage pool will be less than anticipated, thus
driving the market price of IO securities lower as yield expectations decrease.
Conversely, periods of rising long-term interest rates generally
decrease the rate at which the outstanding mortgage balance declines, as
refinancing activity and housing turnover slow down. When the mortgage balance
declines less rapidly than anticipated, investors will, over time, receive a
larger amount of interest than anticipated from the IO and the market price of
IO securities will tend to rise with the expectation of increased yield.
New issues of SMBS securities are offered at various times during a
given year. Trading in SMBS securities in the secondary market occurs on a
regular basis. IO securities regularly trade in amounts of $5,000,000 to
$50,000,000 on most trading days. The bid-to-offer spread can range from 4/32's
to 16/32's, with the largest and most recent issues offering the greatest
liquidity. At least 12 major Wall Street firms are active market makers in IO
securities on a daily basis. In addition, dealers provide daily closing prices
on the most liquid IO securities.
RISKS OF IO SECURITIES.
INVESTOR SUITABILITY REQUIREMENTS. Because of the risks of investing in
a portfolio consisting primarily of IO's, only "accredited investors," as
defined in rules under the Securities Act of 1933, as amended from time to time,
may invest in the Fund. IO securities have unique characteristics when compared
with traditional fixed income investments. Investors in the Fund should have
sufficient knowledge and experience in financial and business matters to
evaluate the characteristics of IO securities and measure the degree to which
any investment in the Fund may alter the overall behavior of their investment
portfolio. No investor should purchase the Fund unless he or she understands and
has sufficient financial resources to bear the prepayment, yield, market,
liquidity, and other risks associated with the holdings of the Fund.
LIMITED TRADING MARKET. Although the Adviser's experience has indicated
that the secondary market provided by at least 12 Wall Street firms (see
"Interest-Only Securities") provides ready liquidity, there can be no assurance
of a secondary market for any specific IO security in which the Fund has
invested at any point in time. Moreover, if a secondary market does exist, there
can be no assurances of the degree of liquidity in this market. In some cases,
certain IO securities may have a more limited secondary market, have little or
no liquidity, and experience significant price volatility. Generally, the longer
the remaining term of such an IO security, the greater the price volatility
compared to a security with a shorter remaining term. No investor should invest
in the Fund unless he or she understand and is able to bear the risk that
particular holdings of the Fund may not be readily saleable, that the value of
the Fund's holdings will fluctuate over time, and that such fluctuations may be
significant and could result in losses to the investor.
PREPAYMENT RISK. The Fund may invest only in IO securities issued under
the SMBS programs of FNMA and FHLMC (and GNMA if such a program becomes
available). The interest payments received by holders of IO securities depend on
normal amortization payments
<PAGE> 22
and prepayments of the underlying mortgage loans. Normal amortization is defined
as any principal payment which is predetermined by its amortization schedule.
Prepayments are defined as any return of principal in excess of amounts
determined by normal amortization. Prepayments are caused by housing turnover,
homeowner refinancing, default, and curtailments. The Fund's yield will be
almost totally dependent on the yield of its IO securities holdings. The yields
on IO securities are extremely sensitive to prepayment experience on the
underlying mortgage loans. Investors should fully consider the associated risks,
including the risk that, due to prepayments, there is no assurance that the Fund
will fully recover its initial investment in an IO security. The effective yield
of an IO security depends on a number of factors, including: (1) the price at
which it was purchased; (2) the rate at which principal payments reduce the
outstanding principal balance of the underlying mortgage loans; and (3) the
timing in the changes in the rate of repayment of principal payments. In
general, the earlier the payment of principal, the greater the effect on the
yield to maturity. Thus, the timing of the changes in the rate of principal
payments can significantly affect the total yield to an investor in an IO
security, even if the average rate of principal repayments is consistent with
expectations.
Investors in the Fund should be aware that the prepayment behavior of
homeowners changes over time. There are no assurances that homeowners may behave
in the future as they have in the past. Therefore, there are no assurances that
prepayments will decrease in periods of rising long-term interest rates.
Ultimately, there are no assurances that IO securities will rise in price in
periods of rising long-term interest rates. An increase in prepayments on the
Fund's IO holdings will decrease the amount of interest received and lower the
overall yield of the Fund. If prepayment levels increase to certain levels, the
yield of the Fund could be negative, which effectively is a loss of principal.
If the Fund experiences a continued period of generating negative yields,
investors face the risk of not being able to recover their initial investment
over time. Investors must be aware that such a risk exists and should have the
financial resources to bear such a risk.
Sales by the Fund of certain IO securities may not settle until the
remaining mortgage balance of the underlying collateral, as of the sale date, is
known. Thus, to satisfy redemption requests at certain times, the Fund may need
to borrow money to satisfy redemption requests for the period until sales of
certain of its portfolio securities have settled. Such borrowings will involve
costs to the Fund. (See "Borrowings; Reverse Repurchase Agreements," below.)
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities (collectively, "U.S. Government
Obligations"). Obligations of certain agencies and instrumentalities of the U.S.
Government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others, such as securities issued
by FNMA and FHLMC, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Fund will invest in the obligations of such
agencies or instrumentalities only when the Adviser believes that the credit
risk with respect thereto is minimal.
<PAGE> 23
BANK OBLIGATIONS. The Fund may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Fund will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic and foreign banks and savings and
loan associations, provided that (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Bank Insurance Fund or the Savings Association Insurance Fund.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
The Fund may purchase commercial paper consisting of issues rated at
the time of purchase within the three highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO"). The Fund may also
invest in commercial paper that is not rated but is determined by the Adviser to
be of comparable quality.
RESTRICTED AND ILLIQUID SECURITIES. Certain of the Fund's investments
may not be readily marketable, including certain of its investments in
restricted securities. Restricted securities are subject to restrictions on
resale under federal securities law. Under criteria established by the Fund's
Trustees, certain restricted securities are determined to be liquid. To the
extent that restricted securities are not determined to be liquid, the Fund will
limit their purchase, together with other illiquid securities including any IOs
determined not to be readily marketable, non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice, to no more than 15% of its net assets.
Restricted securities in which the Fund may invest may include
commercial paper issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities law, and is generally sold
to institutional investors, such as the Fund, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus
<PAGE> 24
providing liquidity. The Adviser believes that Section 4(2) commercial paper and
possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees of the Fund are quite liquid. The Fund
intends, therefore, to treat the restricted securities which meet the criteria
for liquidity established by the Trustees, including Section 4(2) commercial
paper, as determined by the Adviser, as liquid and not subject to the investment
limitations applicable to illiquid securities.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities issued by the other investment companies that are money market funds
operating in accordance with Rule 2a-7 under the 1940 Act. The Fund intends to
limit these 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 the Fund: (a) not more than 3% of the total
outstanding securities of any one investment company will be owned by the Fund
and its affiliates; and (b) such other fund shall not be obligated to redeem its
shares held by the Fund in an amount exceeding 1% of such other fund's total
outstanding securities during any period of less than 30 days. As a shareholder
of another investment company, the Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Investment companies in which the 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 the Fund may be subject to
repurchase agreements. These transactions permit the 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,
the Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation and registered broker-dealers and other financial
institutions which the 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 the Fund plus interest negotiated on the
basis of current short-term rates, which may be more or less than the rate on
the underlying portfolio securities. The seller under a repurchase agreement
will be required to maintain continually the value of collateral held pursuant
to the agreement at not less than the repurchase price (including accrued
interest). 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 the 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 Fund's securities subject to repurchase agreements and
under federal laws, a court of competent jurisdiction would rule in favor of the
Group if presented with the question. Securities subject to repurchase
agreements will be held by the Fund's custodian or another qualified
<PAGE> 25
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by the Fund under the Investment Company
Act of 1940 ("1940 Act").
LOANS OF PORTFOLIO SECURITIES. The Fund may lend securities if such
loans are secured continuously by liquid assets consisting of cash, U.S.
Government securities or other liquid 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 Fund may pay reasonable finders' and
custodial fees in connection with loans. In addition, the Fund will consider all
facts and circumstances including the creditworthiness of the borrowing
financial institution, and the Fund will not lend their securities to any
director, officer, employee, or affiliate of the 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.
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS. The Fund may
purchase securities on a delayed delivery or "when-issued" basis and enter into
firm commitment agreements (transactions whereby the payment obligation and
interest rate are fixed at the time of the transaction but the settlement is
delayed). It is very common for mortgage-related securities to settle on a
delayed basis in order for the underlying mortgage loans' new principal balance
to be announced. The Fund, as purchaser, assumes the risk of any decline in
value of the security beginning on the date of the agreement or purchase, and no
interest accrues to the Fund until it accepts delivery of the security. The Fund
will not use such transactions for leveraging purposes and, accordingly, will
segregate cash, cash equivalents, or liquid securities in an amount sufficient
to meet its payment obligations thereunder. Although these transactions will not
be entered into for leveraging purposes, to the extent the Fund's aggregate
commitments under these transactions exceed its holdings of cash and securities
that do not fluctuate in value (such as short-term money market instruments),
the Fund temporarily will be in a leveraged position (i.e., it will have an
amount greater than its net assets subject to market risk). Should market values
of the Fund's portfolio securities decline while the Fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were it
not in such a position. As the Fund's aggregate commitments under these
transactions increase, the opportunity for leverage similarly increases. The
Fund will not borrow money to settle these transactions and, therefore, will
liquidate other portfolio securities in advance of settlement if necessary to
generate additional cash to meet its obligations thereunder. Securities
purchased on a when-issued or delayed delivery basis are recorded as an asset
and are subject to changes in the value based on changes in the market value. On
all purchase transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to do so may cause the Fund to miss a price or
yield considered to be advantageous.
<PAGE> 26
BORROWING; REVERSE REPURCHASE AGREEMENTS. The Fund may borrow subject
to the requirement of the 1940 Act that the Fund must continuously maintain 300%
asset coverage (that is, total assets including borrowings, less liabilities
exclusive of borrowings) for its borrowings, including reverse repurchase
agreements. The Fund will borrow, primarily to satisfy redemption requests in
cases when the delay in settlement on certain IO securities which the Adviser
has determined to sell makes the Fund unable timely to satisfy those requests
from the proceeds of sales of portfolio securities. The Fund will not borrow to
purchase portfolio securities ("leveraging"). The Fund may borrow from banks, or
it may engage in borrowing through entering into reverse repurchase agreements,
which involve the sale of a security by the Fund and its agreement to repurchase
the security at a specified time and price. The Fund will maintain in a
segregated account with its custodian cash, cash equivalents, or liquid
securities in an amount sufficient to cover its obligations under reverse
repurchase agreements with broker-dealers (but not with banks). In accordance
with applicable limits under the 1940 Act, the Fund will limit its borrowings,
including reverse repurchase agreements, to no more than one-third of its total
assets, including the proceeds of the borrowing.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund:
1. The Fund has elected to qualify as a diversified series of the Trust.
Additionally, the Fund may not:
2. concentrate its investments in a particular industry, such "concentration" to
be determined in accordance with the Investment Company Act of 1940, as amended,
and rules, regulatory policies and regulatory interpretations related thereto,
as amended or modified from time to time.
3. borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
4. issue senior securities, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
5. engage in the business of underwriting securities issued by others, except to
the extent that a Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities;
6. purchase or sell real estate, which does not include securities of companies
which deal in real estate or mortgages or investments secured by real estate or
interests therein, except that the Fund reserves freedom of action to hold and
to sell real estate acquired as a result of the Fund's ownership of securities;
<PAGE> 27
7. purchase physical commodities or contracts relating to physical commodities;
8. make loans to other persons, except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase of
debt instruments or interests in indebtedness in accordance with a Fund's
investment objective and policies may be deemed to be loans.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less. Portfolio turnover is dictated by the quarterly reset of the
Counter Bond Index (see "Investment Objective, Policies and Strategy -- The
Index" in the Prospectus). The turnover rate for the Fund is not expected to
exceed 100% but it may be higher if the turnover in the Index so requires.
NET ASSET VALUE
The net asset value of Shares of the Fund is determined and the Shares
are priced as of the Valuation Time on each Business Day of the Company. A
"Business Day" constitutes any day on which the New York Stock Exchange (the
"NYSE") is open for trading and any other day except days on which there are not
sufficient changes in the value of the Fund's portfolio securities that the
Fund's net asset value might be materially affected and days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received. Currently, the NYSE is closed on New Year's Day, Martin Luther King,
Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The Fund's Accounting Agent will price the Fund's holdings of IO's by
obtaining daily closing prices from at least four firms that make markets in
IO's and by averaging the prices so obtained.
Other debt securities are generally valued by pricing agents based on
valuations supplied by broker-dealers or calculated by electronic methods. Debt
securities with remaining maturities of 60 days or less will be valued at their
amortized cost. Other securities and assets for which quotations are not readily
available, including restricted securities and securities purchased in private
transactions, are valued at their fair value in the best judgment of the Adviser
under the supervision of the Group's Board of Trustees.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Fund are the existence of restrictions upon the
sale of the security by the Fund, the absence of a market for the security, the
extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
<PAGE> 28
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 Fund 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 Adviser 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 Fund 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 the Fund during any period when (a) trading
on the New York Stock Exchange (the "Exchange") is restricted by applicable
rules and regulations of the Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Commission has by order
permitted such suspension for the protection of security holders of the Group or
the Fund, or (d) the Commission has determined that an emergency exists as a
result of which (i) disposal by the Group or the Fund of securities owned by it
is not reasonably practical, or (ii) it is not reasonably practical for the
Group or the Fund to determine the fair value of its net assets.
The Group may redeem Shares of the Fund involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940 Act.
(See "General Policies on Redeeming Shares" in the Prospectus.)
<PAGE> 29
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 Principal Occupation
Name, Address & Age With the Group During Past 5 Years
--------------------------- ------------------- ------------------------
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Walter B. Grimm* Chairman, President and Trustee From June 1992 to present, employee
3435 Stelzer Road of BISYS Fund Services, from 1987 to
Columbus, OH 43219 June 1992, President of Leigh
Age: 53 Investments (investment firm).
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Maurice G. Stark Trustee Retired. Until December 31, 1994,
505 King Avenue Vice President-Finance and
Columbus, Ohio 43201 Treasurer, Battelle Memorial
Age: 63 Institute (scientific research and
development service corporation).
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Michael M. Van Buskirk Trustee From June 1991 to present, Executive
37 West Broad Street Vice President of The Ohio Bankers'
Suite 1001 Association (trade association);
Columbus, Ohio 43215 from September 1987 to June 1991,
Age: 51 Vice President - Communications, TRW
Information Systems Group (electronic
and space engineering).
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
John H. Ferring IV Trustee From 1979 to present, President and
105 Bolte Lane owner of Plaze, Inc., St. Clair,
St. Clair, Missouri 63077 Missouri.
Age: 46
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
J. David Huber Vice President From June 1987 to present,
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
Position(s) Held Principal Occupation
Name, Address & Age With the Group During Past 5 Years
--------------------------- ------------------- ------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 52
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Jennifer J. Brooks Vice President From October 1988 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 33
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Gary Tenkman Treasurer From April 1998 to present, employee
3435 Stelzer Road of BISYS Fund Services; from
Columbus, Ohio 43219 September 1990 to March 1998,
Age: 29 employee of Ernst & Young, LLP.
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
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: 48 1996, Independent Consultant; from
September 1989 to September 1995, Senior
Vice President, AmSouth Bank, N.A.
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Alaina V. Metz Assistant Secretary From 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May 1989
Columbus, Ohio 43219 to June 1995, employee of Alliance
Age: 31 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 Fund Services may
receive fees pursuant to the
<PAGE> 31
Distribution and Shareholder Services Plan and the Administrative Services Plan.
BISYS Fund Services Ohio, Inc. ("BISYS") receives fees from the Fund for acting
as administrator and transfer agent and for providing certain fund accounting
services. Messrs. Huber, Tenkman, Stevens, Grimm, Ms. Metz and Ms. Brooks are
employees of BISYS.
Trustees of the Group not affiliated with BISYS or BISYS Fund Services
receive from the Group an annual fee of $1,000, plus $2,250 for each regular
meeting of the Board of Trustees attended and $1,000 for each special meeting of
the Board attended in person and $500 for other special meetings of the Board
attended by telephone, and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Trustees who are affiliated with BISYS
or BISYS Fund Services do not receive compensation from the Group.
INVESTMENT ADVISER
Investment advisory services for the Funds are provided by Proprietary
Capital LLC, 1675 Larimer Street, Suite 425, Denver Colorado 80202. Pursuant to
an Investment Advisory Agreement dated as of October 1, 1999 (the "Agreement"),
the Adviser has agreed to provide investment advisory services to the Fund as
described in the Prospectus. For the services provided pursuant to the
Agreement, the Fund pays the Adviser a base fee computed daily and paid monthly,
at an annual rate, calculated as a percentage of the Fund's average daily net
assets, of 0.80%. The Adviser may periodically waive all or a portion of its
advisory fee to increase the net income of the Fund available for distribution
as dividends.
Unless sooner terminated, the Agreement will continue in effect until
September 30, 2001, and from year to year thereafter, if such continuance is
approved at least annually by the Group's Board of Trustees or by vote of a
majority of the outstanding Shares of the Fund and a majority of the Trustees
who are not parties to the Agreement or interested persons (as defined in the
1940 Act of any party to the Agreement by votes cast in person at a meeting
called for such purpose. (See "Vote of a Majority of the Outstanding Shares,"
below). The Agreement is terminable at any time on 60 days' written notice
without penalty by the Trustees, by vote of a majority of the outstanding Shares
of the Fund, or by the Adviser. The Agreement also terminates automatically in
the event of any assignment, as defined in the 1940 Act.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Agreement, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties, or from
reckless disregard by the Adviser of its duties and obligations thereunder.
The Agreement was approved by both the Trustees and the independent
Trustees at a meeting held August 31, 1999.
PORTFOLIO TRANSACTIONS
<PAGE> 32
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with the Fund's investment objective and restrictions, which
securities are to be purchased and sold by the Fund, and which brokers are to be
eligible to execute the Fund's portfolio transactions. The Fund's purchases and
sales of IO's and other portfolio will generally be in the over-the-counter
market. Such purchases are generally principal transactions with dealers. With
respect to the over-the-counter market, the Adviser, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
Purchases from market makers may include the spread between the bid and asked
price. Occasionally, portfolio securities may be purchased from the issuer or
underwriter, which purchases will generally include a commission or concession
paid by the issuer to the underwriter. Transactions on stock exchanges, if any,
would involve the payment of negotiated brokerage commissions.
The Fund will seek to obtain best price and execution from firms
selected to execute its portfolio transaction. Subject to the foregoing, firms
with which portfolio transactions for the Fund will be conducted are selected
based on a number of factors such as reputation, capital strength size and
difficulty of order, sale of Fund shares and research provided to the Adviser.
Research services so received by the Adviser may be useful to the Adviser in
providing services to clients other than the Fund, and not all such services are
used by the Adviser in connection with the Fund. Similarly, research services
provided to the Adviser by broker-dealers through which transactions are
executed for clients other than the Fund may be used by the Adviser in providing
services to the Fund.
Investment decisions for the Fund are made independently from those for
other accounts managed by the Adviser. Any such account may also invest in the
same securities as the Fund. Securities purchased for the Fund may be purchased
for other accounts, and vice versa. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Fund and another
account, the transaction will be averaged as to price, and available investments
will be allocated as to amount in a manner which the Adviser believes to be
equitable to the Fund and such other account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained by the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for the other accounts in order to obtain best
execution.
ADMINISTRATOR
BISYS serves as administrator ("Administrator") to the Fund pursuant to
a Management and Administration Agreement dated October 1, 1999 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of the Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, the Custodian under the Custodian Agreement and
by BISYS under the Transfer Agency Agreement and Fund Accounting Agreement). The
Administrator is a broker-dealer registered with the Commission, and is a member
of the National Association of Securities Dealers, Inc. The Administrator
provides
<PAGE> 33
financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities and provide the Fund with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities to
handle the Fund's affairs. These services include, among other things: assisting
in the selection of and conducting and overseeing relations with various service
providers to the Fund; maintaining the Fund's regulatory compliance calendar;
preparing the periodic reports to the Commission on Form N-SAR or any
replacement forms therefor; coordinating and supervising the preparation and
filing of the Fund's tax returns; monitoring the Fund's compliance with its
status under the Internal Revenue Code; preparing compliance filings pursuant to
state securities laws; developing and preparing, with the assistance of the
Adviser, the Fund's Annual and Semi-Annual Reports and other communications to
Shareholders; assisting Fund counsel in the preparation and filing the Fund's
Registration Statement and any proxy materials; preparing and filing timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
calculating the Fund's expenses, controlling its disbursements, calculating
various measures of performance and operations; and generally assisting in all
aspects of the Fund's operations other than those performed by the Adviser,
under the Investment Advisory Agreement, by the Custodian under the Custodian
Agreement, by BISYS Fund Services as Distributor, or by BISYS under the Transfer
Agency Agreement or Fund Accounting Agreement. Under the Administration
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives fees from the Fund for its services as
Administrator and for its services under the Transfer Agency Agreement and Fund
Accounting Agreement pursuant to an Omnibus Fee Agreement. These fees include:
asset-based fees of 0.20% of the Fund's average daily net assets up to $300
million; 0.18% of the Fund's average daily net assets in excess of $300 million
and up to $500 million; 0.16% of each Fund's average daily net assets in excess
of $500 million and up to $700 million; 0.14% of each Fund's average daily net
assets in excess of $700 million and up to $900 million; 0.12% of each Fund's
average daily net assets in excess of $900 million and up to $1 billion. The fee
shall be subject to an annual minimum fee of $150,000. In addition to the
asset-based fees set forth above, Bisys shall be entitled to receive an annual
fee of $25.00 per shareholder account, annual fee of $25,000 for each class of
shares that is created for the funds after the initial class and $50,000 for
each additional Fund that is created after the Counter Bond Fund; and
out-of-pocket expenses, as provided for in the Service Agreements. The
Administrator may periodically waive all or a portion of its fee with respect to
the Fund in order to increase the net income of the Fund available for
distribution as dividends.
Unless sooner terminated as provided therein, the Administration
Agreement will continue in effect until September 30, 2004. The Administration
Agreement thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator. If the Administrator is replaced for any other reason, the
Administrator shall receive a cash payment equal to fees that would be due for
the balance of the term based on the average previous twelve months' Fund assets
and number of shareholder accounts.
<PAGE> 34
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by a
Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
<PAGE> 35
DISTRIBUTOR
BISYS Fund Services Limited Partnership ("BISYS Fund Services") serves
as distributor to the Funds pursuant to the Distribution Agreement dated October
1, 1999 (the "Distribution Agreement"). Unless otherwise terminated, the
istribution Agreement will continue in effect with respect to the Fund until
September 30, 2001, and thereafter, if such continuance is approved at least
annually (i) by the Group's Board of Trustees or by the vote of a majority of
the outstanding Shares of the Fund and (ii) by the vote of a majority of the
Trustees of the Group who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement will terminate automatically in the event
of any assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. The Distributor receives no compensation
under the Distribution Agreement with the Group, but may receive compensation
from the Fund under the Service and Distribution Plan described below.
CUSTODIAN
Union Bank of California, serves as the Funds' custodian ("Custodian").
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS, in addition to its service as Administrator, also serves as
Transfer Agent and Dividend Disbursing Agent for the Fund. pursuant to a
Transfer Agency Agreement dated October 1, 1999. Pursuant to such Agreement,
the Transfer Agent, among other things, performs the following services in
connection with the Fund's Shareholders of record: maintenance of shareholder
records for the Fund's Shareholders of record; processing shareholder purchase
and redemption orders; processing transfers and exchanges of Shares of the Fund
on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. The Fund pays the Transfer Agent for these services
pursuant to the Omnibus Fee Agreement (see "Administrator").
In addition, BISYS provides certain fund accounting services to the
Fund pursuant to Fund Accounting Agreement dated October 1, 1999. Fees for
these services are also paid pursuant to the Omnibus Fee Agreement (see
"Administrator"). Under the Fund Accounting Agreement, BISYS maintains the
accounting books and records for the Fund, including journals containing an
itemized daily record of all purchases and sales of portfolio securities, all
receipts
<PAGE> 36
and disbursements of cash and all other debits and credits, general and
auxiliary ledgers reflecting all asset, liability, reserve, capital, income and
expense accounts, including interest accrued and interest received, and other
required separate ledger accounts; maintains a monthly trial balance of all
ledger accounts; performs certain accounting services for the Fund, including
calculation of the net asset value per Share, calculation of the net income and
capital gains, if any, and of yield, verification and reconciliation of the
Fund's daily trade activity with the Custodian; provides certain reports;
obtains dealer quotations, prices from a pricing service or matrix prices on all
portfolio securities in order to mark the portfolio to the market; and prepares
an interim balance sheet, statement of income and expense, and statement of
changes in net assets for the Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP 10 West Broad Street, Suite 2300, Columbus, Ohio
43215 has been selected as independent auditors for the Fund for the fiscal year
ended March 31, 2000.
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
is counsel to the Group.
<PAGE> 37
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Group is a Massachusetts business trust, organized on January 8,
1992. The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of Shares, which are Shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of Shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued Shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption, and to establish separate classes of Shares.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
Shareholders of each fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution,
subject to any differential class expenses.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Group shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding Shares of each fund
affected by the matter. For purposes of determining whether the approval of a
majority of the outstanding Shares of a fund will be required in connection with
a matter, a fund will be deemed to be affected by a matter unless it is clear
that the interests of each fund in the matter are identical, or that the matter
does not affect any interest of the fund. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in investment policy would be
effectively acted upon with respect to a fund only if approved by a majority of
the outstanding Shares of that fund. However, Rule 18f-2 also provides that the
ratification of independent public accountants (for funds having the same
independent accountants), the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by Shareholders of the
Group voting without regard to individual funds. Rule 18f-3 under the 1940 Act
provides that Shareholders of each class shall have exclusive voting rights on
matters submitted to Shareholders relating solely to distribution and
shareholder service arrangements.
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of the Group.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Group for acts or obligations of the Group, which
are binding only on the assets and property of the Group, and requires that
notice
<PAGE> 38
of the disclaimer be given in each contract or obligation entered into or
executed by the Group or the Trustees. The Declaration of Trust provides for
indemnification out of Group property for all loss and expense of any
shareholder held personally liable for the obligations of the Group. The risk of
a shareholder incurring financial loss on account of Shareholder liability is
limited to circumstances in which the Group itself would be unable to meet its
obligations, and thus should be considered remote.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of the Fund means the
affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a)
67% or more of the votes of Shareholders of the Fund 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. The Fund intends to qualify annually and to elect
to be treated as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code").
To qualify as a regulated investment company, the Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and any net
tax-exempt interest income each taxable year.
As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to Shareholders. The Fund intends
to distribute to its Shareholders, at least annually, substantially
<PAGE> 39
all of its investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the excise tax, the Fund must distribute during each calendar year an amount
equal to the sum of (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the one-year period ending on October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
the Fund in October, November or December to Shareholders of record on a date in
such a month and paid by the Fund during January of the following calendar year.
Such distributions will be treated as received by Shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received. To prevent application of the excise tax,
the Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company
taxable income generally will be taxable to a U.S. Shareholder as ordinary
income. A portion of the Fund's income may consist of dividends paid by U.S.
corporations and, accordingly, a portion of the dividends paid by the Fund may
be eligible for the corporate dividends-received deduction. Properly designated
distributions of net capital gains, if any, generally are taxable to
Shareholders as long-term capital gains, regardless of how long the Shareholder
has held the Fund's Shares, and are not eligible for the dividends-received
deduction. Shareholders receiving distributions in the form of additional
Shares, rather than cash, generally will have a cost basis in each such Share
equal to the net asset value of a Share of the Fund on the reinvestment date.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and Shareholders receiving distributions in the form of
additional Shares will receive a report as to the net asset value of those
Shares.
Distributions by the Fund reduce the net asset value of the Fund's
shares. Should a taxable distribution reduce the net asset value below a
Shareholder's cost basis, the distribution nevertheless would be taxable to the
Shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
DISCOUNT SECURITIES. Investments by the Fund in securities that are
issued at a discount will result in income to the Fund equal to a portion of the
excess of the face value of the securities over their issue price (the "original
issue discount") each year that the securities are held, even though the Fund
receives no cash interest payments. This income is included in determining the
amount of income which the Fund must distribute to maintain its status as a
regulated investment company and to avoid the payment of federal income tax and
the 4% excise tax.
Some of the debt securities may be purchased by the Fund at a discount
which exceeds
<PAGE> 40
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.
SALE OF SHARES. Upon the sale or other disposition of Fund Shares, or
upon receipt of a distribution in complete liquidation of the Fund, a
Shareholder generally will realize a taxable capital gain or loss which may be
eligible for reduced capital gains tax rates, generally depending upon the
Shareholder's holding period for the Shares. Any loss realized on a sale or
exchange will be disallowed to the extent the Shares disposed of are replaced
(including Shares acquired pursuant to a dividend reinvestment plan) within a
period of 61 days beginning 30 days before and ending 30 days after disposition
of the Shares. In such a case, the basis of the Shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized by a Shareholder on a
disposition of Fund Shares held by the Shareholder for six months or less will
be treated as a long-term capital loss to the extent of any distributions of net
capital gains received by the Shareholder with respect to such Shares.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all reportable payments, including dividends,
capital gain distributions and redemptions payable to Shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate Shareholders and certain other
Shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the Shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of
an investment in the Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
<PAGE> 41
OTHER TAXATION. The Group is organized as a Massachusetts business
trust and, under current law, neither the Group nor any fund is liable for any
income or franchise tax in the Commonwealth of Massachusetts, provided that each
fund continues to qualify as a regulated investment company under Subchapter M
of the Code.
Fund Shareholders may be subject to state and local taxes on Fund
distributions. In many states, Fund distributions which are derived from
interest on certain U.S. Government obligations may be exempt from taxation.
YIELDS AND TOTAL RETURNS
YIELD CALCULATIONS. Yield on Fund Shares will be computed by dividing
the net investment income per share (as described below) earned by the 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 of the Fund earned during the period is based on the average daily number
of Shares of the Fund outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
a - b
------
Yield = 2 [(cd + 1)exp(6) - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Shares outstanding
during the period that were Entitled to receive
dividends.
d = maximum offering price per Share on the last day
of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), interest earned on any debt obligations
held by the Fund is calculated by computing the yield to maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
Business Day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes
<PAGE> 42
in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, the Adviser, Administrator or
Distributor may voluntarily waive all or a portion of their fees with respect to
the Fund. Such waiver would cause the yield of the Fund to be higher than it
would otherwise be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. Average annual total return is a measure of
the change in value of an investment in the Fund over the period covered, which
assumes any dividends or capital gains distributions are reinvested in Shares of
the Fund immediately rather than paid to the investor in cash. The Fund computes
the average annual total return on its shares 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 Total Return: ERV =P (1 + T)n
Where:
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
The Fund computes its aggregate total return for its shares 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 Return = (ERV/P)(1/n) - 1
ERV = ending redeemable value at the end of the period covered by the
computation of a
<PAGE> 43
hypothetical $1,000 payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
PERFORMANCE COMPARISONS
Investors may judge the Fund's performance by comparing it to the
performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies, if any; to various mutual fund or market
indices, such as the Lehman Brothers fixed income indexes and indexes 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 Fund that appears in a publication, such as those
mentioned above, may be included in advertisements and in reports to
Shareholders. The Fund may also include in advertisements and reports to
Shareholders information comparing the performance of the Adviser to other
investment advisers; such comparisons may be published by or included in Nelsons
Directory of Investment Managers, Roger's, Casey/PIPER Manager Database,
CDA/Cadence, or Chase Global Data and Research.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, the yield or
performance of a Class may not be directly comparable to bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are primarily functions of the direction of interest rates. The
quality, composition and maturity of the Fund's portfolio and expenses allocated
to the Fund will also affect performance. Fees imposed upon customer accounts by
third parties for cash management services will reduce the effective yield to
customers.
From time to time, the Fund may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to shareholders. The Fund may also include calculations,
such as hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of the Fund.
<PAGE> 44
MISCELLANEOUS
The Fund may include information in its Annual Report and Semi-Annual
Report to Shareholders that (1) describes general economic trends, (2) describes
general trends within the financial services industry or the mutual fund
industry, (3) describes past or anticipated portfolio holdings for the Fund or
(4) describes investment management strategies for the Fund. Such information is
provided to inform Shareholders of the activities of the Fund for the most
recent fiscal year or half-year and to provide the views of the Adviser and/or
Group officers regarding expected trends and strategies.
The Financial Statements of the Fund will be provided in semi-annual
(unaudited) and audited annual reports to Shareholders.
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Shareholders owning not less than 10% of the outstanding Shares of the Group
entitled to vote may cause the Trustees to call a special meeting, including for
the purpose of considering the removal of one or more Trustees. Any Trustee may
be removed at any meeting of Shareholders by vote of two-thirds of the Group's
outstanding shares. The Declaration of Trust provides that the Trustees will
assist shareholder communications to the extent required by Section 16(c) of the
1940 Act in the event that a Shareholder request to hold a special meeting is
made.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of any prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
<PAGE> 45
APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Adviser with regard to
portfolio investments for the Fund include Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P") and Duff & Phelps, Inc.
("D&F"). Set forth below is a description of the relevant ratings of each such
NRSRO. The description of each NRSRO's ratings is as of the date of this
Statement of Additional Information, and may subsequently change.
LONG TERM DEBT RATINGS (may be assigned, for example, to corporate and
municipal bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the Fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it
<PAGE> 46
is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher
rated categories.
Description of the three highest long-term debt ratings by D&P:
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong. AA Risk is
modest but may vary slightly from time to time AA- because of
economic conditions.
A+ Protection factors are average but adequate. However, risk
A factors are more variable and greater in periods of economic
A- 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.
- 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.
<PAGE> 47
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> 48
PART C
-----------
OTHER INFORMATION
-----------------
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust(1).
(a)(2) Establishment and Designation of Series of Shares (The
Counter Bond Fund)(3).
(b) By-Laws(2).
(c) Certificates for Shares are not issued. Articles IV, V, VI
and VII of the Declaration of Trust, previously filed as
Exhibit (a) hereto, define rights of holders of Shares(1).
(d) Investment Advisory Agreement between Registrant and
Proprietary Capital LLC.(3).
(e) Distribution Agreement between Registrant and BISYS Fund
Services, Inc.(3).
(f) Not Applicable.
(g) Custody Agreement(3).
(h)(1) Administration Agreement between the Registrant and BISYS
Fund Services Ohio, Inc.(3).
(h)(2) Fund Accounting Agreement between the Registrant and
BISYS Fund Services Ohio, Inc.(3).
(h)(3) Transfer Agency Agreement between the Registrant and
BISYS Fund Services Ohio, Inc.(3).
(h)(4) Omnibus Fee Agreement between Registrant and BISYS Fund
Services Ohio, Inc.(3).
(h)(5) Expense Limitation Agreement between the Registrant and
Proprietary Capital LLC(3).
(i) Legal Opinion(3)
<PAGE> 49
(j) Not Applicable.
(k) Not Applicable.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
- ------------------
(1) Filed with initial Registration Statement on January 8, 1992.
(2) Filed with Post-Effective Amendment No. 2 on September 4, 1992.
(3) Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust states as follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement
thereof; and
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include,
without limitation, attorneys fees, costs, judgments,
amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee
or officer:
<PAGE> 50
(i) against any liability to the Trust, a Series thereof,
or the Shareholders by reason of a final adjudication
by a court or other body before which a proceeding
was brought that he engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good
faith in the reasonable belief that his action was in
the best interest of the Trust; or
(iii) in the event of a settlement or other disposition
not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) resulting in a payment by
a Trustee or officer, unless there has been a
determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office: (A) by the
court or other body approving the settlement or other
disposition; or (B) based upon a review of readily
available facts (as opposed to a full trial-type
inquiry) by (1) vote of a majority of the
Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in
office acts on the matter) or (2) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such person. Nothing
contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers
may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described
in paragraph (a) of this Section 4.3 may be advanced by the
Trust prior to final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided that
either:
(i) such undertaking is secured by a surety bond or some
other appropriate security provided by the recipient,
or the Trust shall be insured against losses arising
out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the
Disinterested Trustees acts on the matter) or an
independent legal counsel in a written opinion shall
determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i)
<PAGE> 51
an Interested Person of the Trust (including anyone who has
been exempted from being an Interested Person by any rule,
regulation or order of the Commission), or (ii) involved in
the claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against
public policy as expressed in the Act, and therefore,
is unenforceable. In the event that a claim for
indemnification against such liabilities controlling
persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is
asserted by such trustees, officers or controlling
persons in connection with the shares being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
THEIR OFFICERS AND DIRECTORS
Incorporated by reference to the responses in the current Form
10-K of UST Corp., on file with the Commission.
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor for Registrant. BISYS
Fund Services also distributes the securities of
Alpine Equity Trust, American Performance Funds, the
AmSouth Mutual Funds, The BB&T Mutual Funds Group,
ESC Strategic Funds, Inc., The Eureka Funds, Fifth
Third Funds, Governor Funds, Gradison Custodian
Trust, Gradison Growth Trust, Gradison-McDonald Cash
Reserves Trust, Gradison-McDonald Municipal Custodian
Trust, Hirtle Callaghan Trust, HSBC Funds Trust, HSBC
Mutual Funds Trust, INTRUST Funds Trust, The Infinity
Mutual Funds, Inc., The Kent Funds, Magna Funds, MMA
Praxis Mutual Funds, Mercantile Mutual Funds, Inc.,
Meyers Investment Trust, M.S.D.&T Funds, Pacific
Capital Funds, The Parkstone Advantage Fund, Puget
Sound Alternative Investment Series Trust, The
Republic Funds Trust, The Republic Advisors Funds
Trust, Sefton Funds Trust, SSgA International
Liquidity Fund, Summit Investment Trust, Variable
Insurance Funds, The Victory Portfolios, The Victory
Variable Insurance Funds and The Vintage Mutual
Funds, Inc.
(b) Partners of BISYS Fund Services, as of June 1, 1999,
were as follows:
<PAGE> 52
Name and Principal Business Position and Offices with Position and Offices
Address Underwriter with Registrant
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(a) The accounts, books, and other documents required to
be maintained by Registrant pursuant to Section 31(a)
of the Investment Company Act of 1940 and rules
promulgated thereunder are in the possession of
Kensington Investment Group, Inc. (records relating
to its function as investment adviser); BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as transfer agent,
administrator, fund accounting agent and
distributor).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS.
None
<PAGE> 53
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this filing meets
all the requirements for filing pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Post-Effective Amendment No. 62 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
7th day of October, 1999.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
-------------------------
Walter B. Grimm**
By: /s/ Patrick W.D. Turley
-------------------------------------------
Patrick W.D. Turley, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
/w/ Walter B. Grimm Chairman, President and Trustee October 7, 1999
- --------------------------
Walter B. Grimm**
/w/ John H. Ferring IV Trustee October 7, 1999
- --------------------------
John H. Ferring IV***
/s/ Maurice G. Stark Trustee October 7, 1999
- --------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee October 7, 1999
- --------------------------
Michael M. Van Buskirk*
/s/ Gary R. Tenkman Treasurer (Principal Financial October 7, 1999
- -------------------------- Accounting Officer)
Gary R. Tenkman****
<PAGE> 54
By: /s/ Patrick W.D. Turley
-------------------------------------------
Patrick W.D. Turley, as attorney-in-fact
* Pursuant to power of attorney filed with Pre-Effective Amendment
No. 3 on April 6, 1992.
** Pursuant to power of attorney filed with Post-Effective Amendment
No. 26 on May 1, 1996.
*** Pursuant to power of attorney filed with Post-Effective Amendment
No. 39 on July 31, 1998.
**** Pursuant to power of attorney filed with Post-Effective Amendment
No. 46 on May 14, 1999.
<PAGE> 1
Exhibit (a)(2)
THE COVENTRY GROUP
Establishment and Designation of Series
of Beneficial Interest, Par Value $0.01 Per Share
RESOLVED, that pursuant to Section 5.11 of the Declaration of Trust of
The Coventry Group (the "Trust") dated January 8, 1992, ("Declaration"), one
separate series of the shares of beneficial interest of the Trust shall hereby
be established, relating to the Trust's new investment portfolio (the "Fund");
and
FURTHER RESOLVED, that the Fund shall have the following designation
and Shares of the Fund shall have the following special and relative rights:
1. The Fund shall be designated "The Counter Bond Fund".
2. The Fund shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Fund's then
currently effective prospectus and registration statement under the Securities
Act of 1933. Each share of beneficial interest ("Share") of the Fund shall be
redeemable. Each Share of the Fund shall be entitled to one vote (or fraction
thereof in respect of a fractional Share) on matters on which Shares of the Fund
shall be entitled to vote. Subject to paragraph 4, each Share of the Fund shall
represent a pro rata beneficial interest in the assets allocated to the Fund and
shall be subject to a pro rata share of expenses allocated to the Fund; and,
subject to paragraph 4, shall be entitled to receive its pro rata share of net
assets of the Fund upon liquidation of the Fund, all as provided in the
Declaration or in accordance with applicable law, regulation or regulatory
policy
3. Each Share of the Fund shall have the voting rights provided to
shareholders in the Declaration and shall vote with shareholders of other series
of the Trust with respect to matters affecting the Trust generally. With respect
to matters concerning the Fund (but not other series of the Trust), Shares of
the Fund shall vote as a group. In each case of separate voting, the Trustees
shall determine whether, for the matter to be effectively acted upon as to the
Fund in accordance with the Declaration, or applicable law, rule or regulatory
policy, as applicable, the applicable percentage (as specified in the
Declaration, or the Act and the rules thereunder) of the shares of the Fund
alone must be voted in favor of the matter, or whether the required favorable
vote of such applicable percentage of the shares must include shares of other
series of the Trust, as well.
4. The assets and liabilities of the Trust shall be allocated to the
Fund as set forth in Sections 5.11 and 5.13 of the Declaration; except that
costs of establishing the Fund and of the registration and public offering of
the Fund's Shares shall be treated in accordance with applicable law and
generally accepted accounting principles.
5. The Trustees shall have the right at any time and from time to time
to reallocate assets and expenses or to change the designation of the Fund
hereby created, or to otherwise change the special and relative rights of the
Fund, provided that such change shall not adversely affect the rights of the
Shareholders of the Fund.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this instrument this
1st day of October, 1999.
------------------------
Walter B. Grimm
------------------------
Maurice G. Stark
------------------------
Michael M. Van Buskirk
------------------------
John H. Ferring IV
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<PAGE> 1
Exhibit (D)
THE COVENTRY GROUP
ON BEHALF OF
THE COUNTER BOND FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on October 1, 1999, between Proprietary
Capital LLC (the "Adviser") and The Coventry Group (the "Group"), on behalf of
The Counter Bond Fund (the "Fund").
WHEREAS, the Group is a Massachusetts business trust of the series type
organized under a Declaration of Trust dated January 8, 1992 (the
"Declaration"), and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end, diversified management investment
company, and the Fund is a series of the Group;
WHEREAS, the Group wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Group and the Adviser as follows:
1. APPOINTMENT. The Group hereby appoints the Adviser to act as
investment adviser to the Fund for the periods and on the terms set forth in
this Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. INVESTMENT ADVISORY DUTIES. Subject to the supervision of the
Trustees of the Group, the Adviser will (a) provide a program of continuous
investment management for the Fund in accordance with the Fund's investment
objectives, policies and limitations as stated in the Fund's prospectus and
Statement of Additional Information included as part of the Group's Registration
Statement filed with the Securities and Exchange Commission, as they may be
amended from time to time, copies of which shall be provided to the Adviser by
the Group; (b) make investment decisions for the Fund; and (c) place orders to
purchase and sell securities for the Fund.
In performing its investment management services to the Fund hereunder,
the Adviser will provide the Fund with ongoing investment guidance and policy
direction, including oral and written research, analysis, advice, statistical
and economic data and judgments regarding
<PAGE> 2
individual investments, general economic conditions and trends and long-range
investment policy. The Adviser will determine the securities, instruments,
repurchase agreements, options and other investments and techniques that the
Fund will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the Fund's portfolio. The Adviser will determine what portion of
the Fund's portfolio shall be invested in securities and other assets, and what
portion if any, should be held uninvested.
The Adviser further agrees that, in performing its duties hereunder, it
will:
(a) comply with the 1940 Act and all rules and regulations thereunder, the
Advisers Act, the Internal Revenue Code (the "Code") and all other applicable
federal and state laws and regulations, and with any applicable procedures
adopted by the Trustees;
(b) use reasonable efforts to manage the Fund so that it will qualify, and
continue to qualify, as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for the Fund
directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Fund's prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements;
(d) furnish to the Group whatever statistical information the Group may
reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Adviser will keep the Group and the Trustees
informed of developments materially affecting the Fund's portfolio and shall, on
the Adviser's own initiative, furnish to the Group from time to time whatever
information the Adviser believes appropriate for this purpose;
(e) make available to the Group's administrator (the "Administrator"), and
the Group, promptly upon their request, such copies of its investment records
and ledgers with respect to the Fund as may be required to assist the
Administrator and the Group in their compliance with applicable laws and
regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding the Fund as they may reasonably request;
(f) immediately notify the Group in the event that the Adviser or any of
its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Group immediately of any material fact known to the Adviser
respecting or relating to the Adviser that is not contained in the Group's
Registration Statement regarding the Fund, or any amendment or supplement
thereto, but that is required to be disclosed therein, and of any statement
contained therein that becomes untrue in any material respect;
-2-
<PAGE> 3
(g) in making investment decisions for the Fund, use no inside information
that may be in its possession or in the possession of any of its affiliates, nor
will the Adviser seek to obtain any such information.
3. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise specifically
provided in this section 3, the Adviser shall pay the compensation and expenses
of all its Trustees, officers and employees who serve as officers and executive
employees of the Group (including the Group's share of payroll taxes), and the
Adviser shall make available, without expense to the Fund, the service of its
Trustees, officers and employees who may be duly elected officers of the Group,
subject to their individual consent to serve and to any limitations imposed by
law.
The Adviser shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Adviser in this section 3. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Group's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund: organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; cost of insurance relating to
fidelity coverage for the Group's officers and employees; fees and expenses of
the Fund's Administrator or of any custodian, subcustodian, transfer agent,
registrar, or dividend disbursing agent of the Fund; payments to the
Administrator for maintaining the Fund's financial books and records and
calculating its daily net asset value; other payments for portfolio pricing or
valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates; other expenses in
connection with the issuance, offering, distribution or sale of securities
issued by the Fund; expenses relating to investor and public relations; expenses
of registering shares of the Fund for sale and fees related to notification and
other filings required by states in which Fund shares are sold; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities or other assets of the Fund, or of
entering into other transactions or engaging in any investment practices with
respect to the Fund; expenses of printing and distributing prospectuses,
Statements of Additional Information, reports, notices and dividends to
stockholders; costs of stationery or other office supplies; any litigation
expenses; costs of stockholders' and other meetings; the compensation and all
expenses (specifically including travel expenses relating to the Fund's
business) of officers, Trustees and employees of the Group who are not
interested persons of the Adviser; and travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Group who are officers, Trustees
or employees of the Adviser to the extent that such expenses relate to
attendance at meetings of the Board of
-3-
<PAGE> 4
Trustees of the Group with respect to matters concerning the Fund, or any
committees thereof or advisers thereto.
4. COMPENSATION. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, the Trust will arrange for the Fund
to pay the Adviser at the end of each calendar month an advisory fee computed
daily at an annual rate equal to 0.80% of the Fund's average daily net assets.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. The value of net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If, pursuant to such provisions, the determination of net asset value
of the Fund is suspended for any particular business day, then for the purposes
of this section 4, the value of the net assets of the Fund as last determined
shall be deemed to be the value of its net assets as of the close of the New
York Stock Exchange, or as of such other time as the value of the net assets of
the Fund may lawfully be determined, on that day. If the determination of the
net asset value of the shares of the Fund has been so suspended for a period
including any month end when the Adviser's compensation is payable pursuant to
this section, then the Adviser's compensation payable at the end of such month
shall be computed on the basis of the value of the net assets of the Fund as
last determined (whether during or prior to such month). If the Fund determines
the value of its net assets more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 4.
5. BOOKS AND RECORDS. The Adviser agrees to maintain such books and
records with respect to its services to the Fund as are required by Section 31
under the 1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and 31a-2
under the 1940 Act and otherwise in connection with its services hereunder are
the property of the Group and will be surrendered promptly to the Group upon its
request. And the Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable laws and regulations.
6. STANDARD OF CARE AND LIMITATION OF LIABILITY. The Adviser shall
exercise its best judgment in rendering the services provided by it under this
Agreement. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund or the holders of the Fund's shares
in connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Group, the Fund or to holders of the Fund's
shares to which
-4-
<PAGE> 5
the Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of the Adviser's reckless disregard of its obligations and duties under
this Agreement. As used in this Section 6, the term "Adviser" shall include any
officers, Trustees, employees or other affiliates of the Adviser performing
services with respect to the Fund.
7. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Adviser are not exclusive, and that nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies or to
other series of investment companies, including the Group (whether or not their
investment objectives and policies are similar to those of the Fund) or from
engaging in other activities, provided such other services and activities do
not, during the term of this Agreement, interfere in a material manner with the
Adviser's ability to meet its obligations to the Fund hereunder. When the
Adviser recommends the purchase or sale of a security for other investment
companies and other clients, and at the same time the Adviser recommends the
purchase or sale of the same security for the Fund, it is understood that in
light of its fiduciary duty to the Fund, such transactions will be executed on a
basis that is fair and equitable to the Fund. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the Adviser
nor any of its Trustees, officers or employees shall act as a principal or agent
or receive any commission. If the Adviser provides any advice to its clients
concerning the shares of the Fund, the Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Group or the Fund.
8. DURATION AND TERMINATION. This Agreement shall continue until
September 30, 2001, and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Trustees or (ii) a vote of a "majority" (as defined in the
1940 Act) of the Fund's outstanding voting securities (as defined in the 1940
Act), provided that in either event the continuance is also approved by a
majority of the Trustees who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
Notwithstanding the foregoing, this Agreement may be terminated: (a) at any time
without penalty by the Fund upon the vote of a majority of the Trustees or by
vote of the majority of the Fund's outstanding voting securities, upon sixty
(60) days' written notice to the Adviser or (b) by the Adviser at any time
without penalty, upon sixty (60) days' written notice to the Group. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
9. AMENDMENTS. Except to the extent permitted by applicable law,
regulation or regulatory policy, no provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and, except to the extent permitted by applicable law,
regulation or regulatory policy, no amendment of this Agreement shall be
effective until approved by an affirmative vote of (i) a majority of the
outstanding voting securities of the Fund, and (ii) a majority of the Trustees,
including a majority of Trustees who
-5-
<PAGE> 6
are not interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, if such approval is
required by applicable law.
10. PROXIES. Unless the Group gives written instructions to the
contrary, the Adviser shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Fund may be invested. The Adviser
shall use its best good faith judgment to vote such proxies in a manner which
best serves the interests of the Fund's shareholders.
11. NAME RESERVATION. The Group acknowledges and agrees that the
Adviser has property rights relating to the use of the term "Counter Bond" and
has permitted the use of such term by the Group and the Fund. The Group agrees
that: (i) it will use the term "Counter Bond" only as a component of the name of
the Fund and any other series for which the Adviser serves as investment
adviser, and for no other purposes; (ii) it will not purport to grant to any
third party any rights in such name; (iii) at the request of the Adviser, the
Group will take such action as may be required to provide its consent to use of
the term by the Adviser, or any affiliate of the Adviser to whom the Adviser
shall have granted the right to such use; and (iv) the Adviser may use or grant
to others the right to use the term, or any abbreviation thereof, as all or a
portion of a corporate or business name or for any commercial purpose, including
a grant of such right to any other investment company. Upon termination of this
Agreement, the Group shall, upon request of the Adviser, cease to use the term
"Counter Bond" as part of the name of the Fund or any series of the Group or in
any way not consented to by the Adviser. In the event of any request by the
Adviser that use of the term "Counter Bond" shall cease, the Group shall cause
its officers, Trustees and stockholders to take any and all such actions which
the Adviser may request to effect such request and to reconvey to the Adviser
any and all rights to the term "Counter Bond."
12. MISCELLANEOUS.
a. This Agreement shall be governed by the laws of the State of
Colorado, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
b. The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Group or the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of October 1, 1999.
-6-
<PAGE> 7
THE COVENTRY GROUP
on behalf of The Counter Bond Fund
By: /s/ Walter B. Grimm
--------------------------
President
PROPRIETARY CAPITAL LLC
By:__________________________
President
-7-
<PAGE> 1
Exhibit (e)
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT made this 1st day of October, 1999, between THE COVENTRY
GROUP (the "Trust"), a Massachusetts business trust having its principal place
of business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES
LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES ("Distributor"), having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company,
registered with the Securities and Exchange Commission (the "Commission") under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
shares of beneficial interest ("Shares") of each currently existing series of
the Trust advised by Proprietary Capital LLC ("Proprietary") and such additional
series advised by Proprietary that are hereafter created (individually referred
to herein as "Fund" and collectively as the "Funds")
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services As Distributor.
-----------------------
1.1 Distributor will act as agent for the distribution of the
Shares covered by the registration statement and prospectus of the Trust then in
effect under the Securities Act of 1933, as amended (the "Securities Act"). As
used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit
orders for the sale of the Shares and will undertake such advertising and
promotion, as it believes reasonable in connection with such solicitation. The
Trust understands that Distributor is now and may in the future be the
distributor of the shares of several investment companies or series (together,
"Investment Companies") including Companies having investment objectives similar
to those of the Trust. The Trust further understands that investors and
potential investors in the Trust may invest in shares of such other Investment
Companies. The Trust agrees that Distributor's duties to such Investment
Companies shall not be deemed in conflict with its duties to the Trust under
this paragraph 1.2.
<PAGE> 2
Distributor shall, at its own expense, finance appropriate
activities which it deems reasonable, which are primarily intended to result in
the sale of the Shares, including, but not limited to, advertising, compensation
of underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all
activities of Distributor and its partners, agents, and employees shall comply
with all applicable laws, rules and regulations, including, without limitation,
the 1940 Act, all rules and regulations promulgated by the Commission thereunder
and all rules and regulations adopted by any securities association registered
under the Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during
normal business hours, to respond to telephone questions with respect to the
Trust.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and custodian for the
Funds.
1.6 Whenever in their judgment such action is warranted by
unusual market, economic or political conditions, or by abnormal circumstances
of any kind, the Trust's officers may decline to accept any orders for, or make
any sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal
if it chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Funds and the Shares as Distributor may reasonably request; and the Trust
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Trust shall also
furnish Distributor upon request with: (a) unaudited semi-annual statements of
the Funds' books and accounts prepared by the Trust, (b) a monthly itemized list
of the securities in the Funds, (c) monthly balance sheets as soon as
practicable after the end of each month, and (d) from time to time such
additional information regarding the financial condition of the Funds as
Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to
the Shares, all registration statements and prospectuses filed by the Trust with
the Commission under the Securities
2
<PAGE> 3
Act have been carefully prepared in conformity with requirements of said Act and
rules and regulations of the Commission thereunder. The registration statement
and prospectus contain all statements required to be stated therein in
conformity with said Act and the rules and regulations of said Commission and
all statements of fact contained in any such registration statement and
prospectus are true and correct. Furthermore, neither any registration statement
nor any prospectus includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of the Shares. The Trust may,
but shall not be obligated to, propose from time to time such amendment or
amendments to any registration statement and such supplement or supplements to
any prospectus as, in the light of future developments, may, in the opinion of
the Trust's counsel, be necessary or advisable. If the Trust shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
days after receipt by the Trust of a written request from Distributor to do so,
Distributor may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any registration statement or supplement to any prospectus
without giving Distributor reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way limit the
Trust's right to file at any time such amendments to any registration statement
and/or supplements to any prospectus, of whatever character, as the Trust may
deem advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Trust's
agreement to indemnify Distributor, its partners or employees, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any statements or representations as are contained in
any prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in paragraph 1.10 shall
not be deemed to cover any liability to the Trust or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
Agreement. The Trust's
3
<PAGE> 4
agreement to indemnify Distributor, its partners and employees and any such
controlling person, as aforesaid, is expressly conditioned upon the Trust being
notified of any action brought against Distributor, its partners or employees,
or any such controlling person, such notification to be given by letter or by
telegram addressed to the Trust at its principal office in Columbus, Ohio and
sent to the Trust by the person against whom such action is brought, within 10
days after the summons or other first legal process shall have been served. The
failure to so notify the Trust of any such action shall not relieve the Trust
from any liability which the Trust may have to the person against whom such
action is brought by reason of any such untrue, or allegedly untrue, statement
or omission, or alleged omission, otherwise than on account of the Trust's
indemnity agreement contained in this paragraph 1.11. The Trust will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the Trust and approved by Distributor, which approval shall
not be unreasonably withheld. In the event the Trust elects to assume the
defense of any such suit and retain counsel of good standing approved by
Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case the
Trust does not elect to assume the defense of any such suit, or in case
Distributor reasonably does not approve of counsel chosen by the Trust, the
Trust will reimburse Distributor, its partners and employees, or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor or them. The Trust's
indemnification agreement contained in this paragraph 1.11 and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
Distributor, its partners and employees, or any controlling person, and shall
survive the delivery of any Shares.
This Agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Trust agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the
Trust, its several officers and Trustees (hereinafter referred to as "Trustees")
and any person who controls the Trust within the meaning of Section 15 of the
Securities Act free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or defending such
claims, demands, or liabilities and any counsel fees incurred in connection
therewith) which the Trust, its officers or Trustees or any such controlling
person, may incur under the Securities Act or under common law or otherwise, but
only to the extent that such liability or expense incurred by the Trust, its
officers or Trustees or such controlling person resulting from such claims or
demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished in writing by
Distributor to the Trust and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the
prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by Distributor to the Trust required to be stated in such
4
<PAGE> 5
answers or necessary to make such information not misleading. Distributor's
agreement to indemnify the Trust, its officers and Trustees, and any such
controlling person, as aforesaid, is expressly conditioned upon Distributor
being notified of any action brought against the Trust, its officers or
Trustees, or any such controlling person, such notification to be given by
letter or telegram addressed to Distributor at its principal office in Columbus,
Ohio, and sent to Distributor by the person against whom such action is brought,
within 10 days after the summons or other first legal process shall have been
served. Distributor shall have the right of first control of the defense of such
action, with counsel of its own choosing, satisfactory to the Trust, if such
action is based solely upon such alleged misstatement or omission on
Distributor's part, and in any other event the Trust, its officers or Trustees
or such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action. The failure to so
notify Distributor of any such action shall not relieve Distributor from any
liability which Distributor may have to the Trust, its officers or Trustees, or
to such controlling person by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account of
Distributor's indemnity agreement contained in this paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Trust if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus as required by
Section 10(b)(2) of said Act is not on file with the Commission; provided,
however, that nothing contained in this paragraph 1.13 shall in any way restrict
or have an application to or bearing upon the Trust's obligation to repurchase
Shares from any Shareholder in accordance with the provisions of the Trust's
prospectus, Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as
reasonably practical by a notice in writing delivered to Distributor or its
counsel:
(a) of any request by the Commission for amendments to
the registration statement or prospectus then in
effect or for additional information;
(b) in the event of the issuance by the Commission of
any stop order suspending the effectiveness of the
registration statement or prospectus then in effect
or the initiation by service of process on the Trust
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the
registration statement or prospectus then in effect
or which requires the making of a change in such
registration statement or prospectus in order to
make the statements therein not misleading; and
5
<PAGE> 6
(d) of all action of the Commission with respect to any
amendment to any registration statement or
prospectus which may from time to time be filed with
the Commission.
For purposes of this section, informal requests by or
acts of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
1.15 Distributor agrees on behalf of itself and its partners
and employees to treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and its prior,
present or potential Shareholders, and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except, after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where Distributor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the State
of Ohio.
1.17 In the event Distributor purchases the initial shares of
the Trust for purposes of satisfying the minimum net worth requirements set
forth in Section 14 (a) of the 1940 Act, and a notice of termination is
subsequently given or this Agreement is otherwise terminated pursuant to Section
6 herein for any reason prior to the time that organizational expenses incurred
by the Trust have been fully amortized, then the Trust shall either (i) cause
the successor distributor of the shares (the "Successor Distributor") to pay to
Distributor, within ten (10) days prior to the termination of this Agreement, an
amount of cash that is sufficient to purchase the initial shares that are held
by Distributor or (ii) enable Distributor to redeem the initial shares of the
Trust that it holds by causing the Successor Distributor to contribute to the
Trust, within ten (10) days prior to the termination of this Agreement, any
unamortized organizational costs in the same proportion as the number of initial
shares being redeemed bears to the number of initial shares outstanding at the
time of such contribution. In the latter case, Distributor shall be entitled to
redeem any or all of the initial shares that it holds and receive redemption
proceeds without any reduction in the amount of such proceeds, prior to the
termination of this Agreement.
2. Fee.
----
Distributor shall receive from the Funds identified in the
Distribution and Shareholder Service Plan attached as Schedule A hereto (the
"Distribution Plan Funds") a distribution fee at the rate and upon the terms and
conditions set forth in such Plan. The distribution fee shall be accrued daily
and shall be paid on the first business day of each month, or at such time(s) as
the Distributor shall reasonably request.
6
<PAGE> 7
3. Sale and Payment.
-----------------
Shares of a Fund may be subject to a sales load and may be
subject to the imposition of a distribution fee pursuant to the Distribution and
Shareholder Service Plan referred to above. To the extent that Shares of a Fund
are sold at an offering price which includes a sales load or at net asset value
subject to a contingent deferred sales load with respect to certain redemptions
(either within a single class of Shares or pursuant to two or more classes of
Shares), such Shares shall hereinafter be referred to collectively as "Load
Shares" (in the case of Shares that are sold with a front-end sales load or
Shares that are sold subject to a contingent deferred sales load), "Front-End
Load Shares" or "CDSL Shares" and individually as a "Load Share," a "Front-End
Load Share" or a "CDSL Share." A Fund that contains Front-End Load Shares shall
hereinafter be referred to collectively as "Load Funds" or "Front-End Load
Funds" and individually as a "Load Fund" or a "Front-end Load Fund." A Fund that
contains CDSL Shares shall hereinafter be referred to collectively as "Load
Funds" or "CDSL Funds" and individually as a "Load Fund" or a "CDSL Fund." Under
this Agreement, the following provisions shall apply with respect to the sale
of, and payment for, Load Shares.
3.1 Distributor shall have the right to purchase Load Shares
at their net asset value and to sell such Load Shares to the public against
orders therefor at the applicable public offering price, as defined in Section 4
hereof. Distributor shall also have the right to sell Load Shares to dealers
against orders therefor at the public offering price less a concession
determined by Distributor, which concession shall not exceed the amount of the
sales charge or underwriting discount, if any, referred to in Section 4 below.
3.2 Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall pay or cause to be
paid to the Load Fund or to its order an amount in Boston or New York clearing
house funds equal to the applicable net asset value of such Shares. Distributor
may retain so much of any sales charge or underwriting discount as is not
allowed by Distributor as a concession to dealers.
4. Public Offering Price.
----------------------
The public offering price of a Load Share shall be the net
asset value of such Load Share, plus any applicable sales charge, all as set
forth in the current prospectus of the Load Fund. The net asset value of Shares
shall be determined in accordance with the provisions of the Declaration or
Trust and Bylaws of the Trust and the then-current prospectus of the Load Fund.
5. Issuance of Shares.
-------------------
The Trust reserves the right to issue, transfer or sell Load
Shares at net asset value (a) in connection with the merger or consolidation of
the Trust or the Load Fund(s) with any other investment company or the
acquisition by the Trust or the Load Fund(s) of all or substantially all of the
assets or of the outstanding Shares of any other investment company; (b) in
connection with a
7
<PAGE> 8
pro rata distribution directly to the holders of Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Load Shares pursuant to any exchange and reinvestment privileges described in
any then-current prospectus of the Load Fund; and (e) otherwise in accordance
with any then-current prospectus of the Load Fund.
6. Term, Duration and Termination.
-------------------------------
This Agreement shall become effective with respect to each
Fund listed on Schedule A hereof as of the date first written above (or, if a
particular Fund is not in existence on such date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed) and, unless
sooner terminated as provided herein, shall continue until September 30, 2001.
Thereafter, if not terminated, this Agreement shall continue with respect to a
particular Fund automatically for successive one-year terms, provided that such
continuance is specifically approved at least annually by (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting for the purpose of voting on such approval and (b) by the vote of the
Trust's Board of Trustees or the vote of a majority of the outstanding voting
securities of such Fund. This Agreement is terminable without penalty, on less
than sixty days' prior written notice, by the Trust's Board of Trustees, by vote
of a majority of the outstanding voting securities of the Trust or by the
Distributor. This Agreement will also terminate automatically in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as ascribed to such terms in the 1940 Act.)
7. Limitation of Liability of the Trustees and Shareholders.
--------------------------------------------------------
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
written above.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
---------------------------------
Title:
-------------------------------
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: /s/ William Tomko
---------------------------------
Title: President
------------------------------
9
<PAGE> 10
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
A-1
<PAGE> 1
Exhibit (G)
MUTUAL FUND CUSTODY AGREEMENT
This AGREEMENT is entered into as of Oct. 1, 1999, between The Coventry
Group (the "Trust"), a Massachusetts business trust, having its principal office
and place of business at 3435 Stelzer Road and Union Bank of California, N.A.
(the "Bank"), a National Banking Association organized under the laws of the
United States with its principal place of business at 350 California Street, San
Francisco, CA 94104.
In consideration of the mutual promises set forth below, the Trust and the Bank
agree as follows:
1. Definitions.
------------
Whenever used in this Agreement or in any Schedules to this Agreement, the words
and phrases set forth below shall have the following meanings, unless the
context otherwise requires:
1.1 "Authorized Person" shall be deemed to include the President, and
any Vice President, the Secretary, the Assistant Secretary, the Treasurer and
any Assistant Treasurer of the Trust, or any other person, including persons
employed by the Investment Adviser, whether or not any such person is an officer
of the Trust, duly authorized by the Board of Trustees of the Trust to give Oral
Instructions and Written Instructions on behalf of the Trust and listed in the
certification annexed hereto as Schedule A or such other successor certification
as may be received by the Bank from time-to-time.
1.2 "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
1.3 "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its successor
or successors and its nominee or nominees, in which the Bank is hereby
specifically authorized to make deposits. The term "Depository" shall further
mean and include any other person to be named in Written Instructions authorized
to act as a depository under the 1940 Act, its successor or successors and its
nominee or nominees.
1.4 "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and principal
by the Government of the United States or agencies or instrumentalities thereof,
and repurchase and reverse repurchase agreements with respect to any of the
foregoing types of securities, commercial paper, bank certificates of deposit,
bankers' acceptances and short-term corporate obligations, where the purchase or
sale of such securities normally requires settlement in federal funds on the
same day as such purchase or sale.
1.5 "Prospectus" shall mean the Series' current prospectus and
statement of additional information relating to the registration of the Series'
Shares under the Securities Act of 1933, as amended.
1.6 "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities and investments from time-to-time owned by each Series.
1.7 "Shares" refers to the shares of beneficial interest of a Series of
the Trust.
1.8 "Series" refers to Funds shown on Schedule B, attached hereto and
made a part hereof by this reference, and any such other Series as may from
time-to-time be created and designated in accordance with the provisions of the
Declaration of Trust.
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<PAGE> 2
1.9 "Transfer Agent" shall mean the person which performs the transfer
agent, dividend disbursing agent and shareholder servicing agent functions for
the Trust.
1.10 "Written Instructions" shall mean a written or electronic
communication actually received by the Bank from an Authorized Person or from a
person reasonably believed by the Bank to be an Authorized Person by telex or
any other such system whereby the receiver of such communication is able to
verify through codes or otherwise with a reasonable degree of certainty the
authenticity of the sender of such communication.
1.11 The "1940 Act" refers to the Investment Company Act of 1940, and
the rules and regulations thereunder, all as amended from time-to-time.
2. Appointment of Custodian.
-------------------------
2.1 The Trust hereby constitutes and appoints the Bank as Custodian of
all the Securities and moneys owned by or in the possession of the Trust during
the period of this Agreement.
2.2 The Bank hereby accepts appointment as Custodian for the Trust and
agrees to perform the duties thereof as hereinafter set forth.
3. Compensation.
-------------
3.1 The Trust will compensate the Bank for its services rendered under
this Agreement in accordance with the fees set forth in the Fee Schedule
attached as Schedule C and made a part of this Agreement by this reference.
3.2 The parties to this Agreement will agree upon the compensation for
acting as Custodian for any Series hereafter established and designated, and at
the time that the Bank commences serving as such for said Series, such agreement
shall be reflected in a Fee Schedule for the Trust, which shall be attached to
Schedule C of this Agreement.
3.3 Any compensation agreed to hereunder may be adjusted from
time-to-time by not less than 90 days advance written notice of such fee
increase from Bank to Trust.
3.4 The Bank will bill the Trust as soon as practicable after the end
of each month, and said billings will be detailed in accordance with the Fee
Schedule. The Trust will promptly pay to the Bank the amount of such billing. In
the event such bill is not promptly paid, the Bank may charge against any money
specifically allocated to the Trust such compensation and any expenses incurred
by the Bank in the performance of its duties pursuant to such agreement. The
Bank shall also be entitled to charge against any money held by it and
specifically allocated to the Trust the amount of any loss, damage, liability or
expense incurred with respect to such Trust, including counsel fees, for which
it shall be entitled to reimbursement under the provision of this Agreement.
The expenses which the Bank may charge against such account include,
but are not limited to, the expenses of Sub-Custodians and foreign branches of
the Bank incurred in settling transactions outside of San Francisco or New York
City involving the purchase and sale of Securities of the Trust.
4. Custody of Cash and Securities.
-------------------------------
4.1 RECEIPT AND HOLDING OF ASSETS. The Trust will deliver or cause to
be delivered to the Bank all Securities and moneys owned by it, including cash
received from the issuance's of its Shares, at any time during the period of
this Agreement and shall specify the Series to which the Securities and moneys
are to be specifically allocated. The Bank shall physically segregate and keep
apart on its books, the assets of each Series, including separate identification
of Securities held in the Book-Entry System. The Bank will not be responsible
for such Securities and moneys until actually received by it. The Trust shall
instruct the Bank from time-to-time in its sole discretion, by means of Written
Instructions as to the manner in which and in what
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<PAGE> 3
amounts Securities and moneys of a Series are to be deposited on behalf of such
Series in the Book-Entry System or the Depository and specifically allocated on
the books of the Bank to such Series. Securities and moneys of the Trust
deposited in the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Bank for customers, including but
not limited to accounts in which the Bank acts in a fiduciary or representative
capacity.
4.2 ACCOUNTS AND DISBURSEMENTS. The Bank shall establish and maintain a
separate account for each Series and shall credit to the separate account of
each Series all moneys received by it for the account of such Series and shall
disburse the same only:
4.2.1 In payment for Securities purchased for such Series, as
provided in Section 5 hereof;
4.2.2 In payment of dividends or distributions with respect to
the Shares of such Series;
4.2.3 In payment of original issue or other taxes with respect
to the Shares of such Series;
4.2.4 In payment for Shares which have been redeemed by such
Series;
4.2.5 Pursuant to Written Instructions, setting forth the name
of such Series, the name and address of the person to whom the payment is to be
made, the amount to be paid and the purpose for which payment is to be made; or
4.2.6 In payment of fees and in reimbursement of the expenses
and liabilities of the Bank attributable to such Series.
4.3 CONFIRMATIONS AND STATEMENTS. Promptly after the close of business
each day, the Bank shall make available to the Trust information with respect to
all transfers to and from the account of a Series during that day. The Bank need
not send written confirmation or a summary of all such transfers to or from the
account of each Series. Provided, however, that upon the written request of
Trust, Bank shall provide within 5 business days of such written request a copy
of any confirmations which include transactions of the Trust. At least monthly,
the Bank shall furnish the Trust with a detailed statement of the Securities and
moneys held for each Series under this Agreement.
4.4 REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION.
All Securities held for a Series which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry System, shall
be held by the Bank in that form; all other Securities held for a Series may be
registered in the name of any duly appointed registered nominee of the Bank as
the Bank may from time-to-time determine, or in the name of the Book-Entry
System or the Depository of their successor or successors, or their nominee or
nominees. When a reference is made in this Agreement to an action to be taken by
Bank, it is understood by the parties that the action may be taken directly or
in the case of book-entry Securities, through the appropriate depository. The
Trust agrees to furnish to the Bank appropriate instruments to enable the Bank
to hold or deliver in proper form for transfer, or to register in the name of
its registered nominee or in the name of the Book-Entry System or the
Depository, any Securities which it may hold for the account of a Series. The
Bank (or its Sub-Custodians) shall hold all such Securities specifically
allocated to a Series which are not held in the Book-Entry System or the
Depository in a separate account for such Series in the name of such Series
physically segregated at all times from those of any other person or persons.
Where Securities purchased by a Series are in a fungible bulk of Securities
registered in the name of the Bank (or its nominee) or shown on the Bank's
account on the books of the Depository or the Book-Entry System, the Bank shall
by book entry or otherwise identify the quantity of those Securities belonging
to such Series.
4.5 COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES. Unless
otherwise instructed to the contrary by Written Instructions, the Bank shall
with respect to all Securities held for a Series in accordance with this
Agreement:
-3-
<PAGE> 4
4.5.1 Collect all income due or payable and credit such income
promptly on the contractual settlement date, whether or not actually received,
to the account of the appropriate Series, except for income from foreign issues.
Income which has not been collected after reasonable effort, within a time
agreed upon between the parties, shall be repaid to the Bank pending final
collection at such date as may be mutually agreed upon by the Trust and the
Bank.
4.5.2 Present for payment and collect the amount payable upon
all Securities which may mature or be called, redeemed or retired, or otherwise
become payable. Bank shall make a good faith effort to inform Trust of any call,
redemption or retirement date with respect to Securities which are owned by a
Series and held by the Bank or its nominee. Notwithstanding the foregoing, the
Bank shall have no responsibility to the Trust or a Series for monitoring or
ascertaining of any call, redemption or retirement date with respect to
Securities which are held by a Series and held by Bank or its nominee. Nor shall
the Bank have any responsibility or liability to the Trust or to a Series for
any loss by a Series for any missed payment or other default resulting therefrom
unless the Bank received timely notification, which shall not be less than 5
business days, from the Trust or the Series specifying the time, place and
manner for the presentment of any put bond owned by a Series and held by the
Bank or its nominee. The Bank shall not be responsible and assumes no liability
to the Trust or a Series for the accuracy or completeness of any notification
the Bank shall provide to the Trust or a Series with respect to put Securities;
4.5.3 Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and
4.5.4 Hold for the account of each Series all rights and other
Securities issued with respect to any Securities held by the Bank hereunder for
such Series.
4.6 DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of
Written Instructions, the Bank shall:
4.6.1 Execute and deliver or cause to be executed and
delivered to such persons as may be designated in such Written Instructions,
proxies, consents, authorization, and any other instruments whereby the
authority of the Trust as owner of any Securities may be exercised;
4.6.2 Deliver or cause to be delivered any Securities held for
a Series in exchange for other Securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
4.6.3 Deliver or cause to be delivered any Securities held for
a Series to any protective committee, reorganization committee or other person
in connection with the reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and receive and hold
under the terms of this Agreement in the separate (bookkeeping) account for each
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4.6.4 Make or cause to be made such transfers or exchanges of
the assets and take such steps as shall be stated in said Written Instructions
to be for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Trust;
4.6.5 Deliver Securities owned by any Series upon sale of such
Securities for the account of such Series pursuant to Section 5;
4.6.6 Deliver Securities owned by any Series upon the receipt
of payment in connection with any repurchase agreement related to such
Securities entered into by such Series;
4.6.7 Deliver Securities owned by any Series to the issuer
thereof or its agent when such Securities are called, redeemed, retired or
otherwise become payable; provided, however, that in any such case the cash or
other consideration is be delivered to the Bank.
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<PAGE> 5
4.6.8 Deliver Securities owned by any Series in connection
with any loans of Securities made by such Series but only against receipt of
adequate collateral as agreed upon from time-to-time by the Bank and the Trust
which may be in any form permitted under the 1940 Act or any interpretations
thereof issued by the Securities and Exchange Commission or its staff;
4.6.9 Deliver Securities owned by any Series for delivery as
security in connection with any borrowings by such Series requiring a pledge of
Series assets, but only against receipt of amount borrowed;
4.6.10 Deliver Securities owned by any Series upon receipt of
instructions from such Series for delivery to the Transfer Agent or to the
holders of Shares of such Series in connection with distributions in kind, as
may be described from time-to-time in the Series' Prospectus, in satisfaction of
requests by holders of Shares for repurchase or redemption; and
4.6.11 Deliver Securities owned by any Series for any other
proper business purpose, but only upon receipt of, in addition to Written
Instructions, a certified copy of a resolution of the Board of Trustees signed
by an Authorized Person and certified by the Secretary or Assistant Secretary of
the Trust, specifying the Securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to whom delivery of such
Securities shall be made.
4.7 ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Bank is hereby
authorized to endorse and collect all checks, drafts or other orders for the
payment of money received by the Bank for the account of a Series.
5. Purchase and Sale of Investments of the Series.
-----------------------------------------------
5.1 Promptly after each purchase of Securities for a Series, the Trust
shall deliver to the Bank Written Instructions specifying with respect to each
purchase: (1) the name of the Series to which such Securities are to be
specifically allocated; (2) the name of the issuer and the title of the
Securities; (3) the number of shares or the principal amount purchased and
accrued interest, if any; (4) the date of purchase and settlement; (5) the
purchase price per unit; (6) the total amount payable upon such purchase; (7)
the name of the person from whom or the broker through whom the purchase was
MADE, if any; (8) whether or not such purchase is to be settled through the
Book-Entry System or the Depository; and (9) whether the Securities purchased
are to be deposited in the Book-Entry System or the Depository. The Bank shall
receive all Securities purchased by or for a Series and upon receipt of such
Securities shall pay out of the moneys held for the account of such Series the
total amount payable upon such purchase, provided that the same conforms to the
total amount payable as set forth in such Written Instructions.
5.2 Promptly after each sale of Securities of a Series, the Trust shall
deliver to the Bank Written Instructions specifying with respect to such sale:
(1) the name of the Series to which the Securities sold were specifically
allocated; (2) the name of the issuer and the title of the Securities; (3) the
number of shares or principal amount sold, and accrued interest, if any; (4) the
date of sale; (5) the sale price per unit; (6) the total amount payable to the
Series upon such sale; (7) the name of the broker through whom or the person to
whom the sale was made; and (8) whether or not such sale is to be settled
through the Book-Entry System or the Depository. The Bank shall deliver or cause
to be delivered the Securities to the broker or other person designated by the
Trust upon receipt of the total amount payable to such Series upon such sale,
provided that the same conforms to the total amount payable to such Series as
set forth in such Written Instructions. Subject to the foregoing, the Bank may
accept payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in Securities.
6. Payment of Dividends or Distributions.
--------------------------------------
6.1 The Trust shall furnish to the Bank the resolution of the Board of
Trustees of the Trust certified by the Secretary or Assistant Secretary (i)
authorizing the declaration of dividends or distribution with respect to a
Series on a specified periodic basis and authorizing the Bank to rely on Written
Instructions specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
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<PAGE> 6
shareholders entitled to payment shall be determined, the amount payable per
share to the shareholders of record as of the record date and the total amount
payable per share to the shareholders of record as of the record date and the
total amount payable to the Transfer Agent on the payment date, or (ii) setting
forth the date of declaration of any dividend or distribution by a Series, the
date of payment thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per share to the shareholders of
record as of the record date and the total amount payable to the Transfer Agent
on the payment date.
6.2 Upon the payment date specified in such resolution or Written
Instructions the Bank shall pay out the moneys specifically allocated to and
held for the account of the appropriate Series the total amount payable to the
Transfer Agent of the Trust.
7. Sale and Redemption of Shares of a Series.
------------------------------------------
7.1 Whenever the Trust shall sell or redeem any Shares of a Series, the
Trust shall deliver or cause to be delivered to the Bank Written Instructions
duly specifying:
(1) The name of the Series whose Shares were sold or redeemed;
(2) The number of Shares sold or redeemed, trade date, and price;
and
(3) The amount of money to be received or paid by the Bank for the
sale or redemption of such Shares.
7.2 Upon receipt of such money from the Transfer Agent, the Bank shall
credit such money to the separate account of the Series.
7.3 Upon issuance of any Shares of a Series in accordance with the
foregoing provisions of this Section 7, the Bank shall pay, out of the moneys
specifically allocated and held for the account of such Series, all original
issue or other taxes required to be paid in connection with such issuance upon
the receipt of Written Instructions specifying the amount to be paid.
7.4 Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Series received by the Transfer Agent for redemption and
that such Shares are valid and in good form for redemption, the Bank shall make
payment to the Transfer Agent out of the moneys specifically allocated to and
held for the account of the Series.
8. Indebtedness.
-------------
8.1 The Trust will cause to be delivered to the Bank by any bank
(excluding the Bank) from which the Trust borrows money for temporary
administrative or emergency purposes using Securities as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Trust against
delivery of a stated amount of collateral. The Trust shall promptly deliver to
the Bank Written Instructions stating with respect to each such borrowing: (1)
the name of the Series for which the borrowing is to be made; (2) the name of
the bank; (3) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Trust, or other loan agreement; (4) the time and date, if known, on which the
loan is to be entered into (the "borrowing date"); (5) the date on which the
loan becomes due and payable; (6) the total amount payable to the Trust for the
separate account of the Series on the borrowing date; (7) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities; (8) whether the Bank is to deliver such collateral
through the Book-Entry System or the Depository; and (9) a statement that such
loan is in conformance with the 1940 Act and the Series' Prospectus.
8.2 Upon receipt of the Written Instructions referred to above, the
Bank shall deliver on the borrowing date the specified collateral and the
executed promissory note, if any, against delivery by the lending bank of the
total amount of the loan payable, provided that the same conforms to the total
amount payable as set
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<PAGE> 7
forth in the Written Instructions. The Bank may, at the option of the lending
bank, keep such collateral in its possession, but such collateral shall be
subject to all rights therein given the lending bank by virtue of any promissory
note or loan agreement. The Bank shall deliver as additional collateral in the
manner directed by the Trust from time-to-time such Securities specifically
allocated to such Series as may be specified in Written Instructions to
collateralize further any transaction described in this Section 8. The Trust
shall cause all Securities released from collateral status to be returned
directly to the Bank, and the Bank shall receive from time-to-time such return
of collateral as may be tendered to it. In the event that the Trust fails to
specify in Written Instructions all of the information required by this Section
8, the Bank shall not be under any obligation to deliver any Securities.
Collateral returned to the Bank shall be held hereunder as it was prior to being
used as collateral.
9. Persons Having Access to Assets of the Series.
----------------------------------------------
9.1 No Trustee, officer, employee or agent of the Trust, and no
officer, director, employee or agent of the Advisor, shall have physical access
to the assets of the Trust held by the Bank or be authorized or permitted to
withdraw any investments of the Trust, nor shall the Bank deliver any assets of
the Trust to any such person. No officer, director, employee or agent of the
Bank who holds any similar position with the Trust or the Advisor shall have
access to the assets of the Trust.
9.2 The individual employees of the Bank initially duly authorized by
the Board of Directors of the Bank to have access to the assets of the Trust are
listed on Schedule A which is attached and made a part of this Agreement by this
reference. The Bank shall advise the Trust of any change in the individuals
authorized to have access to the assets of the Trust by written notice to the
Trust.
9.3 Nothing in this Section 9 shall prohibit any officer, employee or
agent of the Trust, or any officer, director, employee or agent of the Advisor,
from giving Written Instructions to the Bank so long as it does not result in
delivery of or access to assets of the Trust prohibited by this Section 9.
10. Concerning the Bank.
--------------------
10.1 STANDARD OF CONDUCT. The Bank shall not be responsible for the
title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Agreement and reasonably
believed by it to be valid or genuine and shall be held harmless in acting upon
proper instructions, resolutions, any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties and shall be entitled to receive as conclusive proof of
any fact or matter required to be ascertained by it hereunder, a certificate
signed by the President, a Vice President, the Treasurer, the Secretary or an
Assistant Secretary of the Trust. The Bank may receive and accept a resolution
as conclusive evidence (a) of the authority of any person to act in accordance
with such vote or (b) of any determination or of any action by the Board of
Trustees pursuant to the Declaration of Trust as described in such vote, and
such vote may be considered as in full force and effect until receipt by the
Bank of written notice from the Secretary or an Assistant Secretary to the
contrary.
The Bank shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Provided, however, that if such reliance involves a potential material loss to
the Trust, the Bank shall advise the Trust of any such actions to be taken in
accordance with such advice of counsel to the Bank.
The Bank shall be held to the exercise of reasonable care in carrying
out the provisions of this Agreement but shall be liable only for its own
negligent or bad faith acts or wilful misconduct or wilful failures to act by
the Bank and its agents or Employees. Bank shall have no responsibility for
reviewing or questioning the acts or records of any prior Custodian. The Trust
shall indemnify the Bank and hold it harmless from and against all losses,
liabilities, demands, claims, actions, expenses, attorneys' fees, and taxes with
respect to each Series which the Bank may suffer or incur on account of being
Bank hereunder except to the extent that such losses, liabilities, demands,
claims, actions, expenses, attorneys fees or taxes arise from the Bank's own
gross negligence or bad faith. Notwithstanding the foregoing the Bank shall be
liable to the Trust for any loss or
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<PAGE> 8
damage resulting from the use of the Book-Entry System or the Depository arising
by reason of any negligence, misfeasance or misconduct on the part of the Bank
or any of its employees or agents.
If a Series requires the Bank to take any action with respect to
Securities, which action involves the payment of money or which action may, in
the opinion of the Bank, result in the Bank or its nominee assigned to such
Series being liable for the payment of money or incurring liability of some
other form, such Series, as a prerequisite to requiring the Bank to take such
action, shall, prior to the Bank taking such action, provide indemnity in
writing to the Bank in an amount and form satisfactory to it.
10.2 LIMIT OF DUTIES. Without limiting the generality of the foregoing,
the Bank shall be under no duty or obligation to inquire into, and shall not be
liable for:
10.2.1 The validity of the issue of any Securities purchased
by any Series, the legality of the purchase thereof, the permissibility of the
purchase thereof under the Trust's governing documents, or the propriety of the
amount paid therefor;
10.2.2 The legality of the sale of any Securities by any
Series, the permissibility of such sale under the Trust's governing documents,
or the propriety of the amount for which the same are sold;
10.2.3 The legality of the issue or the sale of any Shares, or
the sufficiency of the amount to be received therefor;
10.2.4 The legality of the redemption of any Shares, or the
sufficiency of the amount to be paid therefor;
10.2.5 The legality of the declaration or payment of any
dividend or other distribution of any Series;
10.2.6 The legality of any borrowing for temporary or
emergency administrative purposes.
10.3 NO LIABILITY UNTIL RECEIPT. The Bank shall not be liable for, or
considered to be the Custodian of, any money, whether or not represented by any
check, draft, or other instrument for the payment of money, received by it on
behalf of any Series until the Bank actually receives and collects such money
directly or by the final crediting of the account representing the Trust's
interest in the Book-Entry System or the Depository.
10.4 COLLECTION WHERE PAYMENT REFUSED. The Bank shall not be under any
duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (a) it shall be
directed to take such action by Written Instructions and (b) it shall be assured
to its satisfaction of reimbursement of its costs and expenses in connection
with any such action.
10.5 APPOINTMENT OF AGENTS AND SUB-CUSTODIANS. The Bank may appoint one
or more banking institutions, including but not limited to banking institutions
located in foreign countries, to act as Depository or Depositories or as
Sub-Custodian or as Sub-Custodians of Securities and moneys at any time owned by
any Series, upon terms and conditions specified in Written Instructions. The
Bank shall use reasonable care in selecting a Depository and/or Sub-Custodian
located in a country other than the United States ("Foreign Sub-Custodian"), and
shall oversee the maintenance of any Securities or moneys of the Trust by any
Foreign Sub-Custodian.
10.6 NO DUTY TO ASCERTAIN AUTHORITY. The Bank shall not be under any
duty or obligation to ascertain whether any Securities at any time delivered to
or held by it for the Trust and specifically allocated to a Series are such as
may properly be held by the Series and specifically allocated to such Series
under the provisions of the Declaration of Trust and the Series' Prospectus.
-8-
<PAGE> 9
10.7 RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Bank shall be
entitled to rely upon any Written Instructions or Oral Instructions actually
received by the Bank pursuant to the applicable Sections of this Agreement and
reasonably believed by the Bank to be genuine and to be given by an Authorized
Person. The Trust agrees to forward to the Bank Written Instructions from an
Authorized Person confirming such Oral Instructions in such manner so that such
Written Instructions are received by the Bank, whether by hand delivery, telex,
or otherwise, by the close of business on the same day that such Oral
Instructions are given to the Bank. The Trust agrees that if such confirming
instructions are not received by the Bank that it shall in no way affect the
validity for the transactions or enforceability of the transactions hereby
authorized by the Trust. The Trust agrees that the Bank shall incur no liability
to the Trust in acting upon Oral Instructions given to the Bank hereunder
concerning such transactions provided such instructions reasonably appear to
have been received from a duly Authorized Person.
10.8 INSPECTION OF BOOKS AND RECORDS. The books and records of the Bank
regarding the Trust shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Trust and by employees of the Securities
and Exchange Commission. The Bank shall provide the Trust, upon request, with
any report obtained by the Bank on the system of internal accounting control of
the Book-Entry System or the Depository and with such reports on its own systems
of internal accounting control as the Trust may reasonably request from
time-to-time. Provided, however, that in the event that the Trust shall require
a report of internal accounting control produced by the auditors of the Series
rather than of the Bank, then such report shall be prepared at the expense of
the Series, and the Series agrees to pay for the time expended by Bank on such
audit and report at the hourly rate set forth on the Fee agreement.
11. Term and Termination.
---------------------
11.1 This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as the
parties may mutually agree.
11.2 Either of the parties hereto may terminate this Agreement with
respect to any Series by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than 90 days
after the date of receipt of such notice. In the event such notice is given by
the Trust, it shall designate a Successor Custodian or Custodians, which shall
be a person qualified to so act under the 1940 Act. In the event such notice is
given by the Bank, the Trust shall, on or before the termination date, deliver
to the Bank Written Instructions designating a Successor Custodian or
Custodians. In the absence of such designation by the Trust, the Bank may
designate a Successor Custodian, which shall be a person qualified to so act
under the 1940 Act. If the Trust fails to designate a Successor Custodian for
any Series, the Trust shall upon the date specified in the notice of termination
of this Agreement and upon the delivery by the Bank of all Securities (other
than Securities held in the Book-Entry Systems which cannot be delivered to the
Trust) and moneys then owned by such Series, be deemed to be its own Custodian,
and the Bank shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement, other than the duty with respect to Securities held
in the Book-Entry system which cannot be delivered to the Trust.
11.3 Upon the date set forth in such notice under paragraph (b) of this
Section, this Agreement shall terminate to the extent specified in such notice,
and the Bank shall upon receipt of a notice of acceptance by the Successor
Custodian on that date deliver directly to the Successor Custodian all
Securities and moneys then held by the Bank and specifically allocated to the
Series or Series specified, after deducting all fees, expenses and other amounts
for the payment or reimbursement of which it shall then be entitled with respect
to such Series or Series.
12. Additional Services by Bank.
----------------------------
12.1 If allowed by the prospectus, Investment Adviser may direct that
the assets of any Series be invested in deposits in Bank or its affiliates
bearing a reasonable rate of interest.
12.2 OTHER BANK SERVICES. Any Authorized Person may direct Bank to
utilize other services or facilities provided by UnionBanCal Corporation
("UBCC"), its subsidiaries or affiliates including Bank. Such services shall
include, but not be limited to (1) the placing of orders for the purchase, sale
exchange, investment
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<PAGE> 10
or reinvestment of Securities through any brokerage service conducted by, or (2)
the purchase of units of any investment company managed or advised by Bank,
UBCC, or their subsidiaries or affiliates and/or for which Bank, UBCC, or their
subsidiaries or affiliates act as Custodian or provide investment advice or
other services for a fee, including, without limitation, the HighMark Funds.
Trust hereby acknowledges that Bank, UBCC or their subsidiaries or affiliates
will receive fees for such services in addition to the fees payable under this
Agreement. Fee Schedules for such additional directed services shall be
delivered to the Authorized Person before provision of such services.
13. Miscellaneous.
--------------
13.1 Annexed hereto as Schedule A is a certification signed by two of
the present Trustees of the Trust setting forth the names and the signatures of
the present Authorized Persons. The Trust agrees to furnish to the Bank a new
certification in similar form in the event that any such present Authorized
Person ceases to be such an Authorized Person or in the event that other or
additional Authorized Persons are elected or appointed. Until such new
certification shall be received, the Bank shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered certification.
13.2 Annexed hereto as Schedule D is a certification signed by two of
the present Trustees of the Trust setting forth the names and the signatures of
the present Trustees of the Trust. The Trust agrees to furnish to the Bank a new
certification in similar form in the event any such present Trustee ceases to be
a Trustee of the Trust or in the event that other or additional Trustees are
elected or appointed. Until such new certification shall be received, the Bank
shall be fully protected in acting under the provisions of this Agreement upon
the signature of the officers as set forth in the last delivered certification.
13.3 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Bank, shall be sufficiently given if
addressed to the Bank and mailed or delivered to it at its offices at:
Union Bank of California, N.A.
Mutual Fund Services Dept., Trust Group
475 Sansome Street, 15th Floor
San Francisco, California 94111
or such other place as the Bank may from time-to-time designate in writing.
13.4 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Trust, shall be sufficiently given if
addressed to the Trust and mailed or delivered to it at its offices at__________
___________________________________________ or at such other place as the Trust
may from time-to-time designate in writing.
13.5 This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement, and as may be permitted or required by the 1940 Act.
13.6 This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of the Bank, or by the Bank without the written consent of the Trust
authorized or approved by a resolution of the Board of Trustees of the Trust,
and any attempted assignment without such written consent shall be null and
void.
13.7 This Agreement shall be construed in accordance with the laws of
the State of California.
13.8 It is expressly agreed to that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Trust, personally, but bind only the
property of the Trust, as provided in the Declaration of Trust of the Trust. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Trust and signed by an authorized officer of the Trust,
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<PAGE> 11
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in its Declaration
of Trust.
13.9 The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
13.10 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
14. Dispute Resolution Provision
----------------------------
14.1 Jury Waiver. The parties hereby waive their respective rights to a
jury trial in any litigation arising out of or relating to this Agreement or any
related agreements or instruments, including without limitation any claim based
on or arising out of an alleged tort.
14.2 Judicial Reference. If any such litigation is commenced in a
California state court, any party may also elect to have all decisions of fact
and law determined by a referee appointed by the court in accordance with
applicable state reference procedures. The referee shall be a retired judge,
agreed upon by the parties, from either the American Arbitration Association
(AAA) or J.A.M.S./Endispute, Inc. (JAMS). If the parties cannot agree, the party
who initially selected the reference procedure shall request a panel of ten
retired judges from either AAA or JAMS and the court shall select the referee
from that panel. The costs of the reference procedure, including the fee for the
court reporter, shall be borne equally by all parties as the costs are incurred.
The Referee shall hear all pre-trial and post-trial matters, including requests
for equitable relief, conduct a non-jury trial, prepare an award with written
findings of fact and conclusions of law, and award attorney fees and costs to
the prevailing party. Judgment upon the award shall be entered in the court in
which such proceeding was commenced and all parties shall have full rights of
appeal.
15. Merger or Consolidation of Bank.
--------------------------------
Any corporation or association (i) into which the Bank may be merged or
with which it may be consolidated, (ii) resulting from any merger,
consolidation, or reorganization to which the Bank may be a party, or (iii) to
which all or substantially all of the fiduciary business of the Bank may be
transferred shall become a Successor Custodian under this Agreement without the
necessity of executing any instrument or performing any further act subject to
the provision of this Agreement concerning resignation or removal of the
Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized as of the day
and year first above written.
_________________________________ UNION BANK OF CALIFORNIA, N.A.
BY:______________________________ BY:______________________________
, Vice President
DATE:____________________________ DATE:____________________________
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<PAGE> 12
Schedule A
Authorized Persons
Part I - Access Persons of Bank
Part II - Authorized Persons of the Trust
Part III - Trustees
_________________________________
BY:______________________________
DATE:____________________________
UNION BANK OF CALIFORNIA, N.A.
BY:______________________________
, Vice President
DATE:____________________________
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<PAGE> 13
Schedule B - Funds
_________________________________
BY:______________________________
DATE:____________________________
UNION BANK OF CALIFORNIA, N.A.
BY:______________________________
, Vice President
DATE:____________________________
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<PAGE> 14
Schedule C
Mutual Fund Services
Schedule of Fees
Custody
Transactions*
Depository Eligible $
Depository Ineligible $
Disbursements $
Minimum Fee $
*A transaction is defined as any activity affecting assets, such as purchase,
sale tender offer, stock dividend, free deliveries, maturity, exchange,
redemption, etc. Fees for foreign securities, foreign exchange transactions,
international wires and nonstandard services are quoted separately.
________________________________
BY:_____________________________
DATE:___________________________
UNION BANK OF CALIFORNIA, N.A.
BY:_____________________________
, Vice President
DATE:___________________________
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<PAGE> 15
Schedule D
Certification
Names and Signatures of Current Trustees
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
__________________________________ ______________________________
(Typed name of Trustee) (Signature of Trustee)
-15-
<PAGE> 1
Exhibit (h)(1)
ADMINISTRATION AGREEMENT
------------------------
THIS AGREEMENT is made as of this 1st day of October, 1999 between THE
COVENTRY GROUP, a Massachusetts business trust (the "Company"), having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and
BISYS FUND SERVICES OHIO, INC. (the "Administrator"), an Ohio corporation
organized under the laws of the State of Ohio and having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
each currently existing series of the Company advised by Proprietary Capital LLC
("Proprietary"), and such additional series advised by Proprietary as the
Company and BISYS may agree on from time to time (individually referred to
herein as a "Fund" and collectively as the "Funds") and as listed on Schedule A
attached hereto and made a party of this Agreement, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Company hereby retains
the Administrator to act as the administrator of the Funds and to furnish the
Funds with the management and administrative services as set forth in Article 2
below. The Administrator hereby accepts such employment to perform the duties
set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. ADMINISTRATIVE SERVICES. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Funds, and, on behalf of the Company, will
investigate, assist in the selection of and conduct relations with custodians,
depositories, accountants, legal counsel, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and persons in any other capacity deemed
to be necessary or desirable for the Funds' operations. The Administrator shall
provide the Board of Trustees of the Company (hereafter referred to as the
"Trustees") with such reports regarding
<PAGE> 2
investment performance as they may reasonably request but shall have no
responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Company with regulatory reporting,
all necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and Trustees' meetings) for handling the
affairs of the Funds and such other services as the Administrator shall, from
time to time, determine to be necessary to perform its obligations under this
Agreement. In addition, at the request of the Trustees, the Administrator shall
make reports to the Company's Trustees concerning the performance of its
obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate contractual Fund expenses and control all
disbursements for the Company, and as appropriate compute the
Fund's yields, total return, expense ratios, fund turnover
rate and, if required, Fund average dollar-weighted maturity;
(b) assist Company counsel with the preparation of
prospectuses, statements of additional information,
registration statements and proxy materials;
(c) prepare such reports, applications and documents
(including reports regarding the sale and redemption of Shares
as may be required in order to comply with Federal and state
securities law) as may be necessary or desirable to satisfy
state notice filing requirements related to the offer and sale
of Fund Shares, monitor the sale of Fund Shares for compliance
with state securities laws, and file with the appropriate
state securities authorities the registration statements and
reports for the Company and the Funds' Shares and all
amendments thereto, as may be necessary or convenient to
comply with applicable requirements of state securities
authorities to enable the Company to make a continuous
offering of the Funds' Shares;
(d) develop and prepare, with the assistance of the Funds'
investment adviser, communications to Fund Shareholders,
including the annual report to Shareholders, coordinate the
mailing of prospectuses, notices, proxy statements, proxies
and other reports to Shareholders, and supervise and
facilitate the proxy solicitation process for all shareholder
meetings, including the tabulation of shareholder votes;
(e) administer contracts on behalf of the Company with, among
others, the Funds' investment adviser, distributor, custodian,
transfer agent and fund accountant;
2
<PAGE> 3
(f) supervise the Company's transfer agent with respect to the
payment of dividends and other distributions to Fund
Shareholders;
(g) calculate performance data of the Funds for dissemination
to information services covering the investment company
industry;
(h) coordinate and supervise the preparation and filing of the
Company's tax returns pertaining to the Funds;
(i) examine and review the operations and performance of the
various organizations providing services to any Fund,
including, without limitation, the Funds' investment adviser,
distributor, custodian, fund accountant, transfer agent,
outside legal counsel and independent public accountants, and
at the request of the Company, report to the Board on the
performance of organizations;
(j) assist with the layout and printing of publicly
disseminated prospectuses and assist with and coordinate
layout and printing of the Company's semi-annual and annual
reports to Fund Shareholders;
(k) assist with the design, development, and operation of the
Funds, including new classes, investment objectives, policies
and structure;
(l) provide individuals reasonably acceptable to the Company's
Trustees to serve as officers of the Company, who will be
responsible for the management of certain of the Company's
affairs as determined by the Company;
(m) advise the Company and its Trustees on matters concerning
the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and trustees and
officers/errors and omissions insurance policies for the
Company in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Company's Trustees;
(o) monitor and advise the Company and the Funds on their
registered investment company status under the Internal
Revenue Code of 1986, as amended;
(p) perform all administrative services and functions of the
Company and each Fund to the extent administrative services
and functions are not provided to the Company or such Fund
pursuant to the Company's or such Fund's investment advisory
agreement, distribution agreement, custodian agreement,
transfer agent agreement and fund accounting agreement;
3
<PAGE> 4
(q) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Funds as the
Company and the Administrator shall determine desirable; and
(r) prepare and file with the SEC the semi-annual report for
the Company on Form N-SAR and all required notices pursuant to
Rule 24f-2.
The Administrator shall perform such other services for the Company
that are mutually agreed upon by the parties from time to time. Such services
may include performing internal audit examinations; mailing the annual reports
of the Funds; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the
Company will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
-----------------------------------
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Trustees of the
Company to perform services on behalf of the Company.
(B) THE COMPANY. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
Federal and state securities laws, fees and out-of-pocket expenses of Trustees
who are not affiliated persons of the Administrator or the Investment Adviser to
the Company or any affiliated corporation of the Administrator or the Investment
Adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Company.
ARTICLE 4. Compensation of the Administrator.
----------------------------------
(A) ADMINISTRATION FEE. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Company shall pay to the Administrator compensation at an annual
rate specified in the Omnibus Fee Agreement
4
<PAGE> 5
between the Company and the Administrator dated as of October 1, 1999 (the "Fee
Agreement"). The Company shall also reimburse the Administrator for its
reasonable out-of-pocket expenses, including the travel and lodging expenses
incurred by officers and employees of the Administrator in connection with
attendance at Board meetings.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
(B) SURVIVAL OF COMPENSATION RIGHTS. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
directors, officers, employees and other agents of the Administrator as well as
the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Company assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
Administrator's actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold the
Administrator harmless, the Company shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Company promptly concerning any situation which presents or appears
likely to present the probability of such a
5
<PAGE> 6
claim for indemnification against the Company, but failure to do so in good
faith shall not affect the rights hereunder.
The Company shall be entitled to participate at its own expense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and retain counsel, the Administrator shall bear the fees
and expenses of any additional counsel retained by it. If the Company does not
elect to assume the defense of a suit, it will reimburse the Administrator for
the reasonable fees and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Company at any time for instructions
and may consult counsel for the Company or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Company until receipt of written notice thereof from the Company.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that trustees, officers, employees
and Shareholders of the Company are or may be or become interested in the
Administrator, as officers, employees or otherwise and that partners, officers
and employees of the Administrator and its counsel are or may be or become
similarly interested in the Company, and that the Administrator may be or become
interested in the Company as a Shareholder or otherwise.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall
be as specified in Schedule A hereto.
ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts
6
<PAGE> 7
of such subcontractor as if such acts were its own. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
ARTICLE 9. AMENDMENTS. No provision of this Agreement may be amended or
waived except by an instrument signed by the party against which enforcement of
the amendment or waiver is sought.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Company and will be made
available to or surrendered promptly to the Company on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
7
<PAGE> 8
ARTICLE 15. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
It is expressly agreed that the obligations of the Company hereunder shall not
be binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Company personally, but shall bind only the trust property of
the Company. The execution and delivery of this Agreement have been authorized
by the Trustees, and this Agreement has been signed and delivered by an
authorized officer of the Company, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Company as provided in the Company's Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
------------------------
Title: ____________________
BISYS FUND SERVICES OHIO, INC.
By: /s/ William Tomko
------------------------
Title: President
---------------------
8
<PAGE> 9
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF OCTOBER 1, 1999
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
FUNDS: This Agreement shall apply to all Funds of The Coventry Group
advised by Proprietary Capital LLC ("Proprietary"), either now
or hereafter created (individually, the "Fund", and
collectively, the "Funds"). The current Funds of the Company
advised by Proprietary are set forth below:
The Counter Bond Fund
TERM: Pursuant to Article 7, the term of this Agreement shall
commence on October 1, 1999 and shall remain in effect through
September 30, 2004 ("Initial Term"). Thereafter, unless
otherwise terminated as provided herein, this Agreement shall
be renewed automatically for successive one-year periods
("Rollover Periods"). This Agreement may be terminated without
penalty (i) by provision of a notice of nonrenewal in the
manner set forth below, (ii) by mutual agreement of the
parties or (iii) for "cause," as defined below, upon the
provision of 60 days advance written notice by the party
alleging cause. Written notice of nonrenewal must be provided
at least 60 days prior to the end of the Initial Term or any
Rollover Period, as the case may be.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been remedied
for thirty (30) days following written notice of such breach
from the non-breaching party; (b) a final, unappealable
judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of
criminal or unethical behavior in the conduct of its business;
(c) financial difficulties on the part of the party to be
terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to time
is in effect, or any applicable law, other than said Title 11,
of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration
of the rights of creditors; (d) any failure on the part of the
Company to collect from Proprietary any payment or
reimbursement that is due and payable by Proprietary to the
Company (including an amount due the Company that directly or
indirectly represents amounts payable to the Administrator in
its capacity as fund administrator to the Company) within 60
days following the due date; or (e) any
A-1
<PAGE> 10
failure on the part of the Company to pay an amount that is
due and payable to the Administrator or any of its affiliates
under any other agreement to which the Company is a party
within 60 days following the due date. For purposes of this
definition of "cause," a material breach shall include, but
not be limited to, any failure on the part of the Company to
pay fees due and payable to the Administrator pursuant to
Article 4 hereunder within 60 days following the due date.
Notwithstanding the foregoing, after such termination for so
long as the Administrator, with the written consent of the
Company, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including
without limitation the provisions dealing with
indemnification, shall continue in full force and effect.
Compensation due the Administrator and unpaid by the Company
upon such termination shall be immediately due and payable
upon and notwithstanding such termination. The Administrator
shall be entitled to collect from the Company, in addition to
the compensation described in the Omnibus Fee Agreement
between the Company and the Administrator dated October 1,
1999, the amount of all of the Administrator's cash
disbursements for services in connection with the
Administrator's activities in effecting such termination,
including without limitation, the delivery to the Company
and/or its designees of the Company's property, records,
instruments and documents.
If, for any reason other than nonrenewal, mutual agreement of
the parties or "cause," as defined above, the Administrator is
replaced as administrator, or if a third party is added to
perform all or a part of the services provided by the
Administrator under this Agreement (excluding any
sub-administrator appointed by the Administrator as provided
in Article 7 hereof), then the Company shall make a one-time
cash payment, in consideration of the fee structure and
services to be provided under this Agreement, and not as a
penalty, to the Administrator equal to the balance due the
Administrator for the remainder of the then-current term of
this Agreement, assuming for purposes of calculation of the
payment that such balance shall be based upon the average
amount of the Company's assets for the twelve months prior to
the date the Administrator is replaced or a third party is
added.
In the event the Funds are merged into another legal entity in
part or in whole pursuant to any form of business
reorganization or is liquidated in part or in whole prior to
the expiration of the then-current term of this Agreement, the
parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those
instances in which the Administrator is not retained to
provide administration services consistent with this
Agreement. The one-time cash payment referenced above shall be
due and payable on the day prior to the first day in which the
Administrator is replaced or a third party is added.
A-2
<PAGE> 11
The parties further acknowledge and agree that, in the event
the Administrator is replaced, or a third party is added, as
set forth above, (i) a determination of actual damages
incurred by the Administrator would be extremely difficult,
and (ii) the liquidated damages provision contained herein is
intended to adequately compensate the Administrator for
damages incurred and is not intended to constitute any form of
penalty.
A-3
<PAGE> 1
Exhibit (h)(2)
FUND ACCOUNTING AGREEMENT
-------------------------
AGREEMENT made this 1st day of October, 1999, between THE COVENTRY
GROUP (the "Trust"), a Massachusetts business trust having its principal place
of business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES
OHIO, INC. ("Fund Accountant"), a corporation organized under the laws of the
State of Ohio and having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each currently existing series of the Trust advised by
Proprietary Capital LLC and such additional series advised by Proprietary
Capital LLC that are hereafter created (individually referred to herein as
"Fund" and collectively as the "Funds"); and`
WHEREAS, Fund Accountant is willing to perform such services on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
----------------------------
(a) MAINTENANCE OF BOOKS AND RECORDS. Fund Accountant
will keep and maintain the following books and
records of each Fund pursuant to Rule 31a-1 under the
Investment Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record
in detail of all purchases and sales of
securities, all receipts and disbursements
of cash and all other debits and credits, as
required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income
and expense accounts, including interest
accrued and interest received, as required
by subsection (b)(2)(i) of the Rule;
(iii) Separate ledger accounts required by
subsection (b)(2)(ii) and (iii) of the Rule;
and
(iv) A monthly trial balance of all ledger
accounts (except shareholder accounts) as
required by subsection (b)(8) of the Rule.
<PAGE> 2
(b) PERFORMANCE OF DAILY ACCOUNTING SERVICES. In addition
to the maintenance of the books and records specified
above, Fund Accountant shall perform the following
accounting services daily for each Fund:
(i) Calculate the net asset value per share
utilizing prices obtained from the sources
described in subsection 1(b)(ii) below;
(ii) Obtain security prices from independent
pricing services, or if such quotes are
unavailable, then obtain such prices from
each Fund's investment adviser or its
designee, as approved by the Trust's Board
of Trustees (hereafter referred to as
"Trustees");
(iii) Verify and reconcile with the Funds'
custodian all daily trade activity;
(iv) Compute, as appropriate, each Fund's net
income and capital gains, dividend payables,
dividend factors, 7-day yields, 7-day
effective yields, 30-day yields, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation
and dividend factor (if any) for each Fund
prior to release to shareholders, check and
confirm the net asset values and dividend
factors for reasonableness and deviations,
and distribute net asset values and yields
to NASDAQ;
(vi) Report to the Trust the daily market pricing
of securities in any money market Funds,
with the comparison to the amortized cost
basis;
(vii) Determine unrealized appreciation and
depreciation on securities held in variable
net asset value Funds;
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than
face value, if requested by the Trust;
(ix) Update fund accounting system to reflect
rate changes, as received from a Fund's
investment adviser, on variable interest
rate instruments;
(x) Post Fund transactions to appropriate
categories;
(xi) Accrue expenses of each Fund according to
instructions received from the Trust's
Administrator;
2
<PAGE> 3
(xii) Determine the outstanding receivables and
payables for all (1) security trades, (2)
Fund share transactions and (3) income and
expense accounts;
(xiii) Provide accounting reports in connection
with the Trust's regular annual audit and
other audits and examinations by regulatory
agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon, as set forth in a separate
schedule.
(c) SPECIAL REPORTS AND SERVICES.
(i) Fund Accountant may provide additional
special reports upon the request of the
Trust or a Fund's investment adviser, which
may result in an additional charge, the
amount of which shall be agreed upon between
the parties.
(ii) Fund Accountant may provide such other
similar services with respect to a Fund as
may be reasonably requested by the Trust,
which may result in an additional charge,
the amount of which shall be agreed upon
between the parties.
(d) ADDITIONAL ACCOUNTING SERVICES. Fund Accountant shall
also perform the following additional accounting
services for each Fund:
(i) Provide monthly a download (and hard copy
thereof) of the financial statements
described below, upon request of the Trust.
The download will include the following
items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information.
(ii) Provide accounting information for the
following:
(A) federal and state income tax returns and
federal excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission
("SEC") on Form N-SAR;
(C) the Trust's annual, semi-annual and
quarterly (if any) shareholder reports;
3
<PAGE> 4
(D) registration statements on Form N-1A and
other filings relating to the
registration of shares;
(E) the Administrator's monitoring of the
Trust's status as a regulated investment
company under Subchapter M of the
Internal Revenue Code, as amended;
(F) annual audit by the Trust's auditors;
and
(G) examinations performed by the SEC.
2. Subcontracting.
---------------
Fund Accountant may, at its expense, subcontract with any
entity or person concerning the provision of the services contemplated
hereunder; provided, however, that Fund Accountant shall not be relieved of any
of its obligations under this Agreement by the appointment of such subcontractor
and provided further, that Fund Accountant shall be responsible, to the extent
provided in Section 7 hereof, for all acts of such subcontractor as if such acts
were its own.
3. Compensation.
-------------
The Trust shall pay Fund Accountant for the services to be
provided by Fund Accountant under this Agreement in accordance with, and in the
manner set forth in the Omnibus Fee Agreement between the Trust and BISYS dated
as of October 1, 1999 (the "Fee Agreement").
4. Reimbursement of Expenses.
--------------------------
In addition to paying Fund Accountant the fees described in
Section 3 hereof, the Trust agrees to reimburse Fund Accountant for its
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
(a) All freight and other delivery and bonding charges incurred by
Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund
Accountant in communication with the Trust, the Trust's
investment adviser or custodian, dealers or others as required
for Fund Accountant to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) All systems-related expenses associated with the provision of
special reports and services pursuant to Section 1(c) herein;
4
<PAGE> 5
(f) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly
authorized; and
(g) Any additional expenses reasonably incurred by Fund Accountant
in the performance of its duties and obligations under this
Agreement.
5. Effective Date.
---------------
This Agreement shall become effective with respect to a Fund
as of the date first written above (or, if a particular Fund is not in existence
on that date, on the date such Fund commences operation) (the "Effective Date").
6. Term.
-----
This Agreement shall continue in effect with respect to a
Fund, unless earlier terminated by either party hereto as provided hereunder,
until September 30, 2004 (the "Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be renewed automatically for
successive one-year periods ("Rollover Periods"). This Agreement may be
terminated without penalty (i) by provision of a notice of nonrenewal in the
manner set forth below, (ii) by mutual agreement of the parties or (iii) for
"cause," as defined below, upon the provision of 60 days advance written notice
by the party alleging cause. Written notice of nonrenewal must be provided
within 60 days of the end of the Initial Term or any Rollover Period, as the
case may be.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been remedied for thirty (30)
days following written notice of such breach from the non-breaching party; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) financial difficulties on the part
of the party to be terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; (d) any failure on the part of the Trust to collect from the
investment adviser any payment or reimbursement that is due and payable by the
Funds' investment adviser to the Trust (including an amount due the Trust that
directly or indirectly represents amounts payable to the Funds' Administrator)
within 60 days following the due date; or (e) any failure on the part of the
Trust to pay an amount that is due and payable to Fund Accountant or any of its
affiliates under any other agreement to which the Trust is a party within 60
days following the due date. For purposes of this definition of "cause," a
material breach shall include, but not be limited to, any failure on the part of
the Trust to pay fees due and payable to Fund Accountant within 60 days
following the due date.
5
<PAGE> 6
After such termination for so long as Fund Accountant, with
the written consent of the Trust, in fact continues to perform any one or more
of the services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due Fund Accountant and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. Fund Accountant shall be entitled to collect from the Trust, in
addition to the compensation described under Sections 3 and 4 hereof, the amount
of all of Fund Accountant's cash disbursements for services in connection with
Fund Accountant's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents.
If, for any reason other than the nonrenewal, mutual agreement
of the parties or "cause," as defined above, Fund Accountant is replaced as the
service provider under this Agreement or if a third party is added to perform
all or a part of the services provided by Fund Accountant under any of such
agreements, then the Trust shall make a one-time cash payment, as liquidated
damages, to Fund Accountant equal to the balance due Fund Accountant under the
Fee Agreement for the lesser of (A) the next twelve months or (B) the remainder
of the then-current term of this Agreement, assuming for purposes of calculation
of the payment that such balance shall be based upon the average amount of Fund
assets and the average number of Fund shareholder accounts for the twelve months
prior to the date Fund Accountant is replaced or a third party is added.
In the event the Funds are merged into another legal entity in
part or in whole pursuant to any form of business reorganization or is
liquidated in part or in whole prior to the expiration of the then-current term
of this Agreement, the parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those instances in which Fund
Accountant is not retained to provide fund accounting services consistent with
this Agreement. The one-time cash payment referenced above shall be due and
payable on the day prior to the first day in which Fund Accountant is replaced
or a third party is added.
The parties further acknowledge and agree that, in the event
Fund Accountant is replaced, or a third party is added, as set forth above, (i)
a determination of actual damages incurred by Fund Accountant would be extremely
difficult, and (ii) the liquidated damages provision contained herein is
intended to adequately compensate Fund Accountant for damages incurred and is
not intended to constitute any form of penalty.
7. Standard of Care; Reliance on Records and Instructions;
-------------------------------------------------------
Indemnification.
----------------
Fund Accountant shall use its best efforts to insure the
accuracy of all services performed under this Agreement, but shall not be liable
to the Trust for any action taken or omitted by Fund Accountant in the absence
of bad faith, willful misfeasance, negligence or from reckless disregard by it
of its obligations and duties. A Fund agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, trustees, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and
6
<PAGE> 7
all judgments, liabilities, losses, damages, costs, charges, counsel fees and
other expenses of every nature and character arising out of or in any way
relating to Fund Accountant's actions taken or nonactions with respect to the
performance of services under this Agreement with respect to such Fund or based,
if applicable, upon reasonable reliance on information, records, instructions or
requests with respect to such Fund given or made to Fund Accountant by a duly
authorized representative of the Trust; provided that this indemnification shall
not apply to actions or omissions of Fund Accountant in cases of its own bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties, and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, Fund Accountant
shall give the Trust written notice of and reasonable opportunity to defend
against said claim in its own name or in the name of Fund Accountant.
8. Record Retention and Confidentiality.
-------------------------------------
Fund Accountant shall keep and maintain on behalf of the Trust
all books and records which the Trust and Fund Accountant is, or may be,
required to keep and maintain pursuant to any applicable statutes, rules and
regulations, including without limitation Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"), relating to the
maintenance of books and records in connection with the services to be provided
hereunder. Fund Accountant further agrees that all such books and records shall
be the property of the Trust and to make such books and records available for
inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
9. Uncontrollable Events.
----------------------
Fund Accountant assumes no responsibility hereunder, and shall
not be liable, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control.
10. Reports.
--------
Fund Accountant will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or completed by Fund
Accountant, or as subsequently agreed upon by the parties pursuant to an
amendment hereto. The Trust agrees to examine each such report or copy promptly
and will report or cause to be reported any errors or discrepancies therein.
7
<PAGE> 8
11. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform
services required to be provided by Fund Accountant under this Agreement are the
property of Fund Accountant. All records and other data except such computer
programs and procedures are the exclusive property of the Trust and all such
other records and data will be furnished to the Trust in appropriate form as
soon as practicable after termination of this Agreement for any reason.
12. Return of Records.
------------------
Fund Accountant may at its option at any time, and shall
promptly upon the Trust's demand, turn over to the Trust and cease to retain
Fund Accountant's files, records and documents created and maintained by Fund
Accountant pursuant to this Agreement which are no longer needed by Fund
Accountant in the performance of its services or for its legal protection. If
not so turned over to the Trust, such documents and records will be retained by
Fund Accountant for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
13. Representations of the Trust.
-----------------------------
The Trust certifies to Fund Accountant that: (1) as of the
close of business on the Effective Date, each Fund that is in existence as of
the Effective Date has authorized unlimited shares, and (2) this Agreement has
been duly authorized by the Trust and, when executed and delivered by the Trust,
will constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
14. Representations of Fund Accountant.
-----------------------------------
Fund Accountant represents and warrants that: (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
the records, and other data of the Trust and Fund Accountant's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
8
<PAGE> 9
Fund Accountant agrees to perform comprehensive tests on the
systems it utilizes to provide the services hereunder to identify any
operational issues caused by the century change. Fund Accountant agrees to use
all commercially reasonable efforts to implement by December 31, 1999, all
necessary updates and changes to such systems, if any, to accommodate the turn
of the century. Fund Accountant agrees to provide to the Trust monthly updates
on the status of its Year 2000 readiness project and to make its personnel
reasonably available to address any questions. In particular and, without
limiting the foregoing, Fund Accountant shall notify the Trust of any
circumstances known to Fund Accountant which are likely to cause Fund
Accountant's systems to be Year 2000 non-compliant and which would likely have
an adverse effect on the Funds.
In the event that the Trust reasonably determines that any of
the systems Fund Accountant utilizes to perform services hereunder will not be
Year 2000 compliant and that such lack of compliance will have an adverse
effect on the Trust, the Trust shall provide written notice to Fund Accountant
describing, in reasonable detail, any defect or problem relating to such
system(s) promptly upon becoming aware of any such defect or problem. Fund
Accountant agrees to use all commercially reasonable efforts to cure any
defect or deficiency that relates to the turn of the century in any system
that Fund Accountant utilizes to provide services hereunder. This paragraph
does not alter the obligations of Fund Accountant under the preceding
paragraph.
15. Insurance.
----------
Fund Accountant shall maintain a fidelity bond covering
larceny and embezzlement and an insurance policy with respect to professional
liability coverage in amounts that are appropriate in light of its duties and
responsibilities hereunder. Fund Accountant shall notify the Trust should any of
its insurance coverage be canceled or reduced. Such notification shall include
the date of change and the reasons therefor. Fund Accountant shall notify the
Trust of any material claims against it with respect to services performed under
this Agreement, whether or not they may be covered by insurance, and shall
notify the Trust from time to time as may be appropriate of the total
outstanding claims made by Fund Accountant under its insurance coverage.
16. Information to be Furnished by the Trust and Funds.
---------------------------------------------------
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust or Articles of
Incorporation of the Trust and of any amendments
thereto, certified by the proper official of the
state in which such document has been filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments
thereto; and
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<PAGE> 10
(ii) Certified copies of resolutions of the
Trustees covering the approval of this
Agreement, authorization of a specified
officer of the Trust to execute and deliver
this Agreement and authorization for
specified officers of the Trust to instruct
Fund Accountant thereunder.
(c) A list of all the officers of the Trust, together
with specimen signatures of those officers who are
authorized to instruct Fund Accountant in all
matters.
(d) Two copies of the Prospectuses and Statements of
Additional Information for each Fund.
17. Information Furnished by Fund Accountant.
-----------------------------------------
(a) Fund Accountant has furnished to the Trust the
following:
(i) Fund Accountant's Articles of Incorporation;
and
(ii) Fund Accountant's Bylaws and any amendments
thereto.
(b) Fund Accountant shall, upon request, furnish
certified copies of corporate actions covering the
following matters:
(i) Approval of this Agreement, and
authorization of a specified officer of Fund
Accountant to execute and deliver this
Agreement; and
(ii) Authorization of Fund Accountant to act as
fund accountant for the Trust and to provide
accounting services for the Trust.
18. Amendments to Documents.
------------------------
The Trust shall furnish Fund Accountant written copies of any
amendments to, or changes in, any of the items referred to in Section 16 hereof
forthwith upon such amendments or changes becoming effective. In addition, the
Trust agrees that no amendments will be made to the Prospectuses or Statements
of Additional Information of the Trust which might have the effect of changing
the procedures employed by Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes.
19. Compliance with Law.
--------------------
Except for the obligations of Fund Accountant set forth in
Section 8 hereof, the Trust assumes full responsibility for the preparation,
contents and distribution of each prospectus of the Trust as to compliance with
all applicable requirements of the Securities Act of 1933, as amended
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<PAGE> 11
(the "Securities Act"), the 1940 Act and any other laws, rules and regulations
of governmental authorities having jurisdiction. Fund Accountant shall have no
obligation to take cognizance of any laws relating to the sale of the Trust's
shares. The Trust represents and warrants that no shares of the Trust will be
offered to the public until the Trust's registration statement under the
Securities Act and the 1940 Act has been declared or becomes effective.
20. Notices.
--------
Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to the party required to be served with
such notice, at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
21. Headings.
---------
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
22. Assignment.
-----------
This Agreement and the rights and duties hereunder shall not
be assignable with respect to a Fund by either of the parties hereto except by
the specific written consent of the other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
23. Governing Law.
--------------
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio.
24. Limitation of Liability of the Trustees and Shareholders.
---------------------------------------------------------
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the day and year first above written.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
---------------------------
Title:________________________
BISYS FUND SERVICES OHIO, INC.
By: /s/ William Tomko
---------------------------
Title: President
------------------------
12
<PAGE> 1
Exhibit (h)(3)
TRANSFER AGENCY AGREEMENT
AGREEMENT made this 1st day of October, 1999 between THE COVENTRY GROUP
(the "Trust"), a Massachusetts business trust having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES
OHIO, INC. ("BISYS"), an Ohio corporation having its principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform, and BISYS is willing to
perform certain transfer agency services for each currently existing series of
the Trust advised by Proprietary Capital LLC ("Proprietary") and any such
additional series advised by Proprietary as the Trust and BISYS may agree on
from time to time (individually referred to herein as a "Fund" and collectively
as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES.
BISYS shall perform for the Trust the transfer agent services
set forth in Schedule A hereto. BISYS also agrees to perform for the Trust such
special services incidental to the performance of the services enumerated herein
as agreed to by the parties from time to time. BISYS shall perform such
additional services as are provided on an amendment to Schedule A hereof, in
consideration of such fees as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
2. FEES.
The Trust shall pay BISYS for the services to be provided by
BISYS under this Agreement in accordance with, and in the manner set forth in
the Omnibus Fee Agreement between the Trust and BISYS dated as of October 1,
1999 (the "Fee Agreement").
<PAGE> 2
3. REIMBURSEMENT OF EXPENSES.
In addition to paying BISYS the fees described in Section 2
hereof, the Trust agrees to reimburse BISYS for BISYS' out-of-pocket expenses in
providing services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges
incurred by BISYS in delivering materials to and from the
Trust and in delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy
or other electronic transmission expenses incurred by
BISYS in communication with the Trust, the Trust's
investment adviser or custodian, dealers, shareholders or
others as required for BISYS to perform the services to be
provided hereunder;
(c) Costs of postage, couriers, stock computer paper,
statements, labels, envelopes, checks, reports, letters,
tax forms, proxies, notices or other forms of printed
material which shall be required by BISYS for the
performance of the services to be provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) All systems-related expenses associated with the provision
of special reports and services pursuant to Schedule B
attached hereto; and
(f) Any expenses BISYS shall incur at the written direction of
an officer of the Trust thereunto duly authorized.
4. EFFECTIVE DATE.
This Agreement shall become effective as of the date first
written above (the "Effective Date").
5. TERM.
This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, until
September 30, 2004 (the "Initial Term"). Thereafter, unless otherwise terminated
as provided herein, this Agreement shall be renewed automatically for successive
one-year periods ("Rollover Periods"). This Agreement may be terminated without
penalty (i) by provision of a notice of nonrenewal in the manner set forth
below, (ii) by mutual agreement of the parties or (iii) for "cause," as defined
below, upon the provision of 60 days advance written notice by the party
alleging cause. Written notice of
2
<PAGE> 3
nonrenewal must be provided within 60 days of the end of the Initial Term or any
Rollover Period, as the case may be.
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been remedied for thirty (30)
days following written notice of such breach from the non-breaching party; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; or (c) financial difficulties on the
part of the party to be terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; (d) any failure on the part of the Trust to collect from the Funds'
investment adviser any payment or reimbursement that is due and payable by the
investment adviser to the Trust (including an amount due the Trust that directly
or indirectly represents amounts payable to the Funds' Administrator within 60
days following the due date; or (e) any failure on the part of the Trust to pay
an amount that is due and payable to BISYS or any of its affiliates under any
other agreement to which the Trust is a party within 60 days following the due
date. For purposes of this definition of "cause," a material breach shall
include, but not be limited to, any failure on the part of the Trust to pay fees
due and payable to BISYS hereunder within 60 days following the due date.
After such termination, for so long as BISYS, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees and
out-of-pocket expenses incurred by BISYS but unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' cash disbursements in connection with BISYS' activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its distributor or investment adviser and/or other parties, of the
Trust's property, records, instruments and documents.
If, for any reason other than nonrenewal, mutual agreement of
the parties or "cause," as defined above, BISYS is replaced as transfer agent,
or if a third party is added to perform all or a part of the services provided
by BISYS under this Agreement (excluding any Sub-transfer Agent appointed by
BISYS as provided in Section 1 hereof), then the Trust shall make a one-time
cash payment, in consideration of the fee structure and services to be provided
under this Agreement, and not as a penalty, to BISYS equal to the balance due
BISYS for the remainder of the then-current term of this Agreement, assuming for
purposes of calculation of the
3
<PAGE> 4
payment that such balance shall be based upon the average number of Trust
shareholder accounts for the twelve months prior to the date BISYS is replaced
or a third party is added.
In the event the Funds are merged into another legal entity in
part or in whole pursuant to any form of business reorganization or is
liquidated in part or in whole prior to the expiration of the then-current term
of this Agreement, the parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those instances in which BISYS
is not retained to provide transfer agency services consistent with this
Agreement, including the level of assets subject to such services. The one-time
cash payment referenced above shall be due and payable on the day prior to the
first day in which BISYS is replaced or a third party is added.
The parties further acknowledge and agree that, in the event
BISYS is replaced, or a third party is added, as set forth above, (i) a
determination of actual damages incurred by BISYS would be extremely difficult,
and (ii) the liquidated damages provision contained herein is intended to
adequately compensate BISYS for damages incurred and is not intended to
constitute any form of penalty.
6. UNCONTROLLABLE EVENTS.
BISYS assumes no responsibility hereunder, and shall not be
liable for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control.
7. LEGAL ADVICE.
BISYS shall notify the Trust at any time BISYS believes that it
is in need of the advice of counsel (other than counsel in the regular employ of
BISYS or any affiliated companies) with regard to BISYS' responsibilities and
duties pursuant to this Agreement; and after so notifying the Trust, BISYS, at
its discretion, shall be entitled to seek, receive and act upon advice of legal
counsel of its choosing, such advice to be at the expense of the Trust or Funds
unless relating to a matter involving BISYS' willful misfeasance, bad faith,
gross negligence or reckless disregard with respect to BISYS' responsibilities
and duties hereunder and BISYS shall in no event be liable to the Trust or any
Fund or any shareholder or beneficial owner of the Trust for any action
reasonably taken pursuant to such advice.
8. INSTRUCTIONS.
Whenever BISYS is requested or authorized to take action
hereunder pursuant to instructions from a shareholder, or a properly authorized
agent of a shareholder ("shareholder's agent"), concerning an account in a Fund,
BISYS shall be entitled to rely upon any certificate, letter or other instrument
or communication, believed by BISYS to be genuine and to have been properly
made, signed or authorized by an officer or other authorized agent of the Trust
or by the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as
4
<PAGE> 5
conclusive proof of any fact or matter required to be ascertained by it
hereunder a certificate signed by an officer of the Trust or any other person
authorized by the Trust's Board of Trustees (hereafter referred to as the
"Trustees") or by the shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
9. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION.
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, trustees, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
10. RECORD RETENTION AND CONFIDENTIALITY.
BISYS shall keep and maintain on behalf of the Trust all books
and records which the Trust or BISYS is, or may be, required to keep and
maintain pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the Investment Company Act of
1940, as amended (the "1940 Act"), relating to the maintenance of books and
records in connection with the services to be provided hereunder. BISYS further
agrees that all such books and records shall be the property of the Trust and to
make such books and records available for inspection by the Trust or by the
Securities and Exchange Commission (the "Commission") at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Trust and its shareholders, except when requested to divulge
such information by duly-constituted authorities or court process, or requested
by a shareholder or shareholder's agent with respect to information concerning
an account as to which such
5
<PAGE> 6
shareholder has either a legal or beneficial interest or when requested by the
Trust, the shareholder, or shareholder's agent, or the dealer of record as to
such account.
11. REPORTS.
BISYS will furnish to the Trust and to its properly-authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Trust in writing,
such reports at such times as are prescribed in Schedule B attached hereto, or
as subsequently agreed upon by the parties pursuant to an amendment to Schedule
B. The Trust agrees to examine each such report or copy promptly and will report
or cause to be reported any errors or discrepancies therein.
12. RIGHTS OF OWNERSHIP.
All computer programs and procedures developed to perform
services required to be provided by BISYS under this Agreement are the property
of BISYS. All records and other data except such computer programs and
procedures are the exclusive property of the Trust and all such other records
and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.
13. RETURN OF RECORDS.
BISYS may at its option at any time, and shall promptly upon the
Trust's demand, turn over to the Trust and cease to retain BISYS' files, records
and documents created and maintained by BISYS pursuant to this Agreement which
are no longer needed by BISYS in the performance of its services or for its
legal protection. If not so turned over to the Trust, such documents and records
will be retained by BISYS for six years from the year of creation. At the end of
such six-year period, such records and documents will be turned over to the
Trust unless the Trust authorizes in writing the destruction of such records and
documents.
14. BANK ACCOUNTS.
The Trust and the Funds shall establish and maintain such bank
accounts with such bank or banks as are selected by the Trust, as are necessary
in order that BISYS may perform the services required to be performed hereunder.
To the extent that the performance of such services shall require BISYS directly
to disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
15. REPRESENTATIONS OF THE TRUST.
The Trust certifies to BISYS that: (a) as of the close of
business on the Effective Date, each Fund which is in existence as of the
Effective Date has authorized unlimited shares,
6
<PAGE> 7
and (b) by virtue of its Declaration of Trust or Articles of Incorporation,
shares of each Fund which are redeemed by the Trust may be sold by the Trust
from its treasury, and (c) this Agreement has been duly authorized by the Trust
and, when executed and delivered by the Trust, will constitute a legal, valid
and binding obligation of the Trust, enforceable against the Trust in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties.
16. REPRESENTATIONS OF BISYS.
BISYS represents and warrants that: (a) BISYS has been in, and
shall continue to be in, substantial compliance with all provisions of law,
including Section 17A(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of its duties under
this Agreement; and (b) the various procedures and systems which BISYS has
implemented with regard to safekeeping from loss or damage attributable to fire,
theft or any other cause of the blank checks, records, and other data of the
Trust and BISYS' records, data, equipment, facilities and other property used in
the performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder.
BISYS agrees to perform comprehensive tests on the systems it
utilizes to provide the services hereunder to identify any operational issues
caused by the century change. BISYS agrees to use all commercially reasonable
efforts to implement by December 31, 1999, all necessary updates and changes to
such systems, if any, to accommodate the turn of the century. BISYS agrees to
provide to the Trust monthly updates on the status of its Year 2000 readiness
project and to make its personnel reasonably available to address any questions.
In particular and, without limiting the foregoing, BISYS shall notify the Trust
of any circumstances known to BISYS which are likely to cause BISYS's systems to
be year 2000 non-compliant and which would likely have an adverse effect on the
Funds.
In the event that the Trust reasonably determines that any of
the systems BISYS utilizes to perform services hereunder will not be Year 2000
compliant and that such lack of compliance will have an adverse effect on the
Trust, the Trust shall provide written notice to BISYS describing, in reasonable
detail, any defect or problem relating to such system(s) promptly upon becoming
aware of any such defect or problem. BISYS agrees to use all commercially
reasonable efforts to cure any defect or deficiency that relates to the turn of
the century in any system that BISYS utilizes to provide services hereunder.
This paragraph does not alter the obligations of BISYS under the preceding
paragraph.
17. INSURANCE.
BISYS shall maintain a fidelity bond covering larceny and
embezzlement and an insurance policy with respect to professional liability
coverage in amounts that are appropriate in
7
<PAGE> 8
light of its duties and responsibilities hereunder. BISYS shall notify the Trust
should its insurance coverage with respect to professional liability or errors
and omissions coverage be canceled or reduced. Such notification shall include
the date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
18. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS.
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust or Articles of
Incorporation of the Trust and of any amendments thereto,
certified by the proper official of the state in which
such Declaration or Articles has been filed.
(b) Copies of the following documents:
1. The Trust's Bylaws and any amendments thereto;
2. Certified copies of resolutions of the Trustees
covering the following matters:
A. Approval of this Agreement and authorization
of a specified officer of the Trust to
execute and deliver this Agreement and
authorization for specified officers of the
Trust to instruct BISYS hereunder; and
B. Authorization of BISYS to act as Transfer
Agent for the Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with
specimen signatures of those officers, who are authorized
to instruct BISYS in all matters.
(d) Two copies of the following (if such documents are
employed by the Trust):
1. Prospectuses and Statement of Additional
Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
8
<PAGE> 9
(e) A certificate as to shares of beneficial interest or
common stock of the Trust authorized, issued, and
outstanding as of the Effective Date of BISYS' appointment
as Transfer Agent (or as of the date on which BISYS'
services are commenced, whichever is the later date) and
as to receipt of full consideration by the Trust for all
shares outstanding, such statement to be certified by the
Treasurer of the Trust.
19. INFORMATION FURNISHED BY BISYS.
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the
following matters:
1. Approval of this Agreement, and authorization of
a specified officer of BISYS to execute and
deliver this Agreement; 2. Authorization of
BISYS to act as Transfer Agent for the Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed
with the Commission pursuant to Rule 17Ad-13 under the
Exchange Act.
20. AMENDMENTS TO DOCUMENTS.
The Trust shall furnish BISYS written copies of any amendments
to, or changes in, any of the items referred to in Section 18 hereof forthwith
upon such amendments or changes becoming effective. In addition, the Trust
agrees that no amendments will be made to the Prospectuses or Statement of
Additional Information of the Trust which might have the effect of changing the
procedures employed by BISYS in providing the services agreed to hereunder or
which amendment might affect the duties of BISYS hereunder unless the Trust
first obtains BISYS' approval of such amendments or changes.
21. RELIANCE ON AMENDMENTS
BISYS may rely on any amendments to or changes in any of the
documents and other items to be provided by the Trust pursuant to Sections 18
and 20 of this Agreement and the Trust hereby indemnifies and holds harmless
BISYS from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character which may result from actions or omissions on the
9
<PAGE> 10
part of BISYS in reasonable reliance upon such amendments and/or changes.
Although BISYS is authorized to rely on the above-mentioned amendments to and
changes in the documents and other items to be provided pursuant to Sections 18
and 20 hereof, BISYS shall be under no duty to comply with or take any action as
a result of any of such amendments or changes unless the Trust first obtains
BISYS' written consent to and approval of such amendments or changes.
22. COMPLIANCE WITH LAW.
Except for the obligations of BISYS set forth in Section 10
hereof, the Trust assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
23. NOTICES.
Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to the party required to be served with
such notice at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
24. HEADINGS.
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
25. ASSIGNMENT.
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 25 shall not limit or in any way affect
BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1 hereof. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
26. GOVERNING LAW.
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio. It is expressly
agreed that the obligations of the Trust hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents or employees of the
Trust personally, but shall bind only the trust property of the Trust.
10
<PAGE> 11
The execution and delivery of this Agreement have been authorized by the
Trustees, and this Agreement has been signed and delivered by an authorized
officer of the Trust, acting as such, and neither such authorization by the
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
the Trust's Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the day and year first above written.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
----------------------------------
Title:
-------------------------------
BISYS FUND SERVICES OHIO, INC.
By: /s/ William Tomko
----------------------------------
Title: President
-------------------------------
11
<PAGE> 12
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
TRANSFER AGENCY SERVICES
------------------------
1. SHAREHOLDER TRANSACTIONS
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares,
through dividend reimbursement.
2. SHAREHOLDER INFORMATION SERVICES
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
A-1
<PAGE> 13
3. COMPLIANCE REPORTING
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service
forms for corresponding Fund and shareholder income and capital
gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. DEALER/LOAD PROCESSING (IF APPLICABLE)
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. SHAREHOLDER ACCOUNT MAINTENANCE
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE> 14
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
8. Such special reports and additional information that the parties may
agree upon, from time to time.
B-1
<PAGE> 1
Exhibit (h)(4)
OMNIBUS FEE AGREEMENT
---------------------
THIS AGREEMENT is made as of this 1st day of October, 1999, by and
between THE COVENTRY GROUP (the "Trust"), a Massachusetts business trust, and
BISYS FUND SERVICES OHIO, INC. ("BISYS"), an Ohio corporation.
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940 Act")
consisting of several series of shares of beneficial interest ("Shares");
WHEREAS, the Trust and BISYS have entered into an Administration
Agreement, a Fund Accounting Agreement, and a Transfer Agency Agreement each of
which is dated October 1, 1999, concerning the provision of administration, fund
accounting and transfer agency services for the investment portfolios of the
Trust advised by Proprietary Capital LLC (individually referred to herein as a
"Fund" and collectively as the "Funds"); and
WHEREAS, the parties desire to set forth the compensation payable to
BISYS by the Trust under the Administration Agreement, Fund Accounting Agreement
and Transfer Agency Agreement (collectively the "Service Agreements") in a
separate written document.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. The amount of the compensation due and payable to BISYS for the
services set forth in the Service Agreements is set forth in Schedule A hereto.
Such compensation shall be payable during the term of the Service Agreements. In
addition to the foregoing, BISYS shall be reimbursed for certain out-of-pocket
expenses, as more fully set forth in the Service Agreements.
2. This Agreement shall be governed by, and its provisions shall be
construed in accordance with, the laws of the State of Ohio.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be fully executed as of the day and year first written above.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
-------------------------------
Title: ___________________________
BISYS FUND SERVICES OHIO, INC.
By: /s/ William Tomko
-------------------------------
Title: President
----------------------------
2
<PAGE> 3
SCHEDULE A
TO THE OMNIBUS FEE AGREEMENT
DATED OCTOBER 1, 1999
BETWEEN
THE COVENTRY GROUP
AND
BISYS FUND SERVICES OHIO, INC.
FEES
----
ASSET-BASED FEES
- ----------------
Subject to the annual minimum fee set forth below, the Trust shall pay
to BISYS on the first business day of each month, or at such time(s) as BISYS
shall request and the parties hereto shall agree, a fee for each Fund computed
daily at the annual rate of:
Twenty one-hundredths of one percent (.20%) of each
Fund's average daily net assets up to $300 million;
Eighteen one-hundredths of one percent (.18%) of each
Fund's average daily net assets in excess of $300
million and up to $500 million;
Sixteen one-hundredths of one percent (.16%) of each
Fund's average daily net assets in excess of $500
million and up to $700 million;
Fourteen one-hundredths of one percent (.14%) of each
Fund's average daily net assets in excess of $700
million and up to $900 million;
Twelve one-hundredths of one percent (.12%) of each
Fund's average daily net assets in excess of $900
million and up to $1 billion; and
Ten one-hundredths of one percent (.10%) of each
Fund's average daily net assets in excess of $ 1
billion.
The above-referenced fee shall be subject to an annual minimum fee of
$150,000.
A-1
<PAGE> 4
PER ACCOUNT FEES
In addition to the asset-based fees set forth above, BISYS shall be
entitled to receive an annual fee of $25.00 per shareholder account.
ADDITIONAL CLASSES AND FUNDS
BISYS shall also be entitled to an annual fee of $25,000 for each class
of shares that is created for the Funds after the initial class and $50,000 for
each additional Fund that is created after the Counter Bond Fund.
REIMBURSEMENT OF EXPENSES
The fees set forth above shall be in addition to the payment of
out-of-pocket expenses, as provided for in the Service Agreements.
A-2
<PAGE> 1
Exhibit (h)(5)
EXPENSE LIMITATION AGREEMENT
FOR THE COUNTER BOND FUND
THIS AGREEMENT, dated as of October 1, 1999, is made and entered
into by and between The Coventry Group, a Massachusetts business trust (the
"Trust"), on behalf of its series The Counter Bond Fund (the "Fund"), and
Proprietary Capital LLC (the "Adviser").
WHEREAS, the Adviser has been appointed the investment adviser of the
Fund pursuant to an Investment Advisory Agreement dated October 1, 1999,
between the Trust, on behalf of the Fund, and the Adviser (the "Advisory
Agreement"); and
WHEREAS, the Trust and the Adviser desire to enter into the
arrangements described herein relating to certain expenses of the Fund;
NOW, THEREFORE, the Trust and the Adviser hereby agree as follows:
1. Until March 31, 2001, the Adviser will, subject to Section 2 hereof,
limit its fee and/or reimburse other expenses of the Fund to the extent
necessary to limit the operating expenses of the Fund to an annual rate (as a
percentage of the Fund's average daily net assets) of 1.05%.
2. The Fund will pay to the Adviser the amount of fees (including any
amounts foregone through limitation or reimbursed pursuant to Section 1 hereof)
that, but for Section 1 hereof, would have been payable by the Fund to the
Adviser pursuant to the Advisory Agreement (the "Deferred Fees"), subject to the
limitations provided in this Section. Such repayment shall be made monthly, but
only if the operating expenses of the Fund (exclusive of brokerage costs,
interest, taxes and dividend and extraordinary expenses), without regard to such
repayment, are at an annual rate (as a percentage of the average daily net
assets of the Fund), of 1.05% or less. Furthermore, the amount of Deferred Fees
paid by the Fund in any month shall be limited so that the sum of (a) the amount
of such payment and (b) the other operating expenses of the Fund (exclusive of
brokerage costs, interest, taxes and extraordinary expenses) do not exceed the
foregoing annual percentage rate.
Deferred Fees with respect to any fiscal year of the Fund shall not be
payable by the Fund to the extent that the amounts payable by the Fund pursuant
to the immediately preceding two sentences during the period ending two years
after the end of such fiscal year are not sufficient to pay such Deferred Fees.
In no event will the Fund be obligated to pay any fees waived or deferred by the
Adviser with respect to any other series of the Trust.
3. The Adviser may by notice in writing to the Trust terminate, in
whole or in part, its obligation under Section 1 to reduce its fees with respect
to the Fund in any period following the date specified in such notice (or change
the percentage specified in Section 1), but no such change shall affect the
obligation (including the amount of the obligation) of the Fund to repay amounts
of Deferred Fees with respect to periods prior to the date specified in such
notice.
<PAGE> 2
4. A copy of the Agreement and Declaration of Trust establishing the
Trust is on file with the Secretary of The Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed by the Trust on behalf of
the Fund by an officer of the Trust as an officer and not individually and that
the obligations of or arising out of this Agreement are not binding upon any of
the Trustees, officers or shareholders individually but are binding only upon
the assets and property belonging to the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE CONVENTRY GROUP,
on behalf of its series
The Counter Bond Fund PROPRIETARY CAPITAL LLC
By: /s/ Walter B. Grimm By:
--------------------------- -----------------------------
Name:_________________________ Name:___________________________
Title:________________________ Title:__________________________
-2-
<PAGE> 1
Exhibit (i)
<TABLE>
<CAPTION>
<S> <C> <C>
30 ROCKEFELLER PLAZA LAW OFFICES OF
NEW YORK, NY 10112-2200 DECHERT PRICE & RHOADS TEN POST OFFICE SQUARE - SOUTH
(212) 698-3500 BOSTON, MA 02109-4603
1775 EYE ST., N.W. (617) 728-7100
4000 BELL ATLANTIC TOWER
1717 ARCH STREET WASHINGTON, DC 20006-2401 90 STATE HOUSE SQUARE
PHILADELPHIA, PA 19103-2793 HARTFORD, CT 06103-3702
(215) 994-4000 (860) 524-3999
THIRTY NORTH THIRD STREET TELEPHONE: (202) 261-3300 65 AVENUE LOUISE
HARRISBURG, PA 17101-1603 FAX: (202) 261-3333 1050 BRUSSELS, BELGIUM
(717) 237-2000 (011-32-2) 535-5411
PRINCETON PIKE CORPORATE CENTER TITMUSS SAINER DECHERT
P.O. BOX 5218 2 SERJEANTS' INN
PRINCETON, NJ 08543-5218 LONDON EC4Y 1LT, ENGLAND
(609) 620-3200 (011-44-171) 583-5353
55 AVENUE KLEBER
75116 PARIS, FRANCE
(011-33-1) 53 65 05 00
</TABLE>
October 5, 1999
The Coventry Group
3435 Stelzer Road
Columbus, OH 43219
Re: THE COVENTRY GROUP - THE COUNTER BOND FUND
Dear Sirs:
We have acted as counsel for The Coventry Group ("Registrant") and its
series, The Counter Bond Fund ("Fund"), and are familiar with Registrant's
registration statement with respect to the Fund under the Investment Company Act
of 1940, as amended, and with the registration statement relating to its shares
under the Securities Act of 1933, as amended (collectively, "Registration
Statement"). Registrant is organized as a business trust under the laws of
Massachusetts.
We have examined Registrant's Declaration of Trust and other materials
relating to the authorization and issuance of shares of beneficial interest of
Registrant, Post-Effective Amendment No. 62 to the Registration Statement and
such other documents and matters as we have deemed necessary to enable us to
give this opinion.
Based upon the foregoing, we are of the opinion that the Fund's shares
proposed to be sold pursuant to Post-Effective Amendment No. 62 to the
Registration Statement, when it is made effective by the Securities and Exchange
Commission, will have been validly authorized and, when sold in accordance with
the terms of such Amendment and the requirements of applicable federal and state
law and delivered by Registrant against receipt of the net asset value of the
shares of the Fund, as described in Post-Effective Amendment No. 62 to the
Registration Statement, will have been legally and validly issued and will be
fully paid and non-assessable by Registrant.
<PAGE> 2
The Coventry Group
September 8, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to
Post-Effective Amendment No. 62 to the Registration Statement, to be filed with
the Securities and Exchange Commission in connection with the continuous
offering of the Fund's shares of beneficial interest, as indicated above, and to
references to our firm, as counsel to Registrant, in the Fund's prospectus and
Statement of Additional Information to be dated as of the effective date of
Post-Effective Amendment No. 62 to the Registration Statement and in any revised
or amended versions thereof, until such time as we revoke such consent.
Very truly yours,
/s/ Dechert Price & Rhoads
Dechert Price & Rhoads
