<PAGE> 1
As filed with the Securities and Exchange Commission on June 2, 1999
Securities Act No. 33-44964
Investment Company Act File No. 811-6526
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
--
Post-Effective Amendment No. 49 [X]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 51 [X]
--
THE COVENTRY GROUP
------------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 470-8000
-----------------
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, D.C. 20006
----------------------
(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 60 days after filing
pursuant to paragraph (a)(1) of Rule 485.
<PAGE> 2
The Brenton Mutual Funds
BRENTON VALUE EQUITY FUND
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
AND THE
CLASS M SHARES OF THE BRENTON U.S. GOVERNMENT
MONEY MARKET FUND
Prospectus
August 1, 1999
Brenton Bank
Investment Adviser
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
BRENTON MUTUAL FUNDS
TABLE OF CONTENTS
-----------------
RISK/RETURN SUMMARY AND FUND EXPENSES
- Brenton Value Equity Fund
- Brenton Intermediate U.S. Government Securities Fund
- Brenton U.S. Government Money Market Fund
Carefully review this important section for a summary of each Fund's
investment, risks and fees.
INVESTMENT OBJECTIVES AND STRATEGIES
- Brenton Value Equity Fund
- Brenton Intermediate U.S. Government Securities Fund
- Brenton U.S. Government Money Market Fund
- Investment Risks
This section contains details on each Fund's investment strategies and
risks.
SHAREHOLDER INFORMATION
- Pricing of Fund Shares
- Purchasing and Adding to Your Shares
- Selling Your Shares
- Exchanging Your Shares
- Dividends, Distributions and Taxes
Consult this section to obtain details on how shares are valued, how to
purchase, sell and exchange shares, related charges and payments of
dividends.
FUND MANAGEMENT
- The Investment Adviser
- Portfolio Managers
Review this section for details on the people and organizations who
oversee the Funds and their investments.
FINANCIAL HIGHLIGHTS
- Brenton Value Equity Fund
- Brenton Intermediate U.S. Government Securities Fund
- Brenton U.S. Government Money Market Fund
Review this section for details on the selected financial statements of
the Funds.
<PAGE> 4
RISK/RETURN SUMMARY AND FUND EXPENSES
================================================================================
RISK/RETURN SUMMARY OF THE BRENTON VALUE EQUITY FUND
INVESTMENT OBJECTIVE The Value Equity Fund seeks long-term capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in equity
securities of large capitalization companies
with strong earnings potential.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments
will fluctuate with market conditions, so
will the value of your investment in the
Fund. You could lose money on your investment
in the Fund, or the Fund could underperform
other investments. Some of the Fund's
holdings may underperform its other holdings.
The Fund may invest a portion of its assets
in foreign securities which can carry
additional risks such as changes in currency
exchange rates, a lack of adequate company
information and political instability.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
o INVESTING FOR A LONG-TERM GOAL SUCH AS
RETIREMENT (FIVE YEAR OR LONGER
INVESTMENT HORIZON)
o LOOKING TO ADD A GROWTH COMPONENT TO
YOUR PORTFOLIO
o WILLING TO ACCEPT HIGHER RISKS OF
INVESTING IN THE STOCK MARKET IN
EXCHANGE FOR POTENTIALLY HIGHER LONG
TERM RETURNS
This Fund will not be appropriate for
someone:
o SEEKING MONTHLY INCOME
o PURSUING A SHORT-TERM GOAL OR INVESTING
EMERGENCY RESERVES
o SEEKING SAFETY OF PRINCIPAL
1
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show how the Value Equity Fund has performed
and how its performance has varied from year to year. The bar chart shows
changes in the Fund's yearly performance for each calendar year since its
inception on August 9, 1994 to demonstrate that the Fund's value varied at
differing times. The table below compares the Fund's performance over time to
that of the S&P 500(R)Index.2
PERFORMANCE BAR CHART AND TABLE(1)
-------------------------------
<TABLE>
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns. Of course, past performance does not
indicate how the Fund will perform in the future.
---------------------------------------------------------
Best quarter: Q_ 199_ +____%
Worst quarter: Q_ 199_ -____%
---------------------------------------------------------
<TABLE>
<CAPTION>
Fund Past Year Since Inception
Inception
<S> <C> <C> <C>
VALUE EQUITY FUND 8/9/94 __% __%
S&P 500(R) INDEX(2) 8/9/94 __% __%
</TABLE>
- ----------------
(1) Both charts assume reinvestment of dividends and distributions.
(2) The Standard & Poor's 500 Composite Stock Price Index (the "S&P 500(R)
Index") is a widely recognized, unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
2
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Value Equity Fund.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly
from your investment)
Maximum Sales Charge (load) Imposed on Purchases 4.50%(1)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------
Management Fees .74%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(2) .50%
- --------------------------------------------------------------------------------
Other Expenses ___%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses ___%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) Lower sales charges are available depending upon the amount invested.
See "Distribution Arrangements."
(2) The Distributor is currently limiting the distribution fees paid by the
Fund for the current fiscal year to __%. The Distributor may revise or
cancel this expense limitation at any time and will notify you of any
material change.
3
<PAGE> 7
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
o reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
<TABLE>
<CAPTION>
1 3 5 10
VALUE EQUITY FUND Year Years Years Years
<S> <C> <C> <C> <C>
$__ $__ $__ $___
- --------------------------------------------------------------------------------
</TABLE>
RISK/RETURN SUMMARY OF THE BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
INVESTMENT OBJECTIVES The Intermediate U.S. Government Securities
Fund seeks total return consistent with the
production of current income and the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in U.S. Government
Obligations and will maintain a
dollar-weighted average portfolio maturity of
3 to 10 years.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments
will fluctuate with market conditions and
interest rates, so will the value of your
investment in the Fund. You could lose money
on your investment in the Fund, or the Fund
could underperform other investments. Some of
the Fund's holdings may underperform its
other holdings.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
o LOOKING TO ADD A MONTHLY INCOME
COMPONENT TO YOUR PORTFOLIO
o SEEKING HIGHER POTENTIAL RETURNS THAN
PROVIDED BY MONEY MARKET FUNDS
o WILLING TO ACCEPT THE RISKS OF PRICE AND
DIVIDEND FLUCTUATIONS
This Fund will not be appropriate for
someone:
o INVESTING EMERGENCY RESERVES
o SEEKING SAFETY OF PRINCIPAL
4
<PAGE> 8
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show how the Intermediate U.S. Government
Securities Fund has performed and how its performance has varied from year to
year. The bar chart shows changes in the Fund's yearly performance for each
calendar year since its inception on August 9, 1994 to demonstrate that the Fund
has gained and lost value at differing times. The table below compares the
Fund's performance over time to that of the Merrill Lynch 3 to 7 year Government
Index.(2)
PERFORMANCE BAR CHART AND TABLE(1)
-------------------------------
<TABLE>
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns. Of course, past performance does not
indicate how the Fund will perform in the future.
---------------------------------------------------------
Best quarter: Q_ 199_ +____%
Worst quarter: Q_ 199_ -____%
---------------------------------------------------------
<TABLE>
<CAPTION>
Fund Past Year Since Inception
Inception
<S> <C> <C> <C>
INTERMEDIATE U.S.
GOVERNMENT SECURITIES
FUND 8/9/94 __% __%
MERRILL LYNCH 3 TO 7
YEAR GOVERNMENT INDEX(2) 8/9/94 __% __%
</TABLE>
- -------------------
(1) Both charts assume reinvest of dividends and distributions.
(2) An unmanaged index generally representative of the performance of
intermediate U.S. government securities.
5
<PAGE> 9
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Intermediate U.S. Government Securities Fund.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly
from your investment)
Maximum Sales Charge (load) Imposed on Purchases 3.50%(1)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------
Management Fees .50%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(2) .50%
- --------------------------------------------------------------------------------
Other Expenses ___%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses ___%
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------
(1) Lower sales charges are available depending upon the amount invested.
See "Distribution Arrangements."
(2) The Distributor is currently limiting the distribution fees paid by the
Fund for the current fiscal year to ___%. The Distributor may revise or
cancel this expense limitation at any time and will notify you of any
material change
6
<PAGE> 10
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
o reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
INTERMEDIATE U.S.
GOVERNMENT
SECURITIES FUND $__ $__ $__ $___
- --------------------------------------------------------------------------------
</TABLE>
RISK/RETURN SUMMARY OF BRENTON U.S. GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVES The U.S. Government Money Market Fund seeks
current income consistent with maintaining
liquidity and stability of principal.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests in short-term U.S. Treasury
bills, notes and other short-term obligations
issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
PRINCIPAL INVESTMENT RISKS An investment in the Fund is not a deposit
of, or guaranteed or endorsed by Brenton
Bank, its parent holding company Brenton
Banks, Inc. or their affiliates, and is not
insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government
agency. Although the Fund seeks to preserve
the value of your investment at $1.00 per
share, it is possible to lose money by
investing in the Fund.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o ARE SEEKING CURRENT INCOME AND THE
PRESERVATION OF CAPITAL
o HAVE A LOW RISK TOLERANCE
o ARE INVESTING FOR A SHORT-TERM PURPOSE
AND ARE WILLING TO ACCEPT LOWER
POTENTIAL RETURNS IN EXCHANGE FOR A HIGH
DEGREE OF SAFETY
This Fund will not be appropriate for
someone:
7
<PAGE> 11
o INVESTING FOR A LONG-TERM GOAL OR FOR
RETIREMENT
o SEEKING A HIGH TOTAL RETURN
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show how the Class M Shares of the Money Market
Fund have performed and how their performance has varied from year to year. The
bar chart shows changes in the Fund's yearly performance for each calendar year
since its inception on August 9, 1994 to demonstrate that the Fund's value
varied at differing times.
PERFORMANCE BAR CHART AND TABLE(1)
-------------------------------
<TABLE>
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31(2)
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns. Of course, past performance does not
indicate how the Fund will perform in the future.
---------------------------------------------------------
Best quarter: Q_ 199_ +____%
Worst quarter: Q_ 199_ -____%
---------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
Fund Past Year Since Inception
Inception
<S> <C> <C> <C>
MONEY MARKET FUND
CLASS M SHARES 8/9/94 __% __%
</TABLE>
As of March 31, 1999, the 7-day yield for the Class M shares of the Money Market
Fund was _____%
- ----------------------
(1) Both charts assume reinvestment of dividends and distributions.
8
<PAGE> 12
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
- -----------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Class M Shares of the Money Market Fund.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly
from your investment)
Maximum Sales Charge (load) Imposed on Purchases None
- --------------------------------------------------------------------------------
Maximum Deferred Saales Charge (load) None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------
Management Fees .40%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(1) .50%
- --------------------------------------------------------------------------------
Other Expenses ___%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses ___%
- --------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) The Distributor is currently limiting the distribution fees paid by the
Fund for the current fiscal year to .__%. The Distributor may revise or
cancel this expense limitation at any time and will notify you of any
material change.
9
<PAGE> 13
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
o reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
U.S. GOVERNMENT
MONEY MARKET FUND
(CLASS M SHARES) $__ $__ $__ $___
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 14
INVESTMENT OBJECTIVES AND STRATEGIES
BRENTON VALUE EQUITY FUND
- --------------------------------------------------------------------------------
Ticker Symbol: BRVEX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
INVESTMENT OBJECTIVE
The primary investment objective of the Value Equity Fund is to seek
long-term capital appreciation.
POLICIES AND STRATEGIES
The Fund invests primarily in equity securities of companies (in
excess of $500 million in market capitalization) with strong earnings potential
and will strive for high over-all return while minimizing risk through the
selection of quality dividend paying equity securities.
Consistent with the Value Equity Fund's investment objective, the
Fund:
o invests substantially all, but in no event less than 65%, of
the value of its total assets in equity securities which are
defined as common stocks, preferred stocks, securities
convertible into common stocks, warrants and any rights to
purchase common stocks
o may invest in fixed income securities consisting of
corporate notes, bonds and debentures that are rated within
the three highest rating categories by a rating agency at
the time of purchase
o may invest in obligations issued or guaranteed by agencies
or instrumentalities of the U.S. Government
o may invest in the securities of foreign issuers and may
acquire sponsored and unsponsored American Depositary
Receipts and European Depositary Receipts
o may engage in repurchase transactions pursuant to which the
Fund purchases a security and simultaneously commits to
resell that security to the seller (either a bank or a
securities dealer) at an agreed upon price on an agreed upon
date (usually within seven days of purchase)
o may engage in certain options transactions
o may lend securities to qualified brokers, dealers, banks and
other financial institutions for the purpose of realizing
additional income
o may purchase securities on a when-issued or delayed-delivery
basis in
11
<PAGE> 15
which a security's price and yield are fixed on a specific
date but payment and delivery are scheduled for a future
date beyond the standard settlement period
o may invest in other investment companies
BRENTON INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Ticker Symbol: BIVSX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Intermediate U.S. Government
Securities Fund is to seek total return consistent with the production of
current income and the preservation of capital.
POLICIES AND STRATEGIES
Under normal market conditions the Fund will invest substantially all,
but in no event less than 65%, of the value of its total assets in U.S.
Government obligations. Under normal market conditions the Fund will maintain a
dollar-weighted average maturity of three to ten years.
Consistent with the Intermediate U.S. Government Securities Fund's
investment objective, the Fund:
o may invest in U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities
o may invest in corporate debt securities and mortgage-related
securities, high quality money market instruments
(commercial paper, certificates of deposit and bankers
acceptances), variable amount master demand notes, zero
coupon obligations, variable and floating rate notes,
taxable municipal bonds, leasing instruments, trust
certificates and asset-backed securities
o may engage in repurchase transactions pursuant to which the
Fund purchases a security and simultaneously commits to
resell that security to the seller (either a bank or a
securities dealer) at an agreed upon price on an agreed upon
date (usually within seven days of purchase)
o may engage in options transactions
o may lend securities to qualified brokers, dealers, banks and
other financial institutions for the purpose of realizing
additional income
12
<PAGE> 16
o may purchase securities on a when-issued or delayed-delivery
basis in which a security's price and yield are fixed on a
specific date but payment and delivery are scheduled for a
future date beyond the standard settlement period
o may invest in other investment companies
In the event that the Adviser determines that current market
conditions are not suitable for the Fund's typical investments, the Adviser may
instead, for temporary defensive purposes during such unusual market conditions,
invest all or any portion of the Fund's assets in money market instruments and
repurchase agreements.
BRENTON U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
Ticker Symbol: BREXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the U.S. Government Money Market Fund is
to seek current income consistent with maintaining liquidity and stability of
principal. The Fund seeks to maintain a stable net asset value of $1.00 per
share.
POLICIES AND STRATEGIES
The Fund invests in U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities
which have remaining maturities of 397 calendar days (thirteen months) or less.
The dollar-weighted average maturity of the obligations held by the Fund will
not exceed 90 days.
Consistent with the U.S. Government Money Market Fund's investment
objective, the Fund:
o may invest in master demand notes
o may invest in "stripped" U.S. Treasury obligations offered
under the STRIPS or CUBES program which are direct
obligations of the U.S. Government
o may engage in repurchase transactions pursuant to which the
Fund purchases a security and simultaneously commits to
resell that security to the seller (either a bank or a
securities dealer) at an agreed upon price on an agreed upon
date (usually within seven days of purchase)
o may lend securities to qualified brokers, dealers, banks and
other financial
13
<PAGE> 17
institutions for the purpose of realizing additional income
o may purchase securities on a when-issued or delayed-delivery
basis in which a security's price and yield are fixed on a
specific date but payment and delivery are scheduled for a
future date beyond the standard settlement period
o may invest in other investment companies
INVESTMENT RISKS
RISK FACTORS: ALL FUNDS
An investment in the Funds is subject to investment risks, including the
possible loss of the principal amount invested.
Generally, the Funds will be subject to the following risks:
o MARKET RISK: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Funds' performance per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
each Fund's investment portfolio, national and international economic
conditions and general market conditions.
o INTEREST RATE RISK: Interest rate risk refers to the risk that the value of
the Funds' fixed income securities can change in response to changes in
prevailing interest rates causing volatility and possible loss of value as
rates increase.
o CREDIT RISK: Credit risk refers to the risk related to the credit quality of
the issuer of a security held in a Fund's portfolio. The Funds could lose
money if the issuer of a security is unable to meet its financial
obligations.
o YEAR 2000 RISK: Like other funds and business organizations around the
world, the Funds could be adversely affected if the computer systems used by
the Adviser, the Sub-Adviser and the Fund's other service providers do not
properly process and calculate date related information for the year 2000
and beyond. In addition, Year 2000 issues may adversely affect companies in
which the Funds invest where, for example, such companies incur substantial
costs to address Year 2000 issues or suffer losses caused by the failure to
adequately or timely do so.
The Funds have been informed 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 Funds' 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
14
<PAGE> 18
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 Funds are 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 Funds' service
providers cannot be accurately assessed at this time, the Funds currently
have no reason to believe that the Year 2000 plans of the Adviser and each
Fund's service providers will not be completed by December 31, 1999, or that
the anticipated costs associated with full implementation of their plans
will have a material adverse impact on either their business operations or
financial condition of those of the Funds. The Funds and the Adviser will
continue to closely monitor developments relating to this issue, including
development by the Adviser and the Funds' 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.
15
<PAGE> 19
SHAREHOLDER INFORMATION
- -----------------------
PRICING OF FUND SHARES MONEY MARKET FUND
- ----------------------
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares
Outstanding
You can find each Variable NAV Fund's NAV daily in The Wall Street Journal and
other newspapers.
The Money Market Fund's per share net asset value (NAV) is determined and its
shares are priced as of 11:00 a.m. (Central Time) and the close of regular
trading on the New York Stock Exchange (NYSE), normally at 3:00 p.m., Central
time, on days the NYSE is open.
OTHER FUNDS
Per share net asset value (NAV) for each of the two non-Money Market Funds (the
"Variable NAV Funds") is determined and their shares are priced at the close of
regular trading on the NYSE, normally at 3:00 p.m. Central time on days the NYSE
is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund plus any applicable sales
charge as noted in the section on "Distribution Arrangements/Sales Charges."
This is what is known as the offering price.
Each Variable NAV 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 Funds' Trustees. The Money Market Fund values its
securities at their amortized cost. This method involves valuing an instrument
at its cost and thereafter applying a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument.
16
<PAGE> 20
PURCHASING AND ADDING TO YOUR SHARES
You may purchase the Funds through the Distributor or through investment
representatives, who may charge additional fees and may require higher minimum
investments or impose other limitations on buying and selling shares. If you
purchase shares through an investment representative, that party is responsible
for transmitting orders by close of business and may have an earlier cut-off
time for purchase and sale requests. Consult your investment representative for
specific information.
<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM MINIMUM
INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular
(non-retirement) $100 $25
Retirement $100 $__
Automatic
Investment
Plan $100 $25
</TABLE>
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
A Fund may waive its minimum purchase requirement and the Distributor may reject
a purchase order if it considers it in the best interest of the Fund and its
shareholders
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "[name of Fund]."
3. Mail to: Brenton Mutual Funds, P.O. Box 182520, Columbus, OH 43218-2520
Subsequent:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: Brenton Mutual Funds, P.O. Box 182520, Columbus, OH 43218-2520
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
4. Send to: Brenton Mutual Funds,
17
<PAGE> 21
c/o BISYS Fund Services,
Attn: Shareholder Services, 3435 Stelzer Road, Columbus, OH 43219.
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment:
Fax the completed application, along with a request for a confirmation number to
1-800-__________. Follow the instructions below after receiving your
confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Name of Bank
Routing Number: ABA #000000
DDA#
Include:
Your name
Your confirmation number
After instructing your bank to wire the funds, call 1-800-706-FUND to advise us
of the amount being transferred and the name of your bank.
You can add to your account by using the convenient options described below. The
Funds reserve the right to change or eliminate these privileges at any time with
60 days notice.
AUTOMATIC INVESTMENT PLAN You can make automatic investments in the Funds from
your bank account. Automatic investments can be as little as $25, once you've
invested the $100 minimum required to open the account.
To invest regularly from your bank account:
o Complete the Automatic Investment Plan
portion on your Account Application.
Make sure you note:
o Your bank name, address and ABA number
o Your checking or savings account number
o The amount you wish to invest automatically (minimum $25)
o How often you want to invest (monthly, bi-monthly or quarterly)
o Attach a voided personal check or savings deposit slip.
18
<PAGE> 22
- --------------------------------------------------------------------------------
Dividends and Distributions
- ---------------------------
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 AND MAY BE SUBJECT TO INCOME TAX.
- --------------------------------------------------------------------------------
SELLING YOUR SHARES
- -------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares" below.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR SELLING SHARES
By telephone 1. Call 1-800-706-FUND with instructions as to how
(unless you have you wish to receive your funds (check, wire,
declined telephone sales electronic transfer).
privileges)
- --------------------------------------------------------------------------------
By mail 1. Call 1-800-706-FUND to request redemption forms
or write a letter of instruction indicating:
o your Fund and account number
o amount you wish to redeem
o address where your check should be sent
o account owner signature
2. Mail to:
BRENTON MUTUAL FUNDS
P.O. Box 182520
Columbus, OH 43218-2520
19
<PAGE> 23
- --------------------------------------------------------------------------------
By overnight service See instruction 1 above under "By mail".
2. Send to
BRENTON MUTUAL FUNDS
Attn: Shareholder Services
3435 Stelzer Road
Columbus, OH 43219
- --------------------------------------------------------------------------------
Wire transfer Call 1-800-706-FUND to request a wire transfer.
You must indicate this
option on your If you call by 3 p.m. Central time, your
application. payment will normally be wired to your bank on
the next business day.
The Funds may charge a
wire transfer fee.
Note: Your financial
institution may also
charge a separate fee.
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or
quarterly basis. The minimum withdrawal is $100. To activate this
feature:
o Make sure you've checked the appropriate box and completed the
Automatic Withdrawal section of the Account Application. Or call
1-800-706-FUND.
o Include a voided personal check.
o Your account must have a value of $10,000 or more to start withdrawals.
o If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include
each of the following.
o Redemptions over $10,000
o Your account registration or the name(s) in your account has
changed within the last 15 days
o The check is not being mailed to the address on your account
o The check is not being made payable to the owner of the account
o The redemption proceeds are being transferred to another Fund
account with a different registration.
A signature guarantee can be obtained from a financial institution, such
as a bank, broker-dealer, credit union, clearing agency, or savings association.
20
<PAGE> 24
VERIFYING TELEPHONE REDEMPTIONS
The Funds make every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 10 business days). You can avoid this delay by
purchasing shares with a wire transfer or a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Funds reserve the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect a Fund's
operations (for example, more than 1% of the Fund's net assets). If a Fund deems
it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Fund may ask you to increase your balance.
If it is still below $500 after 60 days, the Fund may close your account and
send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in your account at the
then current NAV.
SHAREHOLDER INFORMATION
- -----------------------
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and fees you will pay as an investor in
the Funds and ways to qualify for reduced sales charges.
21
<PAGE> 25
- --------------------------------------------------------------------------------
Sales Charge (Load) Front-end sales charge (not applicable to the Money
Market Fund); reduced sales charges available.
- --------------------------------------------------------------------------------
Distribution and Service Subject to annual distribution and shareholder
(12b-1) Fee servicing fees of up to .50% of the Fund's total
assets.
- --------------------------------------------------------------------------------
CALCULATION OF SALES CHARGES
Shares of the two Variable NAV Funds are sold at their public offering price.
This price includes the initial sales charge. Therefore, part of the money you
invest will be used to pay the sales charge. The remainder is invested in Fund
shares. The sales charge decreases with larger purchases. There is no sales
charge on reinvested dividends and distributions.
The current sales charge rates for each of the Variable NAV Funds are as
follows:
FOR THE VALUE EQUITY FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- -----------------------------------------------------------------
<S> <C> <C>
Up to $49,999 4.50% 4.71%
- -----------------------------------------------------------------
$50,000 up to $249,999 4.00% 4.17%
- -----------------------------------------------------------------
$250,000 up to $499,999 3.50% 3.63%
- -----------------------------------------------------------------
$500,000 up to $999,999 3.00% 3.09%
- -----------------------------------------------------------------
$1,000,000 and above 2.50% 2.56%
- -----------------------------------------------------------------
</TABLE>
FOR THE INTERMEDIATE U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- -----------------------------------------------------------------
<S> <C> <C>
Up to $49,999 3.50% 3.63%
- -----------------------------------------------------------------
$50,000 up to $249,999 3.00% 3.09%
- -----------------------------------------------------------------
$250,000 up to $499,999 2.50% 2.56%
- -----------------------------------------------------------------
$500,000 up to $999,999 2.00% 2.04%
- -----------------------------------------------------------------
$1,000,000 and above 1.50% 1.52%
- -----------------------------------------------------------------
</TABLE>
SALES CHARGE REDUCTIONS
Reduced sales charges are available to shareholders with investments of $50,000
or more. In addition, you may qualify for reduced sales charges under the
following circumstances.
- - Letter of Intent. You inform the Fund in writing that you intend to purchase
enough shares over a 13-month period to qualify for a reduced sales charge.
You must include a minimum of 5% of the total amount you intend to purchase
with your letter of intent.
22
<PAGE> 26
- - Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for reduced
sales charges, your added investment will qualify for the reduced sales
charge.
- - Combination Privilege. Combine accounts of multiple Funds (excluding the
Money Market Fund) or accounts of immediate family household members (spouse
and children under 21) to achieve reduced sales charges.
SALES CHARGE WAIVERS
The following classes of investors may purchase Shares of the Variable NAV Funds
with no sales charge:
(1) existing Shareholders of a Fund upon the automatic reinvestment of dividend
and capital gains distributions;
(2) Trustees of the Group, officers, directors, employees and retired employees
of (a) the Adviser and its affiliates and (b) the Distributor and its
affiliates, and spouses and children under the age of 21 of each of the
foregoing;
(3) employees (and their spouses and children under the age of 21) of any
broker-dealer with whom the Distributor enters into a dealer agreement to
sell Shares of the Fund;
(4) investors or members of groups for whom the Adviser acts in a fiduciary,
advisory, custodial (other than for individual retirement accounts), agency
or similar capacity; and
(5) investors whose shares are owned and purchases made on behalf of other
investment companies distributed by The BISYS Group, Inc. or its affiliated
companies.
Each investor described in paragraphs (2) and (3) above must so identify
himself/herself at the time of purchase. The Distributor may change or eliminate
the foregoing waivers at any time. The Distributor may also periodically waive
all or a portion of the sales charge for all investors with respect to a
Variable NAV Fund. In addition, the Distributor may waive the sales charge for
the purchase of a Fund's shares with the proceeds from the recent redemption of
shares of another non-money market load mutual fund. The purchase must be made
within 60 days of the redemption, and the Distributor must be notified in
writing by the investor, or by his financial institution, at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice.
The Distributor and the Adviser, at their expense, may provide compensation to
dealers in connection with sales of Shares of a Fund.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of a Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and will increase the cost of your
investment.
23
<PAGE> 27
The Distributor may use up to .25% of the 12b-1 fee for shareholder servicing
and up to .25% for distribution.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.
EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in one Fund for shares of another Brenton Mutual
Fund, usually without paying additional sales charges (see "Notes" below). No
transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Brenton Mutual Funds, P.O.
Box 182520, Columbus OH 43218-2520, or by calling 1-800-706-FUND. Please provide
the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged
o The name of the Fund from which the exchange is to be made
o The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
NOTES ON EXCHANGES
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to four exchanges within a calendar
year.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
SHAREHOLDER INFORMATION
- -----------------------
BRENTON MUTUAL FUND INDIVIDUAL
RETIREMENT ACCOUNT ("IRA")
A Brenton Mutual Fund IRA enables individuals, even if they participate in
an employer-sponsored retirement plan, to establish their own retirement
programs. A Brenton Mutual Fund IRA contributions may be tax-deductible and
earnings are tax-deferred. Under the Tax Reform Act of 1986, the tax
deductibility of IRA contributions is restricted or eliminated for individuals
who participate in certain employer pension plans and whose annual income
exceeds certain limits. Existing IRAs and future contributions up to the IRA
maximums, whether deductible or not, still earn income on a tax-deferred basis.
All Brenton Mutual Fund IRA distribution requests must be made in writing
to BISYS Fund Services. Any additional deposits to an Brenton Mutual Fund IRA
must distinguish the type and year of the contribution.
24
<PAGE> 28
For more information on an Brenton Mutual Fund IRA call the Funds at
1-800-706-FUND. Shareholders are advised to consult a tax adviser regarding IRA
contribution and withdrawal requirements and restrictions.
SHAREHOLDER INFORMATION
- -----------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income a Fund receives in the form of dividends is paid out, less expenses,
to its shareholders. Income dividends on the Money Market Fund and the
Intermediate U.S. Government Securities Fund are usually paid monthly. Dividends
on the Value Equity Fund are paid quarterly. Capital gains for all Funds 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.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
Dividends are taxable as ordinary income. Taxation on capital gains will vary
with the length of time the Fund has held the security - not how long the
shareholder has been in the Fund.
Dividends are taxable in the year in which they are declared, even if they are
paid and appear on your account statement 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 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 Funds are required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Funds with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Brenton Bank, 2840 Ingersoll, Des Moines, Iowa, serves as the investment
adviser for the Funds. Brenton Bank is a wholly-owned subsidiary of Brenton
Banks, Inc., with more than 46 locations throughout Iowa. The first Brenton Bank
was founded in 1881. In 1948, Brenton Banks, Inc. became Iowa's first bank
holding company and presently has more than $1.9 billion in total assets.
25
<PAGE> 29
Brenton Bank, through its Trust & Investment Management Division, has been
managing customer assets for over 60 years and currently provides fiduciary and
investment management services to clients throughout the Midwest. The Trust &
Investment Management Division provides trust investment management and
custodial services for over $1.4 billion of trust assets.
Brenton Bank makes the day-to-day investment decisions for the Funds. In
addition, Brenton Bank continuously reviews, supervises and administers each
Fund's investment programs. For these advisory services, the Funds paid the
following fees during the fiscal year ended March 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 3/31/99
- --------------------------------------------------------------------------------
<S> <C>
Value Equity Fund .74%
- --------------------------------------------------------------------------------
Intermediate U.S. Government Securities Fund .50%
- --------------------------------------------------------------------------------
U.S. Government Money Market Fund .40%
- --------------------------------------------------------------------------------
</TABLE>
Northern Trust Company, Chicago, Illinois, serves as sub-investment adviser to
the Money Market Fund. For its services as sub-investment adviser, Northern
Trust receives a fee paid by the Adviser at the annual rate of .08% of the Money
Market Fund's average daily net assets.
PORTFOLIO MANAGERS
The following individuals serve as portfolio managers for the two Variable NAV
Funds and are primarily responsible for the day-to-day management of the Funds'
portfolios:
VALUE EQUITY FUND
Douglas L. Brown Mr. Brown holds a B.A. degree in Economics from St.
Portfolio Manager Ambrose University and he has 15 years of equity
investment experience. Mr. Brown joined the Adviser in
July 1997. Prior to joining the Adviser, Mr. Brown was
employed by NationsBank, and certain predecessor banks
acquired by NationsBank, as senior portfolio manager
since 1989.
INTERMEDIATE U.S.
GOVERNMENT
SECURITIES FUND
Brad Cunningham Mr. Cunningham holds a B.B.A. degree in Finance from
Portfolio Manager the University of New Mexico and has 14 years of fixed
income investment experience. Mr. Cunningham joined the
Adviser in January 1998 and since that time he has
served as chief investment officer with the Adviser
where he is engaged in various investment management
activities. Prior to joining the Adviser in January
1998, Mr. Cunningham had been employed by Boatman's
Bank in St. Louis, Missouri since January 1993.
26
<PAGE> 30
The Statement of Additional Information has more detailed information about the
Adviser and the other service providers
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services, Inc. serves as each Fund's distributor and BISYS Fund
Services Ohio, Inc. serves as each Fund's administrator. Their address is 3435
Stelzer Road, Columbus, Ohio 43219.
CAPITAL STRUCTURE- The Coventry Group was organized as a Massachusetts business
trust on January 8, 1992 and overall responsibility for the management of the
Funds is vested in the Board of Trustees. Shareholders are entitled to one vote
for each full share held and a proportionate fractional vote for any fractional
shares held and will vote in the aggregate and not by series except as otherwise
expressly required by law.
27
<PAGE> 31
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
each Fund's financial performance since its inception. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with each
Fund's financial statements, are included in the annual report of the Funds,
which is available upon request.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
VALUE EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR AUGUST 9,
ENDED ENDED ENDED ENDED 1994
MARCH 31, MARCH 31, MARCH 31, MARCH 31, TO MARCH
1999 1998 1997 1996 31, 1995(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 0.00 $ 14.80 $ 12.95 $ 10.83 $ 10.00
------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.00 0.10 0.13 0.10 0.09
Net realized and unrealized gains (losses)
on investments ......................... 0.00 5.41 2.11 2.70 0.83
------ ------- ------- ------- -------
Total from investment operations ........... 0.00 5.51 2.24 2.80 0.92
------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ............... (0.00) (0.10) (0.13) (0.10) (0.09)
From net capital gains ................... (0.00) (0.40) (0.19) (0.58) --
------ ------- ------- ------- -------
In excess of net realized
gains from investments ................ -- -- (0.07) -- --
Total distributions ........................ (0.00) (0.50) (0.39) (0.68) (0.09)
------ ------- ------- ------- -------
Net asset value, end of period ............. $ 0.00 $ 19.81 $ 14.80 $ 12.95 $ 10.83
====== ======= ======= ======= =======
TOTAL RETURN (excludes sales charge) ....... 0.00% 37.59% 17.44% 26.13% 9.25%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) ........... $ 0.00 $56,948 $41,727 $32,353 $15,628
Ratio of expenses to average net assets .... 0.00 1.20% 1.28% 1.45% 1.80%(c)
Ratio of net investment income to
average net assets ....................... 0.00 0.57% 0.88% 0.83% 1.39%(c)
Ratio of expenses to average net
assets* .................................. 0.00 1.65% 1.73% 1.92% 2.30%(c)
Ratio of net investment income to
average net assets* ...................... 0.00% 0.12% 0.43% 0.36% 0.89%(c)
Portfolio turnover rate .................... 0.00 33.20% 17.15% 43.80% 18.30%
</TABLE>
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
28
<PAGE> 32
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE U. S. GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR AUGUST 9,
ENDED ENDED ENDED ENDED 1994
MARCH 31, MARCH 31, MARCH 31, MARCH 31, TO MARCH
1999 1998 1997 1996 31, 1995(a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 0.00 $ 9.91 $ 10.14 $ 9.99 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.00 0.59 0.57 0.59 0.35
Net realized and unrealized gains (losses)
on investments ......................... 0.00 0.40 (0.22) 0.15 (0.02)
------- ------- ------- ------- -------
Total from investment operations ........... 0.00 0.99 0.35 0.74 0.33
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ............... (0.00) (0.58) (0.57) (0.59) (0.34)
From net capital gains ................... (0.00) (0.02) (0.01) -- --
------- ------- ------- ------- -------
Total distributions ........................ (0.00) (0.60) (0.58) (0.59) (0.34)
------- ------- ------- ------- -------
Net asset value, end of period ............. $ 0.00 $ 10.30 $ 9.91 $ 10.14 $ 9.99
======= ======= ======= ======= =======
TOTAL RETURN (excludes sales charge) ....... 0.00% 10.21% 3.51% 7.48% 3.42%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) ........... $ 0.00 $26,332 $34,158 $34,390 $16,438
Ratio of expenses to average net assets .... 0.00% 0.97% 1.02% 1.07% 1.53%(c)
Ratio of net investment income to
average net assets ....................... 0.00% 5.47% 5.64% 5.82% 5.71%(c)
Ratio of expenses to average net assets* ... 0.00% 1.42% 1.47% 1.55% 2.03%(c)
Ratio of net investment income to
average net assets* ...................... 0.00 5.02% 5.19% 5.34% 5.21%(c)
Portfolio turnover rate .................... 0.00% 61.25% 78.95% 30.85% 20.69%
</TABLE>
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
29
<PAGE> 33
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND (CLASS M SHARES)
- ---------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR AUGUST 9,
ENDED ENDED ENDED ENDED 1994
MARCH 31, MARCH 31, MARCH 31, MARCH 31, TO MARCH
1999 1998 1997 1996 31, 1995(a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $0.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.00 0.048 0.046 0.050 0.028
Total from investment operations ........... 0.00 0.048 0.046 0.050 0.028
----- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ............... (0.00) (0.048) (0.046) (0.05) (0.028)
Total distributions ........................ (0.00) (0.048) (0.046) (0.05) (0.028)
----- ------- ------- ------- -------
Net asset value, end of period ............. $0.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ======= ======= ======= =======
TOTAL RETURN ............................... 0.00% 4.96% 4.67% 5.12% 2.84%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) ........... $0.00 $42,061 $34,796 $35,436 $27,810
Ratio of expenses to average net assets .... 0.00% 0.72% 0.77% 0.75% 0.97%(c)
Ratio of net investment income to
average net assets ....................... 0.00% 4.86% 4.57% 4.99% 4.37%(c)
Ratio of expenses to average net assets* ... 0.00% 1.41% 1.47% 1.46% 1.66%(c)
Ratio of net investment income to
average net assets* ...................... 0.00% 4.16% 3.87% 4.28% 3.68%(c)
</TABLE>
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
30
<PAGE> 34
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain additional
information on each Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected each Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including their operations and investment policies.
It is incorporated by reference and is legally considered a part of this
prospectus.
- -------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUNDS BY CONTACTING A BROKER THAT SELLS THE
FUNDS. OR CONTACT THE FUNDS AT:
BRENTON MUTUAL FUNDS
P.O. BOX 182520
COLUMBUS, OHIO 43218-2520
TELEPHONE: 1-800-706-FUND
- -------------------------------------------------------------------------------
You can review the Funds' reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
o For a duplication fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6526.
31
<PAGE> 35
The Brenton Mutual Funds
CLASS S SHARES OF THE BRENTON U.S. GOVERNMENT
MONEY MARKET FUND
Prospectus
August 1, 1999
Brenton Bank
Investment Adviser
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> 36
BRENTON MUTUAL FUNDS
TABLE OF CONTENTS
-----------------
RISK/RETURN SUMMARY AND FUND EXPENSES
- Brenton U.S. Government Money Market Fund
Carefully review this important section for a summary of the Fund's
investment, risks and fees.
INVESTMENT OBJECTIVE AND STRATEGIES
- Investment Objective, Policies and Strategies
- Investment Risks
This section contains details on the Fund's investment strategies and
risks
SHAREHOLDER INFORMATION
- Pricing of Fund Shares
- Purchasing and Adding to Your Shares
- Selling Your Shares
- Exchanging Your Shares
- Dividends, Distributions and Taxes
Consult this section to obtain details on how shares are valued, how to
purchase, sell and exchange shares, related charges and payments of
dividends.
FUND MANAGEMENT
- The Investment Adviser
- The Sub-Adviser
Review this section for details on the organizations who oversee the
Fund.
FINANCIAL HIGHLIGHTS
Review this section for details on the selected financial statements of
the Fund.
<PAGE> 37
RISK/RETURN SUMMARY AND FUND EXPENSES
================================================================================
RISK/RETURN SUMMARY OF BRENTON U.S. GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVES The U.S. Government Money Market Fund seeks
current income consistent with maintaining
liquidity and stability of income.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests in short-term U.S. Treasury
bills, notes and other short-term obligations
issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
PRINCIPAL INVESTMENT RISKS An investment in the Fund is not a deposit
of, or guaranteed or endorsed by Brenton
Bank, its parent holding company Brenton
Banks, Inc. or their affiliates, and it is
not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to
preserve the value of your investment at
$1.00 per share, it is possible to lose money
by investing in the Fund.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o ARE SEEKING CURRENT INCOME AND THE
PRESERVATION OF CAPITAL
o HAVE A LOW RISK TOLERANCE
o ARE INVESTING FOR A SHORT-TERM PURPOSE
AND ARE WILLING TO ACCEPT LOWER
POTENTIAL RETURNS IN EXCHANGE FOR A HIGH
DEGREE OF SAFETY
This Fund will not be appropriate for
someone:
o INVESTING FOR A LONG-TERM GOAL OR FOR
RETIREMENT
o SEEKING A HIGH TOTAL RETURN
1
<PAGE> 38
RISK/RETURN SUMMARY AND FUND EXPENSES
================================================================================
RISK/RETURN SUMMARY AND FUND EXPENSES
The chart and table on this page show how the Class M Shares of the Money Market
Fund have performed and how their performance has varied from year to year. The
bar chart shows changes in the Fund's yearly performance since its inception on
August 9, 1994 to demonstrate that the Fund's value varied at differing times.
Class S Shares of the Fund were not offered until August 1, 1998. The Class M
Shares have lower expenses which affect income and total return.
PERFORMANCE BAR CHART AND TABLE(1)
-------------------------------
<TABLE>
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31(2)
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C>
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns. Of course, past performance does not
indicate how the Fund will perform in the future.
---------------------------------------------------------
Best quarter: Q_ 199_ +____%
Worst quarter: Q_ 199_ -____%
---------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
Fund Past Year Since
Inception Inception
<S> <C> <C> <C>
MONEY MARKET FUND
CLASS M SHARES 8/9/94 __% __%
</TABLE>
As of March 31, 1999, the 7-day yield for the Class S Shares of the Money Market
Fund was ___%.
- ----------------------
(1) Both charts assume reinvestment of dividends and distributions.
2
<PAGE> 39
RISK/RETURN SUMMARY AND FUND EXPENSES
================================================================================
FEES AND EXPENSES
- -----------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Class S Shares of the Money Market Fund.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly
from your investment)
Maximum Sales Charge (load) Imposed on Purchases None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (load) None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------
Management Fee(s) .40%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fee(s) .75%
- --------------------------------------------------------------------------------
Other Expenses ___%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses ___%
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 40
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
o reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
<TABLE>
1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
U.S. GOVERNMENT
MONEY MARKET FUND
(CLASS S SHARES) $__ $__ $__ $___
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 41
INVESTMENT OBJECTIVE AND STRATEGIES
BRENTON U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
Ticker Symbol: BREXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
- -------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the U.S. Government Money Market Fund is
to seek current income consistent with maintaining liquidity and stability of
principal. The Fund seeks to maintain a stable net asset value of $1.00 per
share.
POLICIES AND STRATEGIES
The Fund invests in U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities
which have remaining maturities of 397 calendar days (thirteen months) or less.
The dollar-weighted average maturity of the obligations held by the Fund will
not exceed 90 days.
Consistent with the U.S. Government Money Market Fund's investment
objective, the Fund:
o may invest in master demand notes
o may invest in "stripped" U.S. Treasury obligations offered
under the STRIPS or CUBES program which are direct
obligations of the U.S. Government
o may engage in repurchase transactions pursuant to which the
Fund purchases a security and simultaneously commits to
resell that security to the seller (either a bank or a
securities dealer) at an agreed upon price on an agreed upon
date (usually within seven days of purchase)
o may lend securities to qualified brokers, dealers, banks and
other financial institutions for the purpose of realizing
additional income
o may purchase securities on a when-issued or delayed-delivery
basis in which a security's price and yield are fixed on a
specific date but payment and delivery are scheduled for a
future date beyond the standard settlement period
o may invest in other investment companies
5
<PAGE> 42
INVESTMENT RISKS
RISK FACTORS:
An investment in the Fund is subject to investment risks, including the
possible loss of the principal amount invested.
Generally, the Fund will be subject to the following risks:
o MARKET RISK: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performance per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o INTEREST RATE RISK: Interest rate risk refers to the risk that the value of
the Fund's securities can change in response to changes in prevailing
interest rates causing volatility and possible loss of value as rates
increase.
o CREDIT RISK: Credit risk refers to the risk related to the credit quality of
the issuer of a security held in the Fund's portfolio. The Fund could lose
money if the issuer of a security is unable to meet its financial
obligations.
o 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, the Sub-Adviser and the Fund's other service providers do not
properly process and calculate date related information for the year 2000
and beyond. In addition, Year 2000 issues may adversely affect companies in
which the Fund invests where, for example, such companies incur substantial
costs to address Year 2000 issues or suffer losses caused by the failure to
adequately or timely do so.
The Fund has been informed 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
6
<PAGE> 43
issues by the Adviser or the Fund's service providers cannot be accurately
assessed at this time, the Fund currently has no reason to believe that the
Year 2000 plans of the Adviser and the Fund's service providers will not be
completed by December 31, 1999, or that the anticipated costs associated
with full implementation of their plans will have a material adverse impact
on either their business operations or financial condition of those of the
Fund. The Fund and the Adviser will continue to closely monitor developments
relating to this issue, including development by the Adviser and the Fund's
service providers of contingency plans for providing back-up computer
services in the event of a systems failure or the inability of any provider
to achieve Year 2000 readiness. Separately, the Adviser will monitor
potential investment risk related to Year 2000 issues.
SHAREHOLDER INFORMATION
- -----------------------
PRICING OF FUND SHARES
- ----------------------
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares
Outstanding
You can find the Fund's NAV weekly in The Wall Street Journal and other
newspapers.
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.
The Fund's per share net asset value (NAV) is determined and its shares are
priced as of 11:00 a.m. (Central Time) and the close of regular trading on the
New York Stock Exchange (NYSE), normally at 3:00 p.m., Central Time, on days the
NYSE is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund. This is what is known as
the offering price.
The Fund's securities are valued based upon the amortized cost method. This
method involves valuing an instrument at its cost and thereafter applying a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the investment.
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM MINIMUM
INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular
(non-retirement) $100 $25
Retirement $100 $__
Automatic
Investment Plan $100 $25
</TABLE>
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
The Fund may waive its minimum purchase requirement and the Distributor may
reject a purchase order if it considers it in the best interest of the Fund and
its shareholders.
7
<PAGE> 44
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Brenton U.S. Government
Money Market Fund."
3. Mail to: Brenton Mutual Funds, P.O. Box 182520, Columbus, OH 43218-2520
Subsequent:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: Brenton Mutual Funds, P.O. Box 182520, Columbus, OH 43218-2520
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
4. Send to: Brenton Mutual Funds,
c/o BISYS Fund Services,
Attn: Shareholder Services, 3435 Stelzer Road, Columbus, OH 43219.
BY WIRE TRANSFER
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment:
Fax the completed application, along with a request for a confirmation number to
1-800-__________. Follow the instructions below after receiving your
confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Name of Bank
Routing Number: ABA #000000
DDA#
Include:
Your name
Your confirmation number
8
<PAGE> 45
After instructing your bank to wire the funds, call 1-800-706-FUND to advise us
of the amount being transferred and the name of your bank.
You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time with
60 days notice.
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account. Automatic
investments can be as little as $25, once you've invested the $100 minimum
required to open the account.
To invest regularly from your bank account:
o Complete the Automatic Investment Plan
portion on your Account Application.
Make sure you note:
o Your bank name, address and ABA number
o Your checking or savings account number
o The amount you wish to invest automatically (minimum $25)
o How often you want to invest (monthly, bi-monthly or quarterly)
o Attach a voided personal check or savings deposit slip.
- --------------------------------------------------------------------------------
Dividends and Distributions
- ---------------------------
All dividends and distributions will be automatically reinvested unless you
request otherwise. Capital gains are distributed at least annually.
- --------------------------------------------------------------------------------
9
<PAGE> 46
SELLING YOUR SHARES
- -------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares" below.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR
FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR SELLING SHARES
By telephone 1. Call 1-800-706-FUND with instructions as to how
(unless you have you wish to receive your funds (check, wire,
declined telephone sales electronic transfer).
privileges)
- --------------------------------------------------------------------------------
By mail 1. Call 1-800-706-FUND to request redemption forms
or write a letter of instruction indicating:
o your Fund and account number
o amount you wish to redeem
o address where your check should be sent
o account owner signature
2. Mail to:
BRENTON MUTUAL FUNDS
P.O. Box 182520
Columbus, OH 43218-2520
- --------------------------------------------------------------------------------
By overnight service See instruction 1 above under "By mail".
2. Send to
BRENTON MUTUAL FUNDS
Attn: Shareholder Services
3435 Stelzer Road
Columbus, OH 43219
- --------------------------------------------------------------------------------
Wire transfer Call 1-800-706-FUND to request a wire transfer.
You must indicate this
option on your If you call by 3 p.m. Central time, your
application. payment will normally be wired to your bank on
the next business day.
The Fund may charge a
wire transfer fee.
Note: Your financial
institution may also
charge a separate fee.
10
<PAGE> 47
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or
quarterly basis. The minimum withdrawal is $100. To activate this
feature:
o Make sure you've checked the appropriate box and completed the Automatic
Withdrawal section of the Account Application. Or call 1-800-706-FUND.
o Include a voided personal check.
o Your account must have a value of $10,000 or more to start withdrawals.
o If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of the
following.
o Redemptions over $10,000
o Your account registration or the name(s) in your account has changed
within the last 15 days
o The check is not being mailed to the address on your account
o The check is not being made payable to the owner of the account
o The redemption proceeds are being transferred to another Fund account with
a different registration.
A signature guarantee can be obtained from a financial institution, such
as a bank, broker-dealer, credit union, clearing agency, or savings association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 10 business days). You can avoid this delay by
purchasing shares with a wire transfer or a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect the Fund's
operations (for example, more than 1% of the Fund's net
11
<PAGE> 48
assets). If the Fund deems it advisable for the benefit of all shareholders,
redemption in kind will consist of securities equal in market value to your
shares. When you convert these securities to cash, you will pay brokerage
charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, the Fund may ask you to increase your balance.
If it is still below $500 after 60 days, the Fund may close your account and
send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in your account.
SHAREHOLDER INFORMATION
- -----------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and will increase the cost of your
investment.
The Distributor may use up to .25% of the 12b-1 fee for shareholder servicing
and up to .50% for distribution.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.
The Distributor and the Adviser, at their expense, may provide compensation to
dealers in connection with sales of Shares of a Fund.
12
<PAGE> 49
EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in the Fund for shares of another Brenton Mutual
Fund, usually without paying additional sales charges (see "Notes" below). No
transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Brenton Mutual Funds, P.O.
Box 182520, Columbus OH 43218-2520, or by calling 1-800-706-FUND. Please provide
the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged
o The name of the Fund from which the exchange is to be made
o The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
NOTES ON EXCHANGES
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to four exchanges within a calendar
year.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
SHAREHOLDER INFORMATION
- -----------------------
BRENTON MUTUAL FUND INDIVIDUAL
RETIREMENT ACCOUNT ("IRA")
A Brenton Mutual Fund IRA enables individuals, even if they participate in
an employer-sponsored retirement plan, to establish their own retirement
programs. A Brenton Mutual Fund IRA contributions may be tax-deductible and
earnings are tax-deferred. Under the Tax Reform Act of 1986, the tax
deductibility of IRA contributions is restricted or eliminated for individuals
who participate in certain employer pension plans and whose annual income
exceeds certain limits. Existing IRAs and future contributions up to the IRA
maximums, whether deductible or not, still earn income on a tax-deferred basis.
All Brenton Mutual Fund IRA distribution requests must be made in writing
to BISYS Fund Services. Any additional deposits to an Brenton Mutual Fund IRA
must distinguish the type and year of the contribution.
For more information on an Brenton Mutual Fund IRA call the Funds at
1-800-706-FUND. Shareholders are advised to consult a tax adviser regarding IRA
contribution and withdrawal requirements and restrictions.
13
<PAGE> 50
SHAREHOLDER INFORMATION
- -----------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of dividends is paid out, less
expenses, to its shareholders. Income dividends on the Fund are usually paid
monthly. Capital gains, if any, 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.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
Dividends are taxable as ordinary income. Taxation on capital gains will vary
with the length of time the Fund has held the security - not how long the
shareholder has been in the Fund.
Dividends are taxable in the year in which they are declared, even if they are
paid and appear on your account statement 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 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. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Brenton Bank, 2840 Ingersoll, Des Moines, Iowa, serves as the investment
adviser for the Fund. Brenton Bank is a wholly-owned subsidiary of Brenton
Banks, Inc., with more than 46 locations throughout Iowa. The first Brenton Bank
was founded in 1881. In 1948, Brenton Banks, Inc. became Iowa's first bank
holding company and presently has more than $1.9 billion in total assets.
Brenton Bank, through its Trust & Investment Management Division, has been
managing customer assets for over 60 years and currently provides fiduciary and
investment management services to clients throughout the Midwest. The Trust &
Investment Management Division provides trust investment management and
custodial services for over $1.4 billion of trust assets.
14
<PAGE> 51
Brenton Bank continuously reviews, supervises and administers each Fund's
investment programs. For these advisory services, the Fund pays Brenton Bank an
advisory fee at the annual rate of up to .40% of the Fund's first $250 million
in net assets and up to .30% of the Fund's net assets in excess of $250 million.
THE SUB-ADVISER
Northern Trust Company, Chicago, Illinois, provides sub-investment advisory
services for the Fund. For its services as sub-investment adviser, Northern
Trust receives a fee paid by the Adviser at the annual rate of .08% of the
Fund's average daily net assets.
The Statement of Additional Information has more detailed information about the
Adviser, the Sub-Adviser and the other service providers
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services serves as each Fund's distributor and administrator. Their
address is 3435 Stelzer Road, Columbus, OH 43219.
CAPITAL STRUCTURE- The Coventry Group was organized as a Massachusetts business
trust on January 8, 1992 and overall responsibility for the management of the
Funds is vested in the Board of Trustees. Shareholders are entitled to one vote
for each full share held and a proportionate fractional vote for any fractional
shares held and will vote in the aggregate and not by series except as otherwise
expressly required by law.
15
<PAGE> 52
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since its inception. The table below sets forth
information for the Fund's Class M Shares for the period from August 9, 1994
(commencement of operations for the Fund and the Class M Shares) through March
31, 1999. The Class S Shares were not offered prior to August 1, 1998. The Class
M Shares have lower expenses which affect income and total return. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Ernst & Young LLP, whose
report, along with the Fund's financial statements, are included in the annual
report of the Fund, which is available upon request.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR AUGUST 9,
ENDED ENDED ENDED ENDED 1994
MARCH 31, MARCH 31, MARCH 31, MARCH 31, TO MARCH
1999 1998 1997 1996 31, 1995(a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.00 0.048 0.046 0.050 0.028
Total from investment operations ........... 0.00 0.048 0.046 0.050 0.028
----- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ............... (0.00) (0.048) (0.046) (0.05) (0.028)
Total distributions ........................ (0.00) (0.048) (0.046) (0.05) (0.028)
----- ------- ------- ------- -------
Net asset value, end of period ............. $0.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ======= ======= ======= =======
TOTAL RETURN ............................... 0.00% 4.96% 4.67% 5.12% 2.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) ........... $0.00 $42,061 $34,796 $35,436 $27,810
Ratio of expenses to average net assets .... 0.00% 0.72% 0.77% 0.75% 0.97%
Ratio of net investment income to
average net assets ....................... 0.00% 4.86% 4.57% 4.99% 4.37%
Ratio of expenses to average net assets* ... 0.00% 1.41% 1.47% 1.46% 1.66%
Ratio of net investment income to
average net assets* ...................... 0.00% 4.16% 3.87% 4.28% 3.68%
</TABLE>
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
16
<PAGE> 53
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund, including its operations and investment policies. It
is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING A BROKER THAT SELLS THE
FUND. OR CONTACT THE FUND AT:
BRENTON MUTUAL FUNDS
P.O. BOX 182520
COLUMBUS, OHIO 43218-2520
TELEPHONE: 1-800-706-FUND
- --------------------------------------------------------------------------------
You can review the Fund's reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
o For a duplication fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6526.
17
<PAGE> 54
Brenton U.S. Government Money Market Fund
Brenton Intermediate U.S Government Securities Fund
Brenton Value Equity Fund
Each an Investment Portfolio of
The Coventry Group
Statement of Additional Information
August 1, 1999
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectuses for the Brenton U.S. Government Money
Market Fund (the "Money Market Fund"), the Brenton Intermediate U.S. Government
Securities Fund (the "Intermediate Government Fund") and the Brenton Value
Equity Fund (the "Equity Fund"), each dated the same date as the date hereof
(the "Prospectuses"), hereinafter referred to collectively as the "Funds" and
singly, a "Fund". The Funds are separate investment portfolios of The Coventry
Group (the "Group"), an open-end management investment company. This Statement
of Additional Information is incorporated in its entirety into the Prospectuses.
Copies of the Prospectuses may be obtained by writing the Funds at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 706-FUND.
<PAGE> 55
TABLE OF CONTENTS
THE COVENTRY GROUP..........................................................3
INVESTMENT OBJECTIVE AND POLICIES...........................................3
Additional Information on Portfolio Instruments..........................3
Investment Restrictions.................................................13
Portfolio Turnover......................................................15
NET ASSET VALUE............................................................15
Valuation of the Money Market Fund......................................15
Valuation of the Intermediate Government Fund and the Equity Fund.......16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................17
Matters Affecting Redemption............................................17
MANAGEMENT OF THE GROUP....................................................17
Trustees and Officers...................................................17
Investment Adviser and Sub-Adviser......................................20
Portfolio Transactions..................................................21
Banking Laws............................................................22
Administrator...........................................................23
Expenses................................................................24
Distributor.............................................................25
Custodian...............................................................27
Transfer Agency and Fund Accounting Services............................27
Independent Auditors....................................................28
Legal Counsel...........................................................28
ADDITIONAL INFORMATION.....................................................28
Description of Shares...................................................28
Vote of a Majority of the Outstanding Shares............................29
Additional Tax Information..............................................29
Yields and Total Returns of the Money Market Fund.......................34
Yields and Total Returns of the Intermediate Government
Fund and the Equity Fund.............................................35
Performance Comparisons.................................................37
Principal Shareholders..................................................39
Miscellaneous...........................................................39
FINANCIAL STATEMENTS.......................................................39
APPENDIX...................................................................41
- 2 -
<PAGE> 56
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. The portfolios advised by Brenton
Bank (the "Adviser") are each referred to generally as a "Fund". This Statement
of Additional Information deals with the three Funds, the Brenton U.S.
Government Money Market Fund (which offers two classes of shares: Class M Shares
and Class S Shares), the Brenton Intermediate U.S. Government Securities Fund
and the Brenton Value Equity Fund. Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
Prospectuses of the Funds. Capitalized terms not defined herein are defined in
such Prospectuses. No investment in Shares of a Fund should be made without
first reading the Prospectuses.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies
of the Funds as set forth in their respective Prospectuses.
BANK OBLIGATIONS. The Equity Fund and the Intermediate Government Fund
may invest in bank obligations such as bankers' acceptances, certificates of
deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed
by domestic and foreign banks having, at the time of investment, capital,
surplus, and undivided profits in excess of $100,000,000 (as of the date of
their most recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic banks and savings and loan
associations, if (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 Federal Deposit Insurance
Corporation.
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 Equity Fund and the Intermediate Government Fund may purchase
commercial paper consisting of issues rated at the time of purchase in one of
the two highest rating categories
- 3 -
<PAGE> 57
assigned by an NRSRO or that is not rated but is determined by the Adviser under
guidelines established by the Group's Board of Trustees, to be of comparable
quality.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which each of the Funds may invest, are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic
readjustments in the interest rate according to the terms of the instrument.
They are also referred to as variable rate demand notes. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
may demand payment of principal and accrued interest at any time or during
specified periods not exceeding one year, depending upon the instrument
involved, and may resell the note at any time to a third party. The Adviser will
consider the earning power, cash flow, and other liquidity ratios of the issuers
of such notes and will continuously monitor their financial status and ability
to meet payment on demand. In determining the dollar weighted average portfolio
maturity, a variable amount master demand note will be deemed to have a maturity
equal to the longer of the period of time remaining until the next interest rate
readjustment or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
VARIABLE AND FLOATING RATE NOTES. The Intermediate Government Fund and
the Money Market Fund may acquire variable and floating rate notes, subject to
each Fund's investment objective, policies and restrictions. A variable rate
note is one whose terms provide for the readjustment of its interest rate on set
dates and which, upon such adjustment, can reasonably be expected to have a
market value that approximates its par value. A floating rate note is one whose
terms provide for the readjustment of its interest rate whenever a specified
interest rate changes and which, at any time, can reasonably be expected to have
a market value that approximates its par value. Such notes are frequently not
rated by credit rating agencies; however, unrated variable and floating rate
notes purchased by a Fund will be determined by the Adviser under guidelines
approved by the Group's Board of Trustees to be of comparable quality at the
time of purchase to rated instruments eligible for purchase under the Fund's
investment policies. In making such determinations, the Adviser will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
notes (such issuers include financial, merchandising, bank holding and other
companies and government agencies) and will continuously monitor their financial
condition. Although there may be no active secondary market with respect to a
particular variable or floating rate note purchased by a Fund, the Fund may
resell the note any time to a third party. The absence of an active secondary
market, however, could make it difficult for the Fund to dispose of a variable
or floating rate note in the event the issuer of the note defaulted on its
payment obligations and the Fund could, as a result or for other reasons, suffer
a loss to the extent of the default. Variable or floating rate notes may be
secured by bank letters of credit or drafts.
U.S. GOVERNMENT OBLIGATIONS. The Money Market Fund will invest
primarily in short-term U.S. Treasury bills, notes and other obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities
including "stripped" U.S. Treasury obligations ("Stripped Treasury Securities")
subject to its investment objective and policies (collectively, "U.S. Government
Obligations"). The Intermediate Government Fund and the Equity Fund may also
invest in 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
- 4 -
<PAGE> 58
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. A 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.
STRIPPED TREASURY SECURITIES. Stripped Treasury Securities are U.S.
Treasury securities that have been stripped of their unmatured interest coupons
(which typically provide for interest payments semi-annually), interest coupons
that have been stripped from such U.S. Treasury securities, and receipts and
certificates for such stripped debt obligations and stripped coupons. Stripped
bonds and stripped coupons are sold at a deep discount because the buyer of
those securities receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest payments on
the security.
Stripped Treasury Securities will include coupons that have been
stripped from U.S. Treasury bonds, which may be held through the Federal Reserve
Bank's book-entry system called "Separate Trading of Registered Interest and
Principal of Securities" ("STRIPS") or through a program entitled "Coupon Under
Book-Entry Safekeeping" ("CUBES").
The U.S. Government does not issue Stripped Treasury Securities
directly. The STRIPS program, which is ongoing, is designed to facilitate the
secondary market in the stripping of selected U.S. Treasury notes and bonds into
separate interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.
CUBES, like STRIPS, are direct obligations of the U.S. Government.
CUBES are coupons that have previously been physically stripped from U.S.
Treasury notes and bonds, but which were deposited with the Federal Reserve
Bank's book-entry system and are now carried and transferable in book-entry form
only. Only stripped U.S. Treasury coupons maturing on or after January 15, 1988,
that were stripped prior to January 5, 1987, were eligible for conversion to
book-entry form under the CUBES program.
By agreement, the underlying debt obligations will be held separate
from the general assets of the custodian and nominal holder of such securities,
and will not be subject to any right, charge, security interest, lien or claim
of any kind in favor of or against the custodian or any person claiming through
the custodian, and the custodian will be responsible for applying all payments
received on those underlying debt obligations to the related receipts or
certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
parties in
- 5 -
<PAGE> 59
interest, are entitled to the rights and privileges of the underlying debt
obligations, including the right, in the event of default in payment of
principal or interest to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
FOREIGN INVESTMENTS. The Equity Fund may, subject to its investment
objective and policies, invest up to 10% of its total assets in certain
obligations or securities of foreign issuers. Permissible investments include
sponsored and unsponsored American Depository Receipts ("ADRs"). Investment in
securities issued by foreign branches of U.S. banks, foreign banks, or other
foreign issuers, including ADRs may subject the Fund to investment risks that
differ in some respects from those related to investment in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, possible seizure, nationalization, or expropriation of foreign
investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, and the adoption of other
foreign governmental restrictions.
Additional risks include less publicly available information, the risk
that companies may not be subject to the accounting, auditing and financial
reporting standards and requirements of U.S. companies, the risk that foreign
securities markets may have less volume and therefore many securities traded in
these markets may be less liquid and their prices more volatile than U.S.
securities, and the risk that custodian and brokerage costs may be higher.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks.
CALL OPTIONS. The Equity Fund may write (sell) "covered" call options
and purchase options to close out options previously written by it. Such options
must be listed on a National Securities Exchange and issued by the Options
Clearing Corporation. The purpose of writing covered call options is to generate
additional premium income for the Equity Fund. This premium income will serve to
enhance the Fund's total return and will reduce the effect of any price decline
of the security involved in the option. Covered call options will generally be
written on securities which, in the Adviser's opinion, are not expected to make
any major price moves in the near future but which, over the long term, are
deemed to be attractive investments for the Equity Fund.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to deliver the underlying
security against payment of the exercise price. This obligation terminates upon
the expiration of the call option, or such earlier time at which the writer
effects a closing purchase transaction by repurchasing an option identical to
that previously sold. To secure his obligation to deliver the underlying
security in the case of a call option, a writer is required to deposit in escrow
the underlying security or other assets in accordance with the rules of the
Options Clearing Corporation. The Equity Fund will write only covered call
options.
- 6 -
<PAGE> 60
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with the Equity
Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Equity Fund
will not do), but capable of enhancing the Equity Fund's total return. When
writing a covered call option, the Equity Fund, in return for the premium, gives
up the opportunity for profit from a price increase in the underlying security
above the exercise price, but retains the risk of loss should the price of the
security decline. Unlike one who owns securities not subject to an option, the
Equity Fund has no control over when it may be required to sell the underlying
securities, since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Equity Fund
has written expires, the Equity Fund will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security during the option period. If the call option is
exercised, the Equity Fund will realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of the Equity Fund's Custodian. The Equity Fund does not
consider a security covered by a call to be "pledged" as that term is used in
each Fund's policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Equity Fund will receive from writing a call option will reflect, among other
things, the current market price of the underlying security, the relationship of
the exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser, in determining whether a
particular call option should be written on a particular security, will consider
the reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for such option. The premium received by the Equity
Fund for writing covered call options will be recorded as a liability in the
Equity Fund's statement of assets and liabilities. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Equity Fund
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The liability will be extinguished upon expiration
of the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If the Equity Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security.
There is, of course, no assurance that the Equity Fund will be able to effect
such closing transactions at a favorable price. If the Equity Fund cannot enter
into such a transaction, it may be required to hold a security that it might
otherwise have sold, in which case it would continue to be at market risk on the
security. This could result in higher transaction costs. The Equity Fund will
pay transaction costs in connection with the writing of options to close out
previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
- 7 -
<PAGE> 61
Call options written by the Equity Fund will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities at the time the options are written. From time to time,
the Equity Fund may purchase an underlying security for delivery in accordance
with an exercise notice of a call option assigned to it, rather than delivering
such security from its portfolio. In such cases, additional costs will be
incurred.
The Equity Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Equity Fund.
PUT OPTIONS The Intermediate Government Fund may acquire "puts" with
respect to debt securities held in its portfolio. A put is a right to sell or
redeem a specified security (or securities) at a certain time or within a
certain period of time at a specified exercise price. The put may be an
independent feature or may be combined with a reset feature that is designed to
reduce downward price volatility as interest rates rise by enabling the holder
to liquidate the investment prior to maturity.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities subject to the put (excluding
any accrued interest which the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the
portfolio assets. Puts may also be used to facilitate the reinvestment of assets
at a rate of return more favorable than that of the underlying security. Puts
may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of a Fund's assets.
The Intermediate Government Fund will, if necessary or advisable, pay
for puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
WHEN-ISSUED SECURITIES. Each of the Funds may purchase securities on a
when-issued or delayed-delivery basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield and thereby involve a risk that the yield obtained in the transaction will
be less than those available in the market when delivery takes place. A Fund
will generally not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase securities on a
when-issued basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy the
purchase commitment, and in such a case, the Fund may be required subsequently
to
- 8 -
<PAGE> 62
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. In addition, because a Fund will set aside cash or
liquid portfolio securities to satisfy its purchase commitments in the manner
described above, the Fund's liquidity and the ability of the Adviser to manage
it might be affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its total assets.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing the opportunity to obtain a price considered to
be advantageous. The Funds will engage in when issued delivery transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives, policies and restrictions, not for investment leverage.
MORTGAGE-RELATED SECURITIES. The Intermediate Government Fund may,
consistent with its investment objectives, policies and restrictions, invest in
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Mortgage-related securities, for purposes of the
Funds' Prospectus and this Statement of Additional Information, represent pools
of mortgage loans assembled for sale to investors by various governmental
agencies such as the Government National Mortgage Association and
government-related organizations such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, as well as by
nongovernmental issuers such as commercial banks, savings and loan institutions,
mortgage bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. Conversely,
when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the average life of the security and lengthening the period
of time over which income at the lower rate is received. For these and other
reasons, a mortgage-related security's average maturity may be shortened or
lengthened as a result of interest rate fluctuations and, therefore, it is not
possible to predict accurately the security's return to a Fund. In addition,
regular payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association
- 9 -
<PAGE> 63
("GNMA") include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow Funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by the Federal National
Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
the FNMA and are not backed by or entitled to the full faith and credit of the
United States. The FNMA is a government-sponsored organization owned entirely by
private stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
The Intermediate Government Fund may invest in mortgage-related
securities which are collateralized mortgage obligations ("CMOs") structured on
pools of mortgage pass-through certificates or mortgage loans. The CMOs in which
the Intermediate Government Fund may invest represent securities issued by a
private corporation or a U.S. Government instrumentality that are backed by a
portfolio of mortgages or mortgage-backed securities held under an indenture.
The issuer's obligations to make interest and principal payments is secured by
the underlying portfolio of mortgages or mortgage-backed securities. CMOs are
issued with a number of classes or series which have different maturities and
which may represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of a CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of a
CMO held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security. Mortgage-related securities
will be purchased only if rated within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which The Adviser deems to present
attractive opportunities and are of comparable quality.
OTHER ASSET-BACKED SECURITIES. The Intermediate Government Fund may
also invest in interests in pools of receivables, such as motor vehicle
installment purchase obligations (known as Certificates of Automobile
Receivables or CARS(SM) and credit card receivables known as Certificates of
Amortizing Revolving Debts or CARDS (SM). Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
- 10 -
<PAGE> 64
interests in the underlying pools of assets. Such securities may also be debt
instruments which are also known as collateralized obligations and are generally
issued as the debt of a special purpose entity organized solely for the purpose
of owning such assets and issuing such debt.
Such securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
(such as a bank or insurance company) unaffiliated with the issuers of such
securities. Non-mortgage backed securities will be purchased by the Intermediate
Government Fund only when rated within the three highest rating categories by an
NRSRO at the time of purchase. In addition, such securities generally will have
remaining estimated lives at the time of purchase of 7 years or less.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest in
securities issued by other investment companies. Each of the Funds currently
intends to limit its investments so that, as determined immediately after a
securities purchase is made: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of all investment companies; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by any of
the Funds; and (d) not more than 10% of the outstanding voting stock of any one
investment company will be owned in the aggregate by the Funds. As a shareholder
of another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the Fund
bears directly in connection with its own operations. Investment companies in
which a Fund may invest may also impose a sales or distribution charge in
connection with the purchase or redemption of their shares and other types of
commissions or charges. Such charges will be payable by the Funds and,
therefore, will be borne directly by Shareholders.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers 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
was delayed pending court action. Additionally, there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under the
regular procedures normally in effect for custody of a Fund's securities subject
to repurchase agreements and under federal laws, a court of competent
- 11 -
<PAGE> 65
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by that Fund's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with that
Fund's investment restrictions. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase the securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, it will place in
a segregated custodial account assets such as U.S. Government securities or
other liquid, high grade debt securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act.
MUNICIPAL SECURITIES. Municipal Securities include debt obligations
issued by governmental entities to obtain funds for various public purposes,
such as the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to other public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Municipal Securities
if the interest paid thereon is exempt from federal individual income taxes and
is not treated as a preference item for purposes of the federal alternative
minimum tax.
Other types of Municipal Securities include short-term General
Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue
Anticipation Notes, Tax-Exempt Commercial Paper, Project Notes, Construction
Loan Notes and other forms of short-term tax-exempt loans. Such instruments are
issued with a short-term maturity in anticipation of the receipt of tax funds,
the proceeds of bond placements or other revenues.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
The two principal classifications of Municipal Securities consist of
"general obligation" and "revenue" issues. The Funds may also acquire "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Municipal Securities, both
within a particular classification and between classifications, and the yields
on Municipal Securities depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market,
- 12 -
<PAGE> 66
the size of a particular offering, the maturity of the obligation and the rating
of the issue. The ratings of NRSROs represent their opinions as to the quality
of Municipal Securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and securities with the same
maturity, interest rate and rating may have different yields, while securities
of the same maturity and interest rate with different ratings may have the same
yield.
Subsequent to purchase, an issue of Municipal Securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation.
An issuer's obligations for Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
Investment Restrictions
- -----------------------
The following are fundamental investment restrictions that may be
changed only by the affirmative vote of a majority of the outstanding Shares of
a Fund (as defined below). Under these restrictions a Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, with respect to 75% of its portfolio, more than
5% of the value of the total assets of the Fund would be invested in such
issuer, or the Fund would hold more than 10% of any class of securities of the
issuer or more than 10% of the outstanding voting securities of the issuer;
2. Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) there is no limitation with
respect to Municipal Securities, which, for purposes of this limitation only, do
not include private activity bonds that are backed only by the assets and
revenues of a non-governmental user; (c) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (d)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry;
3. Borrow money or issue senior securities except that a Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10%
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<PAGE> 67
of the value of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the Fund's total assets at the time of its borrowing. The Funds
will not purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding;
4. Make loans, except that a Fund may purchase or hold debt securities
and lend portfolio securities in accordance with its investment objective and
policies, and may enter into repurchase agreements;
5. Underwrite securities issued by other persons, except to the extent
that a Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities";
6. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Funds;
7. Purchase or sell real estate (although investments by the Equity
Fund and the Intermediate Government Fund in marketable securities of companies
engaged in such activities are not prohibited by this restriction);
The following additional investment restrictions are not fundamental
and may be changed with respect to a particular Fund without the vote of a
majority of the outstanding Shares of that Fund. A Fund may not:
1. Enter into repurchase agreements with maturities in excess of seven
days if such investments, together with other instruments in that Fund that are
not readily marketable or are otherwise illiquid, exceed 15% of that Fund's
total assets (10% of total assets in the case of the Money Market Fund).
2. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities;
3. Engage in any short sales;
4. Purchase participation or direct interests in oil, gas or other
mineral exploration or development programs (although investments by the Equity
Fund and the Intermediate Government Fund in marketable securities of companies
engaged in such activities are not prohibited in this restriction);
5. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
a Fund may invest in other investment companies, including other Funds for which
the Adviser acts as investment adviser, as specified in the Prospectus subject
to such restrictions as may be imposed by the 1940 Act or any state laws.
- 14 -
<PAGE> 68
6. With respect to the Equity Fund and the Intermediate Government
Fund, invest more than 5% of total assets in securities of issuers which
together with any predecessors have a record of less than three years continuous
operation.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a 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 for any of the Funds may
vary greatly from year to year as well as within a particular year. High
turnover rates will generally result in higher transaction costs to a Fund.
Portfolio turnover will not be a limiting factor in making investment decisions.
Because the Money Market Fund intends to invest entirely in securities
with maturities of less than 397 days and because the Commission requires such
securities to be excluded from the calculation of the portfolio turnover rate,
the portfolio turnover with respect to the Money Market Fund is expected to be
zero percent for regulatory purposes.
NET ASSET VALUE
As indicated in the Prospectuses, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Times
applicable to such Fund on each Business Day of the Group. A "Business Day"
constitutes Monday through Friday except (i) days on which there are not
sufficient changes in the value of a Fund's portfolio securities that the Fund's
net asset value might be materially affected; (ii) days on which no Shares of a
Fund are tendered for redemption and no order to purchase any Shares is
received; (iii) the following federal holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day; and (iv) Good Friday.
Valuation of the Money Market Fund
- ----------------------------------
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Money Market Fund would receive if it sold the instrument.
The value of securities in the Money Market Fund can be expected to vary
inversely with changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Fund's objective
of maintaining a stable net asset value per share, provided that the Fund will
not purchase securities with a remaining maturity of more than
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<PAGE> 69
397 days (thirteen months) (securities subject to repurchase agreements and
certain variable or floating rate obligations may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days. The
Group's Board of Trustees has also undertaken to establish procedures reasonably
designed, taking into account current market conditions and the investment
objective of the Fund, to stabilize the net asset value per share of the Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per Share of the Fund calculated by
using available market quotations deviates from $1.00 per Share. In the event
such deviation exceeds one-half of one percent, Rule 2a-7 requires that the
Board of Trustees promptly consider what action, if any, should be initiated. If
the Trustees believe that the extent of any deviation from the Fund's $1.00
amortized cost price per Share may result in material dilution or other unfair
results to new or existing investors, they will take such steps as they consider
appropriate to eliminate or reduce, to the extent reasonably practicable, any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity, shortening the average portfolio maturity,
withholding or reducing dividends, reducing the number of the Money Market
Fund's outstanding Shares without monetary consideration, or utilizing a net
asset value per share determined by using available market quotations.
Valuation of the Intermediate Government Fund and the Equity Fund
- -----------------------------------------------------------------
Portfolio securities for which market quotations are readily available
are valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. 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 Adviser's best judgment under the supervision
of the Group's Board of Trustees. Investments in debt securities with remaining
maturities of 60 days or less may be valued based upon the amortized cost
method.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Intermediate Government Fund and the Equity
Fund are the existence of restrictions upon the sale of the security by the
Fund, the absence of a market for the security, the extent of any discount in
acquiring the security, the estimated time during which the security will not be
freely marketable, the expenses of registering or otherwise qualifying the
security for public sale, underwriting commissions if underwriting would be
required to effect a sale, the current yields on comparable securities for debt
obligations traded independently of any equity equivalent, changes in the
financial condition and prospects of the issuer, and any other factors affecting
fair value. In making valuations, opinions of counsel may be relied upon as to
whether or not securities are restricted securities and as to the legal
requirements for public sale.
The Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will
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<PAGE> 70
be reviewed by the Group under the general supervision of the Group's Board of
Trustees. Several pricing services are available, one or more of which may be
used by the Adviser from time to time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
- ----------------------------
Shares in each of the Funds 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. In addition to purchasing Shares directly from the Distributor,
Shares may be purchased through procedures established by BISYS Fund Services in
connection with the requirements of accounts at Brenton Bank, or its affiliated
entities (collectively, "Banks"). Customers purchasing Shares of the Funds may
include officers, directors, or employees of the Banks.
The Group may suspend the right of redemption or postpone the date of
payment for Shares 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 (d) the Commission has
determined that an emergency exists as a result of which (i) disposal by the
Group of securities owned by it is not reasonably practical, or (ii) it is not
reasonably practical for the Group to determine the fair value of its net
assets.
The Group may redeem Shares of each of the Funds involuntarily if
redemption appears appropriate in light of the Group's responsibilities under
the 1940 Act. See "NET ASSET VALUE" in this Statement of Additional Information.
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,
pages and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Name, Address and Age Position(s) Held Principal Occupation
With the Group During Past 5 Years
<S> <C> <C>
Walter B. Grimm* Chairman, President and From June 1992 to present, employee of
3435 Stelzer Road Trustee BISYS Fund Services.
Columbus, Ohio 43219
Age: 53
</TABLE>
- 17 -
<PAGE> 71
<TABLE>
<CAPTION>
Name, Address and Age Position(s) Held Principal Occupation
With the Group During Past 5 Years
<S> <C> <C>
Maurice G. Stark Trustee Retired. Until December 31, 1994, Vice
505 King Avenue President-Finance and Treasurer, Battelle
Columbus, Ohio 43201 Memorial Institute (scientific research
Age 63 and development service corporation).
Michael M. Van Buskirk Trustee From June 1991 to present, Executive Vice
37 West Broad Street President of The Ohio Bankers' Association
Suite 1001 (trade association); from September 1987
Columbus, Ohio 43215-4162 to June 1991, Vice President-Communications,
Age: 51 TRW Information Systems Group (electronic
and space engineering).
John H. Ferring IV Trustee From 1979 to present, President and Owner
105 Bolte Lane of Plaze, Incorporated, St. Clair, Missouri
St. Clair, Missouri
Age: 46
J. David Huber Vice President From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services
Columbus, Ohio 43219
Age: 52
Jeffrey C. Cusick Vice President From July 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from October 1981 to
Columbus, Ohio 43219 July 1995, employee of Federated
Age: 39 Administrative Services
Jennifer R. Brooks Vice President From _____, 19__ to present, employee of
3435 Stelzer Road BISYS Fund Services
Columbus, Ohio 43219
Age: __
Gary R. Tenkman Treasurer From April 1998 to present, employee of
3435 Stelzer Road BISYS Fund Services; from September 1990
Columbus, Ohio 43219 to March 1998, employee of Ernst & Young
Age: 28 LLP.
</TABLE>
- 18 -
<PAGE> 72
<TABLE>
<CAPTION>
Name, Address and Age Position(s) Held Principal Occupation
With the Group During Past 5 Years
<S> <C> <C>
George L. Stevens Secretary From September 1996 to present, employee
3435 Stelzer Road of BISYS Fund Services; from September
Columbus, Ohio 43219 1995 to September 1996, Independent
Age: 48 Consultant; from September 1989 to
September 1995, Senior Vice President,
AmSouth Bank, N.A.
Alaina V. Metz Assistant Secretary From June 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May 1989 to June
Columbus, Ohio 43219 1995, employee of Alliance Capital
Age: 31 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 the Funds' outstanding
Shares.
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services receives
fees from the Funds for acting as Administrator. BISYS Fund Services Ohio, Inc.
receives fees from the Funds for acting as transfer agent and for providing
certain fund accounting services. Messrs. Huber, Stevens, Grimm, Tenkman, and
Cusick, Ms. Metz and Ms. Brooks are employees of BISYS Fund Services.
Trustees of the Group not affiliated with BISYS Fund Services receive
from the Group an annual fee of $1,000, plus $2,250 for each regular meeting of
the Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
For the fiscal year ended March 31, 1999, the Trustees received the
following compensation from the Group and from certain other investment
companies (if applicable) that have the same investment adviser as the Funds or
an investment adviser that is an affiliated person of the Group's investment
adviser:
- 19 -
<PAGE> 73
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Est. Annual From Registrant
Aggregate Accrued As Benefits and Fund
Compensation Part of Fund Upon Complex Paid
Name of Trustee from the Funds Expenses Retirement to Trustees
--------------- -------------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Walter B. Grimm $0 $0 $0 $0
Maurice G. Stark $___ $___ $___ $___
Michael Van Buskirk $___ $___ $___ $___
John H. Ferring IV $___ $___ $___ $___
</TABLE>
Investment Adviser and Sub-Adviser
- ----------------------------------
Investment advisory services are provided by Brenton Bank, Des Moines,
Iowa, pursuant to an Investment Advisory Agreement dated as of August 8, 1994
(the "Investment Advisory Agreement").
Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services as described in the Prospectus of the
Funds. For the services provided pursuant to the Investment Advisory Agreement,
each of the Funds pays the Adviser a fee computed daily and paid monthly, at the
following annual rates: Money Market Fund - forty one-hundredths of one percent
(.40%) of the Fund's first $250 million in net assets and thirty one-hundredths
of one percent (.30%) of the Fund's net assets in excess of $250 million;
Intermediate Government Fund -fifty one-hundredths of one percent (.50%) of the
Fund's first $25 million in net assets and thirty one-hundredths of one percent
(.30%) of the Fund's net assets in excess of $25 million; and Equity Fund -
seventy four one-hundredths of one percent (.74%) of the Fund's first $25
million of net assets and sixty one-hundredths of one percent (.60%) of the
Fund's net assets in excess of $25 million.
The total investment advisory fees paid to Brenton Bank for each of the
last three fiscal years is as follows:
Money Market Fund - for the fiscal year ended March 31, 1997, the
Adviser earned investment advisory fees of $127,413 and voluntarily waived
investment advisory fees of $79,694; for the fiscal year ended March 31, 1998,
the Adviser earned investment advisory fees of $143,993 and voluntarily waived
investment advisory fees of $85,936, and for the fiscal year ended March 31,
1999, the Adviser earned investment advisory fees of $_______ and voluntarily
waived investment advisory fees of $_______.
Intermediate Government Fund - for the fiscal year ended March 31,
1997, the Adviser earned investment advisory fees of $151,209; for the fiscal
year ended March 31, 1998, the Adviser earned investment advisory fees of
$156,685, and for the fiscal year ended March 31, 1999, the Adviser earned
investment advisory fees of $_______ and voluntarily waived investment advisory
fees of $_______.
- 20 -
<PAGE> 74
Equity Fund - for the fiscal year ended March 31, 1997, the Adviser
earned investment advisory fees of $257,306; for the fiscal year ended March 31,
1998, the Adviser earned investment advisory fees of $345,936, and for the
fiscal year ended March 31, 1999, the Adviser earned investment advisory fees of
$_______ and voluntarily waived investment advisory fees of $_______.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each Fund until February 28, 2000 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
relevant Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the
Funds' Prospectus), and a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement by votes cast in person at a
meeting called for such purpose. The Investment Advisory Agreement is terminable
as to a Fund at any time on 60 days' written notice without penalty by the
Trustees, by vote of a majority of the outstanding Shares of that Fund, or by
the Adviser. The Investment Advisory Agreement also terminates automatically in
the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
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 Northern Trust Company, Chicago, Illinois (the "Sub-Adviser"),
provides sub-investment advisory services to the Money Market Fund pursuant to a
Sub-Advisory Agreement dated as of August 8, 1994 (the "Sub-Advisory
Agreement"). The terms and conditions of the Sub-Advisory Agreement are
substantially identical to those of the Investment Advisory Agreement. For the
services provided pursuant to the Sub-Advisory Agreement, the Adviser pays the
Sub-Adviser a fee computed daily and paid monthly, at an annual rate, calculated
as a percentage of the average daily net asset value of the Money Market Fund of
0.08%. The Sub-Adviser is an Illinois state-chartered commercial bank and the
principal subsidiary of Northern Trust Corporation, a bank holding company. For
the fiscal year ended March 31, 1997, the Sub-Adviser earned sub-advisory fees
of $26,047; for the fiscal year ended March 31, 1998, the Sub-Adviser earned
sub-advisory fees of $28,573, and for the fiscal year ended March 31, 1999, the
Sub-Adviser earned sub-advisory fees of $_______.
Portfolio Transactions
- ----------------------
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 each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute such Fund's portfolio transactions. Purchases and sales of
portfolio securities with respect to the Funds usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities generally
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<PAGE> 75
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Adviser, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
The Group, on behalf of the Funds, will not execute portfolio
transactions through, acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with the
Adviser, the Sub-Adviser, BISYS Fund Services, or their affiliates, and will not
give preference to the Adviser's or the Sub-Adviser's correspondents with
respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for the other Funds or any other investment company or account managed by the
Adviser. Any such other Fund, investment company or account may also invest in
the same securities as the Group on behalf of the Funds. When a purchase or sale
of the same security is made at substantially the same time on behalf of more
than one Fund or a Fund and another investment company or 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(s) and such other investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by a Fund. To the extent permitted by
law, the Adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for the other Funds or for other investment
companies or accounts in order to obtain best execution. As provided by the
Investment Advisory Agreement, in making investment recommendations for the
Funds, the Adviser will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by the Funds is a customer of the
Adviser, its parent or its subsidiaries or affiliates and, in dealing with its
customers, the Adviser, its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of such customers are held
by the Funds.
For the fiscal years ended March 31, 1997, 1998 and 1999, only the
Equity Fund paid any brokerage commissions, which commissions amounted to
$28,366, $40,539, and $_______, respectively. None of these commissions were
paid to any affiliate of the Funds, the Adviser or the Sub-Adviser.
Banking Laws
- ------------
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the Prospectus, this Statement of
Additional Information, the Investment Advisory Agreement, and Rule 12b-1
Agreement described below without violation of applicable statutes and
regulations. The Adviser has been advised by its counsel that, while the
question is not free from doubt, such laws should not prevent the Adviser from
providing the services required of it under the Investment Advisory Agreement
and Rule 12b-1 Agreement.
- 22 -
<PAGE> 76
Future changes in either federal or state statutes and regulations relating to
the permissible activities of banks or bank holding companies and the
subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could prevent or restrict the Adviser from continuing to perform
such services for the Funds. Depending upon the nature of any changes in the
services which could be provided by the Adviser, the Board of Trustees of the
Group would review the Funds' relationship with the Adviser and consider taking
all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or its affiliated and
correspondent banks in connection with Customer purchases of Shares of the
Funds, those banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that any
change in the Group's method of operations would affect its net asset value per
share or result in financial losses to any Customer.
Administrator
- -------------
BISYS Fund Services serves as administrator (the "Administrator") to
the Funds pursuant to a Management and Administration Agreement dated August 8,
1994 (the "Administration Agreement"). The Administrator assists in supervising
all operations of each Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, the Sub-Adviser under the Sub-Advisory Agreement,
the Custodian under the Custodian Agreement and by BISYS Fund Services Ohio
under the Transfer Agency Agreement and Fund Accounting Agreement). The
Administrator is a broker-dealer registered with the Commission, and is a member
of the National Association of Securities Dealers, Inc.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefore; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Funds with each Fund's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts and records of each Fund, including calculation of daily
expense accruals; and generally assists in all aspects of the Funds' operations
other than those performed by the Adviser, the Sub-Adviser, the Custodian and by
BISYS Fund Services Ohio under the Transfer Agency Agreement and Fund Accounting
Agreement. Under the Administration Agreement, the Administrator may delegate
all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
which fee is calculated daily and paid periodically, at an annual rate equal to
twenty one-hundredths of one percent (.20%) of each Fund's average daily net
assets.
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<PAGE> 77
The total administrative fees paid to the Administrator for each of the
last three fiscal years is as follows:
Money Market Fund - for the fiscal year ended March 31, 1997, the
Administrator earned administrative fees of $63,625; for the fiscal year ended
March 31, 1998, the Administrator earned administrative fees of $70,643, and for
the fiscal year ended March 31, 1999 the Administrator earned administrative
fees of $_______.
Intermediate Government Fund - for the fiscal year ended March 31,
1997, the Administrator earned administrative fees of $67,546; for the fiscal
year ended March 31, 1998, the Administrator earned administrative fees of
$66,728, and for the fiscal year ended March 31, 1999 the Administrator earned
administrative fees of
$-------.
Equity Fund - for the fiscal year ended March 31, 1997, the
Administrator earned administrative fees of $74,135; for the fiscal year ended
March 31, 1998, the Administrator earned administrative fees of $103,646, and
for the fiscal year ended March 31, 1999 the Administrator earned administrative
fees of $_______.
Unless sooner terminated as provided therein, the Administration
Agreement will continue in effect until February 29, 2000. The Administration
Agreement thereafter shall be renewed automatically for successive two-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
any of the Funds 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.
Expenses
- --------
The Adviser and the Administrator each bear all expenses in connection
with the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions) purchased for the Funds. Each Fund will bear expenses relating to
its respective operations including the following: taxes, interest, brokerage
fees and commissions, fees and travel expenses of the Trustees, Securities and
Exchange Commission fees, state securities qualification expenses, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to current Shareholders, outside auditing and legal expenses, advisory and
administration fees, fees and out-of-pocket expenses of the custodian and
transfer agent, expenses incurred for pricing securities owned by each
respective Fund, insurance premiums, costs of maintenance of the Group's
existence, costs of Shareholders' reports and meetings, proxy solicitation
expenses, costs of Board of Trustees meetings and any extraordinary expenses
incurred in each Fund's operation.
- 24 -
<PAGE> 78
Distributor
- -----------
BISYS Fund Services serves as distributor to the Funds pursuant to the
Distribution Agreement dated August 8, 1994, as amended (the "Distribution
Agreement"). Unless otherwise terminated, the Distribution Agreement will
continue in effect from year to year if its 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 Funds 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 may be terminated in the event of any
assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS Fund Services 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 under the Distribution and Shareholder Service Plan.
For the fiscal year ended March 31, 1997, the Distributor received
$169,189 in commissions on the Intermediate Government Fund, of which it
retained $719.45 after dealer reallowances, and it received $185,837 in
commissions on the Equity Fund, of which it retained $2,530.22 after dealer
reallowances. For the fiscal year ended March 31, 1998, the Distributor received
$177,804 in commissions on the Intermediate Government Fund, of which it
retained $1,926 after dealer reallowances and it received $259,112 in
commissions on the Equity Fund, of which it retained $30,799 after dealer
reallowances. For the fiscal year ended March 31, 1999, the Distributor received
$_______ in commissions on the Intermediate Government Fund, of which it
retained $_______ after dealer reallowances; and it received $_______ in
commissions on the Equity Fund, of which it retained $_______ after dealer
reallowances.
The Group has adopted a Distribution and Shareholder Service Plan (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act under which the Funds (with
respect to the Money Market Fund it is in connection with the Class M Shares
only) are authorized to pay the Distributor for payments it makes to banks,
including Brenton Bank, other institutions and broker-dealers, and for expenses
the Distributor and any of its affiliates or subsidiaries incur (with all of the
foregoing organizations being referred to as "Participating Organizations") for
providing administration, distribution or shareholder service assistance.
Payments to such Participating Organizations may be made pursuant to agreements
entered into with BISYS Fund Services. The Plan authorizes the Funds to make
payments to the Distributor in an amount not to exceed, on an annual basis, .50%
of the average daily net assets of a Fund or Class, as applicable. As required
by Rule 12b-1, the Plan was approved by the sole Shareholder of each Fund and by
the Board of Trustees, including a majority of the Trustees who are not
interested persons of the Funds and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent Trustees"). The Plan may
be terminated with respect to a Fund by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding Shares of the Fund. The
Trustees review quarterly a written report of such costs and the purposes for
which such costs have been incurred. The Plan may be amended by vote of the
Trustees including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. However, any change in the Plan that would
materially increase the distribution cost to a Fund requires
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<PAGE> 79
Shareholder approval. For so long as the Plan is in effect, selection and
nomination of the Independent Trustees shall be committed to the discretion of
such disinterested persons. All agreements with any person relating to the
implementation of the Plan may be terminated, with respect to a Fund, at any
time on 60 days' written notice without payment of any penalty, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
Shares of the Fund. The Plan will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Independent Trustees, and (ii) by the vote of a
majority of the entire Board of Trustees cast in person at a meeting called for
that purpose. The Board of Trustees has a duty to request and evaluate such
information as may be reasonably necessary for it to make an informed
determination of whether the Plan should be implemented or continued. In
addition the Trustees in approving the Plan must determine that there is a
reasonable likelihood that the Plan will benefit each Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests of each of the Funds since it encourages Fund growth. As a Fund
grows in size, certain expenses, and therefore total expenses per Share, may be
reduced and overall performance per Share may be improved.
For the fiscal year ended March 31, 1999, the Distributor received
distribution fees as follows: $_______ for the Intermediate U.S. Government
Fund, of which it retained $_______; $_______ for the U.S. Government Money
Market Fund (Class M Shares), of which it retained $_______; and $_______ for
the Value Equity Fund of which it retained $_______.
The Money Market Fund has also adopted a separate Distribution Plan
pursuant to Rule 12b-1 for its Class S Shares (the "Class S Plan") under which
the Money Market Fund is authorized to pay the Distributor for payments it makes
to banks, including Brenton Bank, other institutions and broker-dealers, and for
expenses the Distributor and any of its affiliates or subsidiaries incur (with
all of the foregoing organizations being referred to as "Participating
Organizations") for providing distribution service assistance with respect to
the Class S Shares of the Money Market Fund. Payments to such Participating
Organizations may be made pursuant to agreements entered into with BISYS Fund
Services. The Class S Plan authorizes the Money Fund to make payments to the
Distributor in an amount not to exceed, on an annual basis, .75% of the average
daily net assets of the Class S Shares of the Money Market Fund. The Trustees
review quarterly a written report of such costs and the purposes for which such
costs have been incurred. The Class S Plan may be amended by vote of the
Trustees including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. However, any change in the Plan that would
materially increase the distribution cost to the Fund requires Shareholder
approval. For so long as the Plan is in effect, selection and nomination of the
Independent Trustees shall be committed to the discretion of such disinterested
persons. All agreements with any person relating to the implementation of the
Plan may be terminated, with respect to the Fund, at any time on 60 days'
written notice without payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the outstanding Shares of the
Fund. The Class S Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by the vote of a majority of
the entire Board of Trustees cast in person at a meeting called for that
purpose. The Board of Trustees has a duty to request and evaluate such
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<PAGE> 80
information as may be reasonably necessary for it to make an informed
determination of whether the Class S Plan should be implemented or continued. In
addition the Trustees in approving the Plan must determine that there is a
reasonable likelihood that the Plan will benefit the Fund and its Shareholders.
The Board of Trustees of the Group believes that the Class S Plan is in the best
interests of the Money Market Fund since it encourages Fund growth. As a Fund
grows in size, certain expenses, and therefore total expenses per Share, may be
reduced and overall performance per Share may be improved. For the fiscal year
ended March 31, 1999, the Distributor received distribution fees of $_______ for
the Class S Shares of the Money Market Fund, of which it retained $_______.
Custodian
- ---------
Brenton Bank serves as custodian (the "Custodian") to the Funds
pursuant to the Custodian Agreement dated as of August 8, 1994, between the
Group and the Custodian (the "Custodian Agreement"). The Custodian's
responsibilities include safeguarding and controlling each Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest on each Fund's investments. In consideration of such services, each of
the Funds pays the Custodian an annual asset-based fee plus fixed fees charged
for certain portfolio transactions and out-of-pocket expenses.
Unless sooner terminated, the Custodian Agreement will continue in
effect until terminated by either party upon 60 days' advance written notice to
the other party. Notwithstanding the foregoing, the Custodian Agreement, with
respect to a Fund, must be approved at least annually by the Group's Board of
Trustees or by vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectus), and a
majority of the Trustees who are not parties to the Custodian Agreement or
interested persons (as defined in the 1940 Act) of any party to the Custodian
Agreement ("Disinterested Persons") by votes cast in person at a meeting called
for such purpose.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Fund Services Ohio, Inc. serves as transfer agent and dividend
disbursing agent ("BISYS Fund Services Ohio" or the "Transfer Agent") for the
Funds, pursuant to the Transfer Agency Agreement dated August 8, 1994. Pursuant
to such Agreement, the Transfer Agent, among other things, performs the
following services in connection with each of the Funds' Shareholders of record:
maintenance of shareholder records for each of the Fund's Shareholders of
record; processing shareholder purchase and redemption orders; processing
transfers and exchanges of Shares of the Funds on the shareholder files and
records; processing dividend payments and reinvestments; and assistance in the
mailing of shareholder reports and proxy solicitation materials. For such
services the Transfer Agent receives a fee based on the number of shareholders
of record.
In addition, BISYS Fund Services Ohio provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement dated August 8,
1994. BISYS Fund Services Ohio receives a fee from the Money Market Fund, the
Intermediate Government Fund and the Equity Fund for such services equal to a
fee computed daily and paid periodically at an annual
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<PAGE> 81
rate of three one-hundredths of one percent (.03%) of each Fund's average daily
net assets (subject to a minimum annual fee of $30,000). Under such Agreement,
BISYS Fund Services Ohio maintains the accounting books and records for each
Fund, including journals containing an itemized daily record of all purchases
and sales of portfolio securities, all receipts and disbursements of cash and
all other debits and credits, general and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Fund, including calculation of the net asset
value per Share, calculation of the dividend and capital gain distributions, if
any, and of yield, reconciliation of cash movements with the Custodian,
affirmation to the Custodian of all portfolio trades and cash settlements,
verification and reconciliation with the Custodian of all daily trade activity;
provides certain reports; obtains dealer quotations, prices from a pricing
service or matrix prices on all portfolio securities in order to mark the
portfolio to the market; and prepares an interim balance sheet, statement of
income and expense, and statement of changes in net assets for each Fund.
Independent Auditors
- --------------------
Ernst & Young LLP, 10 West Broad Street, Suite 2300, Columbus, Ohio
43215, has been selected as independent auditors for the Funds for the fiscal
year ended March 31, 2000. Ernst & Young LLP performs an annual audit of the
Funds' financial statements and provides other services related to filings with
respect to securities regulations. Reports of their activities are provided to
the Group's Board of Trustees.
Legal Counsel
- -------------
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
is counsel to the Group.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust, organized on January 8,
1992. The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of shares, which are shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
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 Prospectuses 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 a fund are entitled to receive the assets available for
distribution belonging to that fund, and a
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<PAGE> 82
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.
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 such Fund. However, Rule 18f-2 also
provides that the ratification of independent public 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
series.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Group.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Group for acts or obligations of the Group, which
are binding only on the assets and property of the Group, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Group or the Trustees. The Declaration of Trust provides for
indemnification out of Group property for all loss and expense of any
shareholder held personally liable for the obligations of the Group. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Group itself would be unable to meet its
obligations, and thus should be considered remote.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Additional Tax Information
- --------------------------
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to Shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
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<PAGE> 83
disposition of Fund shares, as well as the tax consequences arising under laws
of any state, foreign country, or other taxing jurisdiction.
TAXATION OF THE FUNDS. Each Fund intends to qualify annually and to
elect to be treated as a regulated investment company under the Code.
To qualify as a regulated investment company, each Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the 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 a 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) each taxable year.
As a regulated investment company, each Fund will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to Shareholders. Each Fund intends to
distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, each 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, including an
"exempt-interest dividend," will be treated as paid on December 31 of the
current calendar year if it is declared by a Fund in October, November or
December with a record date in such a month and paid by the Fund during January
of the following calendar year. Such distributions will be treated as received
by Shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. To
prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
DISTRIBUTIONS. Dividends paid out of a Fund's investment company
taxable income generally will be taxable to a U.S. Shareholder as ordinary
income. Because no portion of the income derived by the Money Market Fund and
the Intermediate Government Fund is expected
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<PAGE> 84
to consist of dividends paid by U.S. corporations, no portion of the dividends
paid by those Funds is expected to be eligible for the corporate
dividends-received deduction. A portion of the Equity Fund's income may,
however, consist of dividends paid by U.S. corporations and, accordingly, a
portion of the dividends paid by that Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains, if any,
designated as capital gain dividends are taxable 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. The Money Market Fund is not
expected to realize any long-term capital gains or losses. 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 a Fund reduce the net asset value of Fund Shares.
Should a taxable distribution reduce the net asset value below a Shareholder's
cost basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
ORIGINAL ISSUE DISCOUNT/MARKET DISCOUNT SECURITIES. Investments by a
Fund in securities that are issued at a discount will result in income to the
Fund equal to a portion of the excess of the face value of the securities over
their issue price (the "original issue discount") each year that the securities
are held, even though the Fund receives no cash interest payments. This income
is included in determining the amount of income which 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 a Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
Generally, the gain realized on the disposition of any debt security having
market discount will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by the Code section
1234. Pursuant to the Code section 1234, the premium received by a Fund for
selling a put or call option is not included in income at the time of receipt.
If the option expires, the premium is short-term capital gain to the Fund. If
the Fund enters into a closing transaction, the difference between the amount
paid to close out its position and the premium received is short-term capital
gain or loss. If a call option written by a Fund is exercised, thereby requiring
the Fund to sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or loss will be a
capital gain or loss, and will be long-term
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<PAGE> 85
or short-term depending upon the holding period of the security. With respect to
a put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Certain options in which a Fund may invest are "section 1256
contracts." Gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses ("60/40"). Also,
section 1256 contracts held by a Fund at the end of each taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Funds which is taxed as
ordinary income when distributed to Shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
The Equity Fund may invest in shares of foreign corporations (through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to Shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC shares. The Fund
itself will be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain
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from the sale of PFIC shares are treated as excess distributions. Excess
distributions are characterized as ordinary income even though, absent
application of the PFIC rules, certain excess distributions might have been
classified as capital gain.
The Equity Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund would be required to include in its gross income its
share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains are treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
SALE OF SHARES. Upon the sale or other disposition of Shares of a Fund,
or upon receipt of a distribution in complete liquidation of a Fund, a
Shareholder generally will realize a capital gain or loss which will be
long-term or short-term, 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. Furthermore, a loss
realized by a Shareholder on the redemption, sale or exchange of Shares of a
Fund with respect to which exempt-interest dividends have been paid will, to the
extent of such exempt-interest dividends, be disallowed if such Shares have been
held by the Shareholder for less than six months.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries.
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<PAGE> 87
BACKUP WITHHOLDING. Each Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
Shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Corporate
Shareholders and certain other Shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the Shareholder's U.S. federal
income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of
an investment in a Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER TAXATION. The Group is organized as a Massachusetts business
trust and, under current law, neither the Group nor any Fund is liable for any
income or franchise tax in the Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.
Fund Shareholders may be subject to state and local taxes on their Fund
distributions. In certain states, Fund distributions which are derived from
interest on obligations of that state or any municipality or political
subdivision thereof may be exempt from taxation. Also, 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 of the Money Market Fund
- -------------------------------------------------
As summarized in the Prospectuses under the heading "Performance
Information," the yield of the Money Market Fund for a seven-day period (the
"base period") will be computed by determining the net change in value
(calculated as set forth below) of a hypothetical account having a balance of
one share at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to obtain
the base period return, and multiplying the base period return by 365/7 with the
resulting yield figure carried to the nearest hundredth of one percent. Net
changes in value of a hypothetical account will include the value of additional
Shares purchased with dividends from the original Share and dividends declared
on both the original Share and any such additional Shares, but will not include
realized gains or losses or unrealized appreciation or depreciation on portfolio
investments. Yield may also be calculated on a compound basis (the "effective
yield") which assumes that net income is reinvested in Fund Shares at the same
rate as net income is earned for the base period.
The yield and effective yield of the Money Market Fund will vary in
response to fluctuations in interest rates and in the expenses of the Fund. For
comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for the
same base period and calculated by the methods described below.
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<PAGE> 88
For the seven-day period ended March 31, 1999, the yield for the Class
M Shares of the Money Market Fund was ___% and its effective yield was ___% and
the yield for the Class S Shares of the Money Market Fund was ___% and its
effective yield was ___%.
The Money Market Fund may wish to publish total return figures in its
sales literature and other advertising materials. For a discussion of the manner
in which such total return figures are calculated, see "Yields and Total Returns
of the Intermediate Government Fund and the Equity Fund--Total Return
Calculations" below.
Yields and Total Returns of the Intermediate Government Fund and the Equity Fund
- --------------------------------------------------------------------------------
YIELD CALCULATIONS. As summarized in the Prospectuses of the Funds under the
heading "PERFORMANCE INFORMATION", yields of each of the Funds except the Money
Market Fund 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. A Fund's net investment income per share earned during the period is
based on the average daily number of Shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements.
This calculation can be expressed as follows:
a - b
Yield = 2 (------- + 1) to the 6th power - 1
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per Share on the last day
of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Fund. Interest earned on any debt
obligations held by a Fund is calculated by computing the yield to maturity of
each obligation held by that 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 that
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<PAGE> 89
Fund. For purposes of this calculation, it is assumed that each month contains
30 days. The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
For the 30-day period ended March 31, 1999, the yield for the
Intermediate Government Fund and the Equity Fund was ___%, and ___%,
respectively.
During any given 30-day period, the Adviser or Administrator may
voluntarily waive all or a portion of its fees with respect to a Fund. Such
waiver would cause the yield of that Fund to be higher than it would otherwise
be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. As summarized in the Prospectuses of the
Funds under the heading "PERFORMANCE INFORMATION", average annual total return
is a measure of the change in value of an investment in a Fund over the period
covered, which assumes any dividends or capital gains distributions are
reinvested in the Fund immediately rather than paid to the investor in cash.
Aggregate total return is calculated similarly to average annual total return
except that the return figure is aggregated over the relevant period instead of
annualized.
The Funds compute their average annual total returns 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:
ERV
Average Annual Total Return = ( --- ) 1/n - 1
P
Where: ERV = ending redeemable value at the end of
the period covered by the computation of
a hypothetical $1,000 payment made at
the beginning of the period.
p = hypothetical initial payment of $1,000.
n = period covered by the computation,
expressed in terms of years.
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<PAGE> 90
The Funds compute their aggregate total returns by determining the
aggregate compounded rates 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:
ERV
Aggregate Total Return = ( --- ) 1/n - 1
P
Where: ERV = ending redeemable value at the end of
the period covered by the computation of
a hypothetical $1,000 payment made at
the beginning of the period.
p = hypothetical initial payment of $1,000.
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.
Based upon the period beginning with each Fund's commencement of
operations (August 9, 1994) through March 31, 1999, the aggregate total return
for each Fund (other than the Money Market Fund), assuming the imposition of the
maximum applicable sales charge, was as follows: ___% for the Intermediate
Government Fund and ___% for the Equity Fund. Assuming that the maximum
applicable sales charge had not been imposed, the aggregate total return for
this same period would have been as follows: ___% for the Intermediate
Government Fund and ___% for the Equity Fund.
Based upon the period beginning with each Fund's commencement of
operations (August 9, 1994) through March 31, 1999, the average annual total
return for each Fund (other than the Money Market Fund), assuming the imposition
of the maximum applicable sales charge, was as follows: ___% for the
Intermediate Government Fund and ___% for the Equity Fund. Assuming that the
maximum applicable sales charge had not been imposed, the average annual total
return for this same period would have been as follows: ___% for the
Intermediate Government Fund and ___% for the Equity Fund.
For the fiscal year ended March 31, 1999, the total return for each
Fund (other than the Money Market Fund), assuming the imposition of the maximum
applicable sales charge, was as follows: ___% for the Intermediate Government
Fund and ___% for the Equity Fund. Assuming that the maximum applicable sales
charge had not been imposed, the total return for this same period would have
been as follows: ___% for the Intermediate Government Fund and ___% for the
Equity Fund.
Performance Comparisons
- -----------------------
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and
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<PAGE> 91
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Corporation and to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds or Ibbotson Associates, Inc.
Comparisons may also be made to indices or data published in BC/Donoghue's MONEY
FUND REPORT(TM), a nationally recognized money market fund reporting service,
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Fortune, Institutional Investor, Morningstar,
Inc., CDA/Wiesberger, Pensions and Investments, U.S.A. Today and local
newspapers. In addition to performance information, general information about
the Funds that appears in a publication such as those mentioned above may be
included in advertisements and in reports to Shareholders. The Funds may also
include in advertisements and reports to Shareholders information comparing the
performance of the Adviser or its predecessors to other investment advisers;
such comparisons may be published by or included in Nelsons Directory of
Investment Managers, Roger's, Casey/PIPER Manager Database or CDA/Cadence.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of a Fund's quality, composition and maturity, as well
as expenses allocated to the Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's 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 Funds may also include calculations,
such as hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of any Fund.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Funds may
include descriptions of the investment advisers including, but not limited to,
(i) descriptions of the advisers' operations, (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
advisers' operations.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Funds; (5)
descriptions of investment strategies for the Funds; (6) descriptions or
comparisons of various savings and investment products (including but not
limited to insured bank products, annuities, qualified retirement plans and
individual stocks and bonds) which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations.
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<PAGE> 92
Principal Shareholders
- ----------------------
As of __________, 1999, the following persons or entities owned
beneficially or of record 5% or more of the outstanding shares of the indicated
Funds: (i) in the case of the Money Market Fund, Ingersoll and Company (c/o
Brenton Bank, Trust Department) P.O. Box 10478, Des Moines, Iowa 50306, which
owned of record ___% of the Fund's shares; (ii) in the case of the Intermediate
Government Fund, Ingersoll and Company (c/o Brenton Bank, Trust Department) P.O.
Box 10478, Des Moines, Iowa 50306, which owned of record ___% of the Fund's
shares; and (iii) in the case of the Equity Fund, Ingersoll and Company (c/o
Brenton Bank, Trust Department) P.O. Box 10478, Des Moines, Iowa 50306, which
owned of record ___% of the Fund's shares.
Miscellaneous
- -------------
The Funds may include information in their Annual Reports and
Semi-Annual Reports to Shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for a
fund within the Group or (4) describes investment management strategies for such
funds. Such information is provided to inform Shareholders of the activities of
the Funds for the most recent fiscal year or half-year and to provide the views
of the Adviser and/or Group officers regarding expected trends and strategies.
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Shareholders owning not less than 10% of the outstanding Shares of the Group
entitled to vote may cause the Trustees to call a special meeting, including for
the purpose of considering the removal of one or more Trustees. Any Trustee may
be removed at any meeting of Shareholders by vote of two-thirds of the Group's
outstanding shares. The Declaration of Trust provides that the Trustees will
assist shareholder communications to the extent required by Section 16(c) of the
1940 Act in the event that a shareholder request to hold a special meeting is
made.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectuses and this Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements of the Money Market Fund, the Intermediate
Government Fund and the Equity Fund appearing in the Annual Report to
Shareholders for the fiscal year ended March 31, 1999 have been audited by Ernst
& Young LLP, independent auditors, as set forth in
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<PAGE> 93
their report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
- 40 -
<PAGE> 94
APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Adviser with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P") and Duff & Phelps, Inc.
("D&F"). Set forth below is a description of the relevant ratings of each such
NRSRO. The NRSROs that may be utilized by the Adviser and the description of
each NRSRO's ratings is as of the date of this Statement of Additional
Information, and may subsequently change.
LONG TERM DEBT RATINGS (may be assigned, for example, to corporate and
municipal bonds) Description of the three highest long-term debt ratings by
Moody's (Moody's applies numerical modifiers (1, 2, and 3) in each rating
category to indicate the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the Fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Description of the three highest long-term debt ratings by S&P (S&P may
apply a plus (+) or minus (-) to a particular rating classification to show
relative standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories. Description of the three highest long-term debt ratings by D&P;
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<PAGE> 95
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods of
A- economic stress.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial
paper, master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on Funds 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 or 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.
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<PAGE> 96
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.
Short-Term Loan/Municipal Note Ratings
- --------------------------------------
Moody's description of its two highest short-term loan/municipal note
ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
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<PAGE> 97
Definitions of Certain Money Market Instruments
- -----------------------------------------------
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.
Certificates of Deposit
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.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally 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.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Export-Import Bank of the United States, the Tennessee Valley Authority, the
Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association are supported
by the right of the issuer to borrow from the Treasury; others, such as those of
the Student Loan Marketing Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks, 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
instrumentalities if it is not obligated to do so by law.
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<PAGE> 98
PART C
-----------
OTHER INFORMATION
-----------------
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust(1)
(a)(2) Establishment and Designation of Series of Shares
(Brenton U.S. Government Money Market Fund, Brenton
Intermediate U.S. Government Securities Fund and
Brenton Value Equity 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
(d)(1) Investment Advisory Agreement between Registrant and
Brenton Bank(3)
(d)(2) Sub-Avisory Agreement between Registrant, Brenton
Bank and the Northern Trust Company (with respect
to Brenton U.S. Government Money Market Fund)(3)
(e) Distribution Agreement between Registrant and BISYS
Fund Services(3)
(f) Not Applicable
(g) Custody Agreement between Registrant and Brenton
Bank(3)
(h)(1) Management and Administration Agreement between the
Registrant and BISYS Fund Services(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)
(i) Not Applicable
(j) Consent of Independent Accountants(5)
(k) Not Applicable
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<PAGE> 99
(l) Not Applicable
(m)(1) Distribution and Shareholder Service Plan (with
respect to Brenton U.S. Government Money Market
Fund - Class M Shares, Brenton Intermediate U.S.
Government Securities Fund and Brenton Value Equity
Fund)(3)
(m)(2) Distribution Servicing Agreement(3)
(m)(3) Distribution Plan (with respect to Brenton U.S.
Government Money Market Fund - Class S Shares)(4)
(n) Not Applicable
(o) Plan Pursuant to Rule 18f-3(4)
__________________
1. Filed with initial Registration Statement on January 8, 1992.
2. Filed with Post-Effective Amendment No. 2 on September 4, 1992.
3. Filed with Post-Effective Amendment No. 10 on June 8, 1994.
4. Filed with Post-Effective Amendment No. 37 on June 1, 1998.
5. To be filed by Amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust states
as follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained
in paragraph
(b) below:
(i) every person who is, or has been, a Trustee
or officer of the Trust shall be indemnified
by the Trust to the fullest extent permitted
by law against all liability and against all
expenses reasonably incurred or paid by him
in connection with any claim, action, suit
or proceeding in which he becomes involved
as a party or otherwise by virtue of his
being or having been a Trustee or officer
and against amounts paid or incurred by him
in the settlement thereof; and (ii) the
words "claim," "action," "suit," or
"proceeding" shall apply to all claims,
actions, suits or proceedings (civil,
criminal, administrative or other, including
appeals), actual or threatened; and the
words "liability" and "expenses" shall
include, without limitation, attorneys fees,
costs, judgments, amounts paid in
settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be
provided hereunder to a Trustee or
officer:
(i) against any liability to the
Trust, a Series thereof, or the
Shareholders by reason of a final
adjudication by a court or other
body before which a proceeding was
brought
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<PAGE> 100
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
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<PAGE> 101
(provided that a majority of the Disinterested Trustees acts
on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has
been exempted from being an Interested Person by any rule, regulation
or order of the Commission), or (ii) involved in the claim, action,
suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act, and therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities controlling persons of the Registrant
in connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
THEIR OFFICERS AND DIRECTORS
(a) Brenton Bank is the investment adviser for Brenton
U.S. Government Money Market Fund; Brenton
Intermediate U.S. Government Securities Fund and
Brenton Value Equity Fund. Brenton Bank is a
wholly-owned subsidiary of Brenton Banks, Inc.,
a multibank holding company. Set forth below are the
senior officers and directors of Brenton Bank and
their principal business and other connections. The
Business Address of the officers and directors is
2840 Ingersoll Street, Des Moines, Iowa 50312.
<TABLE>
<CAPTION>
Position with
Name the Adviser Principal Occupation
- ---- ----------- --------------------
<S> <C> <C>
J.C. Brenton Director Position with Brenton Bank
W.H. Brenton Director Position with Brenton Bank
C.R. Brenton Director Position with Brenton Bank
Larry A. Mindrup President, Chief Executive Position with Brenton Bank
Officer and Director
Norman D. Schuneman Executive Vice President and Position with Brenton Bank
Director
Marsha A. Findley Senior Vice President and Position with Brenton Bank
Chief Operating
Officer
David L. Nagel Executive Vice President Position with Brenton Bank
Woodward G. Brenton Director President & CEO, Brenton First
National
Robert L. DeMeulenaerc Director Position with Brenton Banks, Inc.
John C. Eddy Director Attorney
Robert E. Jester Director President, Jester Insurance
Service, Inc.
Bruce G. Kelley Director President, Employers Mutual Co.
John F. Krantz Director President, Adventureland of
America, Inc.
David J. Lundquist Director Vice Chairman, New Heritage
Association
Richard A. Matthes Director Chairman & CEO, GenEx
Samuel G. O'Brien Director Attorney
Richard J. Oggaro Director Chairman, The Weitz Company
Joseph B. Ryan, Jr. Director Coltec Industries
John O. Hintze Director Attorney
</TABLE>
The Northern Trust Company serves as the sub-investment
adviser for Brenton U.S. Government Money Market Fund.
Reference is made to the response to Item 28 in the
Registration Statement on Form N-1A of The Benchmark Funds
(File Nos. 2-80543/811-3605) regarding the business and other
connections of certain directors and officers of The Northern
Trust Company, which Item is incorporated
by reference herein.
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
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<PAGE> 102
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:
<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Underwriter Positions and Offices with Registrant
Address
<S> <C> <C>
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
</TABLE>
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
In connection with The Brenton Funds, the accounts,
books, and other documents required to be maintained by
the Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Brenton Bank, 2840
Ingersoll Street, Des Moines, Iowa 50312 (records
relating to its function as adviser for Brenton U.S.
Government Money Market Fund; Brenton Intermediate U.S.
Government Securities Fund and Brenton Value Equity
Fund), The Northern Trust Company, 50 S. LaSalle Street,
Chicago, Illinois 60675 (relating to its function as
sub-adviser for Brenton U.S. Government Money Market
Fund), BISYS Fund Services, 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its functions as general
manager, administrator and distributor), and BISYS Fund
Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its functions as transfer
agent).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS.
None
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<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 49 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 1st day of June, 1999.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
---------------------
Walter B. Grimm
By: /s/ Jeffrey L. Steele
--------------------------
Jeffrey L. Steele, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ----------- ------ ------
<S> <C> <C>
/s/Walter B. Grimm Chairman, President and Trustee June 1, 1999
- ------------------------
Walter B. Grimm** (Principal Executive Officer)
/s/ John H. Ferring IV Trustee June 1, 1999
- ------------------------
John H. Ferring IV***
/s/ Maurice G. Stark Trustee June 1, 1999
- ------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee June 1, 1999
- ------------------------
Michael M. Van Buskirk*
/s/ Gary R. Tenkman Treasurer (Principal June 1, 1999
- ------------------------
Gary R. Tenkman**** Financial and Accounting Officer)
</TABLE>
By: /s/ Jeffrey L. Steele
--------------------------------------
Jeffrey L. Steele, as attorney-in-fact
* Pursuant to power of attorney filed with Pre-Effective Amendment
No. 3 on April 6, 1992.
** Pursuant to power of attorney filed with Post-Effective Amendment
No. 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.
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