<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 2000
Registration No. 33-44964
Investment Company Act File No. 811-6526
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 2054 9
-------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 68 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
AMENDMENT NO. 70 / X /
(Check appropriate box or boxes)
THE COVENTRY GROUP
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Office)
Registrant's Telephone Number: (614) 470-8000
-------------------------------------
Jane A. Kanter, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, DC 20006
-------------------------------------
(Name and Address of Agent for Services)
Copies to:
Walter B. Grimm
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
It is proposed that this filing will become effective 60 days after filing
pursuant to paragraph (a) of Rule 485.
<PAGE> 2
QUESTIONS?
Call 1-877-945-3863 or your
investment representative.
SUBJECT TO COMPLETION DATED
MAY 1, 2000
WILLAMETTE
GLOBAL HEALTH
SCIENCES FUND
[WILLAMETTE ASSET MANAGERS LOGO]
---------------
PROSPECTUS DATED , 2000
---------------
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED THE FUND'S SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
CRIME.
THE INFORMATION IN THIS PROSPECTUS IS
NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
<PAGE> 3
WILLAMETTE GLOBAL HEALTH SCIENCES FUND TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this 3 Willamette Global Health Sciences Fund
important section, which
summarizes the Fund's
investments, risks, past
performance, and fees.
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
Review this section for 5 Investment Objective, Policies and Strategies
details on investment 6 Principal Risks of Investing in the Fund
strategies and risks.
SHAREHOLDER INFORMATION
Review this section for 7 Pricing of Fund Shares
details on how shares are 7 Purchasing and Adding to Your Shares
valued, how to purchase, 10 Selling Your Shares
sell and exchange shares, 11 General Policies on Selling Shares
related charges, and 12 Distribution Arrangements/Sales Charges
payments of dividends and 14 Exchanging Your Shares
distributions. 15 Dividends, Distributions and Taxes
FUND MANAGEMENT
Review this section for 16 The Investment Adviser and Sub-Adviser
details on the people and 16 The Distributor and Administrator
organizations who oversee
the Fund.
FINANCIAL HIGHLIGHTS
The Fund has not yet 17 Financial Highlights
commenced operations on and
does not yet have a
performance record.
</TABLE>
2
<PAGE> 4
WILLAMETTE GLOBAL
RISK/RETURN SUMMARY AND FUND EXPENSES HEALTH SCIENCES FUND
- -
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to provide long-term growth of capital.
PRINCIPAL The Fund invests primarily in equity and debt securities of
INVESTMENT STRATEGIES large, medium and small U.S. and foreign health sciences
companies, including development stage companies. Health
sciences companies are enterprises that are principally
engaged in research and development, production, or
distribution of products or services related to health care,
medicine and life sciences. The Fund will invest in
companies in at least three different countries, including
the United States.
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. This
Fund has additional special risks. Because the Fund invests
primarily in securities of issuers in health sciences
industries, it is particularly exposed to risks affecting
those industries. Additionally, the Fund is non-diversified,
which means it can invest heavily in a few issuers. Thus, it
is more susceptible than a diversified fund would be to
events affecting single portfolio companies. The Fund's
investments in small cap stocks may display greater price
volatility than stocks of larger companies. The Fund's junk
bond investments may be particularly vulnerable in times of
general economic stress, negative publicity for junk bonds
generally, or when the issuer experiences financial
difficulties. As with any new fund, there is a risk that the
Fund may not grow to a viable size and may have to be
liquidated at a time that is not opportune for investors.
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. Finally, the Fund's
securities lending activities expose it to risks of default
by the borrower. For more information on risks, see
"Investment Objective, Strategies and Risks -- Principal
Risks of Investing in the Fund."
WHO MAY Consider investing in the Fund if you are:
WANT TO INVEST? - investing for a long-term goal such as retirement (five
year investment horizon);
- looking to add a growth component to your portfolio; and
- willing to accept higher risks of investing in a
non-diversified portfolio of health sciences issuers.
This Fund will not be appropriate for someone:
- seeking monthly income;
- pursuing a short-term goal or investing emergency
reserves;
- seeking safety of principal.
FUND PERFORMANCE Because the Fund commenced operations only on ,
2000, it does not have a record of performance.
</TABLE>
3
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES
- -
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION FEES
(FEES PAID BY YOU DIRECTLY)
Maximum Sales Charge (Load) on Purchases 5.75%(1)
Maximum Deferred Sales Charge (Load) None
ANNUAL FUND OPERATING EXPENSES (EXPENSES
PAID FROM FUND ASSETS)
Management Fee(2,3) 1.20%
Distribution and Service (12b-1) fee 0.50%
Other Expenses 1.47%
Total Fund Operating Expenses 3.17%
</TABLE>
(1) Lower sales charges are available
depending upon the amount invested. See
"Distribution Arrangements."
(2) The Adviser pays fees of the Sub-Adviser
out of its Management Fee from the Fund.
(3) The Adviser plans to waive 0.20% of its
Management Fee, but may terminate this
waiver at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
GLOBAL HEALTH SCIENCES FUND $877 $1,496 $2,139 $3,851
</TABLE>
As an investor in the Fund,
you will pay the following
fees and expenses.
Shareholder transaction
fees are paid from your
account. Annual Fund
operating expenses are
paid out of Fund assets,
and are reflected in the
share price.
Use this table to compare fees
and expenses with those of
other funds. It illustrates
the amount of fees and
expenses you would pay,
assuming the following:
- $10,000 investment;
- 5% annual return;
- redemption at the end of
each period;
- no changes in the Fund's
operating expenses.
Because this example is
hypothetical and for
comparison purposes only,
your actual costs are likely
to be different.
4
<PAGE> 6
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- -
WILLAMETTE GLOBAL HEALTH SCIENCES FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide long term growth of capital.
- - POLICIES AND STRATEGIES
The Fund, under normal market conditions, will invest primarily (at least 65%
of the value of its total assets) in equity and debt securities of U.S. and
foreign health sciences companies. Health sciences companies are enterprises
that are principally engaged in research and development, production, or
distribution of products or services related to health care, medicine and
life sciences. The Fund's investments will include companies from at least
three different countries, including the U.S., and there are no limits on the
amount the Fund may invest in foreign securities. The Fund may invest in
companies of any size, including large, medium and small capitalization
companies and development stage companies.
The Fund's investments, normally at least 80% of its assets, will be
principally in equity securities of health sciences companies. Equity
securities include common and preferred stocks, rights and warrants, and
securities exchangeable for or convertible into common stocks. The Fund may
invest up to 20% of its assets in debt securities, included debt securities
rated below investment grade ("junk bonds").
To generate additional income, the Fund may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks and
other institutions.
The Fund may invest in U.S. government obligations, money market instruments
and repurchase agreements; under abnormal market conditions, the Fund may
invest without limit in these securities, which may cause the Fund to fail to
achieve its investment objective.
5
<PAGE> 7
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, and you can lose
money on your investment. More specifically, the Fund may be affected by the
following types of risks:
EQUITY SECURITY RISK: The value of the equity securities held by the Fund,
and thus of the Fund's shares, can fluctuate -- at times dramatically. The
prices of equity securities are affected by various factors, including market
conditions, political and other events, and developments affecting the
particular issuer or its industry or geographic sector.
RISKS OF HEALTH SCIENCES COMPANIES: Because the Fund invests primarily in
stocks of health sciences companies, it is particularly susceptible to risks
associated with these industries. The Fund's performance will depend on the
performance of securities of these industries, which may differ from general
stock market performance. Many products and services in these industries may
become rapidly obsolete due to technological and scientific advances. In
addition, governmental regulation may have a material effect on the demand
for products and services in these industries, and new or amended regulations
can adversely affect the issuer or the market value of its securities.
Finally, lawsuits or legal proceedings against these companies can adversely
affect the value of their securities.
RISKS OF NON-DIVERSIFICATION: The Fund is non-diversified. This means that it
may invest a larger portion of its assets in a limited number of companies
than a diversified fund. Because a relatively high percentage of the Fund's
assets may be invested in the securities of a limited number of issuers that
will be in the same or related economic sectors, the Fund's portfolio may be
more susceptible to any single economic, technological, regulatory or legal
occurrence than the portfolio of a diversified fund.
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS: Stocks of development stage
and small capitalization companies involve substantial risk. These stocks
historically have experienced greater price volatility than stocks of more
established and larger capitalization companies, and they may be expected to
do so in the future.
FOREIGN SECURITIES RISK: Investments in securities of non-U.S. issuers have
special risks. These risks include international economic and political
developments, foreign government actions including restrictions on payments
to non-domestic persons such as the Fund, less regulation, less information,
currency fluctuations and interruptions in currency flow. Investments in
foreign securities also entail higher costs. The Fund's investments in
foreign securities may include investments in the form of sponsored or
unsponsored American Depositary Receipts ("ADRs"). Ownership of unsponsored
depositary receipts may not entitle the Fund to financial and other reports
from the issuer of the underlying security, and certain costs related to the
receipts that would otherwise be borne by the issuer of a sponsored
depositary receipt may be passed through, in whole or in part, to holders of
unsponsored receipts.
SECURITIES LENDING RISK: Although the Fund's loans of portfolio securities
will be fully collateralized and marked to market throughout the period of
the loan, the Fund may experience delays in getting the securities returned
and may not receive mark-to-market payments if the borrower enters bankruptcy
or has other financial problems.
NEW FUND RISK: There can be no assurance that the Fund will grow to an
economically viable size, in which case Fund management may determine to
liquidate the Fund at a time that may not be opportune for shareholders.
- -
6
<PAGE> 8
[ICON]
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
Per share net asset value (NAV) for
the Fund is determined and its shares
are priced at the earlier of the close
of regular trading on the New York
Stock Exchange or 4:00 p.m. Eastern
time on the days the Exchange is open.
Your order for purchase, sale or
exchange of shares is priced at the
next NAV calculated after your order
is accepted by the Fund plus any
applicable sales charge as noted in
the section on "Distribution
Arrangements/Sales Charges." This is
what is known as the offering price.
The Fund's securities are generally
valued at current market prices. If
market quotations are not available,
prices will be based on fair value as
determined by the Fund's Trustees.
PURCHASING AND ADDING TO YOUR SHARES
You may purchase the Fund
through the Distributor or
through investment
representatives, who may
charge additional fees and
may require higher minimum
investments or impose other
limitations on buying and
selling shares. If you
purchase shares through an
investment representative,
that party is responsible
for transmitting orders by
close of business and may
have an earlier cut-off
time for purchase and sale
requests. Consult your
investment representative
for specific information.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
Regular $1,000 $100
-----------------------------------------------
Retirement $ 250 $ --
-----------------------------------------------
Automatic
Investment Plan $ 250 $ 25
</TABLE>
All purchases must be in U.S. dollars.
A fee will be charged for any checks
that do not clear. Third-party checks
are not accepted.
The Fund may waive its minimum
purchase requirement and the
Distributor may reject a purchase
order if it considers it in the best
interest of the Fund and its
shareholders.
7
<PAGE> 9
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Willamette Funds."
3. Mail to: The Willamette Funds, P.O. Box 182301, Columbus, OH 43218-2301
Subsequent:
1. Use the investment slip attached to your account statement. Or, if
unavailable,
2. Include the following information on a piece of paper:
- Fund name;
- Amount invested;
- Account name;
- Account number.
Include your account number on your check.
3. Mail to: The Willamette Funds, P.O. Box 182301, Columbus, OH 43218-2301.
BY OVERNIGHT SERVICE
SEE INSTRUCTIONS 1-2 ABOVE FOR SUBSEQUENT INVESTMENTS.
3. Send to: The Willamette Funds,
Attn: Shareholder Services, 3435 Stelzer Road, Columbus, OH 43219
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
Prior to wiring funds and in order to ensure that wire orders are invested
promptly, investors must call the Fund at 1-877-945-3863 to obtain
instructions regarding the bank account number to which the funds should be
wired and other pertinent information.
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time with 60 days notice.
QUESTIONS?
Call 1-877-945-3863 or
your
investment
representative.
8
<PAGE> 10
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account.
Automatic investments can be as little as $25, once you've invested the $250
minimum required to open the account.
To invest regularly from your bank account:
* Complete the Automatic Investment Plan portion on your Account Application.
Make sure you note:
- Your bank name, address and ABA number;
- Your checking or savings account number;
- The amount you wish to invest automatically (minimum $25);
- How often you want to invest (every month, twice a month, 4 times a year
or once a year);
- Attach a voided personal check or savings deposit slip.
-----------------------------------------------------------------------------
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. Dividends from net investment income are declared and paid
annually and distributions of capital gains are distributed at least
annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU HAVE
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.
-----------------------------------------------------------------------------
9
<PAGE> 11
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
You may sell your shares
at any time. Your sales
price will be the next NAV
after your sell order is
received by the Fund, its
transfer agent, or your
investment representative.
Normally you will receive
your proceeds within a
week after your request is
received. See the section
"General Policies on
Selling Shares".
BY TELEPHONE (unless you have declined telephone sales privileges)
1. Call 1-877-945-3863 with instructions as to how you wish to receive your
funds (mail, check or wire). Note: IRA redemptions must be requested by
mail.
BY MAIL
1. Call 1-877-945-3863 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number;
- amount you wish to redeem;
- address where your check should be sent;
- account owner(s) signature.
2. Mail to: The Willamette Funds, P.O. Box 182301, Columbus, OH 43218-2301
WIRE TRANSFER
You must indicate this option on your application.
The Fund may charge a wire transfer fee.
Note: Your financial institution may also charge a separate fee.
Call 1-877-945-3863 to request a wire transfer.
If you call by 4 p.m. Eastern time or the close of the New York Stock
Exchange, whichever is earlier, your payment will normally be wired to your
bank on the next business day.
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi annual, or annual basis. The minimum withdrawal is $100. To activate
this feature:
- Make sure you have checked the appropriate box on the Account
Application.
Or call 1-877-945-3863;
- A minimum balance of $12,000 is required;
- Include a voided personal check;
- Note minimum balance considerations (see "Closing of Small Accounts,"
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.
10
<PAGE> 12
SHAREHOLDER INFORMATION
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:
- Redemptions Over $50,000;
- Your account registration or the name(s) in your account has changed
within the last 10 business days;
- The check is not being mailed to the address on your account;
- The check is not being made payable to the owner of the account;
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 10 BUSINESS DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has
cleared (which may require up to 10 business days). You can avoid this delay
by purchasing shares with a certified check or wire transfer.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The 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 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
the Fund.
11
<PAGE> 13
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and fees you will pay as an investor
in the Fund and ways to qualify for reduced sales charges.
<TABLE>
<S> <C>
Sales Charge (Load) Front-end sales charge; reduced sales charges available.
Distribution (12b-1) Subject to annual distribution and shareholder (12b-1) fee
and Service Fees servicing fees of up to 0.50% of the Fund's total assets.
</TABLE>
CALCULATION OF SALES CHARGES
Shares of the Fund are sold at their public offering price. This price
includes the initial sales charge. Therefore, part of the money you invest
will be used to pay the sales charge. The remainder is invested in Fund
shares. The sales charge decreases with larger purchases. There is no sales
charge on reinvested dividends and distributions.
The current sales charge rates for the Fund are as follows:
<TABLE>
<S> <C> <C> <C>
AMOUNT OF SALES
CHARGE REALLOWED TO
DEALERS AS A
SALES CHARGE SALES CHARGE PERCENTAGE OF YOUR
YOUR AS A % OF AS A % OF PUBLIC OFFERING
INVESTMENT OFFERING PRICE YOUR INVESTMENT PRICE**
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 5.00% 5.26% 4.25%
$100,000 but less than $250,000 4.00% 4.17% 3.60%
$250,000 but less than $500,000 3.00% 3.09% 2.70%
$500,000 but less than $750,000 2.50% 2.56% 2.25%
$750,000 but less than 1.25% 1.27% 1.10%
$1,000,000
$1,000,000 and above* 0.00% 0.00% 0.00%
</TABLE>
* In the case of investments of $1 million or more, a 1.00% redemption fee
will be assessed on shares redeemed within 12 months of purchase (excluding
shares purchased with reinvested dividends and/or distributions).
** The Distributor may reallow up to 100% of the sales charge to Phillips &
Company Securities, Inc. and Willamette Securities, Inc., affiliates of the
Adviser. The staff of the Securities and Exchange Commission has indicated
that dealers who receive more than 90% of the sales charge may be considered
underwriters. The Distributor, at its expense, may provide additional
compensation to dealers in connection with sales of Shares of the Fund.
12
<PAGE> 14
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
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.
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 Willamette Funds or
accounts of immediate family household members (spouse and children under 21)
to achieve reduced sales charges.
SALES CHARGE WAIVERS
The sales charge will not apply to purchases of Shares by: (a) trust,
investment management and other fiduciary accounts managed by the Adviser or
Sub-Adviser pursuant to a written agreement; (b) any person purchasing Shares
with the proceeds of a distribution from a trust, investment management or
other fiduciary account managed by the Adviser or Sub-Adviser pursuant to a
written agreement; (c) BISYS or any of its affiliates; (d) Trustees or
officers of the Fund; (e) directors or officers of BISYS, the Adviser,
Sub-Adviser or affiliates or bona fide full-time employees of the foregoing
(including members of their immediate families and their retirement accounts
or plans); shares purchased by retirement accounts or plans for which there
is a written service agreement between the Group and the plan sponsor, so
long as such Shares are purchased through the Fund; or (g) any person
purchasing shares within an approved asset allocation program sponsored by a
financial services organization. The sales charge also does not apply to
shares sold to representatives of selling brokers and members of their
immediate families that have signed a selling group agreement with the Fund.
In addition, the sales charge does not apply to sales to bank trust
departments, acting on behalf of one or more clients, of Shares having an
aggregate value equal to or exceeding $200,000. Finally, up to 50% of
applicable sales charges may be waived for customers of Phillips & Co.
Securities, Inc. and Willamette Securities, Inc., both broker-dealer
affiliates of the Adviser.
DISTRIBUTION AND SERVICE (12b-1) FEES
The Fund is permitted to pay annually up to 0.50% of its average daily net
assets in 12b-1 fees. 12b-1 fees compensate the Distributor and other dealers
and investment representatives for services and expenses relating to the sale
and distribution of a Fund's shares and/or for providing shareholder
services. 12b-1 fees are paid from Fund assets on an ongoing basis, and will
increase the cost of your investment.
The Distributor may use up to 0.25% of the 12b-1 fee for shareholder
servicing.
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.
13
<PAGE> 15
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your shares in the Fund for shares of another Willamette
Fund, usually without paying additional sales charges (see "Notes" below). No
transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to The Willamette Funds,
P.O. Box 182301, Columbus, OH 43218-2301 or by calling 1-877-945-3863. Please
provide the following information:
- Your name and telephone number;
- The exact name on your account and account number;
- Taxpayer identification number (usually your Social Security number);
- Dollar value or number of shares to be exchanged;
- The name of the Fund from which the exchange is to be made;
- The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
NOTES ON EXCHANGES
To prevent disruption in the management of the Fund, due to market timing
strategies, exchange activity may be limited to 4 exchanges within a calendar
year.
- The registration and tax identification numbers of the two accounts must
be identical.
- The Exchange Privilege may be changed or eliminated at any time upon a
60-day notice to shareholders.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
An IRA enables individuals, even if they participate in an employer-sponsored
retirement plan, to establish their own retirement programs. IRA
contributions may be tax-deductible and earnings are tax-deferred. Under the
Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted or eliminated for individuals who participate in certain employer
pension plans and whose annual income exceeds certain limits. Existing IRAs
and future contributions up to the IRA maximums, whether deductible or not,
still earn income on a tax-deferred basis. Exchanges from one Fund to another
are not taxable.
All IRA distribution requests must be made in writing to BISYS Fund Services.
Any additional deposits to an IRA must distinguish the type and year of the
contribution.
For more information on an IRA call the Fund at 1-877-945-3863. Shareholders
are advised to consult a tax adviser regarding IRA contribution and
withdrawal requirements and restrictions.
14
<PAGE> 16
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 are declared, and usually
paid, annually. Capital gains for the Fund are distributed at least annually.
Dividends and distributions will be automatically paid in additional shares
of the Fund unless the shareholder elects to receive either of these amounts
in cash. This election is made in the Application Form, and any change must
be made in writing to the Fund at P.O. Box 182301, Columbus, Ohio 43218-2301
and will be effective for payments having a record date after the Fund's
receipt of this notice. If payments made in cash are returned marked
"Undeliverable" or remain uncashed for six months, the cash election will be
automatically changed to provide for automatic reinvestment. Undeliverable or
returned checks will be cancelled and the amounts payable on those checks
will be reinvested in additional shares of the Fund at the net asset value on
the date of cancellation.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
Dividends are taxable as ordinary income. If the Fund designates a
distribution as a long-term capital gains distribution, it will be taxable to
you at your long-term capital gains rate, regardless of how long you have
owned your Fund shares.
Some Dividends are taxable in the calendar year in which they are declared,
even though your account statement may reflect them as being distributed in
the following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
An exchange of Fund shares is considered a sale, and any related gains may be
subject to applicable taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a tax penalty on certain pre-retirement distributions from
retirement accounts. Consult your tax adviser about the federal, state and
local tax consequences in your particular circumstances.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with
IRS rules or shareholders that are subject to back-up withholding. To avoid
withholding, make sure you provide your correct Tax Identification Number
(Social Security Number for most investors) on your account application.
15
<PAGE> 17
logo
FUND MANAGEMENT
THE INVESTMENT ADVISER AND SUB-ADVISER
Willamette Asset Managers, Inc., 220 NW 2nd Avenue, Suite 950, Portland,
Oregon 97209, is the investment adviser for the Fund. The Adviser is an
affiliate of Phillips & Company Securities Inc. ("Phillips"), and Willamette
Securities, Inc., each, a registered broker-dealer. The Adviser is entitled
to receive fees, computed daily and paid monthly, at an annual rate of 1.20%
of the Fund's average daily net assets. Out of its fees from the Fund, the
Adviser pays fees to the Sub-Adviser, accrued daily and paid monthly, at an
annual rate of 0.50% of the Fund's average daily net assets.
Credit Suisse Asset Management, LLC (CSAM), One Citicorp Center, 153 East
53rd Street, New York, NY 10022, acts as Sub-Adviser to Global Health
Sciences Fund. The Sub-Adviser also acts as investment adviser to the Warburg
Pincus Family of Funds. The Sub-Adviser is a member company of Credit Suisse
Asset Management, the institutional asset management and mutual fund arm of
Credit Suisse Group (Credit Suisse), one of the world's leading banks. The
Credit Suisse Asset Management companies manage more than $72 billion in the
U.S. and $203 billion globally. They have offices in 14 countries, including
SEC-registered offices in New York and London.
Portfolio Managers for the Fund are Susan Black and Peter T. Wen.
SUSAN BLACK, Managing Director, is the senior manager of large-capitalization
U.S. growth equity portfolios. She joined Warburg Pincus Asset Management,
Inc. (WPAM) in 1985 and came to CSAM in 1999 when Credit Suisse acquired
WPAM. Ms. Black served as WPAM's director of research from 1988 through 1994.
Previously, she was a partner and portfolio manager at Century Capital
Associates; an equity analyst at Drexel Burnham Lambert and Donaldson, Lufkin
& Jenrette; and an equity analyst and then director of research at Argus
Research. Ms. Black holds a B.A. in Economics from Mount Holyoke College. She
is a Chartered Financial Analyst.
PETER T. WEN, Vice President, is an analyst focusing on health care companies
in large-capitalization U.S. equity portfolios. He joined CSAM in 1999 from
Lynch & Mayer, where he was a health care analyst. Previously, he was a
principal at SPEC, an information systems consulting firm. Mr. Wen holds a
B.A. in Biology from Harvard College and an M.B.A. in Finance from the
University of Pennsylvania's Wharton School. He is fluent in Mandarin
Chinese.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services Limited Partnership is the Fund's distributor and BISYS
Fund Services Ohio, Inc. is the Fund's administrator. The address is 3435
Stelzer Road, Columbus, OH 43219.
The Statement of Additional Information has more detailed information about
the Fund's service providers.
CAPITAL STRUCTURE
The Coventry Group was organized as a Massachusetts business trust on January
8, 1992 and overall responsibility for the management of the Fund 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.
- -
16
<PAGE> 18
[ICON]
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
The Fund had not yet commenced operations as of the date of this Prospectus
and thus does not present per share financial highlight information.
17
<PAGE> 19
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<PAGE> 20
[This Page Intentionally Left Blank]
<PAGE> 21
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders will contain
additional information on the Fund's investments. In the annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
YOU CAN RECEIVE FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION
AND DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING A BROKER THAT SELLS THE
FUND, OR CONTACT THE FUND AT:
THE WILLAMETTE FUNDS
P.O. BOX 182301
COLUMBUS, OHIO 43218-2301
TELEPHONE: 1-877-945-3863
You can review the Fund's reports and SAIs at the Public Reference Room of
the Securities and Exchange Commission. You can receive text-only copies:
- For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-0102 or calling 1-202-942-8090, or by email to
[email protected].
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6526.
WIL 2000
<PAGE> 22
SUBJECT TO COMPLETION DATED MAY 1, 2000
WILLAMETTE VALUE FUND
WILLAMETTE SMALL CAP GROWTH FUND
WILLAMETTE GLOBAL HEALTH SCIENCES FUND
WILLAMETTE TECHNOLOGY FUND
Investment Portfolios of
The Coventry Group
Statement of Additional Information
_______, 2000
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the prospectuses for the Willamette Value Fund,
Willamette Small Cap Growth Fund, Willamette Global Health Sciences Fund and
Willamette Technology Fund ("Funds") dated July 31, 1999, January 29, 2000,
_______, 2000 and March 1, 2000, respectively ("Prospectuses"). Each Fund is a
separate investment portfolio of The Coventry Group (the "Group"), an open-end
management investment company. This Statement of Additional Information is
incorporated in its entirety into the Prospectuses. Copies of the Prospectuses
may be obtained by writing the Funds at 3435 Stelzer Road, Columbus, Ohio 43219,
or by telephoning toll free (877) 945-3863.
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
<PAGE> 23
TABLE OF CONTENTS
-----------------
Page
----
THE COVENTRY GROUP . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . 1
Additional Information on Portfolio Instruments . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . 15
Portfolio Turnover . . . . . . . . . . . . . . . . . . . 17
Personal Trading Policies. . . . . . . . . . . . . . . . 17
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . 19
Matters Affecting Redemption . . . . . . . . . . . . . . 19
MANAGEMENT OF THE GROUP . . . . . . . . . . . . . . . . . . . . . 20
Trustees and Officers . . . . . . . . . . . . . . . . . 20
Control Persons and Principal Holders of Securities 24
Investment Adviser and Sub-Advisers . . . . . . . . . . 24
Portfolio Transactions . . . . . . . . . . . . . . . . . 26
Banking Laws . . . . . . . . . . . . . . . . . . . . . . 28
Administrator . . . . . . . . . . . . . . . . . . . . . 28
Distributor . . . . . . . . . . . . . . . . . . . . . . 32
Custodian . . . . . . . . . . . . . . . . . . . . . . . 35
Transfer Agency and Fund Accounting Services . . . . . . 36
Independent Auditors . . . . . . . . . . . . . . . . . . 37
Legal Counsel . . . . . . . . . . . . . . . . . . . . . 37
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 37
Description of Shares . . . . . . . . . . . . . . . . . 37
Vote of a Majority of the Outstanding Shares . . . . . . 38
Additional Tax Information . . . . . . . . . . . . . . . 38
Yields and Total Returns . . . . . . . . . . . . . . . . 48
Performance Comparisons . . . . . . . . . . . . . . . . 51
Principal Shareholders . . . . . . . . . . . . . . . . . 52
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 52
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 53
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
<PAGE> 24
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. This Statement of Additional
Information deals with the portfolios called Willamette Value Fund ("Value
Fund"), Willamette Small Cap Growth Fund ("Growth Fund"), Willamette Global
Health Sciences Fund ("Health Sciences Fund") and Willamette Technology Fund
("Technology Fund") (collectively, "Funds"). Willamette Asset Managers, Inc.
("Adviser") serves as investment adviser to each of the Funds. The Bank of New
York ("BONY") manages the assets of Value Fund and Growth Fund. U.S. Bank
National Association ("U.S. Bank"), through its First American Asset Management
Division, manages the assets of Technology Fund. Credit Suisse Asset Management,
LLC ("CSAM") manages the assets of Health Sciences Fund. (BONY, U.S. Bank and
CSAM are each a "Sub-Adviser"). Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
Prospectuses of the Funds. Capitalized terms not defined herein are defined in
the Prospectuses. No investment in Shares of the Funds should be made without
first reading the Prospectuses.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies of
the Funds as set forth in the Prospectuses.
COMMON STOCKS. The Funds may invest in common stocks, which include the
common stock of any class or series of domestic or foreign corporations or any
similar equity interest, such as a trust or partnership interest. These
investments may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
The Funds may also invest in warrants and rights related to common stocks.
CONVERTIBLE SECURITIES. The Funds may invest in convertible securities,
including debt securities or preferred stock that may be converted into common
stock or that carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time. They also entitle the holder to receive interest or
dividends until the holder elects to exercise the conversion privilege.
The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holder's claims on assets and earnings are generally subordinate to the claims
of other creditors, and senior to the claims of preferred and common
stockholders. In the case of convertible preferred stock, the holder's claims on
assets and earnings are subordinate to the claims of all creditors and are
senior to the claims of common stockholders. As a result of their ranking in a
company's capitalization, convertible securities that are rated by nationally
recognized statistical rating organizations are generally rated below other
obligations of the company and many convertible securities are not rated. The
Fund does not have any rating criteria applicable to its investments in any
securities, convertible or otherwise.
PREFERRED STOCK. The Funds may invest in preferred stock. Preferred stock,
unlike common stock, offers a stated dividend rate payable from the issuer's
earnings. Preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. If interest rates rise, the fixed dividend on
preferred stocks may be less attractive, causing the price of the preferred
stocks to decline. Preferred stock may have mandatory sinking fund provisions,
as well as call/redemption provisions prior to maturity, a negative feature when
interest rates decline.
WARRANTS. The Funds may invest in warrants. A Fund may purchase warrants
issued by domestic and foreign companies to purchase newly created equity
securities consisting of common and preferred stock. Warrants are securities
that give the holder the right, but not the obligation to purchase equity issues
of the company issuing the warrants, or a related company, at a fixed price
either on a date certain or during a set period. The equity security underlying
a warrant is authorized at the time the warrant is issued or is issued together
with the warrant.
Investing in warrants can provide a greater potential for profit or loss
than an equivalent investment in the underlying security, and, thus, can be a
speculative investment. At the time of issue, the cost of a warrant is
substantially less than the cost of the underlying security itself, and price
movements in the underlying security are generally magnified in the price
movements of the warrant. This leveraging effect enables the investor to gain
exposure to the underlying security with a relatively low capital investment.
This leveraging increases an investor's risk, however, in the event of a decline
in the value of the underlying security and can result in a complete loss of the
amount invested in the warrant. In addition, the price of a warrant tends to be
more volatile than, and may not correlate exactly to, the price of the
underlying security. If the market price of the underlying security is below the
exercise price of the warrant on its expiration date, the warrant will generally
expire without value. The value of a warrant may decline because of a decline in
the value of the underlying security, the passage of time, changes in interest
rates or in the dividend or other policies of the company whose equity underlies
the warrant or a change in the perception as to the future price of the
underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
<PAGE> 25
UNITED STATES GOVERNMENT OBLIGATIONS. The Funds may invest in obligations
issued or guaranteed by the United States Government, or by its agencies or
instrumentalities. Obligations issued or guaranteed by federal agencies or
instrumentalities may or may not be backed by the "full faith and credit" of the
United States. Securities that are backed by the full faith and credit of the
United States include Treasury bills, Treasury notes, Treasury bonds, and
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank. In the case of securities not backed
by the full faith and credit of the United States, the Funds must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities that are not backed by the full faith and credit of the United States
include, but are not limited to, obligations of the Tennessee Valley Authority,
the Federal National Mortgage Association and the United States Postal Service,
each of which has the right to borrow from the United States Treasury to meet
its obligations, and obligations of the Federal Farm Credit System and the
Federal Home Loan Banks, both of whose obligations may be satisfied only by the
individual credits of each issuing agency.
FOREIGN GOVERNMENT OBLIGATIONS. The Funds may invest in short-term
obligations of foreign sovereign governments or of their agencies,
instrumentalities, authorities or political subdivisions. These securities may
be denominated in United States dollars or in another currency. See "Foreign
Investment Risk."
BANK OBLIGATIONS. Each Fund may invest in bank obligations such as bankers'
acceptances, certificates of deposit, and time deposits.
Growth Fund will invest in obligations only of banks with more than $2
billion in total assets that are (i) organized under the laws of the United
States or any state, (ii) foreign branches of these banks or of foreign banks of
equivalent size ("Euros") and (iii) United States branches of foreign banks of
equivalent size ("Yankees"). Growth Fund will not invest in obligations for
which the Sub-Adviser, or any of its affiliated persons, is the ultimate obligor
or accepting bank. Growth Fund may also invest in obligations of international
banking institutions designated or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the
European Investment Bank, the Inter-American Development Bank, or the World
Bank).
Value Fund and Technology Fund may invest only in Bank Instruments that are
either issued by an institution having capital, surplus and undivided profits
over $100 million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Health Sciences Fund may invest only in
bank obligations that are of high quality. In addition to domestic instruments
such as bankers' acceptances and certificates of deposit, Bank Instruments may
include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs").
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 Value Fund will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
<PAGE> 26
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.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes,
including Master Notes, issued by corporations. Issues of commercial paper
normally have maturities of less than nine months and fixed rates of return.
Master Notes, however, are obligations that provide for a periodic adjustment in
the interest rate paid and permit daily changes in the amount borrowed.
For Growth Fund and Technology Fund, Master Notes are governed by
agreements between the issuer and the respective Sub-Adviser acting as agent,
for no additional fee, in its capacity as Sub-Adviser to a Fund and as fiduciary
for other clients for whom it exercises investment discretion. The monies loaned
to the borrower come from accounts maintained with or managed by a Sub-Adviser
or its affiliates pursuant to arrangements with such accounts. Interest and
principal payments are credited to such accounts. A Sub-Adviser, acting as a
fiduciary on behalf of its clients, has the right to increase or decrease the
amount provided to the borrower under an obligation. The borrower has the right
to pay without penalty all or any part of the principal amount then outstanding
on an obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Treasury
bill auction rate, the rate on Master Notes is subject to change. Repayment of
Master Notes to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by the Sub-Adviser. Master Notes typically are not rated
by credit rating agencies.
Value Fund may purchase commercial paper consisting of issues rated at the
time of purchase within the three highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO"). Value Fund may also
invest in commercial paper 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. Growth Fund has not established minimum rating requirements
for the Fund's investments. Technology Fund may purchase commercial paper rated
at the time of purchase within the two highest rating categories by an NRSRO, or
deemed by U.S. Bank to be of comparable quality. Health Sciences Fund may
purchase commercial paper rated no lower than A-2 by Standard & Poor's Ratings
Services ("S&P") or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or
the equivalent from another major rating service or, if unrated, of an issuer
having an outstanding, unsecured debt issue then rated within the highest three
rating categories.
OTHER FIXED INCOME SECURITIES. Other fixed income securities in which
Health Sciences Fund and Technology Fund may invest include nonconvertible
preferred stocks and nonconvertible corporate debt securities. For Technology
Fund, investments in nonconvertible preferred stocks and nonconvertible
corporate debt securities will be limited to securities which are rated at the
time of purchase not less than BBB by Standard & Poor's or Baa by Moody's (or
equivalent short-term ratings), or which have been assigned an equivalent rating
by another nationally recognized statistical rating organization, or which are
of comparable quality in the judgment of the Sub-Adviser. Obligations rated BBB,
Baa or their equivalent, although investment grade, have speculative
characteristics and carry a somewhat higher risk of default that obligations
rated in the higher investment grade categories.
<PAGE> 27
Technology Fund may invest in short-term investments (including repurchase
agreements "collateralized fully," as provided in Rule 2a-7 under the Investment
Company Act of 1940; interest-bearing or discounted commercial paper, including
dollar denominated commercial paper of foreign issuers; and any other taxable
and tax-exempt money market instruments, including variable rate demand notes,
that are "Eligible Securities" as defined in Rule 2a-7, on a joint basis with
other funds advised by U.S. Bank to the extent permitted by an exemptive order
issued by the Securities and Exchange Commission.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes
are unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic readjustments in the interest rate according to the terms
of the instrument. They are also referred to as variable rate demand notes.
Because master demand notes are direct lending arrangements between a Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, a Fund may demand payment of principal and accrued interest at any
time or during specified periods not exceeding one year, depending upon the
instrument involved, and may resell the note at any time to a third party. The
Adviser or Sub-Adviser will consider the earning power, cash flow, and other
liquidity ratios of the issuers of such notes and will continuously monitor
their financial status and ability to meet payment on demand.
VARIABLE AND FLOATING RATE NOTES. A variable rate note is one whose terms
provide for the readjustment of its interest rate on set dates and which, upon
such readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate note is one whose terms provide for
the readjustment of its interest rate whenever a specified interest rate changes
and which, at any time, can reasonably be expected to have a market value that
approximates its par value. Such notes are frequently not rated by credit rating
agencies. For Health Sciences Fund and Technology Fund, these notes must satisfy
the same quality standards as commercial paper investments. Growth Fund has no
minimum rating requirements. Unrated variable and floating rate notes purchased
by Value 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 will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by a Fund, a Fund may resell the note at any time to a third party.
The absence of an active secondary market, however, could make it difficult for
a Fund to dispose of a variable or floating rate note in the event the issuer of
the note defaulted on its payment obligations and a Fund could, as a result or
for other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit.
<PAGE> 28
FOREIGN INVESTMENTS. The Funds may invest in certain obligations or
securities of foreign issuers. Certain of these investments may be in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs"), other similar depositary receipts, Yankee
Obligations, and U.S. dollar-denominated securities issued by foreign branches
of U.S. and foreign banks. Growth Fund has a limit of up to 15% of its foreign
investments in securities that are not listed on a securities exchange or, in
the case of debt securities, that are not United States dollar-denominated.
Foreign investments may subject a Fund to investment risks that differ in some
respects from those related to investment in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
possible seizure, nationalization, or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source or other taxes, and the adoption of other
foreign governmental restrictions. Growth Fund will not invest in foreign
commercial paper that is subject to foreign withholding tax at the time of
purchase.
Additional risks include less publicly available information, less
government supervision and regulation of foreign securities exchanges, brokers
and issuers, the risk that companies may not be subject to the accounting,
auditing and financial reporting standards and requirements of U.S. companies,
the risk that foreign securities markets may have less volume and that therefore
many securities traded in these markets may be less liquid and their prices more
volatile than U.S. securities, and the risk that custodian and brokerage costs
may be higher. Foreign issuers of securities or obligations are often subject to
accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
Certain of these investments may subject the Funds to currency fluctuation
risks.
DEPOSITARY RECEIPTS. A Fund's investments may include securities of foreign
issuers in the form of sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs") and European Depositary Receipts
("EDRs"). ADRs are depositary receipts typically issued by a United State bank
or trust company which evidence ownership of underlying securities issued by a
foreign corporation. EDRs and GDRs are typically issued by foreign banks or
trust companies, although they also may be issued by United States banks or
trust companies, and evidence ownership of underlying securities issued by
either a foreign or a United States corporation. Generally, depositary receipts
in registered form are designed for use in the United States securities market
and depositary receipts in bearer form are designed for use in securities
markets outside the United States. Depositary receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored depositary receipts may not entitle
the Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored depositary
receipts.
EURO CONVERSION. The introduction of a single European currency, the euro,
on January 1, 1999 for participating European nations in the Economic and
Monetary Union created certain uncertainties during the transition period which
may extend to December 31, 2000 and beyond. These uncertainties include: (i) how
the payment and operational systems of banks and other financial institutions
will function; (ii) the need to create suitable clearing and settlement systems
for the euro; (iii) how the euro will fluctuate against other currencies; and
(iv) whether the interest rate, tax and labor systems of the participating
countries will converge over time. Additionally, changes in participants or in
membership in the European Monetary Union, such as admission of new members from
Eastern Europe, could affect the euro adversely. These and other factors could
cause market disruptions and affect adversely the value of foreign securities
and currencies held by a Fund.
BRADY BONDS. Health Sciences Fund may invest in "Brady Bonds," which are
issued by certain Latin American countries in connection with restructurings of
their debt. The Brady Bonds are issued in exchange for cash and certain of the
country's outstanding commercial bank loans. Brady Bonds do not have a long
payment history and, due to the loan default record for Latin American public
and private entities, may be considered speculative investments. They may be
collateralized or uncollateralized and are issued in various currencies. They
are actively traded in the over-the-counter secondary market for debt of Latin
American issuers.
<PAGE> 29
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Growth Fund, Health Sciences
Fund and Technology Fund may purchase securities on a when-issued or delayed
delivery basis. Delivery of and payment for these securities may take as long as
a month or more after the date of the purchase commitment. The value of these
securities is subject to market fluctuation during this period and no interest
or income accrues to a Fund until settlement. The Funds will maintain with the
custodian a separate account with a segregated portfolio of liquid assets
consisting of cash, U.S. Government securities or other liquid high-grade debt
securities in an amount at least equal to these commitments. When entering into
a when-issued or delayed delivery transaction, a Fund will rely on the other
party to consummate the transaction; if the other party fails to do so, the Fund
may be disadvantaged. It is the current policy of the Funds not to enter into
when- issued commitments exceeding in the aggregate 25% of the market value of a
Fund's total assets, less liabilities other than the obligations created by
these commitments.
LOWER RATED OR UNRATED SECURITIES. Growth Fund and Health Sciences Fund
have no minimum quality requirements for their debt obligations, although Health
Sciences Fund's investments in debt securities including debt securities rated
below investment grade are limited to 20% of its assets. Securities rated Baa by
Moody's Investors Service ("Moody's) or BBB by Standard & Poors Corporation
("S&P"), or deemed of comparable quality by the Sub-Adviser, may have
speculative characteristics. Securities rated below investment grade, i.e.,
below Baa or BBB, or deemed of comparable quality by the Sub-Adviser, have
higher yields but also involve greater risks than higher rated securities. Under
guidelines used by rating agencies, securities rated below investment grade, or
deemed of comparable quality, have large uncertainties or major risk exposures
in the event of adverse conditions, which features outweigh any quality and
protective characteristics. Securities with the lowest ratings are considered to
have extremely poor prospects of ever attaining any real investment standing, to
have a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal. Such securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. Accordingly, it is
possible that these types of factors could, in certain instances, reduce the
value of such securities held by the Fund with a commensurate effect on the
value of its shares.
<PAGE> 30
The secondary market for lower rated securities is not as liquid as that
for higher rated securities. This market is concentrated in relatively few
market makers and participants in the market are mostly institutional investors,
including insurance companies, banks, other financial institutions and
investment companies. In addition, the trading market for lower rated securities
is generally lower than that for higher-rated securities, and the secondary
markets could contract under adverse market or economic conditions independent
of any specific adverse changes in the condition of a particular issuer. These
factors may have an adverse effect on the Fund's ability to dispose of these
securities and may limit its ability to obtain accurate market quotations for
purposes of determining the value of its assets. If the Fund is not able to
obtain precise or accurate market quotations for a particular security, it will
become more difficult for the Fund's Trustees to value its portfolio, requiring
them to rely more on judgment. Less liquid secondary markets may also affect the
Fund's ability to sell securities at their fair value. In addition, the Fund may
invest up to 15% of its net assets, measured at the time of investment, in
illiquid securities, which may be more difficult to value and to sell at fair
value. If the secondary markets for high yield debt securities are affected by
adverse economic conditions, the proportion of the Fund's assets invested in
illiquid securities may increase.
In the case of corporate debt securities, while the market values of
securities rated below investment grade and comparable unrated securities tend
to react less to fluctuations in interest rate levels than do those of
higher-rated securities, the market values of certain of these securities also
tend to be more sensitive to individual corporate developments and changes in
economic conditions than higher-rated securities. Price volatility in these
securities will be reflected in the Fund's share value. In addition, such
securities generally present a higher degree of credit risk. Issuers of these
securities often are highly leveraged and may not have more traditional methods
of financing available to them, so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater than with investment grade securities because such
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness.
A description of the quality ratings of prominent rating organizations is
contained in Appendix A.
ZERO COUPON SECURITIES. Health Sciences Fund may invest in "zero coupon"
U.S. Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have been
stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest. The Fund
anticipates that it will not normally hold zero coupon securities to maturity.
Redemption of shares of the Fund that require it to sell zero coupon securities
prior to maturity may result in capital gains or losses that may be substantial.
Federal tax law requires that a holder of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year,
even though the holder receives no interest payment on the security during the
year. Such accrued discount will be includible in determining the amount of
dividends the Fund must pay each year and, in order to generate cash necessary
to pay such dividends, the Fund may liquidate portfolio securities at a time
when it would not otherwise have done so.
HEDGING. Hedging is a means of transferring risk that an investor does not
wish to assume during an uncertain market environment. The Funds are permitted
to enter into these transactions solely: (a) to hedge against changes in the
market value of portfolio securities and against changes in the market value of
securities intended to be purchased or (b) to close out or offset existing
positions.
<PAGE> 31
Hedging activity in a Fund may include selling futures contracts on stock
indexes, options on stock index futures traded on a national exchange or board
of trade and options on securities and on stock indexes traded on national
securities exchanges or through private transactions directly with a
broker-dealer. A Fund may also hedge a portion of its portfolio by selling stock
index futures contracts or purchasing puts on these contracts to limit exposure
to an actual or anticipated market decline. A Fund may hedge against fluctations
in currency exchange rates, in connection with its investments in foreign
securities, by purchasing foreign forward currency exchange contracts. All
hedging transactions must be appropriate for reduction of risk; they cannot be
for speculation.
Under regulations of the Commodity Exchange Act of 1936, as amended
("Commodity Exchange Act"), an investment company registered under the 1940 Act
is exempt from the definition of "commodity pool operator", and, therefore, is
not subject to regulation under the Commodity Exchange Act, provided that the
entity agrees to restrict its investments in commodity futures and commodity
options contracts to: (i) bona fide hedging transactions within the meaning of
the Commodity Futures Trading Commission's regulations, without any limitation
on quantity, and (ii) other futures and options transactions in which the
aggregate initial margin and premiums do not exceed 5% of the liquidation value
of the entity's portfolio after taking into account unrealized profits and
unrealized losses on any such contracts. The Fund will use commodity futures and
commodity options contracts only in a manner consistent with these requirements.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A Fund may enter into forward
foreign currency exchange contracts in connection with its investments in
foreign securities. A forward contract may be used by a Fund only to hedge
against possible variations in exchange rates of currencies in countries in
which it may invest. A forward foreign currency exchange contract ("forward
contract") involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. Forward
contracts are traded in the interbank market directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
<PAGE> 32
FUTURES CONTRACTS. Each Fund may invest in futures contracts and options
thereon (stock index futures contracts, interest rate futures contracts or
currency futures contracts or options) to hedge or manage risks associated with
the Fund's securities investments. To enter into a futures contract, an amount
of cash and cash equivalents, equal to the market value of the futures contract,
is deposited in a segregated account with the Fund's Custodian and/or in a
margin account with a broker to collateralize the position and thereby ensure
that the use of such futures is unleveraged. Positions in futures contracts may
be closed out only on an exchange that provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund had insufficient
cash, it might have to sell portfolio securities to meet daily margin
requirements at a time when it would be disadvantageous to do so. In addition, a
Fund might be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to hedge or manage risks
effectively.
Successful use of futures by a Fund is also subject to the Adviser's or
Sub-Adviser's ability to predict movements correctly in the direction of the
market. There is typically an imperfect correlation between movements in the
price of the future and movements in the price of the securities that are the
subject of the hedge. In addition, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the Adviser or Sub-Adviser may still not result in a
successful hedging transaction over a short time frame.
The trading of futures contracts is also subject to the risk of trading
halts, suspension, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruption of normal trading activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
<PAGE> 33
The purchase and sale of futures contracts or related options will not be a
primary investment technique of the Funds. A Fund will not purchase or sell
futures contracts (or related options thereon) if, immediately after the
transaction, the aggregate initial margin deposits and premiums paid by the Fund
on its open futures and options positions that do not constitute bona fide
hedging transactions, as defined by applicable rules, exceed 5% of the
liquidation value of the Fund after taking into account any unrealized profits
and unrealized losses on any such futures or related options contracts into
which it has entered.
INTEREST RATE FUTURES. A Fund may purchase an interest rate futures
contract as a hedge against changes in interest rates. An interest rate futures
contract provides for the future sale by one party and the purchase by the other
party of a certain amount of a specific interest rate sensitive financial
instrument (debt security) at a specified price, date, time and place.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Thus, if a Fund holds long-term debt
obligations and the Sub-Adviser anticipates a rise in long-term interest rates,
the Fund could, instead of selling its debt obligations, enter into an interest
rate futures contract for the sale of similar long-term securities. If interest
rates rise, the value of the futures contract would also rise, helping to offset
the price decline of the obligations held by the Fund. A Fund might also
purchase futures contracts as a proxy for underlying securities that it cannot
presently buy.
STOCK INDEX FUTURES. A Fund may purchase and sell stock index futures
contracts as a hedge against changes resulting from market conditions in the
values of securities that are held in its portfolio or that it intends to
purchase or when such purchase or sale is economically appropriate for the
reduction of risks inherent in the ongoing management of the Fund. A stock index
futures contract is an agreement in which one party agrees to deliver to the
other an amount of cash equal to a specific dollar amount times the difference
between the value of a specific stock index at the close of the last trading day
of the contract and the price at which the agreement is made. When the contract
is executed, each party deposits with a broker, or in a segregated custodial
account, a specified percentage of the contract amount, called the initial
margin, and during the term of the contract, the amount of the deposit is
adjusted based on the current value of the futures contract by payments of
variation margin to or from the broker or segregated account. In the case of
options on stock index futures, the holder of the option pays a premium and
receives the right, upon exercise of the option at a specified price during the
option period, to assume the option writer's position in a stock index futures
margin account; if exercised on the last trading day, cash in an amount equal to
the difference between the option exercise price and the closing level of the
relevant index on the expiration date is delivered.
A Fund may hedge a portion of its portfolio by selling stock index futures
contracts or purchasing puts on these contracts to limit exposure to an actual
or anticipated market decline. This provides an alternative to liquidation of
securities positions. Conversely, during a market advance or when the investment
adviser anticipates an advance, a Fund may hedge a portion of its portfolio by
purchasing stock index futures, or options on these futures. This affords a
hedge against a Fund not participating in a market advance when it is not fully
invested and serves as a temporary substitute for the purchase of individual
securities which may later be purchased in a more advantageous manner. When a
Fund purchases stock index futures contracts, it will deposit, and
mark-to-market daily, an amount of liquid assets consisting of cash, U.S.
Government securities, or other liquid securities equal to the market value of
the futures contracts in a segregated account with its custodian. Alternatively,
a Fund may cover such positions by purchasing offsetting positions, or by using
a combination of offsetting positions and cash or liquid securities.
<PAGE> 34
A Fund's successful use of stock index futures contracts depends upon the
Adviser's or Sub-Adviser's ability to predict the direction of the market and is
subject to various additional risks. The correlation between movement in the
price of the stock index future and the price of the securities being hedged is
imperfect and the risk from imperfect correlation increases as the composition
of a Fund's portfolio diverges from the composition of the relevant index. In
addition, if a Fund purchases futures to hedge against market advances before it
can invest in common stock in an advantageous manner and the market declines,
there may be a loss on the futures contracts. In addition, the ability of a Fund
to close out a futures position or an option on futures depends on a liquid
secondary market. There is no assurance that liquid secondary markets will exist
for any particular futures contract or option on a futures contract at any
particular time. The risk of loss to a Fund is theoretically unlimited when the
Fund sells an uncovered futures contract because there is an obligation to make
delivery unless the contract is closed out, regardless of fluctuations in the
price of the underlying security. A Fund's ability to engage in hedging
activities may be limited by certain federal income tax considerations.
FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contract are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or directly with a
dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts. As part of their financial futures
transactions, the Funds may use foreign currency futures contracts and options
on such futures contracts. Through the purchase or sale of such contracts, the
Funds may be able to achieve many of the same objectives as through investing in
forward foreign currency exchange.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
<PAGE> 35
A foreign currency call option rises in value if the underlying currency
appreciates. Conversely, a foreign currency put option rises in value if the
underlying currency depreciates. While purchasing a foreign currency option may
protect a Fund against an adverse movement in the value of a foreign currency,
it would not limit the gain which might result from a favorable movement in the
value of the currency. For example, if a Fund were holding securities
denominated in an appreciating foreign currency and had purchased a foreign
currency put to hedge against a decline in the value of the currency, it would
not have to exercise its put. In such an event, however, the amount of the
Fund's gain would be offset in part by the premium paid for the option.
Similarly, if a Fund entered into a contract to purchase a security denominated
in a foreign currency and purchased a foreign currency call to hedge against a
rise in the value of the currency between the date of purchase and the
settlement date, the Fund would not need to exercise its call if the currency
instead depreciated in value. In such a case, the Fund would acquire the amount
of foreign currency needed for settlement in the spot market at a lower price
than the exercise price of the option.
OPTIONS ON SECURITIES. A Fund may purchase put options only on equity
securities held in its portfolio and write call options and put options on
stocks only if they are covered, as described below, and such call options must
remain covered so long as the Fund is obligated as a writer. Option transactions
can be executed either on a national exchange or through a private transaction
with a broker-dealer (an "over-the-counter" transaction). Each Fund may write
(sell) "covered" call options and purchase options to close out options
previously written by it.
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 purpose of writing covered call options is to generate additional
premium income for a Fund. This premium income will serve to enhance a Fund's
total return and will reduce the effect of any price decline of the security
involved in the option. Covered call options will generally be written on
securities which, in the opinion of the Adviser or Sub-Adviser, are not expected
to make any major price moves in the near future but which, over the long term,
are deemed to be attractive investments for the particular Fund.
<PAGE> 36
A Fund may only write call options that are "covered", meaning that it
either owns the underlying security or has an absolute and immediate right to
acquire that security, without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian), upon
conversion or exchange of other securities currently held in its portfolio. In
addition, a Fund will not permit the call to become uncovered prior to the
expiration of the option or termination through a closing purchase transaction
as described below. If a Fund writes a call option, the purchaser of the option
has the right to buy (and a Fund has the obligation to sell) the underlying
security at the exercise price throughout the term of the option. The initial
amount paid to a Fund by the purchaser of the option is the "premium". A Fund's
obligation to deliver the underlying security against payment of the exercise
price will terminate either upon expiration of the option or earlier if the Fund
is able to effect a "closing purchase transaction" through the purchase of an
equivalent option. There can be no assurance that a closing purchase transaction
can be effected at any particular time or at all. A Fund would not be able to
effect a closing purchase transaction after it had received notice of exercise.
A Fund will normally not write a covered call option if, as a result, the
aggregate market value of all portfolio securities covering all call options
would exceed 15% of the market value of its net assets.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objective. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options, which the Funds will not do), but
capable of enhancing a Fund's total return. When writing a covered call option,
a Fund, in return for the premium, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but retains
the risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Fund has no control over when it may be
required to sell the underlying securities, since it may be assigned an exercise
notice at any time prior to the expiration of its obligation as a writer. If a
call option which a Fund has written expires, the Fund will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period. If the call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of the Funds' Custodian.
The premium received is the market value of an option. The premium a Fund
will receive from writing a call option will reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser or Sub-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 a Fund for writing covered call options will be recorded as a liability in
the Fund's statement of assets and liabilities. This liability will be adjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the net asset value per share of the Fund is computed
(close of the New York Stock Exchange), or, in the absence of such sale, the
latest asked price. The liability will be extinguished upon expiration of the
option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security upon the exercise of the option.
<PAGE> 37
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no assurance
that a Fund will be able to effect such closing transactions at a favorable
price. If a Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. A Fund will pay transaction costs
in connection with the writing of options to close out previously written
options. Such transaction costs are normally higher than those applicable to
purchases and sales of portfolio securities.
Call options written by a Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, a Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by a Fund.
In order to write a call option, a Fund is required to comply with the
rules of The Options Clearing Corporation and the various exchanges with respect
to collateral requirements. A Fund may not purchase call options on individual
stocks except in connection with a closing purchase transaction. It is possible
that the cost of effecting a closing transaction may be greater than the premium
received by a Fund for writing the option.
A Fund may also purchase put options so long as they are listed on an
exchange. If a Fund purchases a put option, it has the option to sell the
subject security at a specified price at any time during the term of the option.
Purchasing put options may be used as a portfolio investment strategy when
the Adviser or Sub-Adviser perceives significant short-term risk but substantial
long-term appreciation for the underlying security. The put option acts as an
insurance policy, as it protects against significant downward price movement
while it allows full participation in any upward movement. If a Fund is holding
a stock that the Adviser or Sub-Adviser feels has strong fundamentals, but for
some reason may be weak in the near term, it may purchase a listed put on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, a Fund will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price and the market price
of the underlying security on the date a Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If, during the period of the
option the market price for the underlying security remains at or above the
put's strike price, the put will expire worthless, representing a loss of the
price a Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit a Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.
<PAGE> 38
A Fund may write put options on a fully covered basis on a stock the Fund
intends to purchase. If a Fund writes a put option, the purchaser of the option
has the right to sell (and the Fund has the obligation to buy) the underlying
security at the exercise price throughout the term of the option. The initial
amount paid to a Fund by the purchaser of the option is the "premium". A Fund's
obligation to purchase the underlying security against payment of the exercise
price will terminate either upon expiration of the option or earlier if the Fund
is able to effect a "closing purchase transaction" through the purchase of an
equivalent option. There can be no assurance that a closing purchase transaction
can be effected at any particular time or at all. In all cases where a put
option is written, a Fund will segregate or put into escrow with its custodian,
or pledge to a broker as collateral any combination of "qualified securities"
(which consists of cash, U.S. Government securities or other liquid securities)
with a market value at the time the option is written of not less than 100% of
the exercise price of the put option multiplied by the number of options
contracts written times the option multiplier.
A Fund may purchase a call option in a stock it intends to purchase at some
point in the future. The purchase of a call option is viewed as an alternative
to the purchase of the actual stock. The number of option contracts purchased
multiplied by the exercise price times the option multiplier will not be any
greater than the number of shares that would have been purchased had the
underlying security been purchased. If a Fund purchases a call option, it has
the right but not the obligation to purchase (and the seller has the obligation
to sell) the underlying security at the exercise price throughout the term of
the option. The initial amount paid by a Fund to the seller of the call option
is known as the "premium". If during the period of the option the market price
of the underlying security remains at or below the exercise price, a Fund will
be able to purchase the security at the lower market price. The profit or loss a
Fund may realize on the eventual sale of a security purchased by means of the
exercise of a call option will be reduced by the premium paid for the call
option.
STOCK INDEX OPTIONS. Except as described below, a Fund will write call
options on indexes only if on such date it holds a portfolio of stocks at least
equal to the value of the index times the multiplier times the number of
contracts. When a Fund writes a call option on a broadly-based stock market
index, it will segregate or put into escrow with its custodian, or pledge to a
broker as collateral for the option, any combination of "qualified securities"
(which consists of cash, U.S. Government securities or other liquid securities)
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts.
If a Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its custodian, or pledge to a broker as
collateral for the option, one or more "qualified securities", all of which are
stocks of issuers in such industry or market segment, with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts.
<PAGE> 39
If at the close of business on any business day the market value of such
qualified securities so segregated, escrowed, or pledged falls below 100% of the
current index value times the multiplier times the number of contracts, a Fund
will so segregate, escrow or pledge an amount in cash, Treasury bills or other
liquid securities equal in value to the difference. In addition, when a Fund
writes a call on an index that is in-the-money at the time the call is written,
it will segregate with its custodian or pledge to the broker as collateral cash,
U.S. Government or other liquid securities equal in value to the amount by which
the call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to a Fund's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts. However, if a Fund holds a call on the
same index as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained in cash,
short-term U.S. Government securities, or other liquid securities in a
segregated account with its custodian, it will not be subject to the
requirements described in this paragraph.
RISKS OF TRANSACTIONS IN STOCK OPTIONS. Purchase and sales of options
involves the risk that there will be no market in which to effect a closing
transaction. An option position may be closed out only on an exchange that
provides a secondary market for an option of the same series or if the
transaction was an over-the-counter transaction, through the original
broker-dealer. Although the Fund will generally buy and sell options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. If the Fund, as a covered call or put option writer, is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers or
purchases the underlying security upon exercise.
RISKS OF OPTIONS ON INDEXES. A Fund's purchase and sale of options on
indexes will be subject to risks described above under "Risks of Transactions in
Stock Options". In addition, the distinctive characteristic of options on
indexes creates certain risks that are not present with stock options.
Since the value of an index option depends upon the movements in the level
of the index, rather than the price of a particular stock, whether a Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by a Fund of options on indexes would be
subject to the Adviser's or Sub-Adviser's ability to correctly predict movements
in the direction of the stock market generally or of a particular industry. This
requires skills and techniques different than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, a Fund would not be able to
close out options that it had purchased or written and, if restrictions on
exercise were imposed, might not be able to close out options that it had
purchased or written and, if restrictions on exercise were imposed, might not be
able to exercise an option that it was holding, which could result in
substantial losses to the Fund. It is the policy of each Fund to purchase or
write options only on indexes that include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index, for example, the S&P 100
or S&P 500 index option.
<PAGE> 40
Trading in index options commenced in April 1993 with the S&P 100 option
(formerly called the CBOE 100). Since that time, a number of additional index
option contracts have been introduced, including options on industry indexes.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. Fund will not purchase
or sell index option contracts unless and until, in the Adviser's or
Sub-Adviser's opinion, the market for such options has developed sufficiently
that the risk in connection with these transactions is no greater than the risk
in connection with options on stock.
REIT SECURITIES. Health Sciences Fund may invest in securities of real
estate investment trusts ("REITs"). REITs are publicly traded corporations or
trusts that specialize in acquiring, holding and managing residential,
commercial or industrial real estate. A REIT is not taxed at the entity level on
income distributed to its shareholders or unitholders if it distributes to
shareholders or unitholders at least 95% of its taxable income for each taxable
year and complies with regulatory requirements relating to its organization,
ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs and
Hybrid REITs. An Equity REIT invests the majority of its assets directly in real
property and derives its income primarily from rents and from capital gains on
real estate appreciation which are realized through property sales. A Mortgage
REIT invests the majority of its assets in real estate mortgage loans and
services its income primarily from interest payments. A Hybrid REIT combines the
characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can
invest in all three kinds of REITs, its emphasis is expected to be on
investments in Equity REITs.
Investments in the real estate industry involve particular risks. The real
estate industry has been subject to substantial fluctuations and declines on a
local, regional and national basis in the past and may continue to be in the
future. Real property values, and income from real property continue to be in
the future. Real property values and income from real property may decline due
to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, regulatory limitations on rents,
changes in neighborhoods and in demographics, increases in market interest
rates, or other factors. Factors such as these may adversely affect companies
which own and operate real estate directly, companies which lend to such
companies, and companies which service the real estate industry.
<PAGE> 41
Direct investments in REITs also involve risks. Equity REITs will be
affected by changes in the values of and income from the properties they own,
while Mortgage REITs may be affected by the credit quality of the mortgage loans
they hold. In addition, REITs are dependent on specialized management skills and
on their ability to generate cash flow for operating purposes and to make
distributions to shareholders or unitholders. REITs may have limited
diversification and are subject to risks associated with obtaining financing for
real property, as well as to the risk of self-liquidation. REITs also can be
adversely affected by their failure to qualify for tax-free pass-through
treatment of their income under the Internal Revenue Code of 1986, as amended,
or their failure to maintain an exemption from registration under the Investment
Company Act of 1940. By investing in REITs indirectly through the Fund, a
shareholder bears not only a proportionate share of the expenses of the Fund,
but also may indirectly bear similar expenses of some of the REITs in which it
invests.
STRUCTURED SECURITIES. Health Sciences Fund may purchase any type of
publicly traded or privately negotiated fixed income security, including
mortgage-backed securities; structured notes, bonds or debentures; and
assignments of and participations in loans.
Mortgage-Backed Securities. Health Sciences Fund may invest in
mortgage-backed securities, such as those issued by the Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC") or certain foreign issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or the
issuing agency typically guarantees the payment of interest and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates, nor do the guarantees extend to the yield or value of the Fund's shares.
These securities generally are "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages in a stable interest
rate environment, a common industry practice in the U.S. has been to assume that
prepayments will result in a 12-year average life, although it may vary
depending on numerous factors. At present, pools, particularly those with loans
with other maturities or different characteristics, are priced on an assumption
of average life determined for each pool. In periods of falling interest rates,
the rate of prepayment tends to increase, thereby shortening the actual average
life of a pool of mortgage-related securities. Conversely, in periods of rising
rates the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original investment, thus
affecting the Fund's yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.
Asset-Backed Securities. Health Sciences Fund may invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented by
other securities in which the Fund may invest. Automobile receivables generally
are secured by automobiles. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. In addition, there is no assurance that the security interest in
the collateral can be realized.
Structured Notes, Bonds and Debentures. Health Sciences Fund may invest in
structured notes, bonds and debentures. Typically, the value of the principal
and/or interest on these instruments is determined by reference to changes in
the value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the "Reference") 11or the relevant change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of a Fund's entire investment. The value of structured securities
may move in the same or the opposite direction as the value of the Reference, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference so that the security may be more or less
volatile than the Reference, depending on the multiple. Consequently, structured
securities may entail a greater degree of market risk and volatility than other
types of debt obligations.
Assignments and Participations. Health Sciences Fund may invest in
assignments of and participations in loans issued by banks and other financial
institutions.
When the Fund purchases assignments from lending financial institutions,
the Fund will acquire direct rights against the borrower on the loan. However,
since assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Fund as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender.
Participations in loans will typically result in the Fund having a
contractual relationship with the lending financial institution, not the
borrower. The Fund would have the right to receive payments of principal,
interest and any fees to which it is entitled only from the lender of the
payments from the borrower. In connection with purchasing a participation, the
Fund generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan, nor any rights of set-off
against the borrower, and the Fund may not benefit directly from any collateral
supporting the loan in which it has purchased a participation. As a result, the
Fund purchasing a participation will assume the credit risk of both the borrower
and the lender selling the participation. In the event of the insolvency of the
lender selling the participation, the Fund may be treated as a general creditor
of the lender and may not benefit from any set-off between the lender and the
borrower.
The Fund may have difficulty disposing of assignments and participations
because there is no liquid market for such securities. The lack of a liquid
secondary market will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of particular assignments or participations
when necessary to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid market for assignments and participations also may make it
more difficult for the Fund to assign a value to these securities for purposes
of valuing the Fund's portfolio and calculating its net asset value.
The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between a foreign government (a "Borrower") and one
or more financial institutions ("Lenders"). The majority of the Fund's
investments in Loans are expected to be in the form of participations in Loans
("Participations") and assignments of portions of Loans from third parties
("Assignments"). Participations typically will result in the Fund having a
contractual relationship only with the Lender, not with the Borrower. The Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the Borrower. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the Borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the Borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund will assume the credit risk
of both the Borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, the Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the Borrower. The Fund will acquire Participations only
if the Lender interpositioned between the Fund and the Borrower is determined by
CSAM to be creditworthy.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the Borrower on the Loan. However, since Assignments are
generally arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
There are risks involved in investing in Participations and Assignments.
The Fund may have difficulty disposing of them because there is no liquid market
for such securities. The lack of a liquid secondary market will have an adverse
impact on the value of such securities and on the Fund's ability to dispose of
particular Participations or Assignments when necessary to meet the Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for
the Fund to assign a value to these securities for purposes of valuing the
Fund's portfolio and calculating its net asset value.
RESTRICTED AND ILLIQUID SECURITIES. A Fund may acquire, in privately
negotiated transactions, securities that cannot be offered for public sale in
the United States without first being registered under the Securities Act of
1933 ("Securities Act"). Restricted securities are subject to restrictions on
resale under federal securities law. Because of these restrictions, a Fund may
not be able to readily resell these securities at a price equal to what it might
obtain for similar securities with a more liquid market. A Fund's valuation of
these securities will reflect this restricted liquidity. Under criteria
established by the Funds' Trustees, certain restricted securities sold pursuant
to Rule 144A under the Securities Act may be determined to be liquid. To the
extent that restricted securities are not determined to be liquid, each Fund
will limit its purchase, together with other illiquid securities including
non-negotiable time deposits, and repurchase agreements providing for settlement
in more than seven days after notice, to no more than 15% of its net assets.
Restricted securities in which a Fund may invest may include commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933. Section 4(2) commercial paper is restricted
as to disposition under federal securities law, and is generally sold to
institutional investors, such as the Funds, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Funds through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Adviser believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by the
Trustees of the Funds are quite liquid. The Funds intend, therefore, to treat
the restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Adviser, as liquid and not subject to the investment limitations applicable to
illiquid securities.
<PAGE> 42
SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may invest in
securities issued by the other investment companies. Each Fund intends to limit
its investments in accordance with applicable law. Among other things, such law
would limit these investments so that, as determined immediately after a
securities purchase is made by a Fund: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned by the Fund together with
all other investment companies that have the same investment adviser. Under
certain sets of conditions, different sets of restrictions may be applicable. 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 a Fund bears directly in connection with its own operations.
Investment companies in which a Fund may invest may also impose a sales or
distribution charge in connection with the purchase or redemption of their
Shares and other types of commissions or charges. Such charges will be payable
by the Fund and, therefore, will be borne directly by Shareholders.
Investment companies in which Technology Fund may invest include money
market funds advised by U.S. Bank, subject to certain restrictions contained in
an exemptive order issued by the Securities and Exchange Commission.
REPURCHASE AGREEMENTS. Securities held by a Fund may be subject to
repurchase agreements. These transactions permit a Fund to earn income for
periods as short as overnight. The Fund could receive less than the repurchase
price on any sale of such securities. Under the terms of a repurchase agreement,
a Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation and registered broker-dealers and other financial
institutions which the Adviser or Sub-Adviser deems creditworthy under
guidelines approved by the Group's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by a Fund plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain continually the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that a Fund would be entitled, as against a claim by such seller or its receiver
or trustee in bankruptcy, to retain the underlying securities, although the
Board of Trustees of the Group believes that, under the regular procedures
normally in effect for custody of the Funds' securities subject to repurchase
agreements and under federal laws, a court of competent jurisdiction would rule
in favor of the Group if presented with the question. Securities subject to
repurchase agreements will be held by the Funds' custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
<PAGE> 43
REVERSE REPURCHASE AGREEMENTS. Growth Fund and Health Sciences Fund are
each permitted to enter into reverse repurchase agreements. In a reverse
repurchase agreement, a Fund sells a security and agrees to repurchase it at a
mutually agreed upon date and at a price reflecting the interest rate effective
for the term of the agreement. This may also be viewed as the borrowing of money
by the Fund. The Funds will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. Neither Fund may enter into reverse repurchase agreements exceeding
in the aggregate one-third of the market value of its total assets, less
liabilities other than the obligations created by reverse repurchase agreements.
Each Fund will establish and maintain with its custodian a separate account with
a segregated portfolio of liquid assets consisting of cash or liquid securities
in an amount at least equal to its purchase obligations under its repurchase
agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by a Fund may decline below the price of the securities it
has sold but is obligated to repurchase under the agreement. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, a Fund's use of proceeds from the agreement may be restricted
pending a determination by the other party or its trustee or receiver whether to
enforce the Fund's obligation to repurchase the securities.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend securities if such loans
are secured continuously by liquid assets consisting of cash, U.S. Government
securities or other liquid debt securities or by a letter of credit in favor of
the Fund at least equal at all times to 100% of the market value of the
securities loaned, plus accrued interest. While such securities are on loan, the
borrower will pay the Fund any income accruing thereon. Loans will be subject to
termination by the Fund in the normal settlement time, currently three Business
Days after notice, or by the borrower on one day's notice (as used herein,
"Business Day" shall denote any day on which the New York Stock Exchange and the
custodian are both open for business). Any gain or loss in the market price of
the borrowed securities that occurs during the term of the loan inures to the
lending Fund and its shareholders. The Funds may pay reasonable finders' and
custodial fees, including fees to a Sub-Adviser or its affiliate, in connection
with loans. In addition, the Funds will consider all facts and circumstances
including the creditworthiness of the borrowing financial institution, and the
Funds will not lend their securities to any director, officer, employee, or
affiliate of the Adviser, a Sub-Adviser, the Administrator or the Distributor,
unless permitted by applicable law. Loans of portfolio securities involve risks,
such as delays or an inability to regain the securities or collateral
adjustments in the event the borrower defaults or enters into bankruptcy.
SHORT SALES AGAINST THE BOX. Health Sciences Fund may engage in short sales
against the box. In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
seller does not immediately deliver the securities sold and is said to have a
short position in those securities until delivery occurs. The Fund may engage in
a short sale if at the time of the short sale the Fund owns or has the right to
obtain without additional cost an equal amount of the security being sold short.
This investment technique is known as a short sale "against the box." It may be
entered into by the Fund to, for example, lock in a sale price for a security
the Fund does not wish to sell immediately. If the Fund engages in a short sale,
the collateral for the short position will be segregated in an account with the
Fund's custodian or qualified sub-custodian. No more than 10% of the Fund's net
assets (taken at current value) may be held as collateral for short sales
against the box at any one time.
The Fund may make a short sale as a hedge, when it believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund (or a security convertible or exchangeable for such security). In such
case, any future losses in the Fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns. There will be certain additional
transaction costs associated with short sales against the box, but the Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If the Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
<PAGE> 44
AFFILIATED TRANSACTIONS. The Funds are authorized to execute portfolio
transactions through, and to pay commissions to, Phillips & Company Securities,
Inc. ("Phillips"), and Williamette Securities, Inc. ("WSI") broker-dealers
affiliated with the Adviser, and Piper Jaffray Inc. and U.S. Bancorp Securities,
broker-dealers affiliates of the Sub-Adviser, U.S. Bank National Association,
and to purchase securities in underwritings in which these broker-dealers are
members of the underwriting syndicate. A Fund will not acquire portfolio
securities issued by, or enter into repurchase agreements or reverse repurchase
agreements with, the Adviser, a Sub-Adviser, the Distributor or their
affiliates.
Additional Information About Health Sciences Fund
- -------------------------------------------------
The Fund's investment objective is long-term growth of capital. The Fund is
a non-diversified management investment company. The Fund intends to invest at
least 80% of its total assets in equity securities of health sciences companies,
and under normal market conditions will invest at least 65% of its assets in
equity and debt securities of health sciences companies. Equity securities are
common stocks, preferred stocks, warrants and securities convertible into or
exchangeable for common stocks. Health sciences companies are companies that are
principally engaged in the research, development, production or distribution of
products or services related to health care, medicine or the life sciences
(collectively termed "health sciences"). A company is considered to be
"principally engaged" in health sciences when at least 50% of its assets are
committed to, or at least 50% of its revenues or operating profits are derived
from, the activities described in the previous sentence. A company will also be
considered "principally engaged" in health sciences if, in the judgment of the
Sub-Adviser, the company has the potential for capital appreciation primarily as
a result of particular products, technology, patents or other market advantages
in a health sciences business and (a) the company holds itself out to the public
as being primarily engaged in a health sciences business, and (b) a substantial
percentage of the company's expenses are related to a health sciences business
and these expenses exceed revenues from non-health sciences businesses.
Because the Fund will focus its investments in securities of companies that
are principally engaged in the health sciences, the value of its shares will be
especially affected by factors relating to the health sciences, resulting in
greater volatility in share price than may be the case with funds that invest in
a wider range of industries.
Companies engaged in biotechnology, drugs and medical devices are affected
by, among other things, limited patent duration, intense competition,
obsolescence brought about by rapid technological change and regulatory
requirements. In addition, many health sciences companies are smaller and less
seasoned, suffer from inexperienced management, offer limited product lines (or
may not yet offer products), and may have persistent losses or erratic revenue
patterns. Securities of these smaller companies may have more limited
marketability and, thus, may be more volatile. Because small companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for the Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. There is also typically less publicly
available information concerning smaller companies than for larger, more
established ones.
Other health sciences companies, including pharmaceutical companies,
companies undertaking research and development, and operators of health care
facilities and their suppliers are subject to government regulation, product or
service approval and, with respect to medical devices, the receipt of necessary
reimbursement codes, which could have a significant effect on the price and
availability of such products and services, and may adversely affect the
revenues of these companies. These companies are also susceptible to product
liability claims and competition from manufacturers and distributors of generic
products. Companies engaged in the ownership or management of health care
facilities receive a substantial portion of their revenues from federal and
state governments through Medicare and Medicaid payments. These sources of
revenue are subject to extensive regulation and government appropriations to
fund these expenditures are under intense scrutiny. Numerous federal and state
legislative initiatives are being considered that seek to control health care
costs and, consequently, could affect the profitability and stock prices of
companies engaged in the health sciences.
Health sciences companies are generally subject to greater governmental
regulation than other industries at both the state and federal levels. Changes
in governmental policies may have a material effect on the demand for or costs
of certain products and services. A health sciences company must receive
government approval before introducing new drugs and medical devices or
procedures. This process may delay the introduction of these products and
services to the marketplace, resulting in increased development costs, delayed
cost-recovery and loss of competitive advantage to the extent that rival
companies have developed competing products or procedures, adversely affecting
the company's revenues and profitability. Expansion of facilities by health care
providers is subject to "determinations of need" by the appropriate government
authorities. This process not only increases the time and cost involved in these
expansions, but also makes expansion plans uncertain, limiting the revenue and
profitability growth potential of health care facilities operators, and
negatively affecting the price of their securities.
Certain health sciences companies depend on the exclusive rights or patents
for the products they develop and distribute. Patents have a limited duration
and, upon expiration, other companies may market substantially similar "generic"
products which have cost less to develop and may cause the original developer of
the product to lose market share and/or reduce the price charged for the
product, resulting in lower profits for the original developer.
Because the products and services of health sciences companies affect the
health and well-being of many individuals, these companies are especially
susceptible to product liability lawsuits. The share price of a health sciences
company can drop dramatically not only as a reaction to an adverse judicial
ruling, but also from the adverse publicity accompanying threatened litigation.
Short Sales (excluding Short Sales "Against the Box") The Fund may from
time to time sell securities short. A short sale is a transaction in which the
Fund sells securities it does not own in anticipation of a decline in the market
price of the securities. The current market value of the securities sold short
(excluding short sales "against the box") will not exceed 10% of the Fund's
assets.
To deliver the securities to the buyer, the Fund must arrange through a
broker to borrow the securities and, in so doing, the Fund becomes obligated to
replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. The Fund will make a profit or incur a
loss as a result of a short sale depending on whether the price of the
securities decreases or increases between the date of the short sale and the
date on which the Fund purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Fund is required to pay in connection
with a short sale.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short and (ii) any cash or
liquid securities deposited as collateral with the broker in connection with the
short sale (not including the proceeds of the short sale). Until it replaces the
borrowed securities, the Fund will maintain the segregated account daily at a
level so that (a) the amount deposited in the account plus the amount deposited
with the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short and (b) the amount deposited
in the account plus the amount deposited with the broker (not including the
proceeds from the short sale) will not be less than the market value of the
securities at the time they were sold short.
Investment Restrictions
- -----------------------
The following are fundamental investment restrictions of each Fund and may
not be changed without approval by vote of a majority of the outstanding shares
of the Fund. For this purpose, such a majority vote means the lesser of (1) 67%
or more of the voting securities present at an annual or special meeting of
Shareholders, if holders of more than 59% of the outstanding voting securities
of a Fund are present of represented by proxy or (2) more than 50% of the
outstanding voting securities of the Fund.
Value Fund and Growth Fund have each elected to qualify as a diversified
series of the Trust. Health Sciences Fund and Technology Fund have each elected
to be non-diversified series of the Trust. Both Health Sciences Fund and
Technology Fund intend, however, to conduct their operations so as to qualify as
regulated investment companies under the Internal Revenue Code of 1986, as
amended. Additionally, none of the Funds may:
- borrow money, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
- issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
- concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time,
provided that Health Sciences Fund will concentrate its investments in
health sciences-related industries and Technology Fund will concentrate
its investments in technology-related industries.
- engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities;
- purchase or sell real estate, which does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that each Fund reserves freedom
of action to hold and to sell real estate acquired as a result of the
Fund's ownership of securities;
<PAGE> 45
- purchase physical commodities or contracts relating to physical
commodities;
- make loans to other persons, except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase
of debt instruments or interests in indebtedness in accordance with a
Fund's investment objective and policies may be deemed to be loans.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less. The turnover rate for each Fund is not expected to exceed 75%.
Personal Trading Policies
- -------------------------
The Funds, the Adviser, the Sub-Advisers, the Administrator, and the
Distributor have adopted Codes of Ethics under Rule 17j-1 under the Investment
Company Act of 1940. Consistent with requirements of that Rule, the Codes permit
persons subject to the Codes to invest in securities, including securities that
may be purchased by a Fund. The Codes and the Rule require these transactions to
be monitored.
NET ASSET VALUE
The net asset value of Shares of each Fund is determined and the Shares are
priced as of the Valuation Time on each Business Day of the Company. A "Business
Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is
open for trading and any other day except days on which there are not sufficient
changes in the value of a Fund's portfolio securities that the Fund's net asset
value might be materially affected and days during which no Shares are tendered
for redemption and no orders to purchase Shares are received. Currently, the
NYSE is closed on New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Portfolio equity securities for which market quotations are readily
available are valued based upon their last sales prices in their principal
market. Lacking any sales, these securities are valued at the mean between the
most recent bid and asked quotations. Debt securities with remaining maturities
of 60 days or less will be valued at their amortized cost. Other debt securities
are generally valued by pricing agents based on valuations supplied by
broker-dealers or calculated by electronic methods. Other securities and assets
for which quotations are not readily available, including restricted securities
and securities purchased in private transactions, are valued at their fair value
in the best judgment of the Adviser or Sub-Adviser under the supervision of the
Group's Board of Trustees.
<PAGE> 46
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by a Fund are the existence of restrictions upon the
sale of the security by the Fund, the absence of a market for the security, the
extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
As noted, the Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will be reviewed by the Group under the
general supervision of the Group's Board of Trustees. Several pricing services
are available, one or more of which may be used by the Adviser or Sub-Adviser
from time to time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
- ----------------------------
Fund Shares are sold on a continuous basis by BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services (the "Distributor") and BISYS Fund
Services has agreed to use appropriate efforts to solicit all purchase orders.
The Group may suspend the right of redemption or postpone the date of
payment for Shares with respect to a Fund during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the Commission, (b) the Exchange is closed for other than
customary weekend and holiday closings, (c) the Commission has by order
permitted such suspension for the protection of security holders of the Group or
a Fund, or (d) the Commission has determined that an emergency exists as a
result of which (i) disposal by the Group or a Fund of securities owned by it is
not reasonably practical, or (ii) it is not reasonably practical for the Group
or a Fund to determine the fair value of its net assets.
The Group may redeem Shares of a Fund involuntarily if redemption appears
appropriate in light of the Group's responsibilities under the 1940 Act. See
"SHAREHOLDER INFORMATION" in the Prospectus.
<PAGE> 47
MANAGEMENT OF THE GROUP
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board of
Trustees, which is elected by the Shareholders of the Group. The Trustees elect
the officers of the Group to supervise actively its day-to-day operations. The
names of the Trustees and officers of the Group, their addresses, ages and
principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age the Group During Past 5 Years
- --------------------- ----------- -------------------
<S> <C> <C>
Walter B. Grimm* President and Trustee From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund Services,
Columbus, Ohio 43219 from 1987 to June 1992, President
Age: 53 of Leigh Investments (investment
firm).
Maurice G. Stark Trustee Retired. Until December 31,
505 King Avenue 1994, Vice President-Finance and
Columbus, Ohio 43201 Treasurer, Battelle Memorial
Age: 63 Institute (scientific research
and development service corporation).
Michael M. Van Buskirk Trustee From June 1991 to present,
37 West Broad Street Executive Vice President of The
Suite 1001 Ohio Bankers' Association (trade
Columbus, Ohio 43215 association.
Age:
John H. Ferring IV Trustee From 1979 to present,
105 Bolte Lane President and owner of Plaze, Inc.,
St. Clair, Missouri 63077 St. Clair, Missouri
Age: 46
R. Jeffrey Young Chairman and Trustee From 1993 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 35
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
<S> <C> <C>
J. David Huber Vice President From June, 1987 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 52
Jennifer J. Brooks Vice President From October, 1988 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 33
Nadeem Yousaf Treasurer From August, 1999 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from March 1997 to June 1999, employee
Age: 30 of Investors Bank and Trust; from
October 1994 to March 1997,
employee of PricewaterhouseCoopers
LLP; from September 1990 to
February 1992, employee of KPMG
Peat Marwick.
George L. Stevens Secretary From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from September 1995 to September
Age: 48 1996, Independent Consultant;
from September 1989 to September
1995, Senior Vice President, AmSouth
Bank, N.A.
Alaina V. Metz Assistant Secretary From 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services; from May
Columbus, Ohio 43219 1989 to June 1995, employee of
Age: 31 Alliance Capital Management.
</TABLE>
- ----------------------------
* Mr. Grimm is considered to be an "interested person" of the Group as defined
in the 1940 Act.
As of the date of this Statement of Additional Information, the Group's
officers and Trustees, as a group, own less than 1% of either Fund's outstanding
Shares.
<PAGE> 49
The officers of the Group receive no compensation directly from the Group
for performing the duties of their offices. BISYS Fund Services Ohio, Inc.
receives fees from the Funds for acting as Administrator and BISYS Fund Services
L.P. receives fees pursuant to the Service and Distribution Plan. BISYS Fund
Services Ohio, Inc. receives fees from the Funds for acting as fund accountant
and BISYS Fund Services, Inc. receives fees for transfer agent services. Messrs.
Huber, Yousaf, Stevens, Grimm, Young, Ms. Metz and Ms. Brooks are employees of
BISYS.
Trustees of the Group not affiliated with BISYS Fund Services receive from
the Group an annual fee of $1,000, plus $2,250 for each regular meeting of the
Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone, and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
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 Fund or
an investment adviser that is an affiliated person of the Group's investment
adviser:
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation From
Aggregate Compensation Benefits Accrued As Estimated Annual Benefits Registrant and Fund
Name of Trustee from the Fund Part of Fund Expenses Upon Retirement Complex Paid to Trustees
- --------------- ------------- --------------------- --------------- ------------------------
<S> <C> <C> <C> <C>
Walter B. Grimm $ 0 $ 0 $ 0 $ 0
Maurice G. Stark $166.09 $ 0 $ 0 $10,000
Michael Van Buskirk $166.09 $ 0 $ 0 $10,000
John H. Ferring IV $101.73 $ 0 $ 0 $ 5,750
R. Jeffrey Young $ 0 $ 0 $ 0 $ 0
</TABLE>
<PAGE> 50
Control Persons and Principal Holders of Securities
- ---------------------------------------------------
[Information on (a) 25% and (b) 5% beneficial owners of Fund shares to be
provided by amendment.]
Ownership of Fund shares by all officers and Trustees, as a group, totaled
less than 1%.
Investment Adviser and Sub-Advisers
- -----------------------------------
Willamette Asset Managers, Inc., 220 NW 2nd Avenue, Suite 950, Portland,
Oregon 97209, acts as investment adviser to the Funds pursuant to Investment
Advisory Agreements dated _____________, 2000 for Willamette Value Fund (Value
Fund), April 1, 1999 for Willamette Small Cap Growth Fund (Growth Fund), May 18,
2000 for Willamette Global Health Sciences Fund (Health Sciences Fund) and
February 17, 2000 for Willamette Technology Fund (Technology Fund). Each Fund
pays the Adviser fees for its services under these agreements. The fees, which
are computed daily and paid monthly, are at the following annual rates for each
Fund, calculated as a percentage of the particular Fund's average daily net
assets: Value Fund, 1.00%; Growth Fund, 1.20%; Health Sciences Fund, 1.20%; and
Technology Fund, 1.20%. The Adviser may periodically waive all or a portion of
its advisory fee to increase the net income of a Fund available for distribution
as dividends or to limit a Fund's total operating expenses.
For each of the Funds, the Adviser has retained a Sub-Adviser to provide
portfolio management services. The Adviser pays the fees of each Sub-Adviser, at
no additional cost to a Fund.
Investment advisory fees earned by the Adviser for services to Value Fund
for the fiscal years ended March 31, 1999 and March 31, 2000 totaled $90,925.33
and $_________, respectively, and the Adviser waived advisory fees in the amount
of $27,500 and $_________, respectively, for those years. For its services to
Growth Fund, which commenced operations on April 1, 1999, the Adviser earned
fees of $_________, during the fiscal year ended March 31, 2000 and the Adviser
waived fees in the amount of $_________ for that period. For its services to
Technology Fund, which commenced operations on March 1, 2000, the Adviser earned
fees of $_________ for the fiscal year ended March 31, 2000 and waived fees
totaling $_________. The Adviser earned no fees from Health Sciences Fund as of
March 31, 2000, since that Fund had not commenced operations as of that date.
Unless sooner terminated, each Advisory Agreement will continue in effect
until ________, 2002, (Value Fund), March 31, 2001 (Growth Fund), and February
17, 2002 (Health Sciences Fund and Technology Fund), respectively, 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 applicable Fund (as defined under "Investment Restrictions," above), and a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Advisory
Agreement by votes cast in person at a meeting called for such purpose. Each
Advisory Agreement is terminable at any time on 60 days' written notice without
penalty by the Trustees, by vote of a majority of the outstanding Shares of the
particular Fund, or by the Adviser. Each Advisory Agreement also terminates
automatically in the event of any assignment , as defined in the 1940 Act.
Each 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 the
applicable Fund in connection with the performance of the 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 thee Adviser of its
duties and obligations thereunder.
The Bank of New York (BONY), 48 Wall Street, New York, New York 10286,
provides portfolio management services, as Sub-Adviser, to Value Fund and Growth
Fund pursuant to Sub-Investment Advisory Agreements with the Group and the
Adviser, dated as of _______________, 2000 (Value Fund) and April 1, 1999
(Growth Fund). For its services to Value Fund, the Adviser pays BONY a fee,
calculated daily and paid monthly, at an annual rate equal to the following
amounts based on Value Fund's average daily net assets: (a) for that portion of
Value Fund's portfolio, generally about 50% of Value Fund's assets, that is
invested in the ten highest dividend yielding stocks in the Dow Jones Industrial
Average, the annual fee rate is equal to the following percentages of Value
Fund's average daily net assets; 0.10% on assets up to $50,000,000; 0.07% on
assets from $50,000,000 to $100,000,000; 0.05% on assets in excess of
$100,000,000, with a minimum annual fee of $10,000 for this portion of Value
Fund's portfolio; (b) for that portion of Value Fund's portfolio, generally
about 50% of Value Fund's assets, that is actively managed, the annual fee rate
is equal to 0.45%, with a minimum annual fee of $10,000 for this period of Value
Fund's portfolio. BONY commenced its services as Sub-Adviser as of ____________,
2000, so BONY received no Sub-Advisory fees from Value Fund during the fiscal
year ended March 31, 2000. For its services to Growth Fund, which commenced
operations on April 1, 1999, the Adviser pays BONY a fee computed daily and paid
monthly at an annual rate calculated as a percentage of Growth Fund's average
daily net assets, of 0.45%. For the fiscal year ended March 31, 2000, BONY
received fees of $___________ for its services to Growth Fund.
U.S. Bank National Association (U.S. Bank), 601 Second Avenue South,
Minneapolis, Minnesota 55480, serves as Sub-Adviser to Technology Fund pursuant
to a Sub-Investment Advisory Agreement dated as of February 17, 2000. For its
services to Technology Fund, the Adviser pays U.S. Bank a fee computed daily and
paid monthly at an annual rate of 0.50% calculated as a percentage of the Fund's
average daily net assets. For its services to Technology Fund, which commenced
operations on March 1, 2000, U.S. Bank received fees totaling $__________ for
the fiscal year ended March 31, 2000.
Credit Suisse Asset Management, LLC (Credit Suisse), One Citicorp Center,
153 East 53rd Street, New York, NY 10022, acts as Sub-Adviser to Health Sciences
Fund. Credit Suisse also acts as investment adviser to the Warburg Pincus Family
of Funds. Credit Suisse is a member company of Credit Suisse Asset Management
(CSAM), the institutional asset management and mutual fund arm of Credit Suisse
Group, one of the world's leading banks. The CSAM companies manage more than $58
billion in the U.S. and $186 billion globally. They have offices in 14
countries, including SEC-registered offices in New York and London. CSAM's other
offices, including those in Budapest, Frankfurt, Milan, Moscow, Paris, Prague,
Sydney, Tokyo, Warsaw and Zurich, are not SEC-registered. For its services to
Health Sciences Fund, the adviser pays Credit Suisse a fee at an assessed rate,
calculated as a percentage of Health Sciences Fund's average daily net assets,
of 0.55%
Each Sub-Investment Advisory Agreement will continue in effect, unless
sooner terminated, for two years from its effective date, and has provisions for
continuation and termination similar to those of the Investment Advisory
Agreements. Each Sub-Investment Advisory Agreement may also be terminated by the
Adviser.
The Value Fund Advisory Agreement and Sub-Investment Advisory Agreement
were approved by both the Trustees and the Independent Trustees at a meeting
held February 17, 2000 and by Value Fund shareholders at a meeting held May 9,
2000. The Growth Fund Advisory Agreement and Sub-Investment Advisory Agreement
were so approved at a meeting held November 13, 1998. The Advisory Agreement and
Sub-Investment Advisory Agreement for Technology Fund were so approved at a
meeting held February 17, 2000. The Advisory Agreement for Health Sciences Fund
was so approved at a meeting held February 17, 2000 the and Sub-Investment
Advisory Agreement for Health Sciences Fund was so approved at a meeting held
May 18, 2000
Code of Ethics
The Coventry Group, the Adviser, each Sub-Adviser and the Distributor have
each adopted a Code of Ethics, pursuant to Rule 17j-1 under the Investment
Company Act of 1940, applicable to securities trading activities of its
personnel. Each Code permits covered personnel to trade in securities in which a
Fund may invest, subject to certain restrictions and reporting requirements.
<PAGE> 51
Portfolio Transactions
- ----------------------
Pursuant to the Advisory Agreements and the Sub-Investment Advisory
Agreements, the Adviser and each Sub-Adviser determine, subject to the general
supervision of the Board of Trustees of the Group and in accordance with each
Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Funds, and which brokers are to be eligible to execute
the Funds' portfolio transactions. Certain purchases and sales of portfolio
securities with respect to the Funds are principal transactions in which
portfolio securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions on stock
exchanges involve the payment of negotiated brokerage commissions. Transactions
in the over-the-counter market are generally principal transactions with
dealers. With respect to the over-the-counter market, the Adviser and
Sub-Advisers, where possible, will deal directly with dealers who make a market
in the securities involved except in those circumstances where better price and
execution are available elsewhere.
<PAGE> 52
Investment decisions for the Funds are made independently from those for
other accounts managed by the Adviser and the Sub-Advisers. Any such account may
also invest in the same securities as a Fund. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Fund and
another account, the transaction will be averaged as to price, and available
investments will be allocated as to amount in a manner which the Adviser or a
Sub-Adviser believes to be equitable to the applicable Fund and such other
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by a Fund.
To the extent permitted by law, the Adviser or a Sub-Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for the other accounts in order to obtain best execution.
For the fiscal year ended March 31, 1999, Value Fund paid brokerage
Commissions of $24,245.76. Growth Fund, Health Sciences Fund and Technology Fund
had not commenced operations as of March 31, 1999.
Administrator
- -------------
BISYS serves as administrator ("Administrator") to the Funds pursuant to a
Management and Administration Agreement dated May 22, 1998 (the "Administration
Agreement"). The Administrator assists in supervising all operations of the
Funds (other than those performed by the Adviser and Sub-Advisers under the
Advisory Agreements and Sub-Investment Advisory Agreements, the Custodian under
the Custodian Agreement and by BISYS Fund Services Ohio under the Funding
Accounting Agreement and BISYS Fund Services, Inc. under the Transfer Agency
Agreement). The Administrator is a broker-dealer registered with the Commission,
and is a member of the National Association of Securities Dealers, Inc. The
Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Funds with the Funds'
preparation of their Annual and Semi-Annual Reports to Shareholders and their
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts and records of the Funds, including calculation of daily
expense accruals; and generally assist in all aspects of the Funds' operations
other than those performed by the Adviser, under the Advisory Agreements, by the
Sub-Advisers under the Sub-Investment Advisory Agreements, by the Custodian
under the Custodian Agreement or by BISYS Fund Services, Inc. under the Transfer
Agency Agreement or BISYS Fund Services Ohio, Inc. under the 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, (1)
twenty one-hundredths of one percent (0.20%) of the Funds' average daily net
assets or (2) such other fee as may be agreed upon in writing by the Group and
the Administrator. The Administrator may periodically waive all or a portion of
its fee with respect to each Fund in order to increase the net income of the
Fund available for distribution as dividends.
<PAGE> 53
For the Fiscal year ended March 31, 1999, the Administrator was paid
administrative fees of $18,059.13 for services to Value Fund. Growth Fund,
Health Sciences Fund and Technology Fund had not commenced operations as of
March 31, 1999.
Unless sooner terminated as provided therein, the Administration Agreement
will continue in effect until May 31, 2001. The Administration Agreement
thereafter shall be renewed automatically for successive three-year terms,
unless written notice not to renew is given by the non-renewing party to the
other party at least 60 days prior to the expiration of the then-current term.
The Administration Agreement is terminable with respect to a particular Fund
only upon mutual agreement of the parties to the Administration Agreement and
for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by a
Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
Distributor
- -----------
BISYS Fund Services L.P. serves as distributor to the Funds pursuant to the
Distribution Agreement dated May 22, 1998, (the "Distribution Agreement").
Unless otherwise terminated, the Distribution Agreement will continue in effect
with respect to a Fund for an initial term of two years, and thereafter, if such
continuance is approved at least annually (i) by the Group's Board of Trustees
or by the vote of a majority of the outstanding Shares of the Fund and (ii) by
the vote of a majority of the Trustees of the Group who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement will terminate
automatically in the event of any assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. The Distributor receives no compensation
under the Distribution Agreement with the Group, but may receive compensation
from each Fund under the Service and Distribution Plan described below.
As described in the Prospectuses, the Group has adopted a Service and
Distribution Plan for each Fund (the "Plan") pursuant to Rule 12b-1 under the
1940 Act under which each Fund is authorized to compensate the Distributor for
payments it makes to banks, other institutions and broker-dealers, and for
expenses the Distributor and any of its affiliates or subsidiaries incur (with
all of the foregoing organizations being referred to as "Participating
Organizations") for providing administration, distribution or shareholder
service assistance. Payments to such Participating Organizations may be made
pursuant to agreements entered into with the Distributor. The Plan authorizes
each Fund to make payments to the Distributor in an amount not to exceed, on an
annual basis, 0.50% of the Fund's average daily net assets. Each Fund is
authorized to pay a Shareholder Service Fee of up to 0.25% of its average daily
net assets. As required by Rule 12b-1, the Plan was approved by the Board of
Trustees, including a majority of the Trustees who are not interested persons of
the Funds and who have no direct or indirect financial interest in the operation
of the Plan ("Independent Trustees") at meetings held on February 19, 1998
(Value Fund), November 13, 1998 (Growth Fund), and February 17, 2000 (Health
Sciences Fund and Technology Fund). The Plan may be terminated with respect to a
Fund by vote of a majority of the Independent Trustees, or by vote of a majority
of the outstanding Shares of the Fund. The Trustees review quarterly a written
report of such costs and the purposes for which such costs have been incurred.
The Plan may be amended by vote of the Trustees including a majority of the
Independent Trustees, cast in person at a meeting called for that purpose.
<PAGE> 54
However, any change in the Plan that would materially increase the distribution
cost to a Fund requires approval by that Fund's Shareholders. For so long as the
Plan is in effect, selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees. All agreements with
any person relating to the implementation of the Plan may be terminated at any
time on 60 days' written notice without payment of any penalty, by vote of a
majority of the Independent Trustees or, with respect to a Fund, by vote of a
majority of the outstanding Shares of that Fund. The Plan will continue in
effect with respect to a Fund for successive one-year periods, provided that
each such continuance is specifically approved (i) by the vote of a majority of
the Independent Trustees, and (ii) by the vote of a majority of the entire Board
of Trustees cast in person at a meeting called for that purpose. The Board of
Trustees has a duty to request and evaluate such information as may be
reasonably necessary for it to make an informed determination of whether the
Plan should be implemented or continued. In addition, for each Fund, the
Trustees, in approving the Plan, must determine that there is a reasonable
likelihood that the Plan will benefit the Fund and its Shareholders.
For the fiscal year ended March 31, 1999, the Distributor received $45,147
pursuant to the Plan for Value Fund, all of which was paid to Phillips & Company
Securities Inc., an affiliated broker dealer. As of March 31, 1999, Growth Fund,
Health Sciences Fund and Technology Fund had not yet commenced operations.
The Board of Trustees of the Group believes that the Plan is in the best
interests of each Fund since it encourages Fund growth. As the Fund grows in
size, certain expenses, and, therefore, total expenses per Share, may be reduced
and overall performance per Share may be improved.
Custodian
- ---------
Union Bank of California, 475 Sansome Street, San Francisco, California
94111, serves as the Funds' custodian.
Transfer Agency and Fund Accounting Services
- --------------------------------------------
BISYS Fund Services, Inc. serves as Transfer Agent and Dividend Disbursing
Agent ("BISYS Fund Services" or the "Transfer Agent") for the Funds, pursuant to
the Transfer Agency Agreement dated May 22, 1998. Pursuant to such Agreement,
the Transfer Agent, among other things, performs the following services in
connection with the Funds' Shareholders of record: maintenance of shareholder
records for each of the Funds' Shareholders of record; processing shareholder
purchase and redemption orders; processing transfers and exchanges of Shares of
the Funds on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. For such services the Transfer Agent receives a fee
based, in part, on the number of shareholders of record. In addition, BISYS Fund
Services Ohio, Inc. ("Fund accounting") provides certain fund accounting
services to the Funds pursuant to the Fund Accounting Agreement dated May 22,
1998. BISYS Fund Services Ohio receives a fee from each Fund for such services
in an amount computed daily and paid periodically at an annual rate of three
one-hundredths of one percent (.03%) of each Fund's average daily net assets
subject to a minimum of $35,000 per year. In addition, Fund Accounting shall be
reimbursed for reasonable out-of-pocket expenses. Under such Agreement,
<PAGE> 55
BISYS Fund Services Ohio maintains the accounting books and the records for each
Fund, including journals containing an itemized daily record of all purchases
and sales of portfolio securities, all receipts and disbursements of cash and
all other debits and credits, general and auxiliary ledgers reflecting all
asset,\ liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Funds, including calculation of the net
asset value per Share, calculation of the dividend and capital gain
distributions, if any, and of yield, reconciliation of cash movements with the
Custodian, affirmation to the Custodian of all portfolio trades and cash
settlements, verification and reconciliation with the Custodian of all daily
trade activity; provides certain reports; obtains dealer quotations, prices from
a pricing service or matrix prices on all portfolio securities in order to mark
the portfolio to the market; and prepares an interim balance sheet, statement of
income and expense, and statement of changes in net assets for each Fund.
During the fiscal year ended March 31, 1999 Value Fund paid the Transfer
Agent and Fund Accountant $64,865 and $31,400, respectively pursuant to the
Transfer Agency Agreement and Fund Accounting Agreement. As of March 31, 1999,
Growth Fund, Health Sciences Fund and Technology Fund had not yet commenced
operations.
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 will perform an annual audit of each
Fund's financial statements and provide other services related to filings with
respect to securities regulations. Reports of their activities will be provided
to the Group's Board of Trustees.
Legal Counsel
- -------------
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006, is
counsel to the Group.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust, organized on January 8, 1992.
The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of Shares, which are Shares of beneficial interest,
with a par value of $0.01 per share. The Group consists of several funds
organized as separate series of Shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued Shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption, and to establish separate classes of Shares.
Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus and this Statement of
Additional Information, the shares will be fully paid and non-assessable. In the
event of a liquidation or dissolution of the Group, Shareholders of each fund
are entitled to receive the assets available for distribution belonging to that
fund, and a proportionate distribution, based upon the relative asset values of
the respective funds, of any general assets not belonging to any particular fund
which are available for distribution, subject to any differential class
expenses.
<PAGE> 56
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding Shares of that fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants (for funds
having the same independent accountants), the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of the Group voting without regard to individual funds. Rule 18f-3
under the 1940 Act provides that Shareholders of each class shall have exclusive
voting rights on matters submitted to Shareholders relating solely to
distribution and shareholder service arrangements.
Under Massachusetts law, Shareholders could, under certain circumstances,
be held personally liable for the obligations of the Group. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees or
officers of the Group for acts or obligations of the Group, which are binding
only on the assets and property of the Group, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Group or the Trustees. The Declaration of Trust provides for indemnification
out of Group property for all loss and expense of any shareholder held
personally liable for the obligations of the Group. The risk of a shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which the Group itself would be unable to meet its obligations,
and thus should be considered remote.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectuses and this Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of a Fund present at a meeting at which the holders
of more than 50% of the votes attributable to Shareholders of record of the Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of the Fund.
Additional Tax Information
- --------------------------
TAXATION OF THE FUNDS. Each Fund intends to qualify annually and to elect
to be treated as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code").
<PAGE> 57
To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and any net
tax-exempt interest income each taxable year.
As a regulated investment company, a Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to Shareholders. Each Fund intends to
distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, a Fund must distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses, as
prescribed by the Code) for the one-year period ending on October 31 of the
calendar year, and (3) any ordinary income and capital gains for previous years
that were not distributed during those years. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by a Fund in
October, November or December to Shareholders of record on a date in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be treated as received by Shareholders in the calendar year
in which the distributions are declared, rather than the calendar year in which
the distributions are received. To prevent application of the excise tax, each
Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
<PAGE> 58
DISTRIBUTIONS. Dividends paid out of a Fund's investment company taxable
income generally will be taxable to a U.S. Shareholder as ordinary income. A
portion of each Fund's income may consist of dividends paid by U.S. corporations
and, accordingly, a portion of the dividends paid by a Fund may be eligible for
the corporate dividends-received deduction. Properly designated distributions of
net capital gains, if any, generally are taxable to Shareholders as long-term
capital gains, regardless of how long the Shareholder has held the Fund's
Shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the net asset value
of a Share of the particular Fund on the reinvestment date. Shareholders will be
notified annually as to the U.S. federal tax status of distributions, and
Shareholders receiving distributions in the form of additional Shares will
receive a report as to the net asset value of those Shares.
Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a taxable distribution reduce the net asset value below a Shareholder's
cost basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
DISCOUNT SECURITIES. Investments by a Fund in securities that are issued at
a discount will result in income to the Fund equal to a portion of the excess of
the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held, even though the Fund receives
no cash interest payments. This income is included in determining the amount of
income which a Fund must distribute to maintain its status as a regulated
investment company and to avoid the payment of federal income tax and the 4%
excise tax.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
Generally, the gain realized on the disposition of any debt security acquired
after April 30, 1993 having market discount will be treated as ordinary income
to the extent it does not exceed the accrued market discount on such debt
security.
<PAGE> 59
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a call
option is not included in income at the time of receipt. If the option expires,
the premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by a Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a call option that is purchased by a Fund, if the
option is sold, any resulting gain or loss will be a capital gain or loss, and
will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option is added to the basis of the
purchased security.
Certain options in which a Fund may invest are "section 1256 contracts".
Gains or losses on section 1256 contracts generally are considered 60% long-term
and 40% short-term capital gains or losses; however, foreign currency gains or
losses (as discussed below) arising from certain Section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are "marked-to-market" (that is, treated as
sold at fair market value), resulting in unrealized gains or losses being
treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of engaging in hedging transactions
are not entirely clear. Hedging transactions may increase the amount of
short-term capital gain realized by a Fund which is taxed as ordinary income
when distributed to Shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
<PAGE> 60
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or capital
gain, may be increased or decreased as compared to a fund that did not engage in
such hedging transactions.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, offsetting notional principal contract or
forward contract transactions with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options and forward
contracts and short sales) in stock, partnership interests, certain actively
traded trust instruments and certain debt instruments. Constructive sale
treatment does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the taxable year, if certain
conditions are met.
Unless certain constructive sales rules (discussed more fully above) apply,
a Fund will not realize gain or loss on a short sale of a security until it
closes the transaction by delivering the borrowed security to the lender.
Pursuant to Code Section 1233, all or a portion of any gain arising from a short
sale may be treated as short-term capital gain, regardless of the period for
which a Fund held the security used to close the short sale. In addition, a
Fund's holding period of any security, which is substantially identical to that
which is sold short, may be reduced or eliminated as a result of the short sale.
Recent legislation, however, alters this treatment by treating certain short
sales against the box and other transactions as a constructive sale of the
underlying security held by a Fund, thereby requiring current recognition of
gain, as described more fully above. Similarly, if a Fund enters into a short
sale of property that becomes substantially worthless, the Fund will recognize
gain at that time as though it had closed the short sale. Future Treasury
regulations may apply similar treatment to other transactions with respect to
property that becomes substantially worthless.
The diversification requirements applicable to each Fund's assets may limit
the extent to which a Fund will be able to engage in transactions in options and
other hedging transactions.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
<PAGE> 61
Each Fund may invest in shares of foreign corporations (including through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If a Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to Shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which a Fund held the PFIC shares. The Fund
itself will be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market a Fund's PFIC shares at the end of each taxable year, with the
result that unrealized gains are treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
SALE OF SHARES. Upon the sale or other disposition of Fund Shares, or upon
receipt of a distribution in complete liquidation of a Fund, a Shareholder
generally will realize a taxable capital gain or loss which may be eligible for
reduced capital gains tax rates, generally depending upon the Shareholder's
holding period for the Shares. Any loss realized on a sale or exchange will be
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.
<PAGE> 62
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all reportable payments, including dividends, capital
gain distributions and redemptions payable to Shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the Shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of an
investment in a Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
<PAGE> 63
OTHER TAXATION. The Group is organized as a Massachusetts business trust
and, under current law, neither the Group nor any fund is liable for any income
or franchise tax in the Commonwealth of Massachusetts, provided that each fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund Shareholders may be subject to state and local taxes on their Fund
distributions. In many states, Fund distributions which are derived from
interest on certain U.S. Government obligations may be exempt from taxation.
Yields and Total Returns
- ------------------------
YIELD CALCULATIONS. As summarized in the Prospectus of the Funds under the
heading "PERFORMANCE INFORMATION", yields on Fund Shares will be computed by
dividing the net investment income per share (as described below) earned by a
Fund during a 30-day (or one month) period by the maximum offering price per
share on the last day of the period and annualizing the result on a semi-annual
basis by adding one to the quotient, raising the sum to the power of six,
subtracting one from the result and then doubling the difference. The net
investment income per share earned during the period is based on the average
daily number of Shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
a - b
Yield = 2 [(------- + 1)exp(6) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per Share on the last day of
the period.
<PAGE> 64
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is held by the Fund. Interest earned on any
debt obligations held by a Fund is calculated by computing the yield to maturity
of each obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
Business Day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value per
share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, the Adviser, a Sub-Adviser, the
Administrator or Distributor may voluntarily waive all or a portion of their
fees with respect to a Fund. Such waiver would cause the yield of that Fund to
be higher than it would otherwise be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. Average annual total return is a measure of the
change in value of an investment in a Fund over the period covered, which
assumes any dividends or capital gains distributions are reinvested in Shares
immediately rather than paid to the investor in cash. A Fund computes the
average annual total return by determining the average annual compounded rates
of return during specified periods that equate the initial amount invested to
the ending redeemable value of such investment. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
Average Annual ERV
Total Return = [(------)exp (1/n) - 1]
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
<PAGE> 65
A Fund computes its aggregate total return by determining the
aggregate compounded rate of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(------] - 1]
P
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Performance Comparisons
- -----------------------
Investors may judge a Fund's performance by comparing it to the performance
of other mutual funds or mutual fund portfolios with comparable investment
objectives and policies through various mutual fund or market indices, such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, and
to data prepared by Lipper Analytical Services, Inc., a widely recognized
independent service which monitors the performance of mutual funds or Ibbotson
Associates, Inc. Comparisons may also be made to indices or data published in
IBC/Donaghue's MONEY FUND REPORT, a nationally-recognized money market fund
reporting service, Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, and U.S.A. Today. In addition to performance
information, general information about the Funds that appears in a publication,
such as those mentioned above, may be included in advertisements and in reports
to Shareholders. The Funds may also include in advertisements and reports to
Shareholders information comparing the performance of the Adviser or the
Sub-Adviser to other investment advisers; such comparisons may be published by
or included in Nelsons Directory of Investment Managers, Roger's, Casey/PIPER
Manager Database, CDA/Cadence, or Chase Global Data and Research.
Current yields or performance will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, a Fund's yield or
performance may not be directly comparable to bank deposits or other investments
that pay a fixed return for a stated period of time. Yield and performance are
functions of the quality, composition and maturity of a Fund's portfolio, as
well as expenses allocated to a Fund. Fees imposed upon customer accounts by
third parties for cash management services will reduce a Fund's effective yield
to customers.
<PAGE> 66
From time to time, the Funds may include general comparative information,
such as statistical data regarding inflation, securities indices or the features
or performance of alternative investments, in advertisements, sales literature
and reports to shareholders. The Funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of a Fund.
Miscellaneous
- -------------
The Funds may include information in their Annual Reports and Semi-Annual
Reports to Shareholders that (1) describes general economic trends, (2)
describes general trends within the financial services industry or the mutual
fund industry, (3) describes past or anticipated portfolio holdings for the
Funds or (4) describes investment management strategies for the Funds. Such
information is provided to inform Shareholders of the activities of the Funds
for the most recent fiscal year or half-year and to provide the views of the
Adviser, the Sub-Advisers, and/or Group officers regarding expected trends and
strategies.
The Financial Statements of the Willamette Value fund appearing in the
Annual (audited) Report to Shareholders for the period ended March 31, 1999
(audited) and the Semi-Annual Reports for Value Fund and Growth Fund for the
period ended September 30, 1999 (unaudited) are incorporated herein by
reference. No reports have yet been prepared for Health Sciences Fund and
Technology Fund.
Individual Trustees are elected by the Shareholders and, subject to removal
by the vote of two-thirds of the Board of Trustees, serve for a term lasting
until the next meeting of Shareholders at which Trustees are elected. Such
meetings are not required to be held at any specific intervals. Shareholders
owning not less than 10% of the outstanding Shares of the Group entitled to vote
may cause the Trustees to call a special meeting, including for the purpose of
considering the removal of one or more Trustees. Any Trustee may be removed at
any meeting of Shareholders by vote of two-thirds of the Group's outstanding
shares. The Declaration of Trust provides that the Trustees will assist
shareholder communications to the extent required by Section 16(c) of the 1940
Act in the event that a Shareholder request to hold a special meeting is made.
The Prospectuses and this Statement of Additional Information omit certain
of the information contained in the Registration Statement filed with the
Commission. Copies of such information may be obtained from the Commission upon
payment of any prescribed fee.
The Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectuses and this Statement of Additional Information.
<PAGE> 67
APPENDIX
The nationally recognized statistical rating organizations (individually,
an "NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P") and Duff & Phelps, Inc. ("D&F"). Set
forth below is a description of the relevant ratings of each such NRSRO. The
description of each NRSRO's ratings is as of the date of this Statement of
Additional Information, and may subsequently change.
LONG TERM DEBT RATINGS (may be assigned, for example, to corporate and
municipal bonds)
DESCRIPTION OF MOODY'S DEBT RATINGS
Excerpts from Moody's description of its bond ratings are listed as
follows:
Aaa -- judged to be the best quality and they carry the smallest
degree of investment risk;
Aa -- judged to be of high quality by all standards -- together with
the Aaa group, they comprise what are generally known as high grade
bonds;
A -- possess many favorable investment attributes and are to be
considered as "upper medium" grade obligations;
Baa -- considered to be medium grade obligations, i.e., they are
neither highly protected nor poorly secured -- interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time;
Ba -- judged to have speculative element, their future cannot be
considered as well assured;
B -- generally lack characteristics of the desirable investment;
Caa -- are of poor standing -- such issues may be in default or there
may be present elements of danger with respect to principal or
interest;
Ca -- speculative in a high degree, often in default;
C -- lowest rated class of bonds, regarded as having extremely poor
prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
<PAGE> 68
DESCRIPTION OF S&P'S DEBT RATINGS
Excerpts from S&P's description of its bond ratings are listed as follows:
AAA -- highest grade obligations, in which capacity to pay interest
and repay principal is extremely strong;
AA -- has a very strong capacity to pay interest and repay principal,
and differs from AAA issues only in a small degree;
A -- has a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories;
BBB -- regarded as having an adequate capacity to pay interest and
repay principal; whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
This group is the lowest which qualifies for commercial bank
investment.
BB, B, CCC, CC, C -- predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms
of the obligations; BB indicates the highest grade and C the lowest
within the speculative rating categories.
D -- interest or principal payments are in default.
S&P applies indicators "+," no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
<PAGE> 69
DESCRIPTION OF MOODY'S RATINGS OF SHORT-TERM MUNICIPAL OBLIGATIONS:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG or VMIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity. Ratings categories for securities in these groups
are as follows:
MIG 1/VMIG 1 -- 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 -- denotes high quality, margins of protection are ample
although not as large as in the preceding group;
MIG 3/VMIG 3 -- denotes high quality, all security elements are
counted for but there is lacking the undeniable strength of the
preceding grades;
MIG 4/VMIG 4 -- denotes adequate quality, protection commonly regarded
as required of an investment security is present, but there is
specific risk;
SQ -- denotes speculative quality; instruments in this category lack
margins of protection.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
Excerpts from Moody's commercial paper ratings are listed as follows:
Prime-1 -- issuers (or supporting institutions) have a superior
ability for repayment of senior short-term promissory obligations;
Prime-2 -- issuers (or supporting institutions) have a strong ability
for repayment of senior short-term promissory obligations;
Prime-3 -- issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term promissory obligations;
Not Prime -- issuers do not fall within any of the Prime categories.
<PAGE> 70
DESCRIPTION OF S&P'S RATINGS FOR CORPORATE AND MUNICIPAL BONDS:
Investment grade ratings:
AAA -- the highest rating assigned by S&P, capacity to pay interest
and repay principal is extremely strong;
AA -- has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree;
A -- has 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;
BBB --regarded as having an adequate capacity to pay interest and
repay principal -- whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Speculative grade ratings:
BB, B, CCC, CC, C -- debt rated in these categories is regarded as
having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal -- while such debt will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions;
CI -- reserved for income bonds on which no interest is being paid;
D -- in default, and payment of interest and/or repayment of principal
is in arrears. Plus (+) or Minus (-) -- the ratings from "AA" to "CCC"
may be modified by the addition of a plus or minus sign to show
relative standing within the major relative standing within the major
rating categories.
<PAGE> 71
DESCRIPTION OF S&P'S RATINGS FOR MUNICIPAL NOTES AND SHORT-TERM MUNICIPAL
DEMAND OBLIGATIONS:
Rating categories are as follows:
SP-1 -- has a 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 -- has a satisfactory capacity to pay principal and interest;
SP-3 -- issues carrying this designation have a speculative capacity
to pay principal and interest.
DESCRIPTION OF S&P'S RATINGS FOR SHORT-TERM CORPORATE DEMAND OBLIGATIONS AND
COMMERCIAL PAPER:
An S&P commercial paper rating is a current assessment of the likelihood of
timely repayment of debt having an original maturity of no more than 365 days.
Excerpts from S&P's description of its commercial paper ratings are listed as
follows:
A-1 -- the degree of safety regarding timely payment is strong --
those issues determined to possess extremely strong safety
characteristics will be denoted with a plus (+) designation;
A-2 -- capacity for timely payment is satisfactory -- however, the
relative degree of safety is not as high as for issues designated
"A-1;"
A-3 -- has adequate capacity for timely payment -- however, is more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations;
B -- regarded as having only speculative capacity for timely payment;
C -- a doubtful capacity for payment;
D -- in payment default -- the "D" rating category is used when
interest payments or principal payments are not made on the date due,
even if the applicable grade period has not expired, unless S&P
believes that such payments will be made during such grace period.
<PAGE> 72
PART C
-----------
OTHER INFORMATION
-----------------
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust(1)
(a)(2) Establishment and Designation of Series of
Shares(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 Willamette Asset Managers, Inc.(2)
(d)(2) Investment Advisory Agreement between Registrant
and Willamette Asset Managers, Inc.(3)
(d)(3) Investment Advisory Agreement between Registrant
and Willamette Asset Managers, Inc.
(d)(4) Investment Advisory Agreement between Registrant
and Willamette Asset Managers, Inc. (4)
(d)(5) Sub-Investment Advisory Agreement between Willamette
Asset Managers and Bank of New York.(3)
(d)(6) Sub-Investment Advisory Agreement between Willamette
Asset Managers, Inc. and First American Asset Management.
(4)
(d)(7) Sub-Investment Advisory Agreement between Willamette
Asset Managers, Inc. and Credit Suisse Asset Management,
LLC.
(e) Distribution Agreement between Registrant and
BISYS Fund Services LP(2)
(f) Not Applicable
(g) Custody Agreement between Registrant and Union
Bank of California(2)
(h)(1) Administration Agreement between the Registrant
and BISYS Fund Services Ohio, Inc.(2)
(h)(2) Fund Accounting Agreement between the Registrant
and BISYS Fund Services Ohio, Inc.(2)
<PAGE> 73
(h)(3) Transfer Agency Agreement between the Registrant
and BISYS Fund Services, Inc.(2)
(i) Legal opinion (4)
(j) Consent of independent auditors
(k) Not Applicable
(l) Not Applicable
(m) Amended Service and Distribution Plan(3)
(n) Not Applicable
(o) Not Applicable
- ------------------
1. Filed with initial Registration Statement on January 8, 1992.
2. Incorporated by reference to Post-Effective Amendment No. 33 to Registrant's
Registration Statement (File No. 33-44964) filed electronically with the
Securities and Exchange Commission on March 13, 1998.
3. Incorporated by reference to Post-Effective Amendment No. 43 to Registrant's
Registration Statement (File No. 33-44964) filed electronically with the
Securities and Exchange Commission on December 17, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 66 to Registrant's
Registration Statement (File No. 34-44964) filed electronically with the
Securities and Exchange Commission on March 1, 2000.
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
<PAGE> 74
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 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
<PAGE> 75
Trustees then in office
acts on the matter)
or (2) written opinion of
independent legal counsel.
(c) The rights of indemnification herein
provided may be insured against by
policies maintained by the Trust, shall
be severable, shall not affect any other
rights to which any Trustee or officer
may now or hereafter be entitled, shall
continue as to a person who has ceased
to be such Trustee or officer and shall
inure to the benefit of the heirs,
executors, administrators and assigns of
such person. Nothing contained herein
shall affect any rights to
indemnification to which personnel of
the Trust other than Trustees and
officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation
of a defense to any claim, action, suit
or proceeding of the character described
in paragraph (a) of this Section 4.3 may
be advanced by the Trust prior to final
disposition thereof upon receipt of an
undertaking by or on behalf of the
recipient to repay such amount if it is
ultimately determined that he is not
entitled to indemnification under this
Section 4.3, provided that either:
(i) such undertaking is secured by a
surety bond or some other appropriate
security provided by the recipient, or
the Trust shall be insured against
losses arising out of any such advances;
or
(ii) a majority of the Disinterested
Trustees acting on the matter (provided
that a majority of the Disinterested
Trustees acts on the matter) or an
independent legal counsel in a written
opinion shall determine, based upon a
review of readily available facts (as
opposed to a full trial-type inquiry),
that there is reason to believe that the
recipient ultimately will be found
entitled to indemnification
As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i)
<PAGE> 76
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 its Officers
----------------------------------------------------------------------
and Directors
-------------
<TABLE>
<CAPTION>
Name & Address Position with WAM Principal Occupation for past 5 yrs.
- -------------- ----------------- ------------------------------------
<S> <C> <C>
James T. Smith COO Compliance Officer(1995)
220 NW 2nd #950 and CFO(1997) for Phillips
Portland, OR 97209 & Co. Securities, Inc. and
COO(1999) for Willamette
Securities, Inc. Joined
Phillips & Co. in 10/94 and
Willamette Securities, Inc.
in 1/99. From 10/92 to 09/94
was the Sup. of payroll &
billing services for Interim
Services, Inc.
S. Christopher Clark Director/Owner Executive VP(1993) and
220 NW 2nd #950 Managing Director(1997) for
Portland, OR 97209 Phillips & Co. Securities, Inc.
and Managing Director of
Willamette Securities, Inc.
(1999).
Timothy C. Phillips Director/Owner CEO of Phillips & Co.
220 NW 2nd #950 CEO Securities, Inc. and
Portland, OR 97209 Willamette Securities, Inc.
since February 1992 and
January, 1999, respectively.
</TABLE>
* The business address of Phillips & Co. Securities, Inc. is 220 N.W. 2nd #950,
Portland, Oregon 97209. The business address for Willamette Securities, Inc. is
700 N.E. Multnomah, Suite 500, Portland, Oregon 97232.
<PAGE> 77
Business and Other Connections of Bank of New York
--------------------------------------------------
Name Title/Company
- ---- -------------
Richard Barth.................. Retired; Formerly Chairman and Chief
Executive Officer of Ciba-Geigy Corporation
(diversified chemical products)
Frank J. Biondi, Jr............ Chairman and Chief Executive Office of
Universal Studios (diversified entertainment
operator)
Harold E. Sells................ Retired; Formerly Chairman and Chief Executive
Pffice of Woolworth Corporation (retailing)
William R. Chaney.............. Chairman and Chief Executive Officer of
Tiffany & Co., (international designers,
manufacturers and distributors of jewelry and
fine goods)
Ralph E. Gomory................ President of Alfred P. Sloan Foundation, Inc.
(private foundation)
Richard J. Kogan............... President and Chief Executive Officer of
Schering-Plough Corporation (manufacturer of
pharmaceutical and consumer products)
John A. Luke, Jr............... Chairman, President and Chief Executive
Officer of Westvaco Corporation (manufacturer
of paper, packaging, and specialty chemicals)
John C. Malone................. President and Chief Executive Officer of
Tele-Communications, Inc., (cable television
multiple system operator)
Donald L. Miller............... Chief Executive Officer and Publisher of Our
World News, LLC (media)
H. Barclay Morley.............. Retired; Formerly Chairman and Chief Executive
Officer of Stauffer Chemical Company
(chemicals)
Catherine A. Rein.............. Senior Executive Vice President of
Metropolitan Life Insurance Company (insurance
and financial services)
Business of Other Connections of U.S. Bank National Association
---------------------------------------------------------------
Name Title/Company
- ---- -------------
John F. Grundhofer............. Chairman and Chief Executive Officer of U.S.
Bancorp
Robert L. Dryden............... President and Chief Executive Officer of
ConneXt, Inc.
Edward J. Phillips Chairman and Chief Executive Officer of
Phillips Beverage Company
Linda L. Ahlers................ President of Dayton's, Marshall Field's,
Hudson's
Joshua Green III............... Chairman and Chief Executive Officer of Joshua
Green Corporation
Paul A. Redmond................ Retired Chairman and Chief Executive Officer
of Avista Crop.
Harry L. Bettis................ Rancher
Delbert W. Johnson............. Vice President of Safeguard Scientifics, Inc.
Richard G. Reiten.............. President and Chief Executive Officer of
Northwest Natural Gas Company
Arthur D. Collins.............. President and Chief Operating Officer of
Medtronic, Inc.
Joel W. Johnson................ Chairman, President and Chief Executive
Officer of Hormen Foods Corporation
S. Walter Richey............... Former Chairman and Chief Executive Officer of
Meritex, Inc.
Peter H. Coors................. Vice President and Chief Executive Officer of
Coors Brewing Company
Jerry W. Levin................. Chairman and Chief Executive Officer of
Sunbeam Corporation
Warren R. Staley............... President and Chief Executive Officer of
Cargill, Inc.
Business of Other Connections of Credit Suisse Asset Management, LLC (CSAM)
---------------------------------------------------------------------------
Name Title/Company
- ---- -------------
William W. Priest, Jr.......... Chief Executive Officer, Chairman of
Management Committee and Managing Director,
CSAM
Laurence R. Smith.............. Chief Investment Officer, Member of Management
Committee and Managing Director, CSAM
Eugene L. Podsiadlo............ Head of Retail Distribution, Member of
Management Committee and Managing Director,
CSAM.
Timothy T. Taussig............. Head of Institutional Distribution, Member of
Management Committee and Managing Director,
CSAM
Elizabeth B. Dater............. Member of Management Committee and Managing
Director, CSAM
Sheila N. Scott................ Member of Management Committee and Managing
Director, CSAM
<PAGE> 78
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 Independence Funds Trust,
American Performance Funds, AmSouth Mutual Funds, The
BB&T Mutual Funds Group, other funds in The Coventry
Group, The Eureka Funds, Governor Funds, Fifth Third
Funds, Hirtle Callaghan Trust, HSBC Funds Trust and
HSBC Mutual Funds Trust, The Infinity Mutual Funds,
Inc., Magna Funds, Mercantile Mutual Funds, Inc.,
Metamarkets.com, Meyers Investment Trust, MMA Praxis
Mutual Funds, M.S.D.&T. Funds, Pacific Capital
Funds, Republic Advisor Funds Trust, Republic Funds
Trust, Sefton Funds Trust, Summit Investment Trust,
USAllianz Funds, USAllianz Funds Variable Insurance
Products Trust, Variable Insurance Funds, The
Victory Portfolios, The Victory Variable Insurance
Funds, and Vintage Mutual Funds, Inc.
(b) Information about Directors and officers of BISYS Fund
Services Limited Partnership is set forth below:
Name Position with Underwriter Position with Fund
- -------- ------------------------- -------------------
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
Other BISYS distributors
- ------------------------
In addition to the following officers of the BISYS related distributors listed
below, each distributor has additional officers listed to the right ( business
address for each person and distributor unless noted otherwise is 3435 Stelzer
Road, Columbus, OH 43219 and unless noted otherwise each person holds no
position with the Fund):
Lynn Mangum Director
Dennis Sheehan Director
Kevin Dell Vice President/Secretary
William Tomko Sr Vice President
Robert Tuch Assistant Secretary
*Barr Rosenberg Funds Distributor, Inc. Irimga McKay- President
Barr Rosenberg Funds Greg Maddox -Vice President(1)
BNY Hamilton Distributors, Inc. William J. Tomko- President(2)
BNY Hamilton Funds, Inc. Richard Baxt -Sr Vice President(3)
<PAGE> 79
*Centura Funds Distributor, Inc. Walter B. Grimm- President
Centura Funds William J. Tomko- Sr Vice President
CFD Fund Distributors, Inc. Richard Baxt- President
Chase Funds
Concord Financial Group, Inc. Walter B. Grimm- President
ProFunds-
*Evergreen Distributor, Inc. D'Ray Moore- President
Evergreen Funds
*Performance Funds Distributor, Inc. Walter B. Grimm-President(4)
Performance Funds William J. Tomko- Sr Vice President
The One Group Services Company Mark Redman- President(5)
The One Group of Funds William Tomko-Sr Vice President (2)
Vista Funds Distributors, Inc. Richard Baxt- President
Chase Vista Funds Lee Schultheis-Sr Vice President
William J. Tomko- Sr Vice President
Kent Funds Distributors, Inc.
Mentor Distributors, LLC D'Ray Moore, President
*IBJ Funds Distributor, Inc. Walter B. Grimm, SVP
* address is 90 Park Avenue, Ny, NY
(1 Serves as Assistant Treasurer to Centura Funds
(2) Serves as President to BNY Hamilton Funds and Treasurer to One Group
of Funds
(3) Serves as Vice President to BNY Hamilton Funds (4) Serves as President of
Performance Funds (5) Serves as president to One Group of Funds
Non-BISYS Distributors
- ----------------------
(see Part C of post-effective amendments for indicated funds for directors and
officers of distributors listed below.)
Glickenhaus & Company
The Empire Builder Tax-Free Bond Fund
Integrity Investments
Valiant Funds
Shay Financial Services, Inc.
MSB Fund. Inc.
Asset Management Fund, Inc.
Institutional Investors Capital Appreciation Fund, Inc.
(c) Not Applicable.
ITEM 28. Location of Accounts and Records
- -------- --------------------------------
<PAGE> 80
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated thereunder
are in the possession of Willamette Asset Managers, Inc. 220 NW
2nd Avenue, Suite 950, Portland, Oregon 97209, (records relating
to its function as Adviser); The Bank of New York, 1 Wall Street,
New York, New York 10286 (records relating to its functions as
Sub-Adviser to Growth Fund); U.S. Bank National Association, 601
Second Avenue South, Minneapolis, Minnesota 55402, (records
relating to its functions as Sub-Adviser to Health Fund and
Technology Fund); BISYS Fund Services, Limited Partnership, 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
<PAGE> 81
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. 68 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 26th day of April, 2000.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
---------------------
Walter B. Grimm
By: /s/ Patrick W.D. Turley
--------------------------
Patrick W.D. Turley, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/Walter B. Grimm President and Trustee April 26, 2000
- ------------------------ (Principal Executive Officer)
Walter B. Grimm**
/s/ John H. Ferring IV Trustee April 26, 2000
- ------------------------
John H. Ferring IV***
/s/ Maurice G. Stark Trustee April 26, 2000
- ------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee April 26, 2000
- ------------------------
Michael M. Van Buskirk*
/s/ R. Jeffrey Young
- ------------------------- Chairman and Trustee April 26, 2000
R. Jeffrey Young****
/s/ Nadeem Yousaf Treasurer (Principal Financial April 26, 2000
- ------------------------ and Accounting Officer)
Nadeem Yousaf****
By: /s/ Patrick W.D. Turley
--------------------------------------
Patrick W.D. Turley, as attorney-in-fact
* Pursuant to power of attorney filed with Pre-Effective Amendment
No. 3 on April 6, 1992.
** Pursuant to power of attorney filed with Post-Effective Amendment
No. 26 on May 1, 1996.
*** Pursuant to power of attorney filed with Post-Effective Amendment
No. 39 on July 31, 1998.
**** Pursuant to power of attorney filed with Post-Effective Amendment
No. 63 on November 30, 1999.
<PAGE> 1
THE COVENTRY GROUP
ON BEHALF OF
WILLAMETTE GLOBAL HEALTH SCIENCES FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on __________, 2000 between Willamette
Asset Managers, Inc. (the "Adviser") and The Coventry Group. (the "Trust") on
behalf of Willamette Global Health Sciences Fund (the "Fund").
WHEREAS, the Trust is a Massachusetts business trust of the series type
organized under a Declaration of Trust dated January 8, 1992, (the
"Declaration") and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end, diversified management investment
company, and the Fund is a new series of the Trust;
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties; Authority to Delegate to Sub-Adviser.
Subject to the supervision of the Trustees of the Trust, the Adviser will (a)
provide a program of continuous investment management for the Fund in accordance
with the Fund's investment objectives, policies and limitations as stated in the
Fund's prospectus and Statement of Additional Information included as part of
the Trust's Registration Statement filed with the Securities and Exchange
Commission, as they may be amended from time to time, copies of which shall be
provided to the Adviser by the Trust; (b) make investment decisions for the
Fund; and (c) place orders to purchase and sell securities for the Fund. The
Adviser is authorized, at its own expense, to delegate to a sub-adviser such of
its responsibilities hereunder as may be specified in an agreement with such
sub-adviser, subject to such approvals by the Trustees and shareholders of the
Fund as are required by the 1940 Act. In the event the Adviser does so delegate
to a sub-adviser, the Adviser is further responsible for supervising the
activities and performance of the sub-adviser, for taking reasonable steps to
assure that the sub-adviser complies with the Fund's
<PAGE> 2
investment policies and procedures and with applicable legal requirements, and
for reporting to the Trustees regarding these matters.
In performing its investment management services to the Fund hereunder,
the Adviser will provide the Fund with ongoing investment guidance and policy
direction, including oral and written research, analysis, advice, statistical
and economic data and judgments regarding individual investments, general
economic conditions and trends and long-range investment policy. Subject to the
Fund's investment objective and policies, the Adviser will determine the
securities, instruments, repurchase agreements, options and other investments
and techniques that the Fund will purchase, sell, enter into or use, and will
provide an ongoing evaluation of the Fund's portfolio. The Adviser will
determine what portion of the Fund's portfolio shall be invested in securities
and other assets, and what portion if any, should be held uninvested.
The Adviser further agrees that, in performing its duties hereunder, it
will:
(a) comply with the 1940 Act and all rules and regulations thereunder, the
Advisers Act, the Internal Revenue Code (the "Code") and all other applicable
federal and state laws and regulations, and with any applicable procedures
adopted by the Trustees;
(b) use reasonable efforts to manage the Fund so that it will qualify, and
continue to qualify, as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for the Fund
directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Fund's prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements;
(d) furnish to the Trust, or to the Fund's administrator, BISYS Fund
Services, ("Administrator") if so directed, whatever statistical information the
Trust or Administrator may reasonably request with respect to the Fund's assets
or contemplated investments. In addition, the Adviser will keep the Trust and
the Trustees informed of developments materially affecting the Fund's portfolio
and shall, on the Adviser's own initiative, furnish to the Trust from time to
time whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Administrator, and the Trust, promptly upon their
request, such copies of its investment records and ledgers with respect to the
Fund as may be required to assist the Administrator and the Trust in their
compliance with applicable laws and regulations. The Adviser will furnish the
Trustees with such periodic and special reports regarding the Fund as they may
reasonably request;
(f) immediately notify the Trust in the event that the Adviser or any of its
affiliates: (1) becomes aware that it is subject to a statutory disqualification
that prevents the Adviser from serving as investment adviser pursuant to this
Agreement; or (2) becomes aware that it is the subject of an administrative
proceeding or enforcement action by the Securities and Exchange
- 2 -
<PAGE> 3
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Trust immediately of any material fact known to the Adviser
respecting or relating to the Adviser that is not contained in the Trust's
Registration Statement regarding the Fund, or any amendment or supplement
thereto, but that is required to be disclosed thereon, and of any statement
contained therein that becomes untrue in any material respect;
(g) in making investment decisions for the Fund, use no inside information
that may be in its possession, nor will the Adviser seek to obtain any such
information.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 3, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as officers and executive
employees of the Trust or Fund (including the Trust's or Fund's share of payroll
taxes), and the Adviser shall make available, without expense to the Fund, the
service of its directors, officers and employees who may be duly elected
officers of the Trust, subject to their individual consent to serve and to any
limitations imposed by law. The Adviser shall also pay the fees of any
sub-adviser.
The Adviser shall not be required to pay any expenses of the Fund or
Trust other than those specifically allocated to the Adviser in this section 3.
In particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Trust's or Fund's employees as are officers or employees of the
Adviser whose services may be involved, for any expenses of other series of the
Trust or for the following expenses of the Fund or Trust: organization and
certain offering expenses of the Fund (including out-of-pocket expenses, but not
including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; cost of insurance relating to
fidelity coverage for the Trust's officers and employees; fees and expenses of
the Fund's Administrator or of any custodian, subcustodian, transfer agent, fund
accounting agent, registrar, or dividend disbursing agent of the Fund; payments
for portfolio pricing or valuation services to pricing agents, accountants,
bankers and other specialists, if any; expenses of preparing share certificates,
if any; other expenses in connection with the issuance, offering, distribution
or sale of securities issued by the Fund; expenses relating to investor and
public relations; expenses of registering shares of the Fund for sale and of
compliance with applicable state notice filing requirements; freight, insurance
and other charges in connection with the shipment of the Fund's portfolio
securities; brokerage commissions or other costs of acquiring or disposing of
any portfolio securities or other assets of the Fund, or of entering into other
transactions or engaging in any investment practices with respect to the Fund;
expenses of printing and distributing prospectuses, Statements of Additional
Information, reports, notices and dividends to shareholders; costs of stationery
or other office supplies; any litigation expenses; costs of shareholders' and
other meetings; the compensation and all expenses (specifically including travel
expenses relating to the Fund's business) of officers, Trustees and employees of
the Trust who are not interested persons of the Adviser; and
- 3 -
<PAGE> 4
travel expenses (or an appropriate portion thereof) of officers or Trustees of
the Trust who are officers, Trustees or employees of the Adviser to the extent
that such expenses relate to attendance at meetings of the Board of Trustees of
the Trust with respect to matters concerning the Fund, or any committees thereof
or advisers thereto.
4. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, the Trust will arrange for the Fund
to pay the Adviser at the end of each calendar month an advisory fee computed
daily at an annual rate equal to 1.20% of the Fund's average daily net assets.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. The value of net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If, pursuant to such provisions, the determination of net asset value
is suspended for any particular business day, then for the purposes of this
section 4, the value of the net assets of the Fund as last determined shall be
deemed to be the value of its net assets as of the close of the New York Stock
Exchange, or as of such other time as the value of the net assets of the Fund's
portfolio may lawfully be determined, on that day. If the determination of the
net asset value of the shares of the Fund has been so suspended for a period
including any month end when the Adviser's compensation is payable pursuant to
this section, then the Adviser's compensation payable at the end of such month
shall be computed on the basis of the value of the net assets of the Fund as
last determined (whether during or prior to such month). If the Fund determines
the value of the net assets of its portfolio more than once on any day, then the
last such determination thereof on that day shall be deemed to be the sole
determination thereof on that day for the purposes of this section 4.
5. Books and Records. The Adviser agrees to maintain such books and records
with respect to its services to the Fund as are required by Section 31 under the
1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and Rule
31a-2 under the 1940 Act and otherwise in connection with its services hereunder
are the property of the Trust and will be surrendered promptly to the Trust upon
its request. And the Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Adviser shall not be liable to the Adviser, the Trust, the Fund or to any
holder of the Fund's shares, for any error of judgment or mistake of law or for
any loss suffered by the Fund or the holders of the Fund's shares in connection
with the matters to which this Agreement relates, provided that nothing in
- 4 -
<PAGE> 5
this Agreement shall be deemed to protect or purport to protect the Adviser
against any liability to the Trust, the Fund or to holders of the Fund's shares
to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or by reason of the Adviser's reckless disregard of its obligations and
duties under this Agreement. As used in this Section 6, the term "Adviser" shall
include any officers, directors, employees or other affiliates of the Adviser
performing services with respect to the Fund.
7. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and that nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies or to
other series of investment companies, including the Trust (whether or not their
investment objectives and policies are similar to those of the Fund) or from
engaging in other activities, provided such other services and activities do
not, during the term of this Agreement, interfere in a material manner with the
Adviser's ability to meet its obligations to the Fund hereunder. When the
Adviser recommends the purchase or sale of a security for other investment
companies and other clients, and at the same time the Adviser recommends the
purchase or sale of the same security for the Fund, it is understood that in
light of its fiduciary duty to the Fund, such transactions will be executed on a
basis that is fair and equitable to the Fund. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the Adviser
nor any of its directors or officers (or persons acting in similar capacities)
or employees shall act as a principal or agent or receive any commission. If the
Adviser provides any advice to its clients concerning the shares of the Fund,
the Adviser shall act solely as investment counsel for such clients and not in
any way on behalf of the Trust or the Fund.
8. Duration and Termination. This Agreement shall continue until _________,
2002, and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Trustees or (ii) a vote of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities (as defined in the 1940 Act), provided that
in either event the continuance is also approved by a majority of the Trustees
who are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated: (a) at any time without penalty by
the Fund upon the vote of a majority of the Trustees or by vote of the majority
of the Fund's outstanding voting securities, upon sixty (60) days' written
notice to the adviser or (b) by the Adviser at any time without penalty, upon
sixty (60) days' written notice to the Trust. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority
- 5 -
<PAGE> 6
of Trustees who are not interested persons of any party to this Agreement, cast
in person at a meeting called for the purpose of voting on such approval, if
such approval is required by applicable law.
10. Proxies. Unless the Trust gives written instructions to the contrary,
the Adviser shall vote all proxies solicited by or with respect to the issuers
of securities in which assets of the Fund may be invested. The Adviser shall use
its best good faith judgment to vote such proxies in a manner which best serves
the interests of the Fund's shareholders.
11. Name Reservation. The Trust acknowledges and agrees that the Adviser
has property rights relating to the use of the term "Willamette" and has
permitted the use of such term by the Trust and the Fund. The Trust agrees that,
unless otherwise authorized by the Adviser: (i) it will use the term
"Willamette" only as a component of the name of the Fund and for no other
purposes; (ii) it will not purport to grant to any third party any rights in
such name; (iii) at the request of the Adviser, the Trust will take such action
as may be required to provide its consent to use of the term by the Adviser, or
any affiliate of the Adviser to whom the Adviser shall have granted the right to
such use; and (iv) the Adviser may use or grant to others the right to use the
term, or any abbreviation thereof, as all or a portion of a corporate or
business name or for any commercial purpose, including a grant of such right to
any other investment company. Upon termination of this Agreement, the Trust
shall, upon request of the Adviser, cease to use the term "Willamette" as part
of the name of the Fund, or in connection with the Trust or any series of the
Trust. In the event of any such request by the Adviser that use of the term
"Willamette" shall cease, the Trust shall cause its officers, directors and
shareholders to take any and all such actions which the Adviser may request to
effect such request and to reconvey to the Adviser any and all rights to the
term "Willamette."
12. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of Oregon,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act, or rules or orders of the SEC thereunder.
b. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust or the Fund.
e. The names "The Coventry Group" and "Trustees of the Coventry Group"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of January 8,
- 6 -
<PAGE> 7
1992 to which reference is hereby made and a copy of which is on file at the
office of the Secretary of State of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The Coventry Group" entered into in the
name or on behalf thereof, or in the name or on behalf of any series or class of
shares of the Trust, by any of the Trustees, representatives or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with any series or class of
shares of the Trust must look solely to the assets of the Trust belonging to
such series or class for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of ________________ , 2000.
THE COVENTRY GROUP
By
------------------------------------
President
WILLAMETTE ASSET MANAGERS, Inc.
By:
------------------------------------
President
- 7 -
<PAGE> 1
THE COVENTRY GROUP
ON BEHALF OF
WILLAMETTE GLOBAL HEALTH SCIENCES FUND
SUB-INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on April 1, 1999 among Willamette Asset
Managers, Inc. (the "Adviser"), Credit Suisse Asset Management, LLC
("Sub-Adviser"), and The Coventry Group (the "Trust") on behalf of Willamette
Global Health Sciences Fund (the "Fund").
WHEREAS, the Trust is a Massachusetts business trust of the series type
organized under a Declaration of Trust dated January 8, 1992, (the
"Declaration") and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end, diversified management investment
company, and the Fund is a new series of the Trust;
WHEREAS, the Trust and the Adviser wish to retain the Sub-Adviser to
render sub-investment advisory services to the Fund, and the Sub-Adviser is
willing to furnish such services to the Fund;
WHEREAS, the Sub-Adviser is registered with the Securities and Exchange
Commission as an investment adviser under the Investment Advisers Act of 1940,
as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed among the Adviser, the Trust and the Sub-Adviser
as follows:
1. Appointment. The Trust and the Adviser hereby appoint the Sub-Adviser to
act as sub-investment adviser to the Fund for the periods and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
furnish the services herein set forth, for the compensation herein provided.
2. Sub-Investment Advisory Duties. Subject to the supervision of the
Adviser and the Trustees of the Trust, the Sub-Adviser will (a) provide a
program of continuous investment management for the Fund in accordance with the
Fund's investment objectives, policies and limitations as stated in the Fund's
prospectus and Statement of Additional Information included as part of the
Trust's Registration Statement filed with the Securities and Exchange
Commission, as they may be amended from time to time, copies of which shall be
provided to the Adviser and to the Sub-Adviser by the Trust; (b) make investment
decisions for the Fund; and (c) place orders to purchase and sell securities for
the Fund.
<PAGE> 2
In performing its investment management services to the Fund hereunder,
the Sub-Adviser, in accordance with the directions of the Adviser, will provide
the Fund with ongoing investment guidance and policy direction, including oral
and written research, analysis, advice, statistical and economic data and
judgments regarding individual investments, general economic conditions and
trends and long-range investment policy. Subject to the Fund's investment
objective and policies, the Sub-Adviser will determine the securities,
instruments, repurchase agreements, options and other investments and techniques
that the Fund will purchase, sell, enter into or use, and will provide an
ongoing evaluation of the Fund's portfolio. The Sub-Adviser will determine what
portion of the Fund's portfolio shall be invested in securities and other
assets, and what portion if any, should be held uninvested.
The Sub-Adviser acknowledges that, pursuant to the Investment Advisory
Agreement between the Adviser and the Trust with respect to the Fund, the
Adviser is responsible for supervising the activities and performance of the
Sub-Adviser, for taking reasonable steps to assure that the Sub-Adviser complies
with the Fund's investment policies and procedures and with applicable legal
requirements, and for reporting to the Trustees of the Trust regarding these
matters. In this regard, the Sub-Adviser agrees to facilitate the Adviser's
implementation of its "Supervisory Procedures for Sub-Advisors" attached hereto
as Exhibit A.
The Sub-Adviser further agrees that, in performing its duties
hereunder, it will:
(a) comply with the 1940 Act and all rules and regulations thereunder, the
Internal Revenue Code (the "Code") and all other applicable federal and state
laws and regulations, and with any applicable procedures adopted by the
Trustees;
(b) use reasonable efforts to manage the Fund so that it will qualify, and
continue to qualify, as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for the Fund
directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Fund's prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements;
(d) furnish to the Trust, the Adviser, or to the Fund's administrator, BISYS
Fund Services, ("Administrator") if so directed, whatever statistical
information the Trust, Adviser or Administrator may reasonably request with
respect to the Fund's assets or contemplated investments. In addition, the
Sub-Adviser will keep the Adviser, the Trust and the Trustees informed of
developments materially affecting the Fund's portfolio and shall, on the
Sub-Adviser's own initiative, furnish to the Adviser and the Trust from time to
time whatever information the Sub-Adviser believes appropriate for this purpose;
(e) make available to the Adviser, the Administrator, and the Trust, promptly
upon their request, such copies of its investment records and ledgers with
respect to the Fund as may be required to assist the Adviser, the Administrator
and the Trust in their compliance with
- 2 -
<PAGE> 3
applicable laws and regulations. The Sub-Adviser will furnish the Adviser and
the Trustees with such periodic and special reports regarding the Fund as they
may reasonably request.
(f) immediately notify the Adviser and the Trust in the event that the
Sub-Adviser or any of its affiliates: (1) becomes aware that it is subject to a
statutory disqualification that prevents the Sub-Adviser from serving as
sub-investment adviser pursuant to this Agreement; or (2) becomes aware that it
is the subject of an administrative proceeding or enforcement action by the
Securities and Exchange Commission ("SEC") or other regulatory authority. The
Sub-Adviser further agrees to notify the Trust immediately of any material fact
known to the Sub-Adviser respecting or relating to the Sub-Adviser that is not
contained in the Trust's Registration Statement regarding the Fund, or any
amendment or supplement thereto, but that is required to be disclosed therein,
and of any statement contained therein that becomes untrue in any material
respect; and
(g) in making investment decisions for the Fund, use no inside information
that may be in its possession, nor will the Sub-Adviser seek to obtain any such
information.
3. Allocation of Charges and Expenses.
The Sub-Adviser shall not be required to pay any expenses of the Fund
or Trust other than those specifically allocated to the Sub-Adviser in this
section 3. In particular, but without limiting the generality of the foregoing,
the Sub-Adviser shall not be responsible for any expenses of other series of the
Trust or for the following expenses of the Fund or Trust: organization and
certain offering expenses of the Fund (including out-of-pocket expenses, but not
including the Sub-Adviser's overhead and employee costs); fees payable to the
Adviser and Sub-Adviser and to any other Fund advisers or consultants; legal
expenses; auditing and accounting expenses; interest expenses; telephone, telex,
facsimile, postage and other communications expenses; taxes and governmental
fees; fees, dues and expenses incurred by or with respect to the Fund in
connection with membership in investment company trade organizations; cost of
insurance relating to fidelity coverage for the Trust's officers and employees;
fees and expenses of the Fund's Administrator or of any custodian, subcustodian,
transfer agent, fund accounting agent, registrar, or dividend disbursing agent
of the Fund; payments for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates, if any; other expenses in connection with the
issuance, offering, distribution or sale of securities issued by the Fund;
expenses relating to investor and public relations; expenses of registering
shares of the Fund for sale and of compliance with applicable state notice
filing requirements; freight, insurance and other charges in connection with the
shipment of the Fund's portfolio securities; brokerage commissions or other
costs of acquiring or disposing of any portfolio securities or other assets of
the Fund, or of entering into other transactions or engaging in any investment
practices with respect to the Fund; expenses of printing and distributing
prospectuses, Statements of Additional Information, reports, notices and
dividends to shareholders; costs of stationery or other office supplies; any
litigation expenses; costs of shareholders' and other meetings; the compensation
and all expenses (specifically including travel expenses relating to the Fund's
business) of
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officers, Trustees and employees of the Trust who are not "interested persons,"
as defined in Section 2(a)(19) of the 1940 Act, of the Sub-Adviser; and travel
expenses (or an appropriate portion thereof) of officers or Trustees of the
Trust who are officers, Trustees or employees of the Sub-Adviser to the extent
that such expenses relate to attendance at meetings of the Board of Trustees of
the Trust with respect to matters concerning the Fund, or any committees thereof
or advisers thereto.
4. Compensation. As compensation for the services provided and expenses
assumed by the Sub-Adviser under this Agreement, the Adviser will pay to the
Sub-Adviser, out of the Adviser's own resources at no additional cost to the
Fund, at the end of each calendar month a sub-advisory fee computed daily at
annual rate equal to 0.55% of the Fund's average daily net assets. The "average
daily net assets" of the Fund shall mean the average of the values placed on the
Fund's net assets as of 4:00 p.m. (New York time) on each day on which the net
asset value of the Fund is determined consistent with the provisions of Rule
22c-1 under the 1940 Act or, if the Fund lawfully determines the value of its
net assets as of some other time on each business day, as of such other time.
The value of net assets of the Fund shall always be determined pursuant to the
applicable provisions of the Declaration and the Registration Statement. If,
pursuant to such provisions, the determination of net asset value is suspended
for any particular business day, then for the purposes of this section 4, the
value of the net assets of the Fund as last determined shall be deemed to be the
value of its net assets as of the close of the New York Stock Exchange, or as of
such other time as the value of the net assets of the Fund's portfolio may
lawfully be determined, on that day. If the determination of the net asset value
of the shares of the Fund has been so suspended for a period including any month
end when the Sub-Adviser's compensation is payable pursuant to this section,
then the Sub-Adviser's compensation payable at the end of such month shall be
computed on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month). If the Fund determines the
value of the net assets of its portfolio more than once on any day, then the
last such determination thereof on that day shall be deemed to be the sole
determination thereof on that day for the purposes of this section 4.
5. Books and Records. The Sub-Adviser agrees to maintain such books and
records with respect to its services to the Fund as are required by Section 31
under the 1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Sub-Adviser
also agrees that records it maintains and preserves pursuant to Rules 31a-1 and
Rule 31a-2 under the 1940 Act and otherwise in connection with its services
hereunder are the property of the Trust and will be surrendered promptly to the
Trust upon its request. And the Sub-Adviser further agrees that it will furnish
to regulatory authorities having the requisite authority any information or
reports in connection with its services hereunder which may be requested in
order to determine whether the operations of the Fund are being conducted in
accordance with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Sub-Adviser shall
exercise its best judgment in rendering the services provided by it under this
Agreement. The Sub-Adviser
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<PAGE> 5
shall not be liable to the Adviser, the Trust, the Fund or to any holder of the
Fund's shares, for any act, omission, error of judgment or mistake of law or for
any loss suffered by the Fund or the holders of the Fund's shares in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Sub-Adviser
against any liability to the Adviser, the Trust, the Fund or to holders of the
Fund's shares to which the Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Adviser's reckless disregard
of its obligations and duties under this Agreement. As used in this Section 6,
the term "Sub-Adviser" shall include any officers, directors, employees or other
affiliates of the Sub-Adviser.
7. Indemnification.
(a) The Adviser and Trust or Fund, as applicable, shall indemnify and
hold harmless the Sub-Adviser, from and against any and all claims, losses,
liabilities or damages (including reasonable attorney's fees and other related
expenses) (i) arising from any misfeasance, malfeasance or nonfeasance by the
Adviser, Trust or Fund in connection with this Agreement, or (ii) which may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement covering shares of the Fund or Trust, or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact known or which should have been known to the Trust
or Fund and was required to be stated therein or necessary to make the
statements therein not misleading, unless such a statement or omission was made
in reliance upon information furnished to the Adviser, the Trust or the Fund or
any affiliate thereof by the Sub-Adviser; provided, however, that the Adviser
and Trust or Fund, as applicable, shall not be required to indemnify or
otherwise hold the Sub-Adviser harmless where the claim against, or the loss,
liability or damage experienced by the Sub-Adviser, is caused by or is otherwise
directly related to Sub-Adviser's own willful misfeasance, bad faith or gross
negligence, or to the reckless disregard of its obligations and duties under
this Agreement. As used in this Section 7(a), the term "Sub-Adviser" shall
include any officers, directors, employees or other affiliates of the
Sub-Adviser.
(b) The Sub-Adviser shall indemnify and hold harmless the Adviser and
Trust or Fund, as applicable, from and against any and all claims, losses,
liabilities or damages (including reasonable attorney's fees and other related
expenses) (i) arising from any misfeasance, malfeasance or nonfeasance by the
Sub-Adviser in connection with this Agreement, or (ii) which may be based upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement covering shares of the Fund or Trust, or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact known or which should have been known to the Trust and
was required to be stated therein or necessary to make the statements therein
not misleading, if such a statement or omission was made in reliance upon
information furnished to the Adviser, Trust, Fund or any affiliate by the
Sub-Adviser; provided, however, that the Sub-Adviser shall not be required to
indemnify or otherwise hold the Adviser or Trust or Fund harmless where the
claim against, or the loss, liability or damage experienced by the Adviser or
Trust or Fund, is caused by or is otherwise directly related to the
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<PAGE> 6
Trust's or Fund's or Adviser's own willful misfeasance, bad faith or gross
negligence, or to the reckless disregard of their respective obligations and
duties under this Agreement. As used in this Section 7(b), the terms "Adviser"
and "Trust" and "Fund" shall include their respective officers, directors,
employees or other affiliates of such entities.
8. Services Not Exclusive. It is understood that the services of the
Sub-Adviser are not exclusive, and that nothing in this Agreement shall prevent
the Sub-Adviser from providing similar services to other investment companies or
to other series of investment companies, including the Trust (whether or not
their investment objectives and policies are similar to those of the Fund) or
from engaging in other activities, provided such other services and activities
do not, during the term of this Agreement, interfere in a material manner with
the Sub-Adviser's ability to meet its obligations to the Fund hereunder. When
the Sub-Adviser recommends the purchase or sale of a security for other
investment companies and other clients, and at the same time the Sub-Adviser
recommends the purchase or sale of the same security for the Fund, it is
understood that in light of its fiduciary duty to the Fund, such transactions
will be executed on a basis that is fair and equitable to the Fund. In
connection with purchases or sales of portfolio securities for the account of
the Fund, neither the Sub-Adviser nor any of its directors or officers (or
persons acting in similar capacities) or employees shall act as a principal or
agent or receive any commission. If the Sub-Adviser provides any advice to its
clients concerning the shares of the Fund, the Sub-Adviser shall act solely as
investment counsel for such clients and not in any way on behalf of the Trust or
the Fund.
9. Duration and Termination. This Agreement shall continue until _________,
2002, and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Trustees or (ii) a vote of a "majority of the Fund's outstanding voting
securities" (as defined in the 1940 Act), provided that in either event the
continuance is also approved by a majority of the Trustees who are not parties
to this Agreement or "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Agreement may be terminated: (a) at any time without penalty by the Adviser or
by the Fund upon the vote of a majority of the Trustees or by vote of the
majority of the Fund's outstanding voting securities, upon sixty (60) days'
written notice to the Adviser or (b) by the Sub-Adviser at any time without
penalty, upon sixty (60) days' written notice to the Trust. This Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
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<PAGE> 7
11. Proxies. Unless the Trust or the Adviser gives written instructions to
the contrary, the Sub-Adviser shall vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Fund may be
invested. The Sub-Adviser shall use its best good faith judgment to vote such
proxies in a manner which best serves the interests of the Fund's shareholders.
12. Name Reservation. The Sub-Adviser acknowledges and agrees that the
Adviser has property rights relating to the use of the terms "Willamette,"
"Willamette Family of Funds," "Willamette Value Fund" and "Willamette Small Cap
Growth Fund," Willamette Technology Fund" and "Willamette Global Health Sciences
Fund" ("Willamette Names") and has permitted the use of the Willamette Names by
the Trust and its series. The Sub-Adviser agrees that, unless otherwise
authorized by the Adviser: (i) it will use the term "Willamette" only as a
component of the name of the Fund and for no other purposes; (ii) it will not
purport to grant to any third party any rights in any Willamette Name; and (iii)
the Adviser may use or grant to others the right to use a Willamette Name, or
any abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, including a grant of such right to any other
investment company. Upon termination of this Agreement, the Sub-Adviser shall,
at the request of the Adviser, cease to use all Willamette Names in any of its
materials or in any manner except with the consent of the Adviser, which shall
not be unreasonably withheld. In the event of any such request by the Adviser
that use by the Sub-Adviser of a Willamette Name shall cease and in the absence
of any such consent, the Sub-Adviser shall cause its officers, directors and
employees to take any and all such actions which the Adviser may reasonably
request to effect such request.
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<PAGE> 8
13. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of Oregon,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, or rules or orders of the SEC thereunder.
b. The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Sub-Adviser as
an agent of the Adviser, the Trust or the Fund.
e. The names "The Coventry Group" and "Trustees of the Coventry Group"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated as of January 8, 1992 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
the Commonwealth of Massachusetts and elsewhere as required by law, and to any
and all amendments thereto so filed or hereafter filed. The obligations of "The
Coventry Group" entered into in the name or on behalf thereof, or in the name or
on behalf of any series or class of shares of the Trust, by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any series or class of shares of the Trust must look solely to the assets
of the Trust belonging to such series or class for the enforcement of any claims
against the Trust.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of , 2000.
THE COVENTRY GROUP
By
--------------------------------
President
WILLAMETTE ASSET MANAGERS, Inc.
By:
--------------------------------
President
Credit Suisse Asset Management, LLC
By:
--------------------------------
Title:
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<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information, included in Post-Effective Amendment
Number 68 to the Registration Statement (Form N-1A, No. 33-44964) of Willamette
Family of Funds of The Coventry Group and to the use of our report dated April
28, 1999, incorporated by reference therein.
ERNST & YOUNG LLP
Columbus, Ohio
April 26, 2000
