<PAGE> 1
As filed with the Securities and Exchange Commission on January 28, 2000
Registration No. 33-44964
Investment Company Act File No. 811-6526
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 65 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
AMENDMENT NO. 67 / 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
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(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 on January 29, 2000
pursuant to paragraph (b) of Rule 485.
<PAGE> 2
QUESTIONS?
Call 1-877-945-3863 or your investment representative.
WILLAMETTE
SMALL CAP
GROWTH FUND
WILLAMETTE ASSET MANAGERS LOGO
---------------
PROSPECTUS DATED JANUARY 29, 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.
<PAGE> 3
WILLAMETTE SMALL CAP GROWTH FUND TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this 3 Willamette Small Cap Growth 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 5 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
Review this section for 17 Financial Highlights
details on selected
financial highlights of the
Fund.
</TABLE>
2
<PAGE> 4
WILLAMETTE SMALL CAP
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH FUND
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVE The Fund seeks to provide long-term capital appreciation.
PRINCIPAL The Fund invests primarily in equity securities of small
INVESTMENT STRATEGIES domestic and foreign issuers that the Sub-Adviser believes
have rapid growth potential. Currently, an issuer with
market capitalization of $1.5 billion or less at the time of
purchase by the Fund is considered to be "small".
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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.
Stocks of small companies may be more volatile than those of
large companies and these companies may be more vulnerable
to economic changes. This can cause significant and rapid
changes in the value of the Fund's assets and its shares.
Some of the Fund's holdings may underperform its other
holdings. The Fund may invest a portion of its assets in
foreign securities which can carry additional risks such as
changes in currency exchange rates, a lack of adequate
company information and political instability. 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 necessarily good for investors.
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;
- willing to accept higher risks of investing in stock of
smaller 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 April 1, 1999,
it does not yet have a full calendar year for comparing its
performance against a broad measure of market 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 4.50%(1)
Maximum deferred sales charge (load) None
Annual Fund Operating Expenses
(expenses paid from Fund assets)
Management Fee(2) 1.20%
Distribution and Service (12b-1) fee 0.50%
Other Expenses 1.28%
Total Fund Operating Expenses 2.98%
</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 fees from the Fund.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
SMALL CAP GROWTH FUND $737.. $1,330 $1,947 $3,601
</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 SMALL CAP GROWTH FUND
TICKER SYMBOL: WILGX
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide long term capital appreciation.
POLICIES AND STRATEGIES
The Fund, under normal market conditions, will invest primarily (at least 65%
of the value of its total assets) in equity securities of small domestic and
foreign issuers. The Fund currently considers "small" issuers to be those
with market capitalization of $1.5 billion or less at the time of purchase by
the Fund. The Fund may continue to hold companies in its portfolio even after
their market capitalizations exceed $1.5 billion. The Sub-Adviser will select
investments it believes have potential for rapid growth in earnings or
revenues due to expanded operations, new products, new technologies, new
channels of distribution, revitalized management or general industry
conditions. Current income will not be a factor in selecting investments for
the Fund.
The Fund will invest primarily in stock of U.S. issuers but it may also
invest in stock of foreign issuers. The Fund may invest up to 15% of its
foreign securities that are not listed on a securities exchange and foreign
debt securities that are not US dollar-denominated. The Fund may invest in
U.S. and foreign government obligations and money market instruments; 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. The Fund has not established minimum quality standards for its
investments in debt securities.
The Fund may additionally invest in put and call options, futures contracts
and options on futures contracts, and restricted or illiquid securities. It
may also lend its portfolio securities and may invest in securities of other
investment companies, which results in some duplication of expenses for Fund
shareholders.
- -
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, and you can lose
money on your investment. More specifically, the Fund may be affected by the
following types of risks:
EQUITY RISK: The value of the equity securities held by the Fund, and thus of
the Fund's shares, can fluctuate -- at times dramatically. The prices of
equity securities are affected by various factors, including market
conditions, political and other events, and developments affecting the
particular issuer or its industry or geographic sector. The fact that the
Adviser follows a specific discipline can provide no assurance against a
decline in the value of the Fund's shares.
SMALL COMPANY RISK: Stocks of smaller companies may have greater risks than
those of larger companies. Small company stocks may have a thinner trading
market and be more volatile, and small companies may be more sensitive to
changes in the economy. These factors may cause rapid and substantial changes
in the value of the Fund's assets and of its shares.
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5
<PAGE> 7
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
- -
PRINCIPAL RISKS OF INVESTING IN THE FUND
CONTINUED
MARKET RISK: The Fund's portfolio securities can be affected by events that
affect the securities markets generally or particular segments of the market
in which the Fund has invested. Factors that are part of market risk include
interest rate fluctuations, quality of instruments in the Fund's portfolio,
national and international economic and political conditions and general
market conditions and market psychology.
FOREIGN SECURITIES 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 be in the form of sponsored or unsponsored depositary
receipts, such as American Depositary Receipts ("ADRs"), Global Depositary
Receipts ("GDRs") and European Depositary Receipts ("EDRs"). Ownership of
unsponsored depositary receipts may not entitle the Fund to financial and
other reports from the issuer of the underlying security, and certain costs
related to the receipts that would otherwise be borne by the issuer of a
sponsored depositary receipt may be passed through, in whole or in part, to
holders of unsponsored receipts.
The Fund's fixed income investments are particularly subject to:
INTEREST RATE RISK: The value of the Fund's investments in debt instruments
will tend to fall if current interest rates increase and to rise if current
interest rates decline.
CREDIT RISK: The value of the Fund's debt instruments will generally decline
if the credit rating of the issuer declines, while their value will be
favorably affected by an increased credit rating. Also, an issuer whose credit
rating has declined may be unable to make payments of principal and/or
interest.
RISKS OF LOWER RATED SECURITIES: The Fund has not established minimum quality
standards for its investments in debt securities and it may invest in "junk"
bonds. Securities rated BBB or Baa by Standard and Poors Corporation (S&P)or
Moody's Investors Service (Moody's) may have speculative characteristics, and
securities rated BB or Ba and unrated securities are subject to higher risk
of non-payment of principal or interest, or both, that higher rated
securities.
HEDGING RISKS: The Fund's hedging activities, although they are designed to
help offset negative movements in the markets for the Fund's investments,
will not always be successful. Moreover, they can cause the Fund to lose
money or fail to get the benefit of a gain. Among other things, these
negative effects can occur if the market moves in a direction that the Fund's
investment adviser does not expect or if the Fund cannot close out its
position in a hedging instrument.
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.
6
<PAGE> 8
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
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Number of Shares
Outstanding
You can find the Fund's NAV
daily in The Wall Street
Journal and other
newspapers.
---------------------------
Per share net asset value (NAV) for
the Fund is determined and its shares
are priced at the earlier of the close
of regular trading on the New York
Stock Exchange or 4:00 p.m. Eastern
time on days the Exchange is open.
Your order for purchase, sale or
exchange of shares is priced at the
next NAV calculated after your order
is accepted by the Fund plus any
applicable sales charge as noted in
the section on "Distribution
Arrangements/Sales Charges." This is
what is known as the offering price.
The Fund's securities are generally
valued at current market prices. If
market quotations are not available,
prices will be based on fair value as
determined by the Fund's Trustees.
- - PURCHASING AND ADDING TO YOUR SHARES
You may purchase the Fund
through the Distributor or
through investment
representatives, who may
charge additional fees and
may require higher minimum
investments or impose other
limitations on buying and
selling shares. If you
purchase shares through an
investment representative,
that party is responsible
for transmitting orders by
close of business and may
have an earlier cut-off
time for purchase and sale
requests. Consult your
investment representative
for specific information.
<TABLE>
<CAPTION>
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 (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:
J 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,
2 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)
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
1. Call (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 (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 charge a separate fee.
Call (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 (877) 945-3863;
- A minimum balance of $12,000 is required;
- Include a voided personal check;
- If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500 (see "Closing of
Small Accounts").
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
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.
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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)
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 AS A % OF AS A % OF PUBLIC OFFERING
INVESTMENT OFFERING PRICE YOUR INVESTMENT PRICE**
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.35%
$250,000 but less than $500,000 2.50% 2.56% 2.20%
$500,000 but less than $750,000 2.00% 2.04% 1.75%
$750,000 but less than 1.00% 1.01% 0.90%
$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 0.25% 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
$100,000 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
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 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 or affiliates or bona fide
full-time employees of the foregoing who have acted as such for not less than
90 days (including members of their immediate families and their 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
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 (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.
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 (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 0.45% of the Fund's average daily net assets.
The Bank of New York, 1 Wall Street, New York, New York 10286, provides
portfolio management services to the Fund, as Sub-Adviser. The Sub-Adviser,
founded by Alexander Hamilton in 1784, is one of the largest U.S. commercial
banks, with assets over $66.6 billion as of December 31, 1998. As of that
date the Sub-Adviser also provided administrative or advisory services for
about $48.4 billion in assets.
John C. Lui, Vice President of the Sub-Adviser, is responsible for day-to-day
management of the Fund. Mr. Lui has been employed by the Sub-Adviser for the
past four years as an institutional equity manager, and is responsible for
managing various investments in equity securities on behalf of the Sub-
Adviser's institutional clients. He also serves as portfolio manager to the
Small Cap Growth Fund, a series of BNY Hamilton Funds. From 1993 to 1995, Mr.
Lui was employed by Barclays Global Asset Management, where he managed global
equity and bond portfolios.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services 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 Funds is vested in the Board of Trustees. Shareholders are
entitled to one vote for each full share held and a proportionate fractional
vote for any fractional shares held and will vote in the aggregate and not by
series except as otherwise expressly required by law.
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
- -
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to help you understand the Fund's
financial performance since its inception on April 1, 1999. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have realized
on an investment in the Fund (assuming reinvestment of all dividends and
distributions, if any). This information has not been audited. Audited
Financial Highlight information will be provided after the Fund has completed
a full fiscal year of operations, and will be contained in the Fund's annual
report to shareholders.
Selected data for a share of beneficial interest outstanding throughout the
period indicated:
<TABLE>
<CAPTION>
SMALL GAP
GROWTH FUND
-------------
FOR PERIOD
ENDED
SEPTEMBER 30,
1999(a)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-----------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Net investment loss (0.10)
Net realized and unrealized gain on investments 1.86
-----------------------------------------------------------------------------
Total from investment activities 1.76
-----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.76
-----------------------------------------------------------------------------
Total return (excludes sales charge) 17.60%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 18,158
Ratio of expenses to average net assets 3.02%(c)
Ratio of net investment loss to average net assets (2.41)%
Portfolio turnover 34.65%
</TABLE>
(a) For the period from April 5, 1999 (commencement of operations) to
September 30, 1999.
(b) Not annualized.
(c) Annualized.
17
<PAGE> 19
[This Page Intentionally Left Blank]
<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 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: (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 12000
<PAGE> 22
WILLAMETTE VALUE FUND
WILLAMETTE SMALL CAP GROWTH FUND
Investment Portfolios of
The Coventry Group
Statement of Additional Information
January 29, 2000
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the prospectuses for the Willamette Value Fund and
Willamette Small Cap Growth Fund ("Funds") dated July 31, 1999 and January 29,
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.
<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
Contol Persons and Principal Holders of Securities 24
Investment Adviser and Sub-Adviser . . . . . . . . . . . 24
Portfolio Transactions . . . . . . . . . . . . . . . . . 26
Banking Laws . . . . . . . . . . . . . . . . . . . . . . 28
Administrator . . . . . . . . . . . . . . . . . . . . . 28
Distributor . . . . . . . . . . . . . . . . . . . . . . 32
Custodian . . . . . . . . . . . . . . . . . . . . . . . 35
Transfer Agency and Fund Accounting Services . . . . . . 36
Independent Auditors . . . . . . . . . . . . . . . . . . 37
Legal Counsel . . . . . . . . . . . . . . . . . . . . . 37
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 37
Description of Shares . . . . . . . . . . . . . . . . . 37
Vote of a Majority of the Outstanding Shares . . . . . . 38
Additional Tax Information . . . . . . . . . . . . . . . 38
Yields and Total Returns . . . . . . . . . . . . . . . . 48
Performance Comparisons . . . . . . . . . . . . . . . . 51
Principal Shareholders . . . . . . . . . . . . . . . . . 52
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 52
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 53
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
<PAGE> 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") and Willamette Small Cap Growth Fund ("Growth Fund") (collectively,
"Funds"). Willamette Asset Managers, Inc. ("Adviser") serves as investment
adviser to both Funds. The Bank of New York ("Sub-Adviser") manages the assets
of Growth Fund. Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectuses of
the Funds. Capitalized terms not defined herein are defined in the Prospectuses.
No investment in Shares of the Funds should be made without first reading the
Prospectuses.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies of the
Funds as set forth in the Prospectuses.
EQUITY SECURITIES. 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.
CONVERTIBLE SECURITIES. The Fund 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
<PAGE> 25
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 nay rating criteria applicable to its investments in any
securities, convertible or otherwise.
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 also 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 may invest only in Bank Instruments that are either issued by an
institution having capital, surplus and undivided profits over $100 million, or
insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance
Fund ("SAIF"). In addition to domestic instruments such as bankers' acceptances
and certificates of deposit, Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs")
and Eurodollar Time Deposits ("ETDs").
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).
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.
<PAGE> 26
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, Master Notes are governed by agreements between the issuer and
the Sub-Adviser acting as agent, for no additional fee, in its capacity as
Sub-Adviser to the 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 the Sub-Adviser or its affiliates pursuant to
arrangements with such accounts. Interest and principal payments are credited to
such accounts. The 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.
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. 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.
FOREIGN INVESTMENTS. The Funds may invest in certain obligations or securities
of foreign issuers, including American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), other similar
<PAGE> 27
depositary receipts, Yankee Obligations, and U.S. dollar-denominated securities
issued by foreign branches of U.S. and foreign banks. Growth Fund may invest 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Growth 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 the Fund until
settlement. Growth Fund will maintain with its 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, Growth 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 Growth Fund not to enter into when- issued
commitments exceeding in the aggregate 25% of the market value of the Fund's
total assets, less liabilities other than the obligations created by these
commitments.
LOWER RATED OR UNRATED SECURITIES. Growth Fund has no minimum quality
requirements for its debt obligations. 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 quidelines used by rating
agencies, securities rated below investment grade, or deemed of comparable
<PAGE> 28
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.
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 more description of the quality ratings of prominent rating organizations is
contained in Appendix A.
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.
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
<PAGE> 29
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.
FUTURES CONTRACTS. Each Fund may invest in futures contracts and options thereon
(stock index futures contracts or interest rate futures or options) to hedge or
manage risks associated with the Fund's securities investments. To enter into a
futures contract, an amount of cash and cash equivalents, equal to the market
value of the futures contract, is deposited in a segregated account with the
Fund's Custodian and/or in a margin account with a broker to collateralize the
position and thereby ensure that the use of such futures is unleveraged.
Positions in futures contracts may be closed out only on an exchange that
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
a Fund had insufficient cash, it might have to sell portfolio securities to meet
daily margin requirements at a time when it would be disadvantageous to do so.
In addition, a Fund might be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on a Fund's ability to hedge
or manage risks effectively.
Successful use of futures by a Fund is also subject to the Adviser's or
Sub-Adviser's ability to predict movements correctly in the direction of the
market. There is typically an imperfect correlation between movements in the
price of the future and movements in the price of the securities that are the
subject of the hedge. In addition, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the Adviser or Sub-Adviser may still not result in a
successful hedging transaction over a short time frame.
The trading of futures contracts is also subject to the risk of trading halts,
suspension, exchange or clearing house equipment failures, government
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.
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
<PAGE> 30
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.
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
<PAGE> 31
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.
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.
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.
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.
<PAGE> 32
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.
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
<PAGE> 33
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.
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.
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
<PAGE> 34
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.
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.
RESTRICTED AND ILLIQUID SECURITIES. A Fund may acquire, in privately negotiated
transactions, securities that cannot be offered for public sale in the United
State 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
<PAGE> 35
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.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may invest in securities
issued by the other investment companies. Each Fund currently intends to limit
its investments in accordance with applicable law. Among other things, such law
would limit these investments so that, as determined immediately after a
securities purchase is made by a Fund: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned by the Fund together with
all other investment companies that have the same investment adviser. 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.
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
<PAGE> 36
loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Growth Fund is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the 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. Growth Fund will not
invest the proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. Growth Fund may not 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. Growth 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 the 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, the 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, high-grade debt securities or by a letter of credit
in favor of the Fund at least equal at all times to 100% of the market value of
the securities loaned, plus accrued interest. While such securities are on loan,
the borrower will pay the Fund any income accruing thereon. Loans will be
subject to termination by the Fund in the normal settlement time, currently
three Business Days after notice, or by the borrower on one day's notice (as
used herein, "Business Day" shall denote any day on which the New York Stock
Exchange and the custodian are both open for business). Any gain or loss in the
market price of the borrowed securities that occurs during the term of the loan
inures to the lending Fund and its shareholders. The Funds may pay reasonable
finders' and custodial fees in connection with loans. In addition, the Funds
will consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and the Funds will not lend their securities to
any director, officer, employee, or affiliate of the Adviser, the Sub-Adviser,
the Administrator or the Distributor, unless permitted by applicable law. Loans
of portfolio securities involve risks, such as delays or an inability to regain
the securities or collateral adjustments in the event the borrower defaults or
enters into bankruptcy.
AFFILIATED TRANSACTIONS. The Funds are authorized to execute portfolio
transactions through, and to pay commissions to, Phillips & Company Securities,
Inc. ("Phillips"), a broker-dealer affiliated with the Adviser, and to purchase
securities in underwritings in which Phillips is a member of the underwriting
syndicate. A Fund will not acquire portfolio securities issued by, or enter into
repurchase agreements or reverse repurchase agreements with, the Adviser, the
Distributor or their affiliates.
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.
Each Fund has elected to qualify as a diversified series of the Trust.
Additionally, neither Fund may:
borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
<PAGE> 37
issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time;
engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities;
purchase or sell real estate, which does not include securities of companies
which deal in real estate or mortgages or investments secured by real estate
or interests therein, except that each Fund reserves freedom of action to
hold and to sell real estate acquired as a result of the Fund's ownership of
securities;
purchase physical commodities or contracts relating to physical commodities;
make loans to other persons, except (i) loans of portfolio securities, and
(ii) to the extent that entry into repurchase agreements and the purchase of
debt instruments or interests in indebtedness in accordance with a Fund's
investment objective and policies may be deemed to be loans.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of the Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The calculation excludes all
securities whose remaining maturities at the time of acquisition were one year
or less. The turnover rate for each Fund is not expected to exceed 75%.
Personal Trading Policies
- -------------------------
The Funds, the Adviser and 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.
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
<PAGE> 38
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.
MANAGEMENT OF THE GROUP
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its Board of
Trustees, which is elected by the Shareholders of the Group. The Trustees elect
the officers of the Group to supervise actively its day-to-day operations. The
names of the Trustees and officers of the Group, their addresses, ages and
principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name, Address and Age the Group During Past 5 Years
- --------------------- ----------- -------------------
<S> <C> <C>
Walter B. Grimm* Chairman, President and Trustee From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund Services,
Columbus, Ohio 43219 from 1987 to June 1992, President
<PAGE> 39
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 Trustee From 1993 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 35
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.
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.
<PAGE> 40
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, 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:
<PAGE> 41
<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
Mr. R. Jeffrey Young was not a Trustee during the period reported.
</TABLE>
Control Persons and Principal Holders of Securities
- ---------------------------------------------------
As of the date of this Statement of Additional Information, ownership of Fund
shares by all officers and Trustees, as a group, totaled less than 1% of each
fund and no person owned as much as 5% of either Fund's shares or controlled
either Fund.
Investment Adviser and Sub-Adviser
- ----------------------------------
Investment advisory services for the Funds are provided by Willamette Asset
Managers, Inc., 220 NW 2nd Avenue, Suite 950, Portland, Oregon 97209. Pursuant
to an Investment Advisory Agreement dated as of May 22, 1998 (the "Value
Agreement"), the Adviser has agreed to provide investment advisory services to
Value Fund as described in the Prospectus of Value Fund. For the services
provided pursuant to the Value Agreement, Value Fund pays the Adviser a fee
computed daily and paid monthly, at an annual rate, calculated as a percentage
of Value Fund's average daily net assets, of 1.00%. The Adviser may periodically
waive all or a portion of its advisory fee to increase the net income of Value
Fund available for distribution as dividends.
The Adviser provides general management supervision to Growth Fund pursuant to
an Investment Advisory Agreement dated as of April 1, 1999 ("Growth Agreement").
For services provided under the Growth Agreement, Growth Fund pays the Adviser a
fee computed daily and paid monthly at an annual rate, as calculated a
percentage of Growth Fund's average daily net assets, of 1.20%. Out of its fees
from Growth Fund, the Adviser pays the fee of the Sub-Adviser.
<PAGE> 42
The total investment advisory fees earned by the Adviser, for service to Value
Fund for the fiscal year ended March 31, 1999 was $90,295.33 and the Adviser
waived advisory fees in the amount of $27,500. The Adviser received no fees from
Growth Fund during that fiscal year since Growth Fund's operations commenced on
April 1, 1999.
Unless sooner terminated, the Value Agreement and the Growth Agreement will
continue in effect until May 22, 2000 and March 31, 2001, 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 Agreement or interested
persons (as defined in the 1940 Act) of any party to the Agreement by votes cast
in person at a meeting called for such purpose. Each Agreement is terminable at
any time on 60 days' written notice without penalty by the Trustees, by vote of
a majority of the outstanding Shares of the particular Fund, or by the Adviser.
Each Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
Each Agreement provides that the Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the applicable Fund in
connection with the performance of the Agreement, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties, or from
reckless disregard by the Adviser of its duties and obligations thereunder.
The Bank of New York, 48 Wall Street, New York, New York 10286, provides
portfolio management services, as Sub-Adviser, to Growth Fund pursuant to a
Sub-Investment Advisory Agreement with the Group and the Adviser, dated as of
April 1, 1999. For its services to Growth Fund, the Adviser pays the Sub-Adviser
a fee computed daily and paid monthly at an annual rate calculated as a
percentage of Growth Fund's average daily net assets, of 0.45%. As of March 31,
1999 Growth Fund had not yet commenced operations, so the Sub-Adviser received
no fees during that fiscal year. The Sub-Investment Advisory Agreement will
continue in effect, unless sooner terminated, until March 31, 2001, and has
provisions for continuation and termination similar to those of the Investment
Advisory Agreements. The Sub-Investment Advisory Agreement may also be
terminated by the Adviser.
The Value Agreement was approved by both the Trustees and the independent
Trustees at a meeting held February 28, 1998. The Growth Agreement and the
Sub-Investment Advisory Agreement were so approved at a meeting held November
13, 1998.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreements and the Sub-Investment Advisory
Agreement, the Adviser and Sub-Adviser determine, subject to the general
supervision of the Board of Trustees of the Group and in accordance with each
Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Funds, and which brokers are to be eligible to execute
the Funds' portfolio transactions. Certain purchases and sales of portfolio
securities with respect to the Funds are principal transactions in which
portfolio securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions on stock
exchanges involve the payment of negotiated brokerage commissions. Transactions
in the over-the-counter market are generally principal transactions with
dealers. With respect to the over-the-counter market, the Adviser and
Sub-Adviser, where possible, will deal directly with dealers who make a market
in the securities involved except in those circumstances where better price and
execution are available elsewhere.
Investment decisions for the Funds are made independently from those for other
accounts managed by the Adviser and the Sub-Adviser. Any such account may also
invest in the same securities as a Fund. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and another
<PAGE> 43
account, the transaction will be averaged as to price, and available investments
will be allocated as to amount in a manner which the Adviser or Sub-Adviser
believes to be equitable to the applicable Fund and such other account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, the Adviser or Sub-Adviser may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for the other
accounts in order to obtain best execution.
For the fiscal year ended March 31, 1999, Value Fund paid brokerage Commissions
of $24,245.76. Growth 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-Adviser under the
Investment Advisory Agreement and Sub-Investment Advisory Agreement, the
Custodian under the Custodian Agreement and by BISYS Fund Services Ohio under
the 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 Investment Advisory
Agreements, by the Sub-Adviser under the Sub-Advisory Agreement, 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.
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 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.
<PAGE> 44
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by a Fund in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by the
Administrator of its obligations and duties thereunder.
Distributor
- -----------
BISYS Fund Services L.P. serves as distributor to the Funds pursuant to the
Distribution Agreement dated May 22, 1998, (the "Distribution Agreement").
Unless otherwise terminated, the Distribution Agreement will continue in effect
with respect to a Fund until May 31, 2000, if such continuance is approved at
least annually (i) by the Group's Board of Trustees or by the vote of a majority
of the outstanding Shares of the Fund and (ii) by the vote of a majority of the
Trustees of the Group who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement will terminate automatically in the event
of any assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of Shares,
advertises and pays the costs of advertising, office space and the personnel
involved in such activities. The Distributor receives no compensation under the
Distribution Agreement with the Group, but may receive compensation from each
Fund under the Service and Distribution Plan described below.
As described in the 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) and November 13, 1998 (Growth Fund). The Plan may be terminated
with respect to a Fund by vote of a majority of the Independent Trustees, or by
vote of a majority of the outstanding Shares of the Fund. The Trustees review
quarterly a written report of such costs and the purposes for which such costs
have been incurred. The Plan may be amended by vote of the Trustees including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose. However, any change in the Plan that would materially increase the
distribution cost to a Fund requires approval by that Fund's Shareholders. For
so long as the Plan is in effect, selection and nomination of the Independent
Trustees shall be committed to the discretion of such Independent Trustees. All
agreements with any person relating to the implementation of the Plan may be
terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or, with respect to a
Fund, by vote of a majority of the outstanding Shares of that Fund. The Plan
will continue in effect with respect to a Fund for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by the vote of a majority of
the entire Board of Trustees cast in person at a meeting called for that
purpose. The Board of Trustees has a duty to request and evaluate such
information as may be reasonably necessary for it to make an informed
determination of whether the Plan should be implemented or continued. In
addition, for each Fund, the Trustees, in approving the Plan, must determine
that there is a reasonable likelihood that the Plan will benefit the Fund and
its Shareholders.
For the fiscal year ended March 31, 1999, the Distributor received $45,147
pursuant to the Plan for Value Fund, of which all was paid to Phillips & Company
<PAGE> 45
Securities Inc., an affiliated broker dealer. As of March 31, 1999, Growth 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 Ohio" or the "Transfer Agent") for the Funds, pursuant to
the Transfer Agency Agreement dated May 22, 1998. Pursuant to such Agreement,
the Transfer Agent, among other things, performs the following services in
connection with the Funds' Shareholders of record: maintenance of shareholder
records for each of the Funds' Shareholders of record; processing shareholder
purchase and redemption orders; processing transfers and exchanges of Shares of
the Funds on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. For such services the Transfer Agent receives a fee
based, in part, on the number of shareholders of record. In addition, BISYS Fund
Services Ohio, Inc. provides certain fund accounting services to the Funds
pursuant to the Fund Accounting Agreement dated 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 Accountant shall be reimbursed
for reasonable out-of-pocket expenses. Under such Agreement, 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 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
<PAGE> 46
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.
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
<PAGE> 47
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of the Fund.
Additional Tax Information
- --------------------------
TAXATION OF THE FUND. Each Fund intends to qualify annually and to elect to be
treated as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").
To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of each taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and any net
tax-exempt interest income each taxable year.
As a regulated investment company, a Fund generally will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to Shareholders. Each Fund intends to
distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, a Fund must distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses, as
prescribed by the Code) for the one-year period ending on October 31 of the
calendar year, and (3) any ordinary income and capital gains for previous years
that were not distributed during those years. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by a Fund in
October, November or December to Shareholders of record on a date in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be treated as received by Shareholders in the calendar year
in which the distributions are declared, rather than the calendar year in which
the distributions are received. To prevent application of the excise tax, each
Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS. Dividends paid out of a Fund's investment company taxable income
generally will be taxable to a U.S. Shareholder as ordinary income. A portion of
each Fund's income may consist of dividends paid by U.S. corporations and,
accordingly, a portion of the dividends paid by a Fund may be eligible for the
corporate dividends-received deduction. Properly designated distributions of net
capital gains, if any, generally are taxable to Shareholders as long-term
capital gains, regardless of how long the Shareholder has held the Fund's
Shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
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.
<PAGE> 48
Distributions by a Fund reduce the net asset value of the Fund's shares. Should
a taxable distribution reduce the net asset value below a Shareholder's cost
basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
DISCOUNT SECURITIES. Investments by a Fund in securities that are issued at a
discount will result in income to the Fund equal to a portion of the excess of
the face value of the securities over their issue price (the "original issue
discount") each year that the securities are held, even though the Fund receives
no cash interest payments. This income is included in determining the amount of
income which a Fund must distribute to maintain its status as a regulated
investment company and to avoid the payment of federal income tax and the 4%
excise tax.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
Generally, the gain realized on the disposition of any debt security acquired
after April 30, 1993 having market discount will be treated as ordinary income
to the extent it does not exceed the accrued market discount on such debt
security.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a call
option is not included in income at the time of receipt. If the option expires,
the premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by a Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a call option that is purchased by a Fund, if the
option is sold, any resulting gain or loss will be a capital gain or loss, and
will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option is added to the basis of the
purchased security.
Certain options in which a Fund may invest are "section 1256 contracts". Gains
or losses on section 1256 contracts generally are considered 60% long-term and
40% short-term capital gains or losses; however, foreign currency gains or
losses (as discussed below) arising from certain Section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
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
<PAGE> 49
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses, defer
losses and/or accelerate the recognition of gains or losses from the affected
straddle positions, the amount which may be distributed to Shareholders, and
which will be taxed to them as ordinary income or capital gain, may be increased
or decreased as compared to a fund that did not engage in such hedging
transactions.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, offsetting notional principal contract or forward
contract transaction with respect to the appreciated position or substantially
identical property. Appreciated financial positions subject to this constructive
sale treatment are interests (including options and forward contracts and short
sales) in stock, partnership interests, certain actively traded trust
instruments and certain debt instruments. Constructive sale treatment does not
apply to certain transactions closed in the 90-day period ending with the 30th
day after the close of the taxable year, if certain conditions are met.
Unless certain constructive sales rules (discussed more fully above) apply, a
Fund will not realize gain or loss on a short sale of a security until it closes
the transaction by delivering the borrowed security to the lender. Pursuant to
Code Section 1233, all or a portion of any gain arising from a short sale may be
treated as short-term capital gain, regardless of the period for which a Fund
held the security used to close the short sale. In addition, a Fund's holding
period of any security, which is substantially identical to that which is sold
short, may be reduced or eliminated as a result of the short sale. Recent
legislation, however, alters this treatment by treating certain short sales
against the box and other transactions as a constructive sale of the underlying
security held by a Fund, thereby requiring current recognition of gain, as
described more fully above. Similarly, if a Fund enters into a short sale of
property that becomes substantially worthless, the Fund will recognize gain at
that time as though it had closed the short sale. Future Treasury regulations
may apply similar treatment to other transactions with respect to property that
becomes substantially worthless.
The diversification requirements applicable to each Fund's assets may limit the
extent to which a Fund will be able to engage in transactions in options and
other hedging transactions.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
Each Fund may invest in shares of foreign corporations (including through ADRs)
which may be classified under the Code as passive foreign investment companies
("PFICs"). In general, a foreign corporation is classified as a PFIC if at least
one-half of its assets constitute investment-type assets, or 75% or more of its
gross income is investment-type income. If a Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to Shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
<PAGE> 50
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.
In some cases, Shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their Shares. This prohibition generally applies where (1) the
Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all reportable payments, including dividends, capital gain
distributions and redemptions payable to Shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the Shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of an
investment in a Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER TAXATION. The Group is organized as a Massachusetts business trust and,
under current law, neither the Group nor any fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that each fund
continues to qualify as a regulated investment company under Subchapter M of the
<PAGE> 51
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.
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, the Sub-Adviser, Administrator or
Distributor may voluntarily waive all or a portion of their fees with respect to
a Fund. Such waiver would cause the yield of that Fund to be higher than it
would otherwise be in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. Average annual total return is a measure of the
<PAGE> 52
change in value of an investment in a Fund over the period covered, which
assumes any dividends or capital gains distributions are reinvested in Shares
immediately rather than paid to the investor in cash. A Fund computes the
average annual total return by determining the average annual compounded rates
of return during specified periods that equate the initial amount invested to
the ending redeemable value of such investment. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
Average Annual ERV
Total Return = [(------)exp (1/n) - 1]
P
Where: ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical
$1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
A Fund computes its aggregate total return by determining the aggregate
compounded rate of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(------] - 1]
P
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical
$1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of
$1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
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
<PAGE> 53
Manager Database, CDA/Cadence, or Chase Global Data and Research.
Current yields or performance will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, a Fund's yield or
performance may not be directly comparable to bank deposits or other investments
that pay a fixed return for a stated period of time. Yield and performance are
functions of the quality, composition and maturity of a Fund's portfolio, as
well as expenses allocated to a Fund. Fees imposed upon customer accounts by
third parties for cash management services will reduce a Fund's effective yield
to customers.
From time to time, the Funds may include general comparative information, such
as statistical data regarding inflation, securities indices or the features or
performance of alternative investments, in advertisements, sales literature and
reports to shareholders. The Funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of a Fund.
Miscellaneous
- -------------
The Funds may include information in their Annual Reports and Semi-Annual
Reports to Shareholders that (1) describes general economic trends, (2)
describes general trends within the financial services industry or the mutual
fund industry, (3) describes past or anticipated portfolio holdings for the
Funds or (4) describes investment management strategies for the Funds. Such
information is provided to inform Shareholders of the activities of the Funds
for the most recent fiscal year or half-year and to provide the views of the
Adviser, the Sub-Adviser, and/or Group officers regarding expected trends and
strategies.
The Financial Statements of the Willamette Value fund appearing in the 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.
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> 54
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.
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.
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.
<PAGE> 55
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.
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.
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> 56
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) Sub-Advisory Agreement between Willamette Asset
Managers and Bank of New York(3)
(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)
(h)(3) Transfer Agency Agreement between the Registrant
and BISYS Fund Services, Inc.(2)
(i) Legal opinion(4)
(j) Not Applicable
(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.
<PAGE> 57
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. 63 to Registrant's
Registration Statement (File No. 3344964) filed electronically with the
Securities and Exchange Commission on November 30, 1999.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust states as
follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations
contained in paragraph (b)below:
(i) every person who is, or has been, a
Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest
extent permitted by law against all
liability and against all expenses
reasonably incurred or paid by him
in connection with any claim, action,
suit or proceeding in which he becomes
involved as a party or otherwise by virtue
of his being or having been a Trustee or
officer and against amounts paid or incurred
by him in the settlement thereof; and (ii)
the words "claim," "action," "suit," or
"proceeding" shall apply to all claims,
actions, suits or proceedings (civil,
criminal, administrative or other,
including appeals), actual or threatened;
and the words "liability" and "expenses"
shall include, without limitation, attorneys
fees, costs, judgments, amounts paid in
settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be
provided hereunder to a Trustee or
officer:
(i) against any liability to the
Trust, a Series thereof, or the
Shareholders by reason of a final
adjudication by a court or other
body before which a proceeding was
brought 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
<PAGE> 58
misfeasance, bad faith, gross
negligence or reckless disregard of
the duties involved in the conduct
of his office:
(A) by the court or other body
approving the settlement or
other disposition; or
(B) based upon a review of
readily available facts (as
opposed to a full trial-type
inquiry) by (1) vote of a
majority of the Disinterested
Trustees acting on the matter
(provided that a majority of
the Disinterested Trustees then
in office acts on the matter)
or (2) written opinion of
independent legal counsel.
(c) The rights of indemnification herein
provided may be insured against by
policies maintained by the Trust, shall
be severable, shall not affect any other
rights to which any Trustee or officer
may now or hereafter be entitled, shall
continue as to a person who has ceased
to be such Trustee or officer and shall
inure to the benefit of the heirs,
executors, administrators and assigns of
such person. Nothing contained herein
shall affect any rights to
indemnification to which personnel of
the Trust other than Trustees and
officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation
of a defense to any claim, action, suit
or proceeding of the character described
in paragraph (a) of this Section 4.3 may
be advanced by the Trust prior to final
disposition thereof upon receipt of an
undertaking by or on behalf of the
recipient to repay such amount if it is
ultimately determined that he is not
entitled to indemnification under this
Section 4.3, provided that either:
(i) such undertaking is secured by a
surety bond or some other appropriate
security provided by the recipient, or
the Trust shall be insured against
losses arising out of any such advances;
or
(ii) a majority of the Disinterested
Trustees acting on the matter (provided
that a majority of the Disinterested
Trustees acts on the matter) or an
independent legal counsel in a written
opinion shall determine, based upon a
review of readily available facts (as
opposed to a full trial-type inquiry),
that there is reason to believe that the
recipient ultimately will be found
entitled to indemnification
As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i)
an Interested Person of the Trust (including anyone who has been exempted
<PAGE> 59
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
-------------
[INFORMATION ON RELATIONSHIPS WITH WILLAMETTE SECURITIES TO BE ADDED]
<TABLE>
<CAPTION>
Name & Address Position with WAM Principal Occupation for past 5 yrs.
- -------------- ----------------- ------------------------------------
<S> <C> <C>
James T. Smith CEO Compliance Officer(1995)
220 NW 2nd #950 and CFO(1997) for Phillips
Portland, OR 97209 & Co. Securities, Inc. Joined
Phillips & Co. in 10/94. 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.
Timothy C. Phillips Director/Owner CEO of Phillips & Co.
220 NW 2nd #950 Securities, Inc. since
Portland, OR 97209 February 1992.
</TABLE>
* The business address of Phillips & Co. Securities, Inc. is 220 N.W. 2nd #950,
Portland, Oregon 97209
Business and Other Connections of Sub-Adviser
---------------------------------------------
Name Title/Company
- ---- -------------
J. Carter Bacot................ Retired; Formerly Chairman and Chief Executive
Officer of The Bank of New York Company, Inc.
and Chairman of The Bank of New York (banking)
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)
William R. Chaney.............. Chairman and Chief Executive Officer of
Tiffany & Co., (international designers,
manufacturers and distributors of jewelry and
fine goods)
Alan R. Griffith............... Vice Chairman of The Bank of New York Company,
Inc. and of The Bank of New York (banking)
Gerald Hassell................. President of The Bank of New York Company,
Inc. and The Bank of New York (banking)
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)
<PAGE> 60
Donald L. Miller............... Chief Executive Officer and Publisher of Our
World News, LLC (media)
Deno D. Papageorge............. Senior Executive Vice President of The Bank of
New York Company, Inc. and The Bank of New
York (banking)
Catherine A. Rein.............. Senior Executive Vice President of
Metropolitan Life Insurance Company (insurance
and financial services)
Thomas A. Renyi................ Chairman and Chief Executive Officer of The
Bank of New York Company, Inc. and The Bank of
New York (banking)
William C. Richardson.......... President and Chief Executive Officer of W. K.
Kellogg Foundation, a private foundation
Brian L. Roberts............... President of Comcast Corporation, developer,
manager and operator of broadband cable
networks and provider of content (banking)
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services, Limited Partnership ("BISYS
Fund Services") acts as distributor for Registrant.
BISYS Fund Services also distributes the
securities of Alpine Equity Trust, American
Performance Funds, AmSouth Mutual Funds, The BB&T
Mutual Funds Group, ESC Strategic Funds, Inc., The
Eureka Funds, Fifth Third Funds, Governor Funds,
Hirtle Callaghan Trust, HSBC Funds Trust, HSBC Mutual
Funds Trust, INTRUST Funds Trust, The Infinity Mutual
Funds, Inc., Magna Funds, MMA Praxis Mutual Funds,
Mercantile Mutual Funds, Inc., Metamarkets.com,
Meyers Investment Trust, M.S.D.&T Funds, Pacific
Capital Funds, The Republic Funds Trust, The Republic
Advisors Funds Trust, Sefton Funds Trust, SSgA
International Liquidity Fund, Summit Investment
Trust, USAllianz Funds, USAllianz Variable
Insurance Products Trust, Valenzuela Capital Trust,
Variable Insurance Funds, The Victory Portfolios, The
Victory Variable Insurance Funds and Vintage Mutual
Funds, Inc.
(b) Partners of BISYS Fund Services, as of July 30, 1999,
were as follows:
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Offices with Underwriter Positions and Offices with Registrant
- ---------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
BISYS Fund Services, Inc . Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
<PAGE> 61
<TABLE>
<S> <C> <C>
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not Applicable.
ITEM 28. Location of Accounts and Records
- -------- --------------------------------
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), 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> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant represents that this filing
satisfies the criteria of Rule 485(b)(2) and has duly caused this Post-Effective
Amendment No. 64 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 28th day of January, 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 Chairman, President and Trustee January 28, 2000
- ------------------------ (Principal Executive Officer)
Walter B. Grimm**
/s/ John H. Ferring IV Trustee January 28, 2000
- ------------------------
John H. Ferring IV***
/s/ Maurice G. Stark Trustee January 28, 2000
- ------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee January 28, 2000
- ------------------------
Michael M. Van Buskirk*
- ------------------------- Trustee January 28, 2000
R. Jeffrey Young****
Treasurer (Principal Financial January 28, 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 29, 1999.
