<PAGE>
Message From The Investment Adviser The Shelby Fund
-------------------------------------------------------------------------------
October 25, 2000
Dear Shareholder:
For the six months ended September 30, 2000, The Shelby Fund returned -19.47%
(Class Y Shares)*. During the same period, the S&P 500 (the Fund's primary
benchmark), S&P 400 Midcap and S&P 600 Smallcap returned -3.60%, 8.46% and
4.35%, respectively.
U.S. financial markets endured record volatility during the period as
investors began to digest the impact of six consecutive rate hikes by the
Federal Reserve, as well as what have been popularly termed the four "E's" -
rising energy costs, a weakening Euro, a decline in the growth rate of
corporate earnings, and a closely-contested presidential election. To this
list we would add a fifth "E", excessive expectations, as one by one
throughout the period, the markets have lowered the relative valuations on
what have been many of the market's best performing companies and industries.
These powerful micro-corrections are occurring with increasing frequency and
are having a dramatic impact on the broader market, as investors search for an
acceptable investment model for high-growth stocks that remain highly valued
in the face of slower economic growth.
While pleased with the Fund's year-to-date performance, we are disappointed
with performance over the past six months. We knew a substantial correction
was inevitable, given the market's run-up through the fourth quarter of 1999
and early 2000. Anticipating the timing of the correction, however, proved
difficult. Early in the period, The Shelby Fund was adversely impacted by the
broad sell-off in technology stocks. Among the Fund's larger holdings,
companies such as Sandisk and Broadcom were especially hard hit. In the case
of Sandisk, the sell-off in the stock was related not just to weakness in the
broader market, but also by the decision by a large investor, Seagate
Technology, to significantly reduce its holdings in the company. This sale was
in preparation for Seagate going private and they have now completed their
liquidation.
Despite the broad sell-off in technology stocks, many of the Fund's other top
holdings continued to perform well. Mercury Interactive and Network Appliance
are both examples of market leaders, with differentiated products and strong
balance sheets that continue to hold up in a difficult market environment. Our
select biotechnology holdings, many of which were acquired during the May
sell-off, also continue to meet or exceed performance expectations.
* For the six months ended September 30, 2000, Class A Shares with load
returned -23.41%.
-------------------------------------------------------------------------------
-1-
<PAGE>
The Shelby Fund
-------------------------------------------------------------------------------
We believe this is a time for investors to remain focused on the long-term.
While we have assumed a more defensive posture, we will continue to emphasize
those companies that are growing at above average rates, with high returns on
assets and equity, and with low leverage ratios. By staying with rapidly
growing, innovative companies in uncertain times, we should be able to
maximize The Shelby Fund's long-term performance.
Sincerely,
/s/ Darrell R. Wells /s/ James C. Shircliff
Darrell R. Wells James C. Shircliff, CFA
Chairman, CEO Executive Vice President
SMC Capital, Inc. SMC Capital, Inc.
/s/ R. Andrew Beck
R. Andrew Beck
Senior Vice President
SMC Capital, Inc.
-------------------------------------------------------------------------------
-2-
<PAGE>
The Shelby Fund
-------------------------------------------------------------------------------
Performance data represents past performance and is not predictive of future
performance. Investment return and the principal value of an investment in the
Fund will fluctuate so that an investor's share, when redeemed, may be worth
more or less than their original cost. The composition of the Fund's holdings
is subject to change.
The performance of the Fund is measured against unmanaged indices, the
Standard & Poor's 500 Index (the Fund's primary benchmark), generally
representative of the U.S. stock market, and the S&P 400 Midcap and S&P
Smallcap 600 Indices, which are representative of mid cap and small cap
stocks, respectively. These indices do not reflect the deduction of expenses
associated with a mutual fund, such as investment management and fund
accounting fees. However, the Fund's performance reflects the deduction of the
fees for these value-added services. Investors cannot invest directly in an
index, although they can invest in its underlying securities.
For more complete information, including charges and expenses, call 1-800-774-
3529 for a prospectus, which you should read carefully before you invest or
send money. Shares are distributed by BISYS Fund Services Limited Partnership.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, Shelby County Trust Bank or its affiliates, and shares are not
federally insured by the FDIC or any other agency. An investment in mutual
fund shares involves investment risks, including the possible loss of
principal.
-------------------------------------------------------------------------------
-3-
<PAGE>
Table of Contents
Statement of Assets and Liabilities
Page 5
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Schedule of Portfolio Investments
Page 8
Notes to Financial Statements
Page 11
Financial Highlights
Page 16
-4-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Assets and Liabilities
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (cost $41,211,026)............................ $57,171,856
Repurchase agreement, at cost....................................... 8,027,325
-----------
Total investments (cost $49,238,351)............................ 65,199,181
Interest and dividends receivable................................... 3,260
Receivables from investment securities sold......................... 1,173,603
Prepaid expenses and other assets................................... 9,666
-----------
Total Assets.................................................... 66,385,710
-----------
LIABILITIES:
Put/call options written, at value (premiums received $4,489,891)... 4,893,875
Payable to custodian................................................ 903,383
Payables for investments purchased.................................. 3,347,144
Accrued expenses and other payables:
Investment advisory fees.......................................... 49,780
Administration fees............................................... 1,434
Distribution fees................................................. 390
Other............................................................. 24,295
-----------
Total Liabilities............................................... 9,220,301
-----------
NET ASSETS: 57,165,409
===========
Capital............................................................. 35,812,761
Undistributed net investment income/(loss).......................... (212,700)
Net unrealized appreciation/(depreciation) on investments and
option transactions.............................................. 15,556,846
Accumulated net realized gains/(losses) on investments, short
positions and option transactions................................ 6,008,502
-----------
Net Assets...................................................... $57,165,409
===========
Class Y Shares
Net Assets........................................................ $55,370,216
Shares outstanding................................................ 3,423,807
Redemption and offering price per share........................... $ 16.17
===========
Class A Shares
Net Assets........................................................ $ 1,795,193
Shares outstanding................................................ 110,604
Redemption price per share........................................ $ 16.23
===========
Maximum sales charge.............................................. 4.75%
Maximum offering price (100%/(100%-Maximum Sales Charge) of net
asset value adjusted to the nearest cent) per share.............. $ 17.04
===========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Operations
For the Six Months Ended September 30, 2000
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income.................................................... $ 189,280
Dividend income.................................................... 14,808
------------
Total income..................................................... 204,088
------------
EXPENSES:
Investment advisory fees........................................... 297,082
Administration fees................................................ 59,416
Distribution fees--Class A......................................... 1,173
Accounting fees.................................................... 15,041
Transfer agent fees................................................ 19,081
Other.............................................................. 39,848
------------
Total expenses before expenses voluntarily reduced............... 431,641
Expenses voluntarily reduced..................................... (14,853)
------------
Net expenses..................................................... 416,788
------------
Net investment income/(loss)....................................... (212,700)
------------
REALIZED/UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS:
Net realized gains/(losses) from investments....................... 5,367,870
Net realized gains/(losses) on options written..................... (2,819,409)
Net realized gains/(losses) on closed short sales.................. (627,866)
Net change in unrealized appreciation/(depreciation) on investments
and option transactions............................................ (15,198,657)
------------
Net realized/unrealized gains/(losses) on investments, short
positions and option transactions.................................. (13,278,062)
------------
Change in net assets resulting from operations..................... $(13,490,762)
============
</TABLE>
See notes to financial statements.
-6-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
September 30, March 31,
2000 2000
------------- -----------
(Unaudited)
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income/(loss)..................... $ (212,700) $ (537,423)
Net realized gains/(losses) from investments,
short positions and option transactions......... 1,920,595 7,077,183
Net change in unrealized
appreciation/(depreciation) on investments and
option transactions............................. (15,198,657) 23,030,616
------------ -----------
Change in net assets resulting from operations..... (13,490,762) 29,570,376
------------ -----------
DISTRIBUTIONS TO CLASS Y SHAREHOLDERS:
From net realized gains from investment and
option transactions............................. -- (2,138,694)
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
From net realized gains from investment and
option transactions............................. -- (103)
------------ -----------
Change in net assets from distributions to
shareholders....................................... -- (2,138,797)
------------ -----------
CAPITAL TRANSACTIONS:
CLASS Y SHARES
Proceeds from shares issued...................... 4,927,655 8,147,253
Dividends reinvested............................. -- 2,136,154
Cost of shares redeemed.......................... (4,606,561) (7,498,130)
------------ -----------
Class Y capital transactions....................... 321,094 2,785,277
------------ -----------
CLASS A SHARES
Proceeds from shares issued...................... 1,882,596 50,355
Dividends reinvested............................. -- 103
Cost of shares redeemed.......................... (18,952) --
------------ -----------
Class A capital transactions....................... 1,863,644 50,458
------------ -----------
Change in net assets from capital transactions..... 2,184,738 2,835,735
------------ -----------
Change in net assets............................... (11,306,024) 30,267,314
NET ASSETS:
Beginning of period.............................. 68,471,433 38,204,119
------------ -----------
End of period.................................... $ 57,165,409 $68,471,433
============ ===========
SHARE TRANSACTIONS:
CLASS Y SHARES
Issued........................................... 292,046 482,860
Reinvested....................................... -- 149,906
Redeemed......................................... (275,888) (539,394)
------------ -----------
Change in Class Y shares........................... 16,158 93,372
------------ -----------
CLASS A SHARES
Issued........................................... 108,823 2,673
Reinvested....................................... -- 7
Redeemed......................................... (899) --
------------ -----------
Change in Class A shares........................... 107,924 2,680
------------ -----------
Change in total shares............................. 124,082 96,052
============ ===========
</TABLE>
See notes to financial statements.
-7-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- -------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks (95.7%):
Advertising (0.7%):
10,000 Lamar Advertising Co.(b)................................ $ 378,750
-----------
Audio/Video Products (10.0%):
25,000 Gemstar-TV Guide International, Inc.(b)................. 2,179,688
52,000 Sandisk Corp.(b)........................................ 3,470,999
-----------
5,650,687
-----------
Banks (2.4%):
15,000 Commerce Bancorp, Inc................................... 872,813
53,900 Pointe Financial Corp................................... 495,206
-----------
1,368,019
-----------
Cellular Telecom (3.1%):
85,000 AT&T Wireless Group(b).................................. 1,774,375
-----------
Circuits (2.8%):
20,000 Maxim Integrated Products, Inc.(b)...................... 1,608,750
-----------
Computer Software (5.9%):
40,000 Cisco Systems, Inc.(b).................................. 2,210,000
10,000 Electronic Arts, Inc.(b)................................ 493,750
20,000 Exchange Applications, Inc.(b).......................... 90,625
10,000 Microsoft Corp.(b)...................................... 602,500
-----------
3,396,875
-----------
Construction Materials (1.3%):
50,000 Elcor Corp.............................................. 725,000
-----------
Consulting Services (0.5%):
7,500 Corporate Executive Board Co.(b)........................ 301,875
-----------
Electronic Components--Semiconductors (12.1%):
10,000 Amkor Technology, Inc.(b)............................... 261,250
50,000 Atmel Corp.(b).......................................... 759,375
10,000 Broadcom Corp. Class A(b)............................... 2,437,499
40,000 Intel Corp.............................................. 1,665,000
20,000 Xilinx, Inc.(b)......................................... 1,712,500
-----------
6,835,624
-----------
Instruments--Scientific (3.1%):
15,000 PE Corp-PE Biosystems Group............................. 1,747,500
-----------
Internet Content (0.6%):
10,000 WebEx Communications, Inc.(b)........................... 368,750
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- -------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks, continued:
Internet Services (1.1%):
20,000 DoubleClick, Inc.(b).................................... $ 640,000
-----------
Lasers--Systems/Components (0.6%):
5,000 Coherent, Inc.(b)....................................... 340,000
-----------
Medical--Biomedical (3.9%):
10,000 Celera Genomics(b)...................................... 996,250
2,500 Human Genome Sciences, Inc.(b).......................... 432,813
20,000 Incyte Pharmaceuticals, Inc.(b)......................... 822,500
-----------
2,251,563
-----------
Medical Instruments (1.8%):
20,000 St. Jude Medical, Inc.(b)............................... 1,020,000
-----------
Networking Products (7.5%):
5,000 Corvis Corp.(b)......................................... 305,234
2,500 Foundry Networks, Inc.(b)............................... 167,188
30,000 Network Appliance, Inc.(b).............................. 3,821,250
-----------
4,293,672
-----------
Oil & Gas Exploration, Production, & Services (0.4%):
10,000 Core Laboratories NV(b)................................. 245,625
-----------
Printers & Related Products (3.9%):
60,000 Lexmark International Group, Inc.(b).................... 2,250,000
-----------
Satellite Telecom (2.7%):
20,100 Adaptive Broadband Corp.(b)............................. 391,950
19,000 Echostar Communications
Corp.-- A(b).......................................... 1,002,250
12,550 Motient Corp.(b)........................................ 177,269
-----------
1,571,469
-----------
Security Services (0.1%):
10,000 Wackenhut Corp.(b)...................................... 82,500
-----------
Software & Computer Services (9.1%):
30,000 CheckFree Corp.(b)...................................... 1,256,719
25,000 Mercury Interactive Corp.(b)............................ 3,918,750
-----------
5,175,469
-----------
Telecommunications (5.4%):
6,000 IMPSAT Fiber Networks, Inc.(b).......................... 66,000
25,000 Microcell Telecommunications, Inc.(b)................... 726,563
</TABLE>
Continued
-8-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments, Continued
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- -------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks, continued:
Telecommunications, continued:
20,000 Nextel Communications, Inc. Class A(b).................. $ 935,000
20,000 Telefonos de Mexico SA de CV-Class L, ADR............... 1,063,750
10,000 Young Broadcasting, Inc.--A(b).......................... 314,375
-----------
3,105,688
-----------
Telecommunications Equipment (13.9%):
60,000 ADC Telecommunications, Inc.(b)......................... 1,613,438
30,000 American Tower Corp.(b)................................. 1,130,625
3,600 Natural MicroSystems Corp.(b)........................... 193,669
15,000 QUALCOMM, Inc.(b)....................................... 1,068,750
6,700 Research in Motion Ltd.(b).............................. 660,684
98,000 Tekelec, Inc.(b)........................................ 3,221,749
-----------
7,888,915
-----------
Therapeutics (0.3%):
20,000 Cell Pathways, Inc.(b).................................. 162,500
-----------
Wholesale & International Trade (1.2%):
20,000 Costco Wholesale Corp.(b)............................... 698,750
-----------
Wireless Equipment (1.3%):
4,000 Aether Systems, Inc.(b)................................. 422,000
50,000 P-Com, Inc.(b).......................................... 331,250
-----------
753,250
-----------
Total Common Stocks.............................................. 54,635,606
-----------
</TABLE>
<TABLE>
<CAPTION>
Contracts,
Shares or
Principal Security Market
Amount Description Value
---------- ---------------------------------------------------- -----------
<C> <S> <C>
Options Purchased (2.6%):
100 Broadcom Corp. Call Option (strike price $160,
expires on 11/20/00)(b)............................ $ 858,750
400 Cisco Systems, Inc. Put Option (strike price $70,
expires on 1/22/01)(b)............................. 610,000
200 Lexmark International, Inc. Call Option (strike
price $45, expires on 10/23/00)(b)................. 8,750
20 NASDAQ-100 Index Put Option (strike price $2,800,
expires on 10/23/00)(b)............................ 10,000
200 Tekelec Call Option (strike price $40, expires on
10/23/00)(b)....................................... 12,500
-----------
Total Options Purchased....................................... 1,500,000
-----------
Investment Companies (1.8%):
10,000 iShares Russell 2000 Index Fund..................... 1,036,250
-----------
Total Investment Companies.................................... 1,036,250
-----------
Repurchase Agreements (14.0%):
$8,027,325 Fifth Third Bank, 5.88%, 10/2/00 (Collateralized by
$8,601,059 Fannie Mae, 6.50%, 3/1/29, market value
$8,187,871)........................................ 8,027,325
-----------
Total Repurchase Agreements................................... 8,027,325
-----------
Total Investments (Cost $49,238,351)(a)--(114.1%)............. 65,199,181
-----------
Liabilities in excess of other assets--(-14.1%)............... (8,033,772)
-----------
TOTAL NET ASSETS--(100.0%).................................... $57,165,409
===========
</TABLE>
Continued
-9-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments, Continued
September 30, 2000
(Unaudited)
------
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $21,010,396
Unrealized depreciation.. (5,049,566)
-----------
Net unrealized
appreciation............. $15,960,830
===========
</TABLE>
(b) Represents non-income producing securities.
ADR--American Depositary Receipt
<TABLE>
<CAPTION>
Number of Market
Contracts Value
--------- -----------
<S> <C> <C>
Written options outstanding at end of period:
Call options:
CheckFree Corp. (strike price $50, expires on
2/19/01)........................................... 400 $ (205,000)
Cisco Systems, Inc. (strike price $45, expires on
10/23/00).......................................... 200 (245,000)
Cisco Systems, Inc. (strike price $55, expires on
1/22/01)........................................... 100 (80,000)
Intel Corp. (strike price $50, expires on 10/23/00). 200 (10,000)
Mercury Interactive Corp. (strike price $110,
expires on 1/22/01)................................ 250 (1,393,750)
Microsoft Corp. (strike price $50, expires on
1/22/01)........................................... 100 (116,250)
Network Appliance, Inc. (strike price $100, expires
on 3/19/01)........................................ 150 (628,125)
Network Appliance, Inc. (strike price $130, expires
on 3/19/01)........................................ 150 (408,750)
Sandisk Corp. (strike price $70, expires on
10/23/00).......................................... 50 (23,750)
Xilinx, Inc. (strike price $80, expires on 1/22/01). 200 (325,000)
-----------
Total call options (premium received $3,636,180)..... (3,435,625)
-----------
Put options:
Cisco Systems, Inc. (strike price $70, expires on
10/23/00).......................................... 400 (550,000)
NASDAQ-100 Index (strike price $4,025, expires on
10/23/00).......................................... 20 (908,250)
-----------
Total put options (premium received $853,711)........ (1,458,250)
-----------
Total written options (premium received $4,489,891).. $(4,893,875)
===========
</TABLE>
See notes to financial statements.
-10-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements
September 30, 2000
(Unaudited)
1. Organization:
The Coventry Group (the "Group") was organized on January 8, 1992 as a
Massachusetts business trust, and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Shelby Fund (the "Fund"), a series of the
Group, commenced operations on July 1, 1994. The Fund's investment objective
is to seek capital appreciation. It pursues this objective by investing
primarily in a diversified portfolio of equity securities. Effective June
30, 1999, the Fund was authorized to sell Class A shares, and Class B shares
in addition to the preexisting Class Y Shares. Class A shares were offered
for sale on October 28, 1999 and are subject to a maximum 4.75% front-end
sales load and a distribution fee up to 0.25% of average daily net assets.
Class Y shares carries neither a load nor a distribution fee. Class B shares
have not been offered for sale as of September 30, 2000.
Each Class A and Class Y share of the Fund represents identical interests in
the Fund's investment portfolio and has the same rights, except that (i)
Class A shares bear the expense of a distribution fee, which will cause
Class A shares to have a higher expense ratio and to pay lower dividends
than those related to Class Y shares; (ii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable; and (iii) each class has exclusive voting rights with respect
to matters relating to its own distribution arrangements.
2. Significant Accounting Principles:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles in the United
States. The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expenses for the period. Actual results could differ from
those estimates.
Securities Valuation:
Investments in common and preferred stocks, purchased options, written
options, corporate bonds, U.S. Government securities, U.S. Government
agency securities and short sale positions are valued at their market
values determined on the basis of the latest available bid quotation (ask
quotation for short sale positions) in the principal market (closing
sales prices if the principal market is an exchange) in which such
securities are normally traded. Investments in repurchase agreements are
valued at cost. Investments in investment companies are valued at their
respective net asset values as reported by such companies. Securities,
including restricted securities, for which market quotations are not
readily available, are valued at fair value by the investment adviser
under the supervision of the Group's Board of Trustees. Pricing services
may be used to value certain securities when the prices provided are
believed to reflect the fair market value of such securities.
Continued
-11-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
September 30, 2000
(Unaudited)
Security Transactions and Related Income:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of premium
or discount. Dividend income is recorded on the ex-dividend date. Gains
or losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
Repurchase Agreements:
The Fund may enter into repurchase agreements with financial institutions
such as banks and broker-dealers which the investment adviser, Shelby
Country Trust Bank, 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 generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates, which may
be more or less than the rate on the underlying portfolio securities. The
seller, under a repurchase agreement, is required to maintain the value
of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Fund's custodian or another
qualified custodian.
Short Sale Transactions:
Short sales are transactions in which the Fund sells a security it does
not own but has borrowed, in anticipation of a decline in the market
value of that security. The Fund may engage in short sales "against the
box", in which the Fund, at the time of the short sale, owns or has the
right to obtain securities equivalent in kind and amount. The Fund will
incur a loss if the market price of the security increases between the
date of the short sale and the date on which the Fund must purchase or
deliver the security sold short. The Fund will realize a gain if the
security declines in value between those dates. All short sales must be
collateralized to the extent required by the applicable law. The Fund
maintains the collateral in a segregated account with its custodian,
consisting of cash and securities sufficient to collateralize its
obligation on the short positions. At September 30, 2000, there were no
securities sold short.
Options Transactions:
The Fund may purchase and write (sell) put and call options on
securities, currencies and indices of securities (collectively, an
"underlying asset"). These transactions are to hedge against changes in
interest rates, security prices, currency fluctuations and other market
developments, or for purposes of earning additional income (i.e.
speculation).
Continued
-12-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
September 30, 2000
(Unaudited)
When the Fund writes a call or put option, an amount equal to the net
premium received is included in the Fund's statement of assets and
liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. If an
option expires on its stipulated expiration date or if the Fund enters
into a closing purchase transaction, a gain or loss is realized. If a
written call option is exercised, a gain or loss is realized for the sale
of the underlying security and the proceeds from the sale are increased
by the premium originally received. If a written put option is exercised,
the cost of the security acquired is decreased by the premium originally
received. The risk associated with writing an option is that the Fund
bears the market risk of an unfavorable change in the price of an
underlying asset, and may be required to buy or sell an underlying asset
under the contractual terms of the option at a price which could be
significantly different from the current market value.
When the Fund purchases a call or put option, an amount equal to the
premium paid is included in the Fund's statement of assets and
liabilities as an investment, and is subsequently marked-to-market to
reflect the current market value of the option. If an option expires on
the stipulated expiration date or if the Fund enters into a closing sale
transaction, a gain or loss is realized. If the Fund exercises a call
option, the cost of the security acquired is increased by the premium
paid for the call. If the Fund exercises a put option, a gain or loss is
realized from the sale of the underlying security, and the proceeds from
such sale are decreased by the premium originally paid. The risk
associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the
risk of loss of premium and change in market value should the
counterparty not perform under the contract.
The table below reflects the Fund's activity in written options during
the six months ended September 30, 2000. The Premiums column represents
the premiums paid by the option counterparties to the Fund in connection
with entering into the written options.
Written option activities for the six months ended September 30, 2000:
<TABLE>
<CAPTION>
Call Options Put Options
--------------------- ---------------------
Number of Number of
Contracts Premiums Contracts Premiums
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance at beginning of
period...................... 80 $ 33,759 -- $ --
Options written.............. 4,280 8,350,508 1,060 2,324,178
Options closed............... (2,480) (4,714,328) (440) (1,156,641)
Options expired.............. (80) (33,759) -- --
Options exercised............ -- -- (200) (313,826)
------ ----------- ----- -----------
Options outstanding at end of
period...................... 1,800 $ 3,636,180 420 $ 853,711
====== =========== ===== ===========
</TABLE>
Continued
-13-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
September 30, 2000
(Unaudited)
Distributions to Shareholders:
Distributions from net investment income, if any, are declared and paid
quarterly and distributable net realized capital gains, if any, are
declared and distributed at least annually by the Fund.
Distributions from net investment income and from net realized capital
gains are determined in accordance with income tax regulations, which may
differ from generally accepted accounting principles. These differences
are primarily due to the tax deferral of losses on wash sales.
Federal Income Taxes:
It is the policy of the Fund to qualify as a regulated investment company
by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue
Code, and to make distributions of net investment income and net realized
capital gains sufficient to relieve it from all, or substantially all,
Federal income taxes.
Other:
Expenses that are directly related to the Fund are charged directly to
the Fund. Expenses relating to the Group are prorated to all the
investment portfolios of the Group, including the Fund, on the basis of
each Fund's relative net assets.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding short-term securities) for the
six months ended September 30, 2000 were $43,459,983 and $43,649,345,
respectively.
4. Related Party Transactions:
Investment advisory services are provided to the Fund by Shelby County Trust
Bank. Under the terms of the investment advisory agreement, Shelby County
Trust Bank is entitled to receive fees computed daily based on an annual
percentage of one percent of the average net assets of the Fund. SMC
Capital, Inc. is the sub-investment adviser for the Fund and has been
engaged to provide day-to-day investment advisory services to the Fund. Fees
of SMC Capital, Inc. are paid by Shelby County Trust Bank.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio limited partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of The BISYS Group, Inc.
Continued
-14-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
September 30, 2000
(Unaudited)
BISYS Ohio, with whom certain officers and trustees of the Group are
affiliated, serves the Fund as administrator. Such officers and trustees are
paid no fees directly by the Fund for serving as officers and trustees of
the Group. Under the terms of the administration agreement, BISYS Ohio's
fees are computed daily as a percentage of the average net assets of the
Fund. For the six months ended September 30, 2000, BISYS Ohio voluntarily
reduced its administration fees by $14,853.
BISYS Ohio serves the Fund as Transfer Agent and Fund Accountant. Under the
terms of the Transfer Agency and Fund Accounting Agreements, BISYS Ohio's
fees are computed on the basis of the number of shareholders and a
percentage of the average net assets, respectively.
The Fund has a Plan of Distribution with BISYS (who serves the Fund as
Distributor) under which shares of Class A may directly incur or reimburse
BISYS for expenses related to the distribution and promotion of the Fund.
The annual limitation for payment of such expenses is 0.25% of average daily
net assets attributable to such shares. As the Funds' Distributor, BISYS is
entitled to receive commissions on sales of the Class A Shares. For the six
months ended September 30, 2000, BISYS received $4,907 from commissions
earned on sales of Class A Shares and reallowed $597 to affiliated broker
dealers of the Fund.
-15-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Financial Highlights
Selected data for a share outstanding throughout the periods indicated:
<TABLE>
<CAPTION>
Class Y
---------------------------------------------------------------------
For the Six Year Year Year Year Year
Months Ended Ended Ended Ended Ended Ended
September 30, March 31, March 31, March 31, March 31, March 31,
2000 2000 1999 1998 1997 1996
------------- --------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $ 20.08 $ 11.53 $ 13.66 $ 11.13 $ 11.82 $ 10.99
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment
income/(loss).......... (0.06) (0.16) (0.10) (0.15) (0.09) (0.06)
Net realized/unrealized
gains/(losses) from
investment transactions. (3.85) 9.39 1.07 4.40 (0.19) 3.44
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ (3.91) 9.23 0.97 4.25 (0.28) 3.38
------- ------- ------- ------- ------- -------
Distributions:
Net realized gains from
investments............ -- (0.68) (3.10) (1.72) (0.41) (2.55)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period.............. $ 16.17 $ 20.08 $ 11.53 $ 13.66 $ 11.13 $ 11.82
======= ======= ======= ======= ======= =======
Total Return............. (19.47%)(a) 82.50% 10.82% 39.31% (2.80%) 31.41%
Ratios/Supplementary
Data:
Net Assets, End of the
Period (000's)......... $55,370 $68,417 $38,204 $90,544 $90,137 $95,357
Ratio of net expenses to
average net assets..... 1.40%(b) 1.59% 1.48% 1.29% 1.29% 1.33%
Ratio of net investment
income/(loss) to
average net assets..... (0.71%)(b) (1.18%) (0.67%) (0.95%) (0.67%) (0.58%)
Ratio of expenses to
average net assets*.... 1.45%(b) 1.64% 1.53% 1.34% 1.34% 1.38%
Portfolio Turnover**.... 76% 122% 161% 177% 204% 292%
</TABLE>
------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) Not annualized.
(b) Annualized.
See notes to financial statements.
-16-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Financial Highlights
Selected data for a share outstanding throughout the periods indicated:
<TABLE>
<CAPTION>
Class A
--------------------------------
For the Six October 28, 1999
Months Ended to
September 30, March 31,
2000+ 2000(a)
------------- ----------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period........... $20.18 $12.38
------ ------
Investment Activities:
Net investment income/(loss).................. (0.08) (0.03)
Net realized/unrealized gains/(losses) from
investment transactions...................... (3.87) 8.51
------ ------
Total from Investment Activities............. (3.95) 8.48
------ ------
Distributions:
Net realized gains from investments........... -- (0.68)
------ ------
Net Asset Value, End of Period................. $16.23 $20.18
====== ======
Total Return (excludes sales charge)........... (19.57%)(b) 74.29%(b)
Ratios/Supplementary Data:
Net Assets, End of Period (000's)............. $1,795 $ 54
Ratio of expenses to average net assets....... 1.65%(c) 1.64%(c)
Ratio of net investment income/(loss) to
average net assets........................... (0.89%)(c) (1.42%)(c)
Ratio of expenses to average net assets*...... 1.70%(c) 1.70%(c)
Portfolio Turnover**.......................... 76% 122%
</TABLE>
------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
+ Net investment income/(loss) is based on average shares outstanding during
the period.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-17-
<PAGE>
INVESTMENT ADVISER
Shelby County Trust Bank
P.O. Box 249
Shelbyville, Kentucky 40066
SUB-INVESTMENT ADVISER
SMC Capital, Inc.
4350 Brownsboro Rd.
Suite 310
Louisville, Kentucky 40207
ADMINISTRATOR
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006
AUDITORS
Arthur Andersen LLP
2300 Meidinger Tower
Louisville Galleria
Louisville, Kentucky 40202
This report is for
the information of
shareholders of The
Shelby Fund, but it
may also be used as
sales literature
when preceded or
accompanied by the
current prospectus,
which gives details
about charges,
expenses, investment
objectives, and
operating policies
of the Fund. Read
the prospectus
carefully before
investing or sending
money.
11/00
[LOGO OF THE SHELBY FUND]
Shelby County Trust Bank
Investment Adviser
SMC Capital, Inc.
Sub-Investment Adviser
SEMI-ANNUAL REPORT
TO
SHAREHOLDERS
September 30, 2000
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
