<PAGE>
Message From The Investment Adviser The Shelby Fund
-------------------------------------------------------------------------------
Dear Shareholder:
The past year has been a remarkable period for growth stock investors. An
unprecedented wave of technological innovation has continued to sweep over the
global landscape, transforming industries and rewriting the rules of
investing. The U.S. economy has also continued to defy even the most bullish
expectations, posting record-breaking growth and low inflation.
The Shelby Fund's focus on companies best poised to take advantage of this
"new economy' has resulted in dramatic gains for our shareholders. For the
year ended March 31, 2000, the Shelby Fund returned 82.50% (with no load),
compared to 17.94% for the benchmark S&P 500. In the latest quarter, the
Shelby Fund returned 29.55%, compared to 2.29% for the S&P 500. According to
Lipper, the Fund's latest quarterly performance ranks among the top 10 for all
U.S. multi-cap growth funds out of 403 funds. Equally important, all of the
Fund's longer-term performance records, including 3-, 5-, 10-year and
Lifetime, also outperformed the S&P 500.
Recently, markets have been confronted with a crosscurrent of economic and
financial data. Despite record corporate earnings growth and strong gains in
productivity, the shrinking U.S. labor force, rising trade deficit and
increasing oil prices have fueled inflation and interest rate fears. Since
April 1, 2000, the equity markets have expressed these fears with extreme
volatility and a substantial multiple correction in the growth sector. We
believe a good test of the market's resilience will occur between now and
June, when the Federal Reserve is expected to complete its current series of
rate increases. However, as long as earnings come through as expected and
inflation remains low, we further believe the market can stabilize and recover
from its recent weakness.
Although valuations remain an issue, we continue to be excited about our
investments in technology, telecommunications, biotechnology and other
emerging sectors of the new economy. We have been pleased with the fundamental
progress of our top holdings and anticipated strong growth in the year ahead.
While we will continue to utilize trading strategies that address the
volatility of today's markets, we will also focus our attention on those
companies with the best growth prospects for revenue and earnings over the
next two to three years.
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.
-------------------------------------------------------------------------------
-1-
<PAGE>
The Shelby Fund
--------------------------------------------------------------------------------
Value of a $10,000 Investment**
(Class Y Shares)
Shelby Fund S&P 500 Russell 2000
1/1/81 10000 10000 10000
3/31/81 10380 10596 10869
3/31/82 12405 9226 9287
3/31/83 16646 13287 15028
3/31/84 16456 14457 15416
3/31/85 16835 17189 17448
3/31/86 20949 23697 22915
3/31/87 24051 29860 26372
3/31/88 22848 27420 23045
3/31/89 25380 32378 26033
3/31/90 31899 38576 27475
3/31/91 41203 44124 29341
3/31/92 47721 48999 35508
3/31/93 58291 56459 40783
3/31/94 67025 57276 45272
3/31/95 70276 66199 47764
3/31/96 92353 67412 61656
3/31/97 89762 100119 64542
3/31/98 125044 148273 91659
3/31/99 138580 175644 76759
3/31/2000 252908 207161 105385
Past performance is not predictive of future results.
Average Annual Return**
3/31/00
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year Since Inception
------ ------ ------- ---------------
<S> <C> <C> <C> <C> <C>
Class A (no
load) -- -- -- 74.29% (10/28/1999)
Class A* -- -- -- 60.08% (10/28/1999)
Class Y (no
load) 82.50% 29.19% 23.00% 18.28% (1/1/1981)
</TABLE>
* Reflect 4.75% Sales Charge
** The quoted performance of The Shelby Fund includes performance of certain
common trust funds and collective investment funds (the "Commingled Funds")
which were managed with full investment authority by principals of SMC
Capital, Inc. prior to the establishment of the Fund on July 1, 1994. The
performance of the Commingled Funds has been adjusted to reflect the full
contractual rate of expenses associated with the Fund at its inception. The
assets of the Commingled Funds were converted into assets of the Fund upon
the establishment of the Fund. These Commingled Funds were operated with the
same investment objective and used investment strategies in all material
respects equivalent to those used for the Fund. During the time period of
their existence the Commingled Funds were not registered under the Investment
Company Act of 1940 (the "1940 Act") and therefore were not subject to
certain investment restrictions that are imposed under the 1940 Act. If the
Commingled Funds had been registered under the 1940 Act, the Commingled
Funds' performance may have been adversely affected.
--------------------------------------------------------------------------------
-2-
<PAGE>
The Shelby Fund
-------------------------------------------------------------------------------
The performance of the Fund is measured against the Standard & Poor's 500
Index, an unmanaged index generally representative of the U.S. stock market
and the Russell 2000 Index, an index of small cap stocks. 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.
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 shares, when redeemed, may be worth
more or less than their original cost. The composition of the Fund's holdings
is subject to change.
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.
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 risks, including the possible loss of principal.
For the year ended March 31, 2000, the Fund (class Y shares) ranked 113 out of
368 funds within Lipper's Multi-Cap Growth Funds category. For the 3 and 5-
year periods ending March 31, 2000, the Fund ranked 109 out of 256 and 82 out
of 154, respectively. The Lipper ranking is based on total return and does not
reflect a sales charge.
-------------------------------------------------------------------------------
-3-
<PAGE>
Table of Contents
Report of Independent Public Accountants
Page 5
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Schedule of Portfolio Investments
Page 9
Notes to Financial Statements
Page 11
Financial Highlights
Page 16
-4-
<PAGE>
Report of Independent Public Accountants The Shelby Fund
-------------------------------------------------------------------------------
To the Shareholders and Board of
Trustees of The Shelby Fund of the
Coventry Group:
We have audited the accompanying statement of assets and liabilities of The
Shelby Fund of the Coventry Group (a Massachusetts business trust), including
the schedule of portfolio investments, as of March 31, 2000, and the related
statements of operations and changes in net assets, and financial highlights
for the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of March 31, 2000, by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Shelby Fund as of March 31, 2000, the results of its operations, the changes
in its net assets, and its financial highlights for the periods indicated
thereon, in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
May 8, 2000
-------------------------------------------------------------------------------
-5-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Assets and Liabilities
March 31, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (cost $35,057,144).............................. $65,783,888
Repurchase agreement, at cost......................................... 711,270
-----------
Total investments (cost $35,768,414).............................. 66,495,158
Interest and dividends receivable..................................... 112
Receivables from capital shares issued................................ 83
Receivables from investment securities sold........................... 2,735,898
Prepaid expenses and other assets..................................... 3,615
-----------
Total Assets...................................................... 69,234,866
-----------
<CAPTION>
LIABILITIES:
<S> <C>
Call options written, at value (premiums paid $33,759)................ 5,000
Payable to custodian.................................................. 653,861
Accrued expenses and other payables:
Investment advisory fees............................................ 60,970
Administration fees................................................. 1,446
Distribution fees................................................... 10
Other............................................................... 42,146
-----------
Total Liabilities................................................. 763,433
-----------
<CAPTION>
NET ASSETS:
<S> <C>
Capital............................................................... 33,628,023
Net unrealized appreciation/(depreciation) on investment and option
transactions.......................................................... 30,755,503
Accumulated net realized gains/(losses) on investment and option
transactions.......................................................... 4,087,907
-----------
Net Assets........................................................ $68,471,433
===========
Class Y Shares
Net Assets.......................................................... $68,417,356
Shares outstanding.................................................. 3,407,649
Redemption and offering price per share............................. $20.08
===========
Class A Shares
Net Assets.......................................................... $ 54,077
Shares outstanding.................................................. 2,680
Redemption price per share.......................................... $20.18
===========
Maximum sales charge................................................ 4.75%
Maximum offering price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to the nearest cent) per share......... $21.18
===========
</TABLE>
See notes to financial statements.
-6-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Operations
For the Year Ended March 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income..................................................... $ 91,353
Dividend income..................................................... 93,615
-----------
Total income...................................................... 184,968
-----------
EXPENSES:
Investment advisory fees............................................ 454,916
Administration fees................................................. 90,984
Distribution fees--Class A.......................................... 16
Custodian and accounting fees....................................... 46,092
Legal and audit fees................................................ 53,640
Transfer agent fees................................................. 36,663
Other............................................................... 62,826
-----------
Total expenses before expenses voluntarily reduced................ 745,137
Expenses voluntarily reduced...................................... (22,746)
-----------
Net expenses...................................................... 722,391
-----------
Net investment income/(loss)........................................ (537,423)
-----------
REALIZED/UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS:
Net realized gains/(losses) from investments........................ 7,610,481
Net realized gains/(losses) on options written...................... (112,685)
Net realized gains/(losses) on closed short sales................... (420,613)
Net change in unrealized appreciation/(depreciation) on investments
and options......................................................... 23,030,616
-----------
Net realized/unrealized gains/(losses) from investments and options. 30,107,799
-----------
Change in net assets resulting from operations...................... $29,570,376
===========
</TABLE>
See notes to financial statements.
-7-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, March 31,
2000 1999
----------- ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income/(loss)...................... $ (537,423) $ (328,590)
Net realized gains/(losses) from investment and
option transactions.............................. 7,077,183 17,750,858
Net change in unrealized
appreciation/(depreciation) on investments and
options.......................................... 23,030,616 (16,251,826)
----------- ------------
Change in net assets resulting from operations...... 29,570,376 1,170,442
----------- ------------
DISTRIBUTIONS TO CLASS Y SHAREHOLDERS
From net realized gains from investment and option
transactions..................................... (2,138,694) (17,033,347)
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) (17,033,347)
----------- ------------
CAPITAL TRANSACTIONS:
CLASS Y SHARES
Proceeds from shares issued....................... 8,147,253 2,812,242
Dividends reinvested.............................. 2,136,154 17,015,660
Cost of shares redeemed........................... (7,498,130) (56,305,134)
----------- ------------
Class Y capital transactions........................ 2,785,277 (36,477,232)
----------- ------------
CLASS A SHARES
Proceeds from shares issued....................... 50,355 --
Dividends reinvested.............................. 103 --
----------- ------------
Class A capital transactions........................ 50,458 --
----------- ------------
Change in net assets from capital transactions...... 2,835,735 (36,477,232)
----------- ------------
Change in net assets................................ 30,267,314 (52,340,137)
NET ASSETS:
Beginning of year................................. 38,204,119 90,544,256
----------- ------------
End of year....................................... $68,471,433 $ 38,204,119
=========== ============
SHARE TRANSACTIONS:
CLASS Y SHARES
Issued............................................ 482,860 249,362
Reinvested........................................ 149,906 1,718,753
Redeemed.......................................... (539,394) (5,280,738)
----------- ------------
Change in Class Y shares............................ 93,372 (3,312,623)
----------- ------------
CLASS A SHARES
Issued............................................ 2,673 --
Reinvested........................................ 7 --
----------- ------------
Change in Class A shares............................ 2,680 --
----------- ------------
Change in total shares.............................. 96,052 (3,312,623)
=========== ============
</TABLE>
See notes to financial statements.
-8-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments
March 31, 2000
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks (96.1%):
Advertising (1.1%):
800 Grey Advertising, Inc.................................. $ 327,200
10,000 Lamar Advertising Co.(b)............................... 455,000
-----------
782,200
-----------
Audio/Video Products (10.7%):
10,000 Gemstar International Group Ltd(b)..................... 860,000
52,000 Sandisk Corp.(b)....................................... 6,370,000
-----------
7,230,000
-----------
Banks (1.5%):
15,000 Commerce Bancorp, Inc.(c).............................. 555,000
53,900 Pointe Financial Corp.................................. 451,413
-----------
1,006,413
-----------
Cable TV (2.5%):
11,000 Cablevision Systems Corp.(b)(c)........................ 668,250
12,600 Comcast Corp. Class A(b)(c)............................ 519,750
12,600 Comcast Corp. Special Class A(b)(c).................... 546,525
-----------
1,734,525
-----------
Circuits (2.1%):
20,000 Maxim Integrated Products, Inc.(b)..................... 1,421,250
-----------
Computer Graphics (1.0%):
20,000 Pixar, Inc.(b)......................................... 713,750
-----------
Computer Services (4.1%):
40,000 Checkfree Holdings Corp.(b)(c)......................... 2,820,000
-----------
Computer Software (9.1%):
40,000 Cisco Systems, Inc.(b)(c).............................. 3,092,500
10,000 Inktomi Corp.(b)....................................... 1,950,000
11,000 Microsoft Corp.(b)(c).................................. 1,168,750
-----------
6,211,250
-----------
Electronic Components--Semiconductors (18.6%):
8,000 Applied Micro Circuits Corp.(b)........................ 1,200,500
30,000 Broadcom Corp. Class A(b).............................. 7,286,249
28,500 Infineon Technologies--ADR(b).......................... 1,636,969
15,000 National Semiconductor Corp.(b)........................ 909,375
20,000 Xilinx, Inc.(b)........................................ 1,656,250
-----------
12,689,343
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks, continued:
Fiber Optics (3.7%):
3,700 Avanex Corp.(b)........................................ $ 561,475
10,000 Corning, Inc........................................... 1,940,000
-----------
2,501,475
-----------
Financial Services (0.1%):
50,000 Towne Services, Inc.(b)................................ 87,500
-----------
Food Products & Services (0.2%):
45,000 Marketing Specialists Corp.(b)......................... 123,750
-----------
Internet Content (0.9%):
10,000 At Home Corp.(b)....................................... 329,375
24,000 High Speed Access Corp.(b)............................. 313,500
-----------
642,875
-----------
Internet Software (1.6%):
10,000 Bluestone Software, Inc.(b)............................ 337,500
15,000 BroadVision, Inc.(b)................................... 673,125
10,000 Onemain.Com, Inc.(b)................................... 113,125
-----------
1,123,750
-----------
Medical--Biomedical (1.0%):
7,500 Incyte Pharmaceuticals, Inc.(b)........................ 652,500
-----------
Multimedia (2.5%):
25,000 Clear Channel Communications, Inc.(b)(c)............... 1,726,563
-----------
Networking Products (3.6%):
30,000 Network Appliance, Inc.(b)............................. 2,482,500
-----------
Office Supplies, Automation & Equipment (0.6%):
20,000 Staples, Inc.(b)(c).................................... 400,000
-----------
Printers & Related Products (2.3%):
15,000 Lexmark International Group, Inc.(b)................... 1,586,250
-----------
Radio (2.2%):
2,000 Emmis Communications Corp.(b).......................... 93,000
42,800 Infinity Broadcasting Corp.(b)......................... 1,385,650
-----------
1,478,650
-----------
Satellite Telecom (5.1%):
6,800 Adaptive Broadband Corp.(b)............................ 363,800
40,000 Echostar Communications Corp.--A(b).................... 3,160,000
-----------
3,523,800
-----------
</TABLE>
Continued
-9-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments, Continued
March 31, 2000
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------- -----------
<C> <S> <C>
Common Stocks, continued:
Security Services (0.1%):
10,000 Wackenhut Corp.(b)..................................... $ 100,625
-----------
Software & Computer Services (2.3%):
20,000 Mercury Interactive Corp.(b)........................... 1,585,000
-----------
Telecommunications (2.7%):
6,000 IMPSAT Fiber Networks, Inc.(b)......................... 168,000
10,000 Nextel Communications, Inc. Class A(b)................. 1,482,500
10,000 Young Broadcasting Inc.--A(b).......................... 190,000
-----------
1,840,500
-----------
Telecommunications Equipment (10.7%):
30,000 American Tower Corp.(b)................................ 1,481,250
12,100 Natural MicroSystems Corp.(b).......................... 1,037,575
5,000 QUALCOMM, Inc.(b)...................................... 746,563
108,000 Tekelec, Inc.(b)....................................... 4,009,500
-----------
7,274,888
-----------
Therapeutics (0.5%):
7,500 Trimeris, Inc.(b)...................................... 374,531
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal Security
Amount Description Value
--------- ------------------------------------------------------ -----------
<C> <S> <C>
Common Stocks, continued:
Wholesale & International Trade (1.5%):
20,000 Costco Wholesale Corp.(b)............................. $ 1,051,250
-----------
Wireless Equipment (3.8%):
50,000 Digital Microwave Corp.(b)............................ 1,693,750
50,000 P-Com, Inc.(b)........................................ 925,000
-----------
2,618,750
-----------
Total Common Stocks 65,783,888
-----------
Repurchase Agreement (1.0%):
$711,270 Fifth Third Bank, 5.65%, 4/3/00, (Collateralized by
$730,000 Government National Mortgage Association,
6.50%, 8/15/13, market value $730,000)............... 711,270
-----------
Total Repurchase Agreement 711,270
-----------
Total Investments (Cost $35,768,414) (a)--97.1% 66,495,158
-----------
Other assets in excess of liabilities--2.9% 1,976,275
-----------
TOTAL NET ASSETS--100.0% $68,471,433
===========
</TABLE>
------
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$48,415. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $33,502,846
Unrealized depreciation.. (2,795,758)
-----------
Net unrealized
appreciation............. $30,707,088
===========
</TABLE>
(b) Represents non-income producing securities.
(c) Security is held as collateral for short sales.
<TABLE>
<CAPTION>
Number of
Contracts Premiums
--------- --------
<S> <C> <C>
Options outstanding at end of
period consist of:
Clear Channel Communications, Inc.,
$4.22, 4/22/00..................... 80 $33,759
</TABLE>
ADR American Depositary Receipt
See notes to financial statements.
-10-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements
March 31, 2000
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 March 31, 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, commercial paper, 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 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
March 31, 2000
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
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, in anticipation of a decline in the market value of that
security. The Fund may engage only 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 March 31, 2000, there were no
securities sold short.
Options Transactions:
When the Fund writes a covered 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
Continued
-12-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
March 31, 2000
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.
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. Written and
purchased options are non-income producing securities.
Written Option Activity:
<TABLE>
<CAPTION>
Call Options Put Options
--------------------- -------------------
Number of Number of
Contracts Premiums Contracts Premiums
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of year.... -- $ -- -- $ --
Options written................. 672 1,110,647 130 544,342
Options closed.................. (500) (1,067,964) (30) (455,895)
Options expired................. (92) (8,924) -- --
Options exercised............... -- -- (100) (88,447)
---- ----------- ---- ---------
Options outstanding at end of
year............................ 80 $ 33,759 -- $ --
==== =========== ==== =========
</TABLE>
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.
During the year ended March 31, 2000, the Fund has reclassified $539,806
from accumulated undistributed net realized gains to accumulated
undistributed net investment income and $130,795 from
Continued
-13-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
March 31, 2000
accumulated undistributed net realized gains to capital in compliance
with Statement of Position 93-2, "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies". These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to certain differences in the computation of net investment
income, capital gains and distributions under federal tax rules and
generally accepted accounting principles.
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
year ending March 31, 2000 were $55,257,272 and $54,267,616, 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. are
subsidiaries of The BISYS Group, Inc.
BISYS, 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' fees are computed
daily as a percentage of the average net assets of the Fund. For the year
ended March 31, 2000, BISYS voluntarily reduced its administration fees by
$22,746.
BISYS Fund Services Ohio, Inc. (the "Company"), serves the Fund as Transfer
Agent and Fund Accountant. Under the terms of the Transfer Agency and Fund
Accounting Agreements, the Company's fees are computed on the basis of the
number of shareholders and average net assets, respectively.
Continued
-14-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Notes to Financial Statements, Continued
March 31, 2000
The Fund has a Plan of Distribution with BISYS under which shares of Class A
may directly incur or reimburse BISYS for expenses related to the
distribution and promotion. The annual limitation for payment of such
expenses is 0.25% of average daily net assets attributable to such shares.
5. Federal Tax Information (Unaudited):
During the fiscal year ended March 31, 2000, the Fund declared long-term
capital gain distributions in the amount of $911,337.
For corporate shareholders, 2.07% of the total ordinary income distributions
paid during the fiscal year ended March 31, 2000 qualifies for the corporate
dividends received deduction.
-15-
<PAGE>
THE COVENTRY GROUP
THE SHELBY FUND
Financial Highlights
Selected data for a share outstanding throughout the periods indicated:
<TABLE>
<CAPTION>
Class Y
-----------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year....... $ 11.53 $ 13.66 $ 11.13 $ 11.82 $ 10.99
------- ------- ------- ------- -------
Investment Activities:
Net investment
income/(loss)........... (0.16) (0.10) (0.15) (0.09) (0.06)
Net realized/unrealized
gains/(losses) from
investment transactions. 9.39 1.07 4.40 (0.19) 3.44
------- ------- ------- ------- -------
Total from Investment
Activities............ 9.23 0.97 4.25 (0.28) 3.38
------- ------- ------- ------- -------
Distributions:
Net investment
income/(loss)........... -- -- -- -- --
Net realized
gains/(losses) from
investments............ (0.68) (3.10) (1.72) (0.41) (2.55)
------- ------- ------- ------- -------
Net Asset Value, End of
Year..................... $ 20.08 $ 11.53 $ 13.66 $ 11.13 $ 11.82
======= ======= ======= ======= =======
Total Return............. 82.50% 10.82% 39.31% (2.80)% 31.41%
Ratios/Supplementary
Data:
Net Assets, End of Year
(000's)................ $68,417 $38,204 $90,544 $90,137 $95,357
Ratio of net expenses to
average net assets..... 1.59% 1.48% 1.29% 1.29% 1.33%
Ratio of net investment
income/(loss) to
average net assets..... (1.18%) (0.67%) (0.95%) (0.67%) (0.58%)
Ratio of expenses to
average net assets*.... 1.64% 1.53% 1.34% 1.34% 1.38%
Portfolio Turnover...... 122.25% 161.45% 176.66% 204.06% 292.28%
</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.
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
October 28, 1999
to
March 31,
2000(a)
----------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $12.38
------
Investment Activities:
Net investment income/(loss)................................. (0.03)
Net realized/unrealized gains/(losses) from
investment transactions..................................... 8.51
------
Total from Investment Activities............................ 8.48
------
Distributions:
Net realized gains/(losses) from investments................. (0.68)
------
Net Asset Value, End of Period................................ $20.18
======
Total Return (excludes sales charge).......................... 74.29%(b)
Ratios/Supplementary Data:
Net Assets, End of Period (000's)............................ $ 54
Ratio of expenses to average net assets...................... 1.64%(c)
Ratio of net investment income/(loss) to average net assets.. (1.42%)(c)
Ratio of expenses to average net assets*..................... 1.70%(c)
Portfolio Turnover........................................... 122.25%(c)
</TABLE>
------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
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 AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
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 Funds. Read
the prospectus
carefully before
investing or sending
money.
5/00
LOGO
THE SHELBY FUND
Shelby County Trust Bank
Investment Adviser
SMC Capital, Inc.
Sub-Investment Adviser
ANNUAL REPORT
TO
SHAREHOLDERS
March 31, 2000
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
