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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-6526
COVENTRY GROUP
(Exact name of registrant as specified in charter)
3435 STELZER ROAD
COLUMBUS, OH 43219
(Address of principal executive offices)
BISYS FUND SERVICES
3435 STELZER ROAD
COLUMBUS, OH 43219
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-766-8938
Date of fiscal year end: MARCH 31, 2004
Date of reporting period: MARCH 31, 2004
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Include a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1).
ANNUAL REPORT
[MONOGRAM LOGO]
ANNUAL REPORT
MARCH 31, 2004
NOTICE TO INVESTORS
SHARES OF 1ST SOURCE MONOGRAM FUNDS(SM):
--------------------------------------------------------------------------
- ARE NOT FDIC INSURED - MAY LOSE VALUE - HAVE NO BANK GUARANTEE
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TABLE OF CONTENTS
1ST SOURCE MONOGRAM FUNDS
ANNUAL REPORT--MARCH 31, 2004
Letter from the Investment Advisor ..................... 1
Income Equity Fund ..................................... 3
Diversified Equity Fund ................................ 11
Special Equity Fund .................................... 19
Income Fund ............................................ 27
Long/Short Fund ........................................ 35
Notes to Financial Statements .......................... 41
Report of Independent Registered Public Accounting Firm 45
Additional Information ................................. 46
Trustees ............................................... 47
LETTER FROM THE INVESTMENT ADVISOR
DEAR INVESTOR:
We are pleased to present this report for the 12-month period ended March 31,
2004. Economic growth was very strong during the period, powering stock-market
gains. Bonds traded in a very narrow range, and produced modest returns.
The economy benefited from ongoing strength in consumer spending. Consumers
continued a multi-year trend, taking advantage of low interest rates to
refinance their mortgages and free up cash. Business spending began to increase
as well, which helped produce much greater-than-expected gross domestic product
growth during the third calendar quarter of 2003 and solid expansion during the
six months through March. Corporate profits rose considerably during the period,
and generally came in well above analysts' expectations.
Those positive trends persisted despite some negative factors that weighed on
the economy. Job growth remained very low, despite the strong economic recovery.
Corporations focused on restoring profits, and therefore put off large hiring
programs. Furthermore, companies chose to increase productivity by using
technology and to some extent by outsourcing labor to countries where
compensation levels are significantly lower than in the U.S. Other negative
factors included rising prices for oil and other commodities, in part because of
strong demand for such materials from China.
SMALL CAPS LEAD A STOCK RALLY
Shares of small and medium-sized firms led a powerful stock market surge. Larger
stocks trailed their smaller cousins, but still produced solid gains. Value and
growth investing produced similar performances in every marketcap segment.
Stock-market performance was strongest during the early months of the period.
Investors showed increased appetite for risk, bidding up stocks that had
languished during the bear market--including shares of firms with weak
earnings and balance sheets. Market sentiment shifted in November, when
investors moved assets into larger stocks with lower valuations and
more-reliable business models. Stocks were relatively flat during the first
calendar quarter of 2004, as investors tried to gauge the direction of interest
rates and the economy. The recent period marked the third consecutive year that
small-cap stocks outperformed large-cap stocks. The small-cap rally appears to
have eliminated the valuation discount those stocks offered following the bull
market of the 1990s.
Technology stocks led the market. Increased business spending helped improve the
outlook for profits in that sector, and investors took advantage of relatively
attractive valuations following the bear market. Shares of health-care services
firms, orthopedics manufacturers, generic-drug makers, and biotechnology
companies all generated strong gains, but sluggish performance from large
pharmaceutical firms dragged down the health-care sector as a whole. Large drug
makers suffered as investors worried about the potential for increased
regulation and price pressure from generic drugs.
Cyclical stocks benefited from the economic rebound, while financial services
firms enjoyed the benefits of low interest rates and the surging stock market.
Meanwhile, energy and commodity stocks got a boost from rising prices of oil,
gas, and other materials. Consumer staples shares lagged the market, as
investors favored higher-growth sectors.
LOW QUALITY LEADS THE BOND MARKET
Low-quality bonds led the fixed-income market during the 12 months through
March. Investors favored the significant yield premium low-quality bonds offered
over Treasuries, especially since the growing economy improved many firms'
financial prospects. Short-term Treasury bonds were stable, anchored by the
Fed's decision to maintain low interest rates. Yields on longer-term bonds were
volatile, as investors tried to gauge changing data that might offer guidance
about the direction of Federal Reserve policy, inflation, and economic growth.
Mortgage-backed securities trailed the market, as low mortgage rates increased
pre-payment risk for those issues.
1
LETTER FROM THE INVESTMENT ADVISOR, CONTINUED
GOING FORWARD
We believe the global economy may continue its recovery during the coming year.
Data indicates that job growth is beginning to accelerate. Meanwhile, interest
rates remain low and corporate earnings continue to gain strength. We believe
that the Federal Reserve Board will keep short-term interest rates low until it
sees significant new job growth or signs of rising inflation. Rising commodity
prices do provide some inflationary pressure, but low labor costs should offset
that pressure and restrain inflation over the near term.
That environment should allow the stock market to gain ground, albeit at a
slower rate than during the past year's rally. Valuations remain reasonable
compared to interest rates, and very low yields on money market securities and
other fixed-income issues make stocks relatively attractive. Demand for stocks
should remain strong: Money flows into equity mutual funds are growing, and
large pension funds seek returns that they can only find in the stock market.
Federal Reserve policy should keep yields low on the short end of the yield
curve. We believe yields on longer-term bonds may rise to reflect the increased
potential for inflation and continued economic growth. That environment could
result in a steep yield curve in the bond market.
The Monogram Funds will continue to practice the conservative asset-management
strategies that have benefited shareholders through various market cycles. We
will continue to analyze global economic trends and industry conditions in order
to select securities that represent the best balance of risk and expected return
for our Funds' portfolios. We continue to believe that diversification among a
variety of stocks and bonds is the best approach for building financial security
especially given the volatility of today's financial markets.
As part of our effort to provide clients with innovative and appropriate
investment vehicles, the Monogram family added the Monogram Long/Short Fund on
August 1, 2003. The objective of that Fund is to produce moderate but steady
returns through all market conditions, by buying undervalued stocks and short
selling overvalued stocks. Investment in shares of the Fund are more volatile
and risky than some other forms of investment. Since the Fund has both a long
and a short portfolio, investments will involve risks associated with twice the
number of investment decisions made for a typical stock fund. These types of
funds typically have a high portfolio turnover that could increase transaction
costs and cause short-term capital gains to be realized. While it may be the
intent of the manager to take long positions in stocks that outperform the
market and short positions in stocks that underperform the market there is no
assurance that the manager will be successful.
Thank you for your confidence in the Monogram Funds. We look forward to
providing you with investment management services in the years to come. If you
have any questions or require assistance, please do not hesitate to contact your
account representative or to call the Monogram Funds directly at 1-800-766-8938.
Sincerely,
Ralph C. Shive CFA
Paul W. Gifford CFA
Kevin A. Carey CFA
Philip G. Robert
Michael L. Shinnick
Jason W. Cooper
The foregoing information and opinions are for general information only. First
Source Bank does not assume liability for any loss, which may result from the
reliance by any person upon any such information or opinions. Such information
and opinions are subject to change without notice, are for general information
only and are not intended as an offer or solicitation with respect to the
purchase or sale of any security or offering individual or personalized
investment advice.
2
1ST SOURCE MONOGRAM FUNDS
INCOME EQUITY FUND
RALPH C. SHIVE, CFA
INVESTMENT CONCERNS
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes. Common stocks, and funds
investing in common stocks, generally provide greater return potential when
compared with other types of investments.
Q. HOW DID THE INCOME EQUITY FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE
12 MONTH PERIOD ENDED MARCH 31, 2004?
A. The Fund gained 40.48% during the period. That compared to a 40.82% return
for the Russell 1000(R) Value Index and a 35.57% return for the Lipper
Equity Income Funds Index.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA
QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR
HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-766-8938.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The broad stock market produced very strong gains during the 12 months
through March, helping to power solid returns for the Fund. Investors
encouraged by an improving economy shifted money into stocks, particularly
into shares of small and mid-cap firms. Meanwhile, low bond yields caused
income-seeking investors to favor dividend-yielding stocks over
fixed-income securities. We believe that trend helped boost returns for
income-oriented funds such as this one.
Several factors contributed to the Fund's slight underperformance compared
to its benchmark index. Our decision to over-weight shares of cyclical
firms helped to boost returns, as investors anticipating a strong economic
recovery bid up prices of those stocks. Toward the end of the period we
began to trim the Fund's stake in some types of cyclical stocks that had
become relatively expensive. We held an overweight position in energy
stocks, which enjoyed strong performance due to rising oil and gas prices
during the period. Some of the strongest performers in the energy sector
included firms that were just beginning to emerge from financial
difficulties. We invested in those stocks when they were depressed, and
benefited as investors became more confident in the firms' prospects.
The Fund also benefited from our decision to enhance the core portfolio
with investments in some stocks that do not pay dividends, including a
generic-drug stock that performed exceptionally well. Additionally our
decision to hold an over-weight position in mid-cap stocks also helped
performance.
We continued to hold a smaller technology stake than the benchmark--as
we have for the past several years--because few technology companies pay
dividends and we believe valuations in the sector are high. Technology
stocks performed well during the period, so the Fund's underweight
position hampered returns against the benchmark. We also held a relatively
small stake in financial-services stocks, due to our belief that slower
mortgage-refinancing activity would hurt such shares. But refinancing
remained high and financial-services stocks performed well, dragging on
the Fund's relative returns. We did add to the Fund's stake in shares of
brokerage firms, which benefited from the rising stock market.
The composition of the Fund's portfolio is subject to change.
3
1ST SOURCE MONOGRAM FUNDS
INCOME EQUITY FUND
[LINE GRAPH]
Russell 1000(R) Value Index Income Equity Fund
3/94 10000 10000
10062 9653
10319 10213
10156 9787
3/95 11121 10387
12118 10507
13176 11787
14051 12320
3/96 14846 12813
15102 13147
15541 13427
17091 14487
3/97 17529 14702
20113 16743
22117 18417
23104 18477
3/98 25798 20154
25913 19782
22911 17617
26715 19363
3/99 27098 19789
30154 22520
27200 20392
28678 21759
3/00 28815 22034
27465 21263
29625 23272
30690 25401
3/04 28893 24569
30303 25936
26984 23902
28974 26249
3/04 30159 27510
27590 26102
22411 21147
24476 23303
3/04 23285 21827
27308 25272
27872 26255
31826 30258
3/04 32791 30662
AVERAGE ANNUAL TOTAL RETURN
AS OF 3/31/04
1 YEAR 5 YEAR 10 YEAR
INCOME EQUITY FUND 40.48% 9.15% 11.86%
RUSSELL 1000(R) VALUE INDEX 40.82% 3.89% 12.61%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL 1-800-766-8938.
The chart represents a hypothetical investment of $10,000 in the 1st Source
Monogram Income Equity Fund from 3/31/94 to 3/31/04, and represents the
reinvestment of dividends and capital gains in the Fund.
The quoted performance of the 1st Source Monogram Income Equity Fund includes
performance of certain collective trust fund ("Commingled") accounts advised by
1st Source Bank that had investment objectives and policies substantially
similar to those of the Fund for periods dating back to 11/30/85, and prior to
the mutual fund's commencement of operations on 9/25/96, as adjusted to reflect
the expenses associated with the mutual fund. The Commingled accounts were not
registered with the Securities & Exchange Commission and, therefore, were not
subject to the investment restrictions imposed by law on registered mutual
funds. If the Commingled accounts had been registered, the Commingled accounts'
performance may have been adversely affected.
The Fund's performance is measured against the Russell 1000(R) Value Index, an
unmanaged index that tracks the performance of 1000 securities found in the
Russell universe with a less-than-average growth orientation. Securities in this
index generally have lower price-to-book and price-to-earnings ratios, higher
dividend yields and lower forecasted growth values than the Growth Universe.
This index is unmanaged and does not reflect the deduction of fees or taxes
associated with a mutual fund, such as investment management and fund accounting
fees. The performance of the Fund reflects the deduction of fees for these
value-added services.
The Lipper Equity Income Funds Index consists of funds that seek relatively high
current income and growth of income by investing at least 65% of their
portfolios in dividend-paying equity securities. Lipper is an independent mutual
fund performance monitor whose results are based on total return and do not
reflect a sales charge.
Investors cannot invest directly in the above described indices, although they
can invest in their underlying securities or funds.
The above information is not covered by the Report of Independent Registered
Public Accounting Firm.
4
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INCOME EQUITY FUND MARCH 31, 2004
COMMON STOCKS - 87.2%
SECURITY DESCRIPTION SHARES VALUE ($)
- ---------------------------------------- ------ ----------
BASIC MATERIALS - 17.5%
Alcoa, Inc. ............................ 25,000 867,250
Allegheny Technologies, Inc. ........... 90,000 1,089,000
Anglo American PLC, ADR ................ 45,100 1,096,832
Carpenter Technology Corp. ............. 35,000 1,150,800
Dow Chemical Co. ....................... 31,000 1,248,680
Eastman Chemical Co. ................... 30,000 1,280,400
Olin Corp. ............................. 45,000 803,250
Plum Creek Timber Co., Inc. ............ 20,000 649,600
Potash Corp. of
Saskatchewan, Inc. ................... 14,000 1,164,380
RPM, Inc. .............................. 60,000 992,400
Sappi Ltd. ADR ......................... 30,000 409,500
Schulman, Inc. ......................... 40,000 786,000
Sherwin-Williams Co. ................... 30,000 1,152,900
Temple-Inland, Inc. .................... 18,000 1,140,120
----------
13,831,112
----------
COMMUNICATIONS - 5.4%
Andrew Corp. (b) ....................... 29,000 507,500
Belo Corp., Series A ................... 42,000 1,165,920
Harris Corp. ........................... 30,000 1,452,300
Tribune Co. ............................ 23,000 1,160,120
----------
4,285,840
----------
CONSUMER CYCLICALS - 6.3%
Brown Shoe Company, Inc. ............... 27,600 1,005,468
General Motors Corp. ................... 20,000 942,000
Grainger (W.W.), Inc. .................. 25,000 1,200,000
Longs Drug Stores Corp. ................ 50,000 941,500
Newell Rubbermaid, Inc. ................ 38,000 881,600
----------
4,970,568
----------
CONSUMER NON-CYCLICAL - 9.3%
Archer-Daniels-Midland Co. ............. 75,000 1,265,250
Avery-Dennison Corp. ................... 15,000 933,150
Avon Products, Inc. .................... 15,000 1,138,050
H.J. Heinz Co. ......................... 27,000 1,006,830
Kimberly-Clark Corp. ................... 15,000 946,500
McKesson Corp. ......................... 35,000 1,053,150
Supervalu, Inc. ........................ 33,000 1,007,820
----------
7,350,750
----------
ENERGY - 11.4%
Anadarko Petroleum Corp. ............... 31,000 1,607,660
GlobalSantaFe Corp. .................... 48,000 1,332,960
Halliburton Co. ........................ 33,000 1,002,870
Hugoton Royalty Trust .................. 31,000 681,070
Marathon Oil Corp. ..................... 45,000 1,515,150
National Fuel Gas ...................... 35,000 861,000
Unocal Corp. ........................... 30,000 1,118,400
Williams Cos., Inc. .................... 95,000 909,150
----------
9,028,260
----------
FINANCIAL - 9.3%
A.G. Edwards, Inc. ..................... 40,000 1,564,800
Hospitality Properties Trust ........... 14,100 654,240
Keycorp ................................ 28,000 848,120
Lincoln National Corp. ................. 25,000 1,183,000
Old National Bancorp ................... 59,661 1,348,339
St. Paul Cos. .......................... 32,000 1,280,320
Waddell & Reed Financial, Inc. ......... 20,000 490,400
----------
7,369,219
----------
HEALTH CARE - 4.9%
Abbott Laboratories .................... 21,000 863,100
Bristol-Myers Squibb Co. ............... 34,000 823,820
King Pharmaceuticals, Inc. (b) ......... 30,000 505,200
Merck & Co., Inc. ...................... 21,000 927,990
Sunrise Assisted
Living, Inc. (b) ..................... 20,000 717,000
----------
3,837,110
----------
INDUSTRIALS - 14.9%
Avnet, Inc. (b) ........................ 38,000 930,620
Emerson Electric Co. ................... 14,000 838,880
Honeywell International, Inc. .......... 40,000 1,354,000
Intermet Corp. ......................... 70,932 319,194
Pall Corp. ............................. 40,000 907,600
Parker-Hannifin Corp. .................. 24,000 1,356,000
Raytheon Co. ........................... 30,000 940,200
Regal-Beloit Corp. ..................... 17,100 341,658
Ryder System, Inc. ..................... 29,000 1,123,170
Shaw Group, Inc. (b) ................... 55,000 596,200
Sonoco Products Co. .................... 50,000 1,214,000
Stewart & Stevenson
Services, Inc. ....................... 53,000 774,860
Waste Management, Inc. ................. 35,000 1,056,300
----------
11,752,682
----------
TECHNOLOGY - 3.7%
Diebold, Inc. .......................... 25,000 1,203,000
Electronic Data Systems Corp. .......... 40,000 774,000
Hewlett-Packard Co. .................... 42,000 959,280
----------
2,936,280
----------
UTILITIES - 4.5%
American Electric Power ................ 29,000 954,680
Centerpoint Energy, Inc. ............... 70,000 800,100
NiSource, Inc. ......................... 45,000 956,250
Southwest Gas Corp. .................... 35,900 840,060
----------
3,551,090
----------
TOTAL COMMON STOCKS .................... 68,912,911
----------
PREFERRED STOCKS - 1.7%
ENERGY - 0.8%
El Paso Corp., 9.00%, 8/16/05 .......... 21,000 611,100
----------
HEALTH CARE - 0.9%
Baxter International, Inc.,
7.00%, 2/16/06 ....................... 14,000 756,000
----------
TOTAL PREFERRED STOCKS ................. 1,367,100
----------
Continued
5
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INCOME EQUITY FUND MARCH 31, 2004
CONVERTIBLE BONDS - 1.9%
PRINCIPAL
SECURITY DESCRIPTION AMOUNT ($) VALUE ($)
- ---------------------------------- ---------- ---------
HEALTH CARE - 1.9%
Ivax Corp., 5.50%, 5/15/07 ....... 900,000 919,125
Sunrise Assisted Living, Inc.,
5.25%, 2/1/09 (c) .............. 500,000 596,875
---------
TOTAL CONVERTIBLE BONDS .......... 1,516,000
---------
INVESTMENT COMPANIES - 9.1%
SECURITY DESCRIPTION SHARES VALUE ($)
- ---------------------------------- --------- ----------
Fifth Third Prime
Money Market Fund .............. 7,158,558 7,158,558
----------
TOTAL INVESTMENT COMPANIES ....... 7,158,558
----------
TOTAL INVESTMENTS
(COST $65,183,115) (a) - 99.9% . 78,954,569
==========
Percentages indicated are based on net assets of $79,034,282.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of gains recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $7,769. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows:
Unrealized appreciation ...... $14,566,617
Unrealized depreciation ...... (787,394)
-----------
Net unrealized appreciation .. $13,779,223
===========
(b) Represents non-income producing security.
(c) Security exempt from registration under Rule 144a of the Securities Act of
1933.
ADR - American Depositary Receipt
See notes to financial statements
6
1ST SOURCE MONOGRAM FUNDS
INCOME EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2004
ASSETS:
Investments, at value (cost $65,183,115) ..... $78,954,569
Interest and dividends receivable ............ 155,715
Prepaid expenses ............................. 11,472
-----------
TOTAL ASSETS ............................. 79,121,756
LIABILITIES:
Accrued expenses and other payables:
Investment advisory ........................ $ 52,738
Administration ............................. 15,757
Other ...................................... 18,979
--------
TOTAL LIABILITIES ........................ 87,474
-----------
NET ASSETS ................................... $79,034,282
===========
COMPOSITION OF NET ASSETS:
Capital ...................................... $64,355,963
Undistributed net investment income .......... 29,997
Accumulated net realized gains
from investment transactions ............... 876,868
Unrealized appreciation
from investments ........................... 13,771,454
-----------
NET ASSETS ................................... $79,034,282
===========
Shares Outstanding (par value $0.01,
unlimited number of authorized shares) ..... 6,498,895
===========
Net Asset Value, Offering and Redemption
Price per share ............................ $ 12.16
===========
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2004
INVESTMENT INCOME:
Interest ....................................... $ 81,238
Dividend ....................................... 1,705,106
-----------
TOTAL INVESTMENT INCOME: ..................... 1,786,344
EXPENSES:
Investment advisory ............................ $528,968
Administration ................................. 132,243
Distribution ................................... 165,303
Accounting ..................................... 27,536
Custodian ...................................... 6,434
Transfer agent ................................. 36,416
Trustee ........................................ 2,770
Other .......................................... 65,080
--------
Total expenses before fee reductions ......... 964,750
Distribution fees voluntarily reduced ........ (165,303)
-----------
NET EXPENSES ................................. 799,447
-----------
NET INVESTMENT INCOME ............................ 986,897
-----------
NET REALIZED/UNREALIZED GAINS FROM INVESTMENTS:
Realized gains from
investment transactions ........................ 1,900,037
Change in unrealized appreciation
(depreciation) from investments ................ 18,280,817
-----------
Net realized/unrealized gains
from investments ............................... 20,180,854
-----------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ $21,167,751
===========
See notes to financial statements.
7
1ST SOURCE MONOGRAM FUNDS
INCOME EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
MARCH 31,
----------------------------
2004 2003
------------ ------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income ............................................. $ 986,897 $ 967,660
Realized gains (losses) from investment transactions .............. 1,900,037 (356,354)
Change in unrealized appreciation (depreciation) from investments.. 18,280,817 (13,333,146)
------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS ...................... 21,167,751 (12,721,840)
------------ ------------
DISTRIBUTIONS:
From net investment income ........................................ (955,187) (965,688)
From net realized gains ........................................... (693,121) (473,517)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DISTRIBUTIONS ................. (1,648,308) (1,439,205)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ....................................... 16,785,531 22,935,710
Dividends reinvested .............................................. 1,494,358 1,325,327
Cost of shares redeemed ........................................... (11,168,042) (14,677,688)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ................ 7,111,847 9,583,349
------------ ------------
CHANGE IN NET ASSETS ................................................ 26,631,290 (4,577,696)
------------ ------------
NET ASSETS:
Beginning of period ............................................... 52,402,992 56,980,688
------------ ------------
End of period ..................................................... $ 79,034,282 $ 52,402,992
============ ============
SHARE TRANSACTIONS:
Issued ............................................................ 1,500,369 2,315,014
Reinvested ........................................................ 133,680 137,900
Redeemed .......................................................... (1,043,058) (1,505,994)
------------ ------------
CHANGE IN SHARES .................................................... 590,991 946,920
============ ============
Undistributed net investment income ................................. $ 29,997 $ 18,936
============ ============
See notes to financial statements.
8
1ST SOURCE MONOGRAM FUNDS
INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD ......................... $ 8.87 $ 11.49 $ 10.87 $ 10.77 $ 11.00
------- ------- ------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income ..................................... 0.17 0.18 0.17 0.17 0.25
Net realized and unrealized gains
(losses) from investments ............................... 3.39 (2.53) 1.07 1.03 0.94
------- ------- ------- ------- -------
Total from investment activities .......................... 3.56 (2.35) 1.24 1.20 1.19
------- ------- ------- ------- -------
DISTRIBUTIONS:
Net investment income ..................................... (0.16) (0.18) (0.17) (0.19) (0.26)
Net realized gains ........................................ (0.11) (0.09) (0.45) (0.91) (1.16)
------- ------- ------- ------- -------
Total distributions ....................................... (0.27) (0.27) (0.62) (1.10) (1.42)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ............................... $ 12.16 $ 8.87 $ 11.49 $ 10.87 $ 10.77
======= ======= ======= ======= =======
TOTAL RETURN ................................................. 40.48% (20.66%) 11.97% 11.51% 11.35%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ............................ $79,034 $52,403 $56,981 $47,104 $46,967
Ratio of expenses to average net assets ...................... 1.21% 1.22% 1.20% 1.18% 1.18%
Ratio of net investment income to average net assets ......... 1.49% 1.82% 1.58% 1.64% 2.18%
Ratio of expenses to average net assets (a) .................. 1.46% 1.47% 1.45% 1.43% 1.43%
Portfolio turnover ........................................... 24% 18% 32% 42% 47%
(a) During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratio would have been as indicated.
See notes to financial statements.
9
(This page intentionally left blank)
10
1ST SOURCE MONOGRAM FUNDS
DIVERSIFIED EQUITY FUND
KEVIN CAREY
INVESTMENT CONCERNS
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes. Common stocks, and funds
investing in common stocks, generally provide greater return potential when
compared with other types of investments.
Q. HOW DID THE DIVERSIFIED EQUITY FUND PERFORM RELATIVE TO ITS BENCHMARK
INDEX FOR THE 12 MONTH PERIOD ENDED MARCH 31, 2004?
A. The Fund gained 25.15% during the 12-month period. That compares to a
return of 35.12% for the S&P 500 Stock Index, the Fund's benchmark.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA
QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR
HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-766-8938.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S UNDERPERFORMANCE COMPARED TO ITS
BENCHMARK DURING THE PERIOD?
A. The Fund's absolute return benefited from very strong performance in the
equity market during the period. However, the Fund's relative returns were
hurt by the Fund's significant under-weighting in technology stocks, which
were among the market leaders during the period. The Fund's relative
performance was also hurt by our bias towards larger-capitalization stocks
of brand-name companies. While such stocks performed well during the
period, they did not match the strong returns among many
smaller-capitalization stocks. We also held a higher-than-usual cash
allocation at the beginning of the period, as we did not anticipate such a
quick recovery of the broader markets. We underestimated the strong
rebound in corporate profits, which were driven by strong consumer demand.
On a positive note, the Fund's relative performance was helped by our
investment in the health care industry, particularly among shares of
medical device companies. Such firms were strong performers in their
industry, especially compared to shares of large-cap pharmaceutical firms.
We also held an overweight position in consumer stocks, which benefited
from strong consumer spending during the period. Finally, the Fund's
overweight position in shares of financial services companies helped buoy
performance as such firms posted higher-than-expected revenues and
earnings.
The composition of the Fund's portfolio is subject to change.
11
1ST SOURCE MONOGRAM FUNDS
DIVERSIFIED EQUITY FUND
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
S&P 500 Stock Index Diversified Equity Fund
3/94 10000 10000
10041 9719
10535 10118
10533 10133
3/95 11558 10888
12655 11967
13661 13033
14475 13254
3/96 15262 13935
15951 14556
16439 14896
17815 15790
3/97 18281 15564
21479 17813
23094 19745
23758 19676
3/98 27073 22106
27967 22773
25185 19334
30549 22679
3/99 32071 22639
34332 24529
32188 22358
36977 25595
3/00 37826 27078
36820 25834
36464 26240
33611 23682
3/04 29626 19969
31360 20228
26757 17294
29616 19086
3/04 29698 18722
25719 16567
21276 13866
23070 14671
3/04 22343 14152
25784 15685
26466 16257
29690 17425
3/04 30193 17711
AVERAGE ANNUAL TOTAL RETURN
AS OF 3/31/04
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
DIVERSIFIED EQUITY FUND 25.15% -4.79% 5.88%
S&P 500 STOCK INDEX 35.12% -1.20% 11.68%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL 1-800-766-8938.
The chart represents a hypothetical investment of $10,000 in the 1st Source
Monogram Diversified Equity Fund from 3/94 to 3/04, and represents the
reinvestment of dividends and capital gains in the Fund.
The quoted performance of the 1st Source Monogram Diversified Equity Fund
includes performance of certain collective trust fund ("Commingled") accounts
advised by 1st Source Bank that had investment objectives and policies
substantially similar to those of the Fund for periods dating back to 6/30/85,
and prior to the mutual fund's commencement of operations on 9/23/96, as
adjusted to reflect the expenses associated with the mutual fund. The Commingled
accounts were not registered with the Securities & Exchange Commission and,
therefore, were not subject to the investment restrictions imposed by law on
registered mutual funds. If the Commingled accounts had been registered, the
Commingled accounts' performance may have been adversely affected.
The S&P 500 Stock Index is an unmanaged index that generally reflects the
performance of the U.S. stock market as a whole. This index is unmanaged and
does not reflect the deduction of fees or taxes associated with a mutual fund,
such as investment management and fund accounting fees. The performance of the
Fund reflects the deduction of fees for these value-added services. Investors
cannot invest directly in an index, although they can invest in its underlying
securities.
The above information is not covered by the Report of Independent Registered
Public Accounting Firm.
12
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
SPECIAL EQUITY FUND MARCH 31, 2004
COMMON STOCKS-96.2%
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- ------ ----------
BASIC MATERIALS - 1.4%
Praxair, Inc. ................................ 16,000 593,920
----------
COMMUNICATIONS - 7.5%
Cisco Systems, Inc. (b) ...................... 48,300 1,136,016
Ebay, Inc. (b) ............................... 12,000 831,960
McGraw-Hill Cos., Inc. ....................... 6,700 510,138
Nokia Corp. ADR .............................. 24,000 486,720
VeriSign, Inc. (b) ........................... 12,500 207,375
----------
3,172,209
----------
CONSUMER CYCLICAL - 12.1%
Brinker International, Inc. (b) .............. 12,000 455,160
Harley-Davidson, Inc. ........................ 6,150 328,041
Home Depot, Inc............................... 20,050 749,068
Kohl's Corp. (b) ............................. 20,500 990,765
Leapfrog Enterprises, Inc. (b) ............... 10,000 193,500
McDonald's Corp. ............................. 28,000 799,960
Starbucks Corp. (b) .......................... 14,500 547,375
Wal-Mart Stores, Inc. ........................ 14,200 847,598
Walgreen Co. ................................. 5,000 164,750
----------
5,076,217
----------
CONSUMER NON-CYCLICAL - 4.4%
Fortune Brands, Inc. ......................... 5,950 455,949
Pepsico, Inc. ................................ 12,500 673,125
Procter & Gamble Co. ......................... 7,000 734,160
----------
1,863,234
----------
ENERGY - 7.2%
Apache Corp. ................................. 18,000 777,060
BP Amoco PLC, ADR ............................ 8,000 409,600
Burlington Resources, Inc. ................... 10,000 636,300
Exxon Mobil Corp. ............................ 15,000 623,850
Valero Energy Corp. .......................... 10,000 599,600
----------
3,046,410
----------
FINANCIAL - 14.6%
American Express Co. ......................... 5,900 305,915
American International
Group, Inc. ............................... 6,500 463,775
Bank of America Corp.......................... 6,000 485,880
Citigroup, Inc. .............................. 10,600 548,020
Everest Re Group Ltd. ........................ 2,800 239,232
Fannie Mae ................................... 4,000 297,400
Fifth Third Bancorp .......................... 2,500 138,425
FirstMerit Corp. ............................. 10,000 260,500
Freddie Mac .................................. 5,000 295,300
Hartford Financial Services Group ............ 5,200 331,240
J.P. Morgan Chase & Co. ...................... 19,600 822,220
MetLife, Inc. ................................ 17,000 606,560
Schwab (Charles) Corp. ....................... 30,000 348,300
Wells Fargo & Co. ............................ 16,800 952,055
----------
6,094,822
----------
HEALTH CARE - 26.3%
Amgen, Inc. (b) .............................. 11,200 651,504
Baxter International, Inc. ................... 30,000 926,700
Biogen Idec, Inc. (b) ........................ 6,000 333,600
Boston Scientific Corp. (b) .................. 21,000 889,980
Dentsply International ....................... 5,875 260,439
Edwards Lifesciences Corp. (b) ............... 20,000 639,000
Eli Lilly & Co ............................... 10,000 669,000
Genentech, Inc. (b) .......................... 3,000 317,460
Hillenbrand Industries, Inc. ................. 4,000 271,560
Johnson & Johnson ............................ 22,500 1,141,200
Laboratory Corp. of
America Holdings (b) ...................... 10,400 408,200
Medtronic, Inc. .............................. 15,000 716,250
Mylan Laboratories, Inc. ..................... 8,000 181,840
Pfizer, Inc. ................................. 42,000 1,472,099
St. Jude Medical, Inc. (b) ................... 10,000 721,000
Stryker Corp. ................................ 4,500 398,385
Zimmer Holdings, Inc. (b) .................... 14,000 1,032,920
----------
11,031,137
----------
INDUSTRIALS - 8.5%
3M Co. ....................................... 7,000 573,090
Emerson Electric Co. ......................... 10,000 599,200
FedEx Corp. .................................. 2,500 187,900
General Electric Co. ......................... 53,000 1,617,560
United Parcel
Service, Inc., Class B .................... 3,300 230,472
United Technologies Corp. .................... 4,400 379,720
----------
3,587,942
----------
TECHNOLOGY - 13.7%
Applied Materials, Inc. (b) .................. 20,000 427,600
Automatic Data
Processing, Inc. .......................... 13,500 567,000
Dell Computer Corp. (b) ...................... 25,000 840,500
Intel Corp. .................................. 38,000 1,033,600
Micron Technology, Inc. (b) .................. 10,000 167,100
Microsoft Corp. .............................. 51,500 1,285,955
Oracle Corp. (b) ............................. 53,750 645,538
Qlogic Corp. (b) ............................. 14,000 462,140
Texas Instruments, Inc. ...................... 10,000 292,200
----------
5,721,633
----------
UTILITIES - 0.5%
Duke Energy Corp. ............................ 10,000 226,000
----------
TOTAL COMMON STOCKS .......................... 40,413,524
----------
Continued
13
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
SPECIAL EQUITY FUND MARCH 31, 2004
INVESTMENT COMPANIES-2.8%
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- --------- ----------
Fifth Third Prime
Money Market Fund ......................... 1,178,682 1,178,682
----------
TOTAL INVESTMENT COMPANIES ................... 1,178,682
----------
TOTAL INVESTMENTS
(COST $36,827,402) (a) - 99.0% ............ 41,592,206
==========
Percentages indicated are based on net assets of $42,027,749.
(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 purposes in excess of federal income tax reporting of
approximately $77,731. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows
Unrealized appreciation .......... $ 6,036,006
Unrealized depreciation .......... (1,348,933)
-------------
Net unrealized appreciation ...... $ 4,687,073
=============
(b) Represents non-income producing security.
ADR - American Depositary Receipt
See notes to financial statements.
14
1ST SOURCE MONOGRAM FUNDS
DIVERSIFIED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2004
ASSETS:
Investments, at value
(cost $ 36,827,402) .................. $ 41,592,206
Interest and dividends receivable ....... 27,224
Receivable for investments sold ......... 771,864
Prepaid expenses ........................ 583
------------
TOTAL ASSETS ....................... 42,391,877
LIABILITIES:
Payable for investments purchased ....... $ 309,718
Accrued expenses and other payables:
Investment advisory ................ 34,997
Administration ..................... 8,414
Other .............................. 10,999
------------
TOTAL LIABILITIES .................. 364,128
------------
NET ASSETS .............................. $ 42,027,749
============
COMPOSITION OF NET ASSETS:
Capital ................................. $ 49,336,556
Accumulated net realized losses
from investment transactions ....... (12,073,611)
Unrealized appreciation
from investments ..................... 4,764,804
------------
NET ASSETS .............................. $ 42,027,749
============
Shares Outstanding (par value $0.01,
unlimited number of authorized shares) 6,161,573
============
Net Asset Value, Offering and Redemption
Price per share ...................... $ 6.82
============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2004
INVESTMENT INCOME:
Interest $ 958
Dividend 442,100
------------
TOTAL INVESTMENT INCOME: 443,058
EXPENSES:
Investment advisory $ 360,930
Administration 72,915
Distribution 91,144
Accounting 18,435
Custodian 6,036
Transfer agent 19,721
Trustee 1,814
Other 25,441
------------
Total expenses before fee reductions. 596,436
Distribution fees voluntarily reduced (91,144)
------------
NET EXPENSES 505,292
------------
NET INVESTMENT LOSS (62,234)
------------
NET REALIZED/UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Realized losses from
investment transactions............... (360,073)
Change in unrealized appreciation
(depreciation) from investments....... 8,081,065
------------
Net realized/unrealized gains
from investments 7,720,992
------------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 7,658,758
============
See notes to financial statements.
15
1ST SOURCE MONOGRAM FUNDS
DIVERSIFIED EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
MARCH 31,
------------------------------
2004 2003
------------ ------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss ..................................................... $ (62,234) $ (63,308)
Realized losses from investment transactions ............................ (360,073) (4,717,390)
Change in unrealized appreciation (depreciation) from investments ....... 8,081,065 (5,018,112)
------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS ............................. 7,658,758 (9,798,810)
------------ ------------
DISTRIBUTIONS:
From net investment income .............................................. (2,111) --
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DISTRIBUTIONS ........................ (2,111) --
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ............................................. 12,357,186 16,275,853
Dividends reinvested .................................................... 2,020 --
Cost of shares redeemed ................................................. (8,043,744) (17,187,163)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ....................... 4,315,462 (911,310)
------------ ------------
CHANGE IN NET ASSETS ....................................................... 11,972,109 (10,710,120)
NET ASSETS:
Beginning of period ..................................................... 30,055,640 40,765,760
------------ ------------
End of period ........................................................... $ 42,027,749 $ 30,055,640
============ ============
SHARE TRANSACTIONS:
Issued .................................................................. 1,919,078 2,730,051
Reinvested .............................................................. 341 --
Redeemed ................................................................ (1,272,657) (2,868,044)
------------ ------------
CHANGE IN SHARES ........................................................... 646,762 (137,993)
============ ============
See notes to financial statements.
16
1ST SOURCE MONOGRAM FUNDS
DIVERSIFIED EQUITY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 5.45 $ 7.21 $ 7.69 $ 11.32 $ 11.26
---------- ---------- ---------- ---------- ----------
INVESTMENT ACTIVITIES:
Net investment loss ................................ (0.01) (0.01) (0.01) (0.02) (0.03)
Net realized and unrealized gains (losses)
from investments ................................. 1.38 (1.75) (0.47) (2.82) 2.05
---------- ---------- ---------- ---------- ----------
Total from investment activities ................... 1.37 (1.76) (0.48) (2.84) 2.02
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS:
Net investment income .............................. (0.00)(a) -- -- -- --
Net realized gains ................................. -- -- -- (0.79) (1.96)
---------- ---------- ---------- ---------- ----------
Total distributions .............................. -- -- -- (0.79) (1.96)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ........................ $ 6.82 $ 5.45 $ 7.21 $ 7.69 $ 11.32
========== ========== ========== ========== ==========
TOTAL RETURN .......................................... 25.15% (24.41%) (6.24%) (26.25%) 19.60%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ..................... $ 42,028 $ 30,056 $ 40,766 $ 45,912 $ 75,587
Ratio of expenses to average net assets ............... 1.38% 1.37% 1.32% 1.22% 1.33%
Ratio of net investment loss to average net assets .... (0.17%) (0.19%) (0.17%) (0.22%) (0.28%)
Ratio of expenses to average net assets (b) ........... 1.63% 1.62% 1.57% 1.66% 1.62%
Portfolio turnover .................................... 45% 80% 68% 29% 104%
(a) Amount is less than $0.005 per share.
(b) During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratio would have been as indicated.
See notes to financial statements.
17
(This page intentionally left blank)
18
1ST SOURCE MONOGRAM FUNDS
SPECIAL EQUITY FUND
MANAGEMENT TEAM
INVESTMENT CONCERNS
Small-capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure, and historically, their
stocks have experienced a greater degree of market volatility than stocks on
average.
The recent growth rate in the stock market has helped to produce short-term
returns that are not typical and may not continue in the future. Because of
ongoing market volatility, fund performance may be subject to substantial
short-term changes.
Q. HOW DID THE SPECIAL EQUITY FUND PERFORM RELATIVE TO ITS BENCHMARK INDEX
FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2004?
A. The Fund gained 50.26% during the 12-month period. That compared to a
63.83% return for the Fund's benchmark, the Russell 2000(R) Index.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA
QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR
HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-766-8938.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S UNDERPERFORMANCE RELATIVE TO ITS
BENCHMARK INDEX DURING THE PERIOD?
A. The Fund benefited in absolute terms from very strong performance in the
equity market, especially among shares of small-cap companies. Such stocks
performed very well as they were coming off of very depressed levels from
the previous bear market. The Fund benefited in relative terms from strong
individual stock selection.
However, the Fund held a relatively high cash allocation--nearly 15% of
the portfolio--during much of the period. That ultimately dragged on the
Fund's return during a period in which stocks performed so strongly. We
positioned the Fund for an economic recovery and higher interest rates.
That led us to over-weight shares of industrial firms relative to the
Fund's benchmark. That hurt performance as the economic recovery did not
find its way to the industrial sector. Our underweight position in sectors
such as energy, financial services and retail hurt performance as each of
those sectors posted strong relative returns.
We also upgraded the quality of our portfolio during the period, seeking
shares of companies with strong business models and strong balance sheets.
That strategy hurt relative performance during much of the period due to
the strong performance of lower-quality names in the small-cap market.
Late in the period, the Fund's higher-quality bias helped relative
returns, as investors were more attracted to such shares.
The composition of the Fund's portfolio is subject to change.
19
1ST SOURCE MONOGRAM FUNDS
SPECIAL EQUITY FUND
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
Russell 2000(R) Index Special Equity Fund
3/94 10000 10000
9611 9215
10278 9717
10085 9608
3/95 10550 10220
11539 11099
12679 12323
12954 12857
3/96 13615 14050
14296 16060
14344 16201
15090 15695
3/97 14310 13751
16630 15538
19105 18325
18465 16135
3/98 20322 16891
19374 15828
15471 13066
17995 16228
3/99 17019 15108
19665 15981
18422 15059
21820 19305
3/00 23366 22679
22482 21544
22731 22400
21161 21296
3/04 19784 19878
22611 23789
17910 20544
21687 24747
3/04 22550 25518
20667 24497
16244 19348
17244 19986
3/04 16470 18764
20328 23504
22173 25483
25393 28195
3/04 26983 28195
AVERAGE ANNUAL TOTAL RETURN
AS OF 3/31/04
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
SPECIAL EQUITY FUND 50.26% 13.29% 10.92%
RUSSELL 2000(R)INDEX 63.83% 9.66% 10.44%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL 1-800-766-8938.
The chart represents a hypothetical investment of $10,000 in the 1st Source
Monogram Special Equity Fund from 3/94 to 3/04, and represents the reinvestment
of dividends and capital gains in the Fund.
The quoted performance of the 1st Source Monogram Special Equity Fund includes
performance of certain collective trust fund ("Commingled") accounts advised by
1st Source Bank that had investment objectives and policies substantially
similar to those of the Fund for periods dating back to 11/30/85, and prior to
the mutual fund's commencement of operations on 9/20/96, as adjusted to reflect
the expenses associated with the mutual fund. The Commingled accounts were not
registered with the Securities & Exchange Commission and, therefore, were not
subject to the investment restrictions imposed by law on registered mutual
funds. If the Commingled accounts had been registered, the Commingled accounts'
performance may have been adversely affected.
The Russell 2000(R) Index is an unmanaged index that represents the performance
of domestically traded common stocks of small to mid-sized companies. This index
is unmanaged and does not reflect the deduction of fees or taxes associated with
a mutual fund, such as investment management and fund accounting fees. The
performance of the Fund reflects the deduction of fees for these value-added
services. Investors cannot invest directly in an index, although they can invest
in its underlying securities.
The above information is not covered by the Report of Independent Registered
Public Accounting Firm.
20
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
SPECIAL EQUITY FUND MARCH 31, 2004
COMMON STOCKS-85.5%
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- --------- ----------
BASIC MATERIALS - 2.6%
Symyx Technologies, Inc. (b) ................. 60,300 1,726,992
----------
COMMUNICATIONS - 7.5%
Comtech Telecommunications (b) ............... 13,500 313,200
Eresearch Technology, Inc. (b) ............... 22,000 617,100
Foundry Networks, Inc. (b) ................... 101,000 1,734,170
Inet Technologies, Inc. (b) .................. 51,000 632,910
Ixia (b) ..................................... 24,700 267,254
RF Micro Devices, Inc. (b) ................... 57,300 484,758
Sonus Networks, Inc. (b) ..................... 68,000 252,280
Spectralink Corp. ............................ 21,800 371,254
UTStarcom, Inc. (b) .......................... 13,500 388,260
----------
5,061,186
----------
CONSUMER CYCLICAL - 3.3%
Casey's General Stores, Inc. ................. 59,800 992,680
P.F. Chang's China Bistro, Inc. (b) .......... 5,500 276,705
Scan Source, Inc. (b) ........................ 19,270 923,804
----------
2,193,189
----------
CONSUMER NON-CYCLICAL - 9.2%
American Italian Pasta Co. ................... 17,400 694,782
Charles River Associates, Inc. (b) ........... 23,660 775,717
Healthcare Services Group .................... 13,850 227,833
ITT Educational Services, Inc. (b) ........... 27,000 842,400
Navigant Consulting, Inc. (b) ................ 33,600 679,728
SFBC International, Inc. (b) ................. 33,800 1,005,888
Source Information
Management Co.(b) ......................... 107,100 1,338,750
Yankee Candle Co.(b) ......................... 22,100 609,518
----------
6,174,616
----------
FINANCIAL - 2.4%
Affiliated Managers Group, Inc. (b) .......... 6,000 327,480
Ameritrade Holdings Corp. (b) ................ 41,000 631,400
Oxford Financial Holdings (c) ................ 25,000 162,500
W.R. Berkley Corp. ........................... 11,500 458,620
----------
1,580,000
----------
HEALTH CARE - 19.9%
Accredo Health, Inc. (b) ..................... 30,000 1,143,000
Advanced Neuromodulation
Systems (b) ............................... 12,500 451,125
America Service Group, Inc. (b) .............. 27,600 946,680
American Pharmaceutical
Partners, Inc. (b) ........................ 9,100 427,154
Endocardial Solutions, Inc. (b) .............. 60,700 526,876
Harvard Bioscience, Inc. (b) ................. 260,900 2,422,717
Intermune, Inc. (b) .......................... 10,000 194,800
K V Pharmaceutical Co. (b) ................... 14,000 343,840
Nektar Therapeutics (b) ...................... 10,000 215,800
Odyssey Healthcare, Inc. (b) ................. 116,000 2,186,600
Possis Medical, Inc. (b) ..................... 47,400 1,333,362
Select Medical Corp. ......................... 142,400 2,378,080
Taro Pharmaceutical Industries (b) ........... 13,900 806,061
----------
13,376,095
----------
INDUSTRIALS - 19.0%
Armor Holdings, Inc. (b) ..................... 22,500 744,750
Ceradyne, Inc. (b) ........................... 66,300 2,396,745
Engineered Support Systems, Inc. ............. 26,650 1,300,254
II-VI, Inc. .................................. 45,600 1,114,920
Kaydon Corp. ................................. 31,000 853,430
Molecular Devices Corp. (b) .................. 31,000 584,040
Photon Dynamics, Inc. (b) .................... 14,000 456,820
Rayovac Corp. (b) ............................ 27,000 772,200
Roper Industries, Inc. ....................... 14,600 704,450
SRS Labs, Inc. (b) ........................... 13,500 82,080
Stericycle, Inc. (b) ......................... 14,100 674,826
Tetra Technology, Inc. (b) ................... 81,000 1,738,260
The Keith Cos., Inc. (b) ..................... 13,000 183,950
Waste Connections, Inc. (b) .................. 18,000 716,400
Zebra Technology (b) ......................... 5,800 402,346
----------
12,725,471
----------
TECHNOLOGY - 21.6%
Applied Micro Circuits Corp. (b) ............. 83,000 477,250
August Technology Corp. (b) .................. 25,000 375,000
Conexant Systems, Inc. (b) ................... 88,394 544,507
Diodes, Inc. (b) ............................. 11,200 244,272
Emulex Corp. (b) ............................. 13,000 276,770
ESS Technology (b) ........................... 13,500 197,910
Factset Research Systems, Inc. ............... 39,000 1,659,840
Lam Research Corp. (b) ....................... 8,000 201,680
Lexar Media, Inc. (b) ........................ 75,000 1,242,000
Micromuse, Inc. (b) .......................... 38,000 296,400
Mindspeed Technologies (b) ................... 62,000 404,860
Omnivision Technologies (b) .................. 77,600 2,119,255
Qlogic Corp. (b) ............................. 49,000 1,617,490
Quality Systems (b) .......................... 25,000 1,135,750
SanDisk Corp. (b) ............................ 22,000 624,140
Take-Two Interactive
Software, Inc. (b) ........................ 23,000 845,940
Vitesse Semiconductor Corp. (b) .............. 37,000 262,330
Zoran Corp. (b) .............................. 114,000 1,979,040
----------
14,504,434
----------
TOTAL COMMON STOCKS .......................... 57,341,983
----------
Continued
21
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
SPECIAL EQUITY FUND MARCH 31, 2004
OPTIONS - 0.4%
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- --------- ---------
iShares Russell 2000 Futures Option
expiring April 2004 @ $112 .............. 300 18,000
NASDAQ-100 Futures Option
expiring April 2004 @ $35 ............... 300 12,000
NASDAQ-100 Futures Option
expiring April 2004 @ $36 ............... 130 11,050
NASDAQ-100 Futures Option
expiring April 2004 @ $37 ............... 450 67,500
Semiconductors Holders Trust Put
expiring April 2004 @ $37.50 ............ 550 22,000
Semiconductors Holders Trust Put
expiring April 2004 @ $40 ............... 260 31,200
Semiconductors Holders Trust Put
expiring April 2004 @ $42.50 ............ 300 93,000
---------
TOTAL OPTIONS ................................ 254,750
---------
INVESTMENT COMPANIES - 15.3%
Fifth Third Prime
Money Market Fund ....................... 10,257,944 10,257,944
-----------
TOTAL INVESTMENT COMPANIES ................... 10,257,944
-----------
TOTAL INVESTMENTS
(COST $66,092,404) (a) - 101.2% ......... $67,854,677
===========
Percentages indicated are based on net assets of $67,071,162.
(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 purposes in excess of federal income tax reporting of
approximately $304,836. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows :
Unrealized appreciation ........... $ 4,624,109
Unrealized depreciation ........... (3,166,672)
-------------
Net unrealized appreciation ....... $ 1,457,437
=============
(b) Represents non-income producing security.
(c) Security exempt from registration under Rule 144a of the Securities Act of
1933.
See notes to financial statements.
22
1ST SOURCE MONOGRAM FUNDS
SPECIAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2004
ASSETS:
Investments, at value
(cost $66,092,404) ....................... $67,854,677
Interest and dividends receivable ................... 12,363
Receivable for capital shares issued ................ 23,500
Receivable for investments sold ..................... 189,515
Prepaid expenses .................................... 11,111
-----------
TOTAL ASSETS ............................. 68,091,166
LIABILITIES:
Payable for investments
purchased ................................ $ 921,845
Payable for capital
shares redeemed .......................... 23,085
Accrued expenses and other payables:
Investment advisory ...................... 45,146
Administration ........................... 13,470
Other .................................... 16,458
-----------
TOTAL LIABILITIES ........................ 1,020,004
-----------
NET ASSETS .......................................... $67,071,162
===========
COMPOSITION OF NET ASSETS:
Capital ............................................. $54,298,413
Accumulated net realized gains from
investment and option transactions........ 11,010,476
Unrealized appreciation from
investments and options .................. 1,762,273
-----------
NET ASSETS .......................................... $67,071,162
===========
Shares Outstanding (par value $0.01,
unlimited number of authorized shares) ... 5,812,835
===========
Net Asset Value, Offering and Redemption
Price per share .......................... $ 11.54
===========
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2004
INVESTMENT INCOME:
Interest ..................................................... $ 11,576
Dividend ..................................................... 227,321
------------
TOTAL INVESTMENT INCOME: .......................... 238,897
EXPENSES:
Investment advisory ............................... $ 435,530
Administration .................................... 108,883
Distribution ...................................... 136,103
Accounting ........................................ 25,165
Custodian ......................................... 7,816
Transfer agent .................................... 35,120
Trustee ........................................... 2,283
Other ............................................. 55,028
------------
Total expenses before fee reductions ......... 805,928
Distribution fees voluntarily reduced......... (136,103)
------------
NET EXPENSES ................................. 669,825
------------
NET INVESTMENT LOSS .......................................... (430,928)
------------
NET REALIZED/UNREALIZED GAINS
FROM INVESTMENTS AND OPTIONS:
Realized gains from investment and option
transactions ...................................... 15,939,870
Realized gains from written option
transactions ...................................... 43,147
Change in unrealized appreciation
(depreciation) from investments
and options ....................................... 3,457,137
------------
Net realized/unrealized gains from
investments and options ........................... 19,440,154
------------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS ................................... $ 19,009,226
============
See notes to financial statements.
23
1ST SOURCE MONOGRAM FUNDS
SPECIAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
MARCH 31,
----------------------------
2004 2003
------------ ------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss ........................................................... $ (430,928) $ (275,972)
Realized gains (losses) from investment and option transactions ............... 15,983,017 (4,972,314)
Change in unrealized appreciation (depreciation) from investments and options.. 3,457,137 (7,641,564)
------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... 19,009,226 (12,889,850)
------------ ------------
DISTRIBUTIONS:
From net realized gains ....................................................... -- (2,910,257)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DISTRIBUTIONS ...................................... -- (2,910,257)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ................................................... 30,075,958 19,320,586
Dividends reinvested .......................................................... -- 2,645,877
Cost of shares redeemed ....................................................... (20,655,410) (12,412,919)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS.... ................................. 9,420,548 9,553,544
------------ ------------
CHANGE IN NET ASSETS ..................................................................... 28,429,774 (6,246,563)
NET ASSETS:
Beginning of period ........................................................... 38,641,388 44,887,951
------------ ------------
End of period ................................................................. $ 67,071,162 $ 38,641,388
============ ============
SHARE TRANSACTIONS:
Issued ........................................................................ 2,712,301 2,084,026
Reinvested .................................................................... -- 313,864
Redeemed ...................................................................... (1,931,148) (1,356,323)
------------ ------------
CHANGE IN SHARES ......................................................................... 781,153 1,041,567
============ ============
See notes to financial statements.
24
1ST SOURCE MONOGRAM FUNDS
SPECIAL EQUITY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
FOR THE YEARS ENDED MARCH 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000
--------- -------- -------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD .................... $ 7.68 $ 11.25 $ 9.25 $ 13.78 $ 9.18
--------- -------- -------- --------- ---------
INVESTMENT ACTIVITIES:
Net investment income (loss) ................. (0.07) (0.05) (0.05) (0.03) 0.00(a)
Net realized and unrealized gains
(losses) from investments and options.. 3.93 (2.87) 2.63 (1.61) 4.60
--------- -------- -------- --------- ---------
Total from investment activities ............. 3.86 (2.92) 2.58 (1.64) 4.60
--------- -------- -------- --------- ---------
DISTRIBUTIONS:
Net investment income ........................ -- -- -- -- (0.00)(a)
Net realized gains ........................... -- (0.65) (0.58) (2.89) --
--------- -------- -------- --------- ---------
Total distributions .......................... -- (0.65) (0.58) (2.89) (0.00)(a)
--------- -------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD ............... $ 11.54 $ 7.68 $ 11.25 $ 9.25 $ 13.78
========= ======== ======== ========= =========
TOTAL RETURN ............................................ 50.26% (26.47%) 28.37% (12.35%) 50.11%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ....................... $ 67,071 $ 38,641 $ 44,888 $ 23,806 $ 26,932
Ratio of expenses to average net assets ................. 1.23% 1.26% 1.24% 1.29% 1.25%
Ratio of net investment income to average net assets .... (0.79%) (0.67%) (0.57%) (0.34%) (0.01%)
Ratio of expenses to average net assets (b) ............. 1.48% 1.51% 1.49% 1.54% 1.50%
Portfolio turnover ...................................... 190% 140% 130% 167% 174%
(a) Amount is less than $0.005 per share.
(b) During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratio would have been as indicated.
See notes to financial statements.
25
(This page intentionally left blank)
26
1ST SOURCE MONOGRAM FUNDS
INCOME FUND
PAUL GIFFORD, CFA
INVESTMENT CONCERNS
Bonds offer a relatively stable level of income, although bond prices will
fluctuate providing the potential for principal gain or loss. Intermediate-term,
higher-quality bonds generally offer less risk than longer-term bonds and a
lower rate of return.
Q. HOW DID THE INCOME FUND PERFORM RELATIVE TO ITS BENCHMARK INDEX FOR THE 12
MONTHS ENDED MARCH 31, 2004?
A. The Fund's total return was 3.26% for the period. That compared to a 5.30%
return for the Fund's benchmark, the Lehman Brothers Intermediate
Government/Credit Bond Index.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA
QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR
HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-766-8938.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S UNDERPERFORMANCE RELATIVE TO ITS
BENCHMARK FOR THE PERIOD?
A. The Fund's absolute performance suffered from falling interest rates early
in the period. Though rates stabilized somewhat during the latter half of
the period, they remained volatile. The Fund's relative performance was
hurt by the strong performance of corporate bonds, especially
lower-quality corporate bonds, where the Fund held a significant
underweight position. A strong equity market and good corporate earnings
drove performance among such issues. The Fund was also hurt by an
overweight position in mortgage-backed securities relative to the
benchmark. Heavy refinancing levels during the first half of the period
caused such bonds to perform relatively poorly.
We positioned the Fund with an average maturity shorter than that of its
benchmark. That hurt the Fund during the period, in part because
longer-term issues offered higher yields during the period. We
participated in extension trades, where the proceeds from shorter-maturity
issues are reinvested in bonds with longer maturities. Such trades were
effective in taking advantage of the positive yield-curve that existed
during the period, with higher yields on longer maturities. However, such
trades were not enough to overcome the negative effects of the Fund's
short average maturity.
The composition of the portfolio is subject to change.
27
1ST SOURCE MONOGRAM FUNDS
INCOME FUND
GROWTH OF A $10,000 INVESTMENTS
[LINE GRAPH]
Lehman Brothers Intermediate Government/Credit Bond Index Income Fund
3/94 10000 10000
9938 9897
10019 9920
10008 9852
3/95 10446 10331
10968 10889
11149 11095
11540 11482
3/96 11444 11300
11516 11277
11720 11482
12008 11776
3/97 11994 11722
12348 12053
12681 12369
12953 12697
3/98 13154 12805
13401 13047
14002 13642
14043 13562
3/99 14017 13438
13962 13313
14090 13429
14097 13398
3/00 14308 13567
14549 13766
14968 14137
15521 14632
3/04 16048 15046
16156 15137
16900 15817
16915 15802
3/04 16877 15692
17476 16288
18267 16980
18576 17171
3/04 18855 17343
19366 17640
19362 17630
19374 17588
3/04 19855 17909
AVERAGE ANNUAL TOTAL RETURN
AS OF 3/31/04
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
INCOME FUND 3.26% 5.91% 6.00%
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CREDIT BOND INDEX 5.30% 7.22% 7.11%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL 1-800-766-8938.
The chart represents a hypothetical investment of $10,000 in the 1st Source
Monogram Income Fund from 3/94 to 3/04, and represents the reinvestment of
dividends and capital gains in the Fund.
The quoted performance of the 1st Source Monogram Income Fund includes
performance of certain collective trust fund ("Commingled") accounts advised by
1st Source Bank that had investment objectives and policies substantially
similar to those of the Fund for periods dating back to 6/30/85, and prior to
the mutual fund's commencement of operations on 9/24/96, as adjusted to reflect
the expenses associated with the mutual fund. The Commingled accounts were not
registered with the Securities & Exchange Commission and, therefore, were not
subject to the investment restrictions imposed by law on registered mutual
funds. If the Commingled accounts had been registered, the Commingled accounts'
performance may have been adversely affected.
The Lehman Brothers Intermediate Government/Credit Bond Index is an unmanaged
index considered to be representative of the performance of government and
corporate bonds with maturities of less than ten years. This index is unmanaged
and does not reflect the deduction of fees or taxes associated with a mutual
fund, such as investment management and fund accounting fees. The performance of
the Fund reflects the deduction of fees for these value-added services.
Investors cannot invest directly in an index, although they can invest in its
underlying securities.
The above information is not covered by the Report of Independent Registered
Public Accounting Firm.
28
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INCOME FUND MARCH 31, 2004
ASSET BACKED SECURITIES-14.2%
PRINCIPAL
SECURITY DESCRIPTION AMOUNT ($) VALUE ($)
-------------------- ---------- ---------
Asset Securitization
Corp., 7.32%, 1/13/30 ............... 284,349 293,884
Centex Home Equity,
7.72%, 5/25/29 ...................... 1,106,962 1,167,853
Chase Commercial Mortgage
Securities Corp., 7.66%, 4/15/32 .... 408,809 445,400
Citibank Credit Card
Issuance Trust, 4.95%, 2/9/09 ....... 1,000,000 1,072,462
Citibank Credit Card Issuance
Trust, 3.50%, 8/16/10 ............... 1,500,000 1,531,529
Discover Card Master Trust I,
Series, 01-6, Class A,
5.75%,12/15/08 ...................... 1,550,000 1,676,087
General Motors Acceptance Corp.,
8.02%, 11/25/29 ..................... 424,538 424,061
MBNA Credit Card Master Note
Trust, Series 2003-A1, Class A1,
3.30%, 7/15/10 ...................... 2,000,000 2,038,897
New Century Home Equity
Loan Trust, 7.22%, 11/25/27 ......... 239,035 243,414
Principal Residential Mortgage
Capital Resources,
4.55%, 12/20/04 (b) ................. 1,550,000 1,566,849
----------
TOTAL ASSET BACKED SECURITIES .................. 10,460,436
----------
CORPORATE BONDS - 30.9%
COMMUNICATIONS - 1.2%
Bell Telephone Co. Pennsylvania,
7.375%, 7/15/07 ..................... 500,000 572,685
Time Warner, Inc.,
8.11%, 8/15/06 ...................... 250,000 282,018
----------
854,703
----------
COMPUTER AND DATA PROCESSING SERVICES - 1.5%
Dell Computer Corp.,
6.55%, 4/15/08 ...................... 750,000 846,350
First Data Corp.,
6.375%, 12/15/07 .................... 250,000 282,360
----------
1,128,710
----------
CONSUMER GOODS & SERVICES - 0.5%
Disney, 6.75%, 3/30/06 ......................... 350,000 378,875
----------
FINANCIAL SERVICES - 14.2%
Allstate Corp., 5.375%, 12/1/06 ................ 500,000 541,834
Bank One Corp., 6.00%, 8/1/08 .................. 1,000,000 1,117,361
Bankamerica Corp.,
6.25%, 4/1/08 ....................... 500,000 559,250
Bear Stearns Co.,
7.80%, 8/15/07 ...................... 600,000 695,624
Bear Stearns Co.,
4.50%, 10/28/10 ..................... 1,000,000 1,032,602
Citigroup, Inc., 5.50%, 11/30/07 ............... 250,000 271,764
Commercial Credit Co.,
10.00%, 12/1/08 ..................... 1,300,000 1,673,113
Ford Motor Credit,
7.375%, 10/28/09 .................... 250,000 274,411
GMAC, 7.75%, 1/19/10 ........................... 639,000 724,408
Household Financial Corp.,
5.75%, 1/30/07 ...................... 650,000 707,937
National City Bank of Pennsylvania,
7.25%, 10/21/11 ..................... 1,000,000 1,205,779
Torchmark Corp.,
6.25%, 12/15/06 ..................... 1,500,000 1,647,302
----------
10,451,385
----------
FOOD & RELATED - 1.2%
Cargill, Inc., 6.15%, 2/25/08 (b) .............. 600,000 666,177
Hershey Foods Corp.,
6.95%, 3/1/07 ....................... 200,000 226,493
----------
892,670
----------
HEALTH CARE - 4.9%
Allegiance Corp. Cardinal Health,...............
7.30%, 10/15/06 ..................... 1,000,000 1,120,093
Amgen, Inc., 6.50%, 12/1/07 .................... 879,000 1,006,058
United Healthcare Corp.,
5.20%, 1/17/07 ...................... 665,000 714,275
Wyeth, 4.375%, 3/1/08 .......................... 750,000 780,466
----------
3,620,892
----------
MANUFACTURING-CAPITAL GOODS - 1.4%
General Electric Company,
5.00%, 2/1/13 ....................... 1,000,000 1,047,078
----------
REAL ESTATE - 0.6%
HD Real Estate Funding Corp. II,
5.95%, 10/15/08 (b) ................. 400,000 445,938
----------
RETAIL - 2.6%
Costco Wholesale Corp.,
5.50%, 3/15/07 ...................... 1,000,000 1,087,555
CVS Corp., 3.875%, 11/1/07 ..................... 250,000 258,234
Target Corp., 5.375%, 6/15/09 .................. 500,000 546,732
----------
1,892,521
----------
SPECIAL PURPOSE ENTITY - 2.0%
Targeted Return Index,
5.91%, 1/25/07 (b) (c) .............. 892,000 961,915
Targeted Return Index,
6.935%, 1/15/12 (b) (c) ............. 426,000 492,307
----------
1,454,222
----------
UTILITIES - 0.8%
Indianapolis P&L, 7.375%, 8/1/07 ............... 500,000 573,937
----------
TOTAL CORPORATE BONDS .......................... 22,740,931
----------
U. S. GOVERNMENT AGENCY SECURITIES - 37.4%
FANNIE MAE - 13.0%
4.90%, 6/13/07 ................................. 1,000,000 1,041,735
2.875%, 5/19/08 ................................ 1,500,000 1,486,979
4.00%, 12/15/08 ................................ 1,000,000 1,018,747
5.50%, 7/18/12 ................................. 1,750,000 1,821,863
4.75%, 2/21/13 ................................. 1,500,000 1,518,575
5.00%, 5/25/16 ................................. 394,652 406,468
4.00%, 7/25/16 ................................. 553,306 566,788
5.50%, 11/1/16 ................................. 467,780 487,890
5.50%, 11/25/19 ................................ 2,500,000 231,771
6.00%, 4/25/28 ................................. 1,000,000 1,018,356
----------
9,599,172
----------
Continued
29
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INCOME FUND MARCH 31, 2004
U.S. GOVERNMENT AGENCY SECURITIES, CONTINUED
PRINCIPAL
SECURITY DESCRIPTION AMOUNT ($) VALUE ($)
-------------------- --------- ----------
FEDERAL HOME LOAN BANK - 3.5%
2.23%, 6/16/06 .......................... 600,000 601,166
2.42%, 12/29/06 ......................... 1,000,000 1,002,089
1.79%, 3/24/08 .......................... 1,000,000 998,097
----------
2,601,352
----------
FREDDIE MAC - 20.9%
2.00%, 11/28/05 ......................... 500,000 502,724
2.01%, 1/27/06 .......................... 1,000,000 1,002,536
5.50%, 8/1/06 ........................... 336,755 344,716
4.50%, 7/23/07 .......................... 725,000 732,294
3.50%, 2/13/08 .......................... 3,125,000 3,211,607
3.94%, 11/20/08 ......................... 1,000,000 1,019,263
4.75%, 10/11/12 ......................... 2,000,000 2,024,456
4.50%, 12/15/13 ......................... 861,327 873,120
6.50%, 9/1/15 ........................... 16,793 17,913
4.00%, 12/15/17 ......................... 1,117,583 1,134,873
5.00%, 9/1/18 ........................... 1,345,250 1,384,590
4.00%, 4/15/22 .......................... 1,500,000 1,519,263
5.00%, 11/15/23 ......................... 399,826 402,882
6.00%, 2/15/27 .......................... 362,539 369,810
6.50%, 10/15/27 ......................... 883,395 896,411
----------
15,436,458
----------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES ............ 27,636,982
----------
U.S. TREASURY NOTES - 14.2%
6.125%, 8/15/07 ......................... 3,650,000 4,119,368
5.625%, 5/15/08 ......................... 3,050,000 3,426,245
4.25%, 11/15/13 ......................... 2,800,000 2,896,359
----------
TOTAL U.S. TREASURY NOTES ............... 10,441,972
----------
PREFERRED STOCKS - 2.1%
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- ------ ---------
FINANCIAL - 2.1%
Lehman Brothers, 3.00%, 2/15/09 ......... 10,900 276,860
UBS Preferred
Funding Trust IV, 1.80%, 6/15/08.... 50,300 1,233,859
---------
TOTAL PREFERRED STOCKS................... 1,510,719
---------
INVESTMENT COMPANIES - 0.2%
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- ------- ----------
Fifth Third Prime
Money Market Fund................... 179,344 179,344
----------
TOTAL INVESTMENT COMPANIES............... 179,344
----------
TOTAL INVESTMENTS
(COST $71,540,458) (a)-- 99.0%...... 72,970,384
==========
Percentages indicated are based on net assets of $73,678,360.
(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 purposes in excess of federal income tax reporting
of approximately $641,893. Cost for federal income tax purposes differs
from value by net unrealized appreciation of securities as follows :
Unrealized appreciation ............ $ 1,041,074
Unrealized depreciation ............ (253,041)
-----------
Net unrealized appreciation ........ $ 788,033
===========
(b) Security exempt from registration under Rule 144a of the Securities
Act of 1933.
(c) Variable rate security. The interest rates on these securities are
adjusted periodically to reflect then-current short-term interest rates.
The rates presented in this report represent the rates that were in effect
on March 31, 2004.
See notes to financial statements.
30
1ST SOURCE MONOGRAM FUNDS
INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2004
ASSETS:
Investments, at value
(cost $71,540,458) ............................ $ 72,970,384
Interest and dividends receivable ........................ 773,129
Prepaid expenses ......................................... 1,716
------------
TOTAL ASSETS ............................. 73,745,229
LIABILITIES:
Accrued expenses and other payables:
Investment advisory ...................... $ 34,022
Administration ........................... 14,747
Other .................................... 18,100
------------
TOTAL LIABILITIES ........................................ 66,869
------------
NET ASSETS ............................................... $ 73,678,360
============
COMPOSITION OF NET ASSETS:
Capital .................................................. $ 73,582,516
Undistributed net
investment income ............................. 51,239
Accumulated net realized losses
from investment transactions .................. (1,385,321)
Unrealized appreciation from investments ................. 1,429,926
------------
NET ASSETS ............................................... $ 73,678,360
============
Shares Outstanding (par value $0.01,
unlimited number of authorized shares) ........ 7,123,752
============
Net Asset Value, Offering and Redemption
Price per share ............................... $ 10.34
============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2004
INVESTMENT INCOME:
Interest ................................................. $ 2,860,651
Dividend ................................................. 30,874
------------
TOTAL INVESTMENT INCOME: ...................... 2,891,525
EXPENSES:
Investment advisory ........................... $ 399,846
Administration ................................ 145,399
Distribution .................................. 181,749
Accounting .................................... 34,016
Custodian ..................................... 7,917
Transfer agent ................................ 25,505
Trustee ....................................... 2,306
Other ......................................... 49,405
------------
Total expenses before fee reductions ..... 846,143
Distribution fees voluntarily reduced..... (181,749)
------------
NET EXPENSES ............................. 664,394
------------
NET INVESTMENT INCOME .................................... 2,227,131
------------
NET REALIZED/UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS
Realized gains from
investment transactions ....................... 1,197,838
Change in unrealized appreciation (depreciation)
from investments .............................. (1,142,669)
------------
Net realized/unrealized gains
from investments .............................. 55,169
------------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS .................................... $ 2,282,300
============
See notes to financial statements.
31
1ST SOURCE MONOGRAM FUNDS
INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
MARCH 31,
----------------------------
2004 2003
------------ ------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income ........................................... $ 2,227,131 $ 2,523,753
Realized gains from investment transactions ..................... 1,197,838 1,276,958
Change in unrealized appreciation/depreciation from investments.. (1,142,669) 2,470,041
------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS ............................. 2,282,300 6,270,752
------------ ------------
DISTRIBUTIONS:
From net investment income ...................................... (2,889,797) (2,997,773)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DISTRIBUTIONS ........................ (2,889,797) (2,997,773)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ..................................... 20,245,275 27,690,863
Dividends reinvested ............................................ 2,611,302 2,872,795
Cost of shares redeemed ......................................... (17,324,997) (22,981,571)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ....................... 5,531,580 7,582,087
------------ ------------
CHANGE IN NET ASSETS ....................................................... 4,924,083 10,855,066
NET ASSETS:
Beginning of period ............................................. 68,754,277 57,899,211
------------ ------------
End of period ................................................... $ 73,678,360 $ 68,754,277
============ ============
SHARE TRANSACTIONS:
Issued .......................................................... 1,955,055 2,693,618
Reinvested ...................................................... 252,625 279,927
Redeemed ........................................................ (1,680,736) (2,234,857)
------------ ------------
CHANGE IN SHARES ........................................................... 526,944 738,688
============ ============
Undistributed net investment income ........................................ $ 51,239 $ 44,964
============ ============
See notes to financial statements.
32
1ST SOURCE MONOGRAM FUNDS
INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
FOR THE YEARS ENDED MARCH 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- -------- -------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 10.42 $ 9.88 $ 9.97 $ 9.52 $ 9.99
--------- --------- -------- -------- ---------
INVESTMENT ACTIVITIES:
Net investment income ..................... 0.31 0.41 0.44 0.56 0.55
Net realized and unrealized gains
(losses) from investments ............ 0.02 0.61 (0.02) 0.44 (0.46)
--------- --------- -------- -------- ---------
Total from investment activities .......... 0.33 1.02 0.42 1.00 0.09
--------- --------- -------- -------- ---------
DISTRIBUTIONS:
Net investment income ..................... (0.41) (0.48) (0.51) (0.55) (0.56)
--------- --------- -------- -------- ---------
Total distributions ....................... (0.41) (0.48) (0.51) (0.55) (0.56)
--------- --------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD ....................... $ 10.34 $ 10.42 $ 9.88 $ 9.97 $ 9.52
========= ========= ======== ======== =========
TOTAL RETURN ......................................... 3.26% 10.52% 4.29% 10.90% 0.96%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) .................... $ 73,678 $ 68,754 $ 57,899 $ 53,255 $ 57,311
Ratio of expenses to average net assets .............. 0.91% 0.92% 0.92% 0.94% 0.90%
Ratio of net investment income to average net assets.. 3.06% 3.94% 4.35% 5.75% 5.69%
Ratio of expenses to average net assets (a) .......... 1.16% 1.17% 1.17% 1.19% 1.15%
Portfolio turnover ................................... 58% 96% 113% 153% 67%
(a) During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratio would have been as indicated.
See notes to financial statements.
33
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34
1ST SOURCE MONOGRAM FUNDS
LONG/SHORT FUND
MICHAEL SHINNICK
INVESTMENT CONCERNS
Investment in shares of the Fund are more volatile and risky than some other
forms of investment. Since the Fund has both a long and a short portfolio,
investments will involve risks associated with twice the number of investment
decisions made for a typical stock fund. These types of funds typically have a
high portfolio turnover that could increase transaction costs and cause
short-term capital gains to be realized. While it may be the intent of the
manager to take long positions in stocks that outperform the market and short
positions in stocks that underperform the market there is no assurance that the
manager will be successful.
Q. HOW DID THE LONG/SHORT FUND PERFORM FROM ITS INCEPTION ON AUGUST 1, 2003
THRU MARCH 31, 2004?
A. The Fund gained 6.14% between August 1, 2003 and March 31, 2004. This
Fund's objective is to produce a positive absolute return in all market
conditions. We attempt to generate an annualized gain that is five
percentage points greater than the return of the Citigroup U.S. Domestic
Three-Month Treasury Bill Index, which during this period gained 0.63%.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA
QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR
HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT
OF DIVIDENDS AND CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-766-8938.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. This Fund combines intensive valuation-based screening with subjective
analysis to identify stocks with especially strong prospects (in which we
hold long positions) as well as stocks with especially weak prospects
(which we sell short). We expect that strategy to produce its strongest
returns when the market focuses on stock valuations. This period bore out
that expectation: The Fund struggled somewhat early in the period, when
stocks with high valuations and very low earnings powered stock-market
gains, but it generated strong returns when investors rotated into
less-expensive stocks during November and December. The Fund and the stock
market were relatively flat during the first calendar quarter of 2004.
The Fund during the period as a whole benefited from our decision to hold
the majority of assets in long positions, which helped the Fund capitalize
on the generally strong performance of the stock market. We invested long
in shares of health-care, energy, industrial, utilities,
financial-services and select technology firms. Stock selection within the
Fund's long holdings also boosted returns. Shares of particular stocks in
the energy and financial-services sectors performed especially well.
We held the Fund's short positions primarily in very volatile stocks in
the technology and consumer-cyclical sectors. That strategy had mixed
results. Some of the stocks we sold short did decline in price during the
period, helping boost Fund returns. Other stocks that we shorted rose
despite high valuations or technical problems, causing modest losses for
the Fund.
The composition of the portfolio is subject to change.
35
1ST SOURCE MONOGRAM FUNDS
LONG/SHORT FUND
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
Citigroup U.S. Domestic Three-Month Treasury Bill Index Long/Short Fund
8/03 10000 10000
8/04 10008 9900
9/04 10015 10030
10/04 10023 10110
11/04 10031.8 10220
12/04 10039.8 10650
1/04 10047.7 10580
2/04 10055 10670
3/04 10063 10614
AVERAGE ANNUAL TOTAL RETURN
AS OF 3/31/04
SINCE INCEPTION
(8/1/03)
---------------
LONG/SHORT FUND 6.14%
CITIGROUP U.S. DOMESTIC THREE-MONTH
TREASURY BILL INDEX 0.63%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL 1-800-766-8938.
The chart represents a hypothetical investment of $10,000 in the 1st Source
Monogram Long/Short Fund from 8/1/03 to 3/31/04, and represents the reinvestment
of dividends and capital gains in the Fund.
The Citigroup U.S. Domestic Three-Month Treasury Bill Index tracks the
performance of three month Treasury bills. This index is unmanaged and does not
reflect the deduction of fees or taxes associated with a mutual fund, such as
investment management and fund accounting fees. The performance of the Fund
reflects the deduction of fees for these value-added services. Investors cannot
invest directly in an index, although they can invest in its underlying
securities.
Since the risk in this Fund relates specifically to the manager's stock
selection techniques and not to any systematic or economic factors, the proper
benchmark is an asset that also has the least exposure to systematic influences.
U.S. 90-day T-bills are such an asset. An investment in a 90-day T-bill is
different from an investment in the Long/Short Fund because T-bills are backed
by the full faith and credit of the U.S. government. T-bills have a fixed rate
of return, and investors do not bear the risk of losing their investment. The
income received from T-bills is free from state income tax.
The above information is not covered by the Report of Independent Registered
Public Accounting Firm.
36
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
LONG/SHORT FUND MARCH 31, 2004
COMMON STOCKS-51.2%
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- ------ ---------
BASIC MATERIALS - 2.4%
BHP Billiton Ltd. ADR................ 24,000 450,720
---------
COMMUNICATIONS - 3.5%
Check Point Software
Technologies Ltd. (b).............. 6,000 136,620
SBC Communications, Inc.............. 14,000 343,560
Telefonos de Mexico ADR.............. 2,000 69,820
Verizon Communications............... 3,000 109,620
---------
659,620
---------
CONSUMER CYCLICAL - 2.6%
Genuine Parts Co..................... 15,000 490,800
---------
CONSUMER NON-CYCLICAL - 7.4%
Equifax, Inc......................... 10,000 258,200
Kraft Foods, Inc. ................... 12,400 396,924
McKesson Corp. ...................... 16,000 481,440
UST, Inc. ........................... 7,000 252,700
---------
1,389,264
---------
ENERGY - 6.6%
Enerplus Resources Fund.............. 17,500 512,926
Hugoton Royalty Trust................ 20,000 439,400
Royal Dutch Petroleum Co............. 6,000 285,480
---------
1,237.806
---------
FINANCIAL - 4.1%
Allstate Corp. ...................... 10,000 454,600
Crescent Real Estate
Equities Co. ...................... 17,200 309,084
---------
763,684
---------
HEALTH CARE - 8.2%
HCA, Inc. ........................... 8,000 324,960
Merck & Co., Inc. ................... 14,000 618,660
Odyssey Healthcare, Inc. (b) ........ 11,000 207,350
Pfizer, Inc. ........................ 11,000 385,550
---------
1,536,520
---------
INDUSTRIALS - 2.9%
Waste Management, Inc. .............. 18,000 543,240
---------
TECHNOLOGY - 9.0%
Affiliated Computer Services (b)..... 16,500 856,350
First Data Corp. .................... 7,000 295,120
Microsoft Corp. ..................... 21,000 524,370
Take-Two Interactive
Software, Inc. (b)................. 1,000 36,780
---------
1,712,620
---------
UTILITIES - 4.5%
DTE Energy Co. ...................... 12,000 493,800
People's Energy Corp. ............... 8,000 357,200
---------
851,000
---------
TOTAL COMMON STOCKS.................. 9,635,274
U.S. TREASURY BILLS-31.9%
PRINCIPAL
SECURITY DESCRIPTION AMOUNT ($) VALUE ($)
-------------------- ---------- ---------
0.92%, 4/29/04 (c)................... 6,000,000 5,995,548
---------
TOTAL U.S. TREASURY BILLS............ 5,995,548
---------
U.S. GOVERNMENT AGENCY SECURITIES - 5.3%
PRINCIPAL
SECURITY DESCRIPTION AMOUNT ($) VALUE ($)
-------------------- ---------- ---------
FEDERAL HOME LOAN BANK - 5.3%
1.795%, 5/17/05 (c).................. 1,000,000 1,000,671
---------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES................... 1,000,671
---------
REPURCHASE AGREEMENTS - 13.9%
Bear Stearns, 1.02% purchased on 3/31/04,
due 4/01/04 with maturity value of $2,618,246
(collateralized fully by U.S. Treasury
Bond, 9.0% 11/15/18) ........................ 2,618,172 2,618,172
----------
TOTAL REPURCHASE AGREEMENTS.................. 2,618,172
----------
TOTAL INVESTMENTS
(COST $18,835,810) (a) - 102.3%............ 19,249,665
----------
Percentages indicated are based on net assets of $18,824,194.
(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 purposes in excess of federal income tax reporting
of approximately $57,657. Cost for federal income tax purposes differs
from value by net unrealized appreciation of securities as follows:
Unrealized appreciation.......... $438,706
Unrealized depreciation.......... (82,508)
--------
Net unrealized appreciation...... $356,198
========
(b) Represents non-income producing security.
(c) Securities pledged with a broker as collateral for short sales. ADR -
American Depositary Receipt
SECURITIES SOLD SHORT - 12.1%
COMMON STOCKS - 12.1%
SECURITY DESCRIPTION SHARES VALUE ($)
- -------------------------------------- ------ ---------
COMMUNICATIONS - 0.6%
Corning, Inc. (b)..................... 10,000 111,800
---------
CONSUMER CYCLICAL - 5.7%
AnnTaylor Stores Corp. (b)............ 5,000 214,000
Herman Miller, Inc. .................. 9,500 252,985
Navistar International Corp. (b)...... 13,000 596,050
---------
1,063,035
---------
FINANCIAL - 0.7%
Host Marriott Corp. (b)............... 10,000 127,800
---------
TECHNOLOGY - 5.1%
KLA-Tencor Corp. (b).................. 4,000 201,400
Network Appliance, Inc. (b)........... 16,000 343,200
Nvidia Corp. (b)...................... 16,000 423,840
---------
968,440
---------
TOTAL COMMON STOCKS................... 2,271,075
---------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $2,215,732) - 12.1%........ 2,271,075
=========
See notes for financial statements.
37
1ST SOURCE MONOGRAM FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
LONG/SHORT FUND MARCH 31, 2004
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2004
ASSETS:
Investments, at value
(cost $16,217,638) ...................... $ 16,631,493
Repurchase agreements, at cost ............. 2,618,172
-------------
Total investments ....................... 19,249,665
Deposits with broker for
securities sold short ................... 1,616,009
Interest and dividends receivable .......... 39,743
Receivable for investments sold ............ 210,592
Prepaid expenses and other assets .......... 8,946
-------------
TOTAL ASSETS 21,124,955
LIABILITIES:
Securities sold short
(proceeds $2,215,732) ................... $ 2,271,075
Accrued expenses and other payables:
Investment advisory ..................... 17,168
Administration .......................... 3,703
Other ................................... 8,815
-------------
TOTAL LIABILITIES .......................... 2,300,761
-------------
NET ASSETS ................................. $ 18,824,194
=============
COMPOSITION OF NET ASSETS:
Capital ................................... $ 18,005,314
Undistributed net investment income ........ 6,052
Accumulated net realized gains from
investment transactions and securities
sold short .............................. 454,316
Unrealized appreciation from investments
and securities sold short................ 358,512
-------------
NET ASSETS.................................. $ 18,824,194
=============
Shares Outstanding (par value $0.01,
unlimited number of authorized shares)... 1,777,795
=============
Net Asset Value, Offering and Redemption
Price per share.......................... $ 10.59
=============
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 2004 (a)
INVESTMENT INCOME:
Interest .................................... $ 14,049
Dividend .................................... 146,758
--------
TOTAL INVESTMENT INCOME: .................. 160,807
EXPENSES:
Investment advisory ...................... $94,573
Administration ............................ 17,195
Distribution ............................. 21,494
Accounting ................................ 6,165
Custodian ................................. 7,076
Transfer agent ............................ 10,172
Trustee ................................... 517
Dividend expense on
securities sold short ................... 5,192
Other ..................................... 11,952
-------
Total expenses before fee reductions ...... 174,336
Distribution fees voluntarily reduced ..... (21,494)
--------
NET EXPENSES .............................. 152,842
--------
NET INVESTMENT INCOME ........................ 7,965
--------
NET REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND SECURITIES SOLD SHORT
Realized gains from investment
transactions .............................. 737,188
Realized losses from securities sold short ... (250,219)
Change in unrealized appreciation
(depreciation)from investments and
securities sold short .................... 358,512
--------
Net realized/unrealized gains from
investments and securities sold short ..... 845,481
--------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS ................................ $853,446
========
(a) The Long/Short Fund commenced operations on August 1, 2003.
See notes to financial statements.
38
1ST SOURCE MONOGRAM FUNDS
LONG/SHORT FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED
MARCH 31,
2004 (a)
--------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income ........................................................................... $ 7,965
Realized gains from investment transactions and securities sold short ........................... 486,969
Change in unrealized appreciation (depreciation) from investments and securities sold short ..... 358,512
--------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS ..................................................... 853,446
--------------------
DISTRIBUTIONS:
From net investment income ...................................................................... (7,231)
From net realized gains ......................................................................... (27,335)
--------------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DISTRIBUTIONS ................................................ (34,566)
--------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ..................................................................... 19,163,841
Dividends reinvested ............................................................................ 30,001
Cost of shares redeemed ......................................................................... (1,188,528)
--------------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............................................... 18,005,314
--------------------
CHANGE IN NET ASSETS ............................................................................... 18,824,194
NET ASSETS:
Beginning of period ............................................................................. --
--------------------
End of period ................................................................................... $ 18,824,194
====================
SHARE TRANSACTIONS:
Issued .......................................................................................... 1,889,278
Reinvested ...................................................................................... 2,874
Redeemed ........................................................................................ (114,357)
--------------------
CHANGE IN SHARES ................................................................................... 1,777,795
====================
Undistributed net investment income ................................................................ $ 6,052
====================
(a) The Long/Short Fund commenced operations on August 1, 2003.
See notes to financial statements.
39
1ST SOURCE MONOGRAM FUNDS
LONG/SHORT FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
FOR THE PERIOD
ENDED MARCH 31,
2004 (a)
---------------
NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 10.00
---------------
INVESTMENT ACTIVITIES:
Net investment income .................................. 0.00 (b)
Net realized and unrealized gains
from investments and securities sold short ................ 0.61
---------------
Total from investment activities .......................... 0.61
---------------
DISTRIBUTIONS:
Net investment income ..................................... (0.00)(b)
Net realized gains ........................................ (0.02)
---------------
Total distributions ....................................... (0.02)
---------------
NET ASSET VALUE, END OF PERIOD ............................ $ 10.59
===============
TOTAL RETURN ............................................. 6.14%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ......................... $ 18,824
Ratio of expenses to average net assets ................... 1.77%(d)
Ratio of net investment income to average net assets ...... 0.09%(d)
Ratio of expenses to average net assets (e) ............... 2.02%(d)
Portfolio turnover ........................................ 120%(c)
(a) The Long/Short Fund commenced operations on August 1, 2003.
(b) Amount is less than $0.005 per share.
(c) Not Annualized.
(d) Annualized.
(e) During the period, certain fees were voluntarily reduced. If such fee
reductions had not occurred, the ratio would have been as indicated.
See notes to financial statements.
40
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
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 an open-end management investment
company. The Group contains the following 1st Source Monogram Funds
(individually a "Fund," collectively the "Funds"):
FUND SHORT NAME
---- -----------
1st Source Monogram Income Equity Fund Income Equity Fund
1st Source Monogram Diversified Equity Fund Diversified Equity Fund
1st Source Monogram Special Equity Fund Special Equity Fund
1st Source Monogram Income Fund Income Fund
1st Source Monogram Long/Short Fund Long/Short Fund
Financial statements for all other series of the Group are published
separately.
Under the Group's organizational documents, its officers and of trustees
are indemnified against certain liabilities arising out the performance of their
duties to the Group. In addition, in the normal course of business, the Group
enters into contracts with their vendors and others that provide for general
indemnifications. Each Fund's maximum explosure under these arrangements is
unknown, as this would involve future claims that may be made against a Fund.
However, based on experience, the Funds expect that risk of loss to be remote.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Funds in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of financial statements requires management to
make estimates and assumptions that may affect the reported amounts of income
and expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
The value of each equity security is based either on the last sale price
on a national securities exchange, or in the absence of recorded sales, at the
closing bid prices on such exchanges, or at the quoted bid price in the
over-the-counter market. Equity securities traded on the NASDAQ stock market are
valued at the NASDAQ official closing price. Securities or other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or at the direction of the Group's Board of
Trustees.
Bonds and other fixed income securities (other than short-term obligations
but including listed issues) are valued on the basis of valuations furnished by
a pricing service, the use of which has been approved by the Group's Board of
Trustees. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue, and
trading characteristics other than market data and without exclusive reliance
upon quoted prices or exchanges or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. All debt portfolio securities with a remaining maturity of 60 days
or less are valued at amortized cost, which approximates market value. Under the
amortized cost method, discount or premium, if any, is accreted or amortized,
respectively, on a constant (straight-line) basis to the maturity of the
security.
REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements with a bank or
broker-dealers which the Advisor deems creditworthy. The repurchase price
generally equals 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, is
required to maintain the collateral held pursuant to the agreement, with a
market value equal to or greater than the repurchase price (including accrued
interest). Collateral subject to repurchase agreements is held by the Funds'
custodian or another qualification custodian or in the Federal Reserve/Treasury
book-entry system. If the counterparty defaults, and the fair value of the
collateral declines, realization of the collateral by the Funds may be delayed
or limited.
Continued
41
1ST SOURCE MONOGRAM FUNDS
WRITTEN OPTIONS:
The Funds may write covered call or secured put options for which premiums
received are recorded as liabilities and are subsequently adjusted to the
current value of the options written. Premiums received from writing options
that expire are treated as realized gains. Premiums received from writing
options, which are either exercised or closed, are offset against the proceeds
received or amount paid on the transaction to determine realized gains or
losses.
The following is a summary of option activity for the year ended March 31,
2004, for the Special Equity Fund:
NUMBER OF PREMIUMS
COVERED CALL OPTIONS CONTRACTS RECEIVED
-------------------- --------- --------
Options outstanding as of March 31, 2003 ...... 40,000 $ 43,147
Options expired. .............................. (40,000) (43,147)
--------- --------
Options outstanding as of March 31, 2004 ...... -- $ --
========= ========
SECURITY TRANSACTIONS AND RELATED INCOME:
Changes in holdings of portfolio securities shall be reflected no later
than in the first calculation on the first business day following the trade
date. However, for financial reporting purposes, portfolio securities
transactions are reported on trade date. Securities gains and losses are
calculated on the identified cost basis. Interest income is recognized on the
accrual basis and includes, where applicable, the amortization or accretion of a
premium or discount. Dividend income is recorded on the ex-dividend date.
SHORT SALES TRANSACTIONS:
The Long/Short Fund may engage in short sales (selling securities it does
not own) as part of its normal investment activities. These short sales are
collateralized by cash deposits and securities with the applicable counterparty
broker. The collateral required is determined daily by reference to the market
value of the short positions. Such collateral for the Fund is held by one
broker. Dividend expense on short sales is treated as an expense on the
Statement of Operations. Liabilities for securities sold short are reported at
market value in the financial statements. Such liabilities are subject to
off-balance sheet risk to the extent of any future increases in market value of
the securities sold short. The ultimate liability for securities sold short
could exceed the liabilities recorded in the Statement of Assets and
Liabilities. Liabilities for securities sold short are closed out by purchasing
the applicable securities for delivery to the counterparty broker.
EXPENSES:
Expenses directly attributable to a Fund are charged directly to the Fund.
Expenses relating to the Group are allocated proportionately to each Fund within
the Group according to the relative net assets of each Fund or on another
reasonable basis.
OFFERING COSTS:
Expenses incurred in connection with the offering of fund shares (such as
drafting of registration statements and agreements) for the Long/Short Fund were
paid by the Fund and equalled $10,500. Such expenses are being amortized over a
12-month period starting with the commencement of operations.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income, if any, are declared and distributed
monthly for the Income Equity Fund, Diversified Equity Fund and Income Fund.
Dividends for the Special Equity Fund and Long/Short Fund are declared and
distributed quarterly. Dividends from net realized gains, if any, are declared
and distributed annually for all Funds.
The amount of dividends from net investment income and net realized gains
are determined in accordance with federal income tax regulations which may
differ from GAAP. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in nature
(i.e. reclassification of market discounts, gain/loss, paydowns, and
distributions), such amounts are reclassified to paid-in capital; temporary
differences do not require reclassification.
Continued
42
1ST SOURCE MONOGRAM FUNDS
FEDERAL INCOME TAXES:
Each Fund is a separate taxable entity for federal tax purposes. Each Fund
has qualified and intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code, as amended, and to
distribute substantially all of their taxable net investment income and net
realized gains, if any, to their shareholders. Accordingly, no provision for
federal income or excise tax is required.
3. RELATED PARTY TRANSACTIONS:
INVESTMENT ADVISOR:
The Funds and 1st Source Corporation Investment Advisors, Inc., (the
"Advisor"), a wholly owned subsidiary of 1st Source Bank, are parties to an
Investment Advisory Agreement under which the Advisor is entitled to receive an
annual fee, computed daily and paid monthly, equal to the average daily net
assets of each Fund, at the following annual percentage rates:
FUND FEE RATE
---- --------
Income Equity Fund ............ 0.80%
Diversified Equity Fund ....... 0.99
Special Equity Fund ........... 0.80
Income Fund ................... 0.55
Long/Short Fund ............... 1.10
ADMINISTRATION:
The Funds and BISYS Fund Services Ohio, Inc. (the "Administrator"), a
wholly owned subsidiary of The BISYS Group, Inc., are parties to an
Administration Agreement under which the Administrator provides services for a
fee that is computed daily and paid monthly at an annual rate of 0.20% of the
average daily net assets of each Fund. Certain officers and trustees of the
Group are also officers of the Administrator and are paid no fees directly by
the Funds for serving as officers of the Group. The Administrator also provides
fund accounting and transfer agency services to the Funds pursuant to certain
fee arrangements, as reflected in the Statement of Operations. The Administrator
may use its fees to pay advertising and marketing expenses for the benefit of
the Funds.
DISTRIBUTION:
The Funds and BISYS Fund Services Limited Partnership (the "Distributor"),
a wholly owned subsidiary of The BISYS Group, Inc., are parties to a
Distribution Agreement under which shares of the Funds are sold on a continuous
basis. The Group has adopted a Distribution and Shareholder Service Plan in
accordance with Rule 12b-1 under the 1940 Act, pursuant to which each Fund is
authorized to pay the Distributor a periodic amount, calculated at an annual
rate not to exceed 0.25% of the average daily net asset value of each Fund.
These fees may be used by the Distributor to pay banks, including affiliates of
the Advisor, broker-dealers and other institutions, or to pay the Distributor or
its affiliates, for distribution and shareholder services in connection with the
distribution of Fund shares. For the year ended March 31, 2004, the distribution
fees were voluntarily waived to limit total fund operating expenses.
4. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of investment securities, excluding short-term
securities and securities sold short, for the year or period ended March 31,
2004, as applicable, totaled:
PURCHASES SALES
--------- ------
Income Equity Fund ................ $20,237,790 $14,843,440
Diversified Equity Fund ........... 20,249,219 15,314,988
Special Equity Fund ............... 95,738,503 86,234,943
Income Fund ....................... 49,211,404 40,719,297
Long/Short Fund ................... 17,194,822 7,713,140
Continued
43
1ST SOURCE MONOGRAM FUNDS
5. FEDERAL INCOME TAX INFORMATION:
The tax character of distributions paid during the fiscal year ended March 31,
2004 was as follows:
DISTRIBUTIONS PAID FROM
-----------------------
ORDINARY NET LONG TERM TOTAL TAXABLE TAX RETURN TOTAL DISTRIBUTIONS
INCOME CAPITAL GAINS DISTRIBUTIONS OF CAPITAL PAID
---------- ------------- ------------- ---------- -------------------
Income Equity Fund $1,134,172 $ 514,136 $ 1,648,308 $ - $ 1,648,308
Diversified Equity Fund 2,111 - 2,111 - 2,111
Income Fund 2,889,797 - 2,889,797 - 2,889,797
Long/Short Fund 39,884 85 39,969 - 39,969
The tax character of distributions paid during the fiscal year ended March 31,
2003 was as follows:
DISTRIBUTIONS PAID FROM
-----------------------
ORDINARY NET LONG TERM TOTAL TAXABLE TAX RETURN TOTAL DISTRIBUTION
INCOME CAPITAL GAINS DISTRIBUTIONS OF CAPITAL PAID
---------- ------------- ------------- ---------- -------------------
Income Equity Fund $ 987,809 $ 438,367 $ 1,426,176 $ 13,029 $ 1,439,205
Special Equity Fund 2,046,937 863,320 2,910,257 - 2,910,257
Income Fund 2,997,773 - 2,997,773 - 2,997,773
As of March 31, 2004 the components of accumulated earnings (deficit) on a tax
basis was as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG ACCUMULATED UNREALIZED
ORDINARY TERM CAPITAL ACCUMULATED CAPITAL AND OTHER APPRECIATION/ TOTAL ACCUMULATED
INCOME GAINS EARNINGS LOSSES (DEPRECIATION)(1) EARNINGS/(DEFICIT)
------------- ------------------ ----------- ----------------- ----------------- ------------------
Income Equity Fund $ 603,744 $ 295,352 $ 899,096 $ - $ 13,779,223 $ 14,678,319
Diversified Equity Fund - - - (11,995,880) 4,687,073 (7,308,807)
Special Equity Fund - 11,315,312 11,315,312 - 1,457,437 12,772,749
Income Fund 51,239 - 51,239 (743,428) 788,033 95,844
Long/Short Fund 518,025 - 518,025 - 300,855 818,880
(1) The differences between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to: tax deferral of losses on wash
sales, the realization for tax purposes of unrealized gains/losses on certain
derivative instruments, the difference between book and tax amortization methods
for premium and market discount, and the return of capital adjustments from real
estate investment trusts.
As of March 31, 2004, the following Funds had net capital loss carryforwards,
which are available to offset future realized gains.
AMOUNT EXPIRES
------ -------
Diversified Equity Fund $4,920,122 2010
5,811,129 2011
1,264,629 2012
Income Fund 743,428 2009
44
1ST SOURCE MONOGRAM FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
1st Source Monogram Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of 1st Source Monogram Income Equity
Fund, 1st Source Monogram Diversified Equity Fund, 1st Source Monogram Special
Equity Fund, 1st Source Monogram Income Fund and 1st Source Monogram Long/Short
Fund (five separate portfolios constituting 1st Source Monogram Funds, hereafter
referred to as the "Funds") at March 31, 2004, and the results of their
operations, the changes in their net assets and the financial highlights for
each of the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States), which require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at March 31, 2004 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
May 19, 2004
45
1ST SOURCE MONOGRAM FUNDS
ADDITIONAL INFORMATION
FEDERAL INCOME TAX INFORMATION:
During the fiscal year ended March 31, 2004, the Funds declared long-term
realized gain distributions in the following amounts:
15% CAPITAL GAINS
-----------------
Income Equity Fund 514,136
Long/Short Fund 85
For the fiscal year ended March 31, 2004, the following percentage of the total
ordinary income dividends paid by the Funds qualify for the dividends received
deduction available to corporate shareholders .
DIVIDENDS RECEIVED DEDUCTION
----------------------------
Income Equity Fund 95%
Long/Short Fund 16%
For the fiscal year ended March 31, 2004, distributions paid by the Funds may be
subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax
Relief Act of 2003. The Funds intend to designate the maximum amount allowable
as taxed at a maximum rate of 15%. Complete information will be reported in
conjunction with your 2003 Form 1099-DIV.
AMOUNT
------
Income Equity Fund $1,134,172
Diversified Equity Fund 2,111
Long/Short Fund 34,566
PROXY VOTING:
The Board of Trustees of the Group has adopted a proxy voting policy and
procedure (the "Group Policy"), pursuant to which the Trustees have delegated
proxy voting responsibility to the Advisor and adopted the Advisor's proxy
voting policies and procedures (the "Policy") which are described below. The
Trustees will review each Fund's proxy voting records from time to time and will
annually consider approving the Policy for the upcoming year. In the event that
a conflict of interest arises between the Fund's Shareholders and the Advisor or
any of its affiliates or any affiliate of the Fund, the Advisor will generally
refrain from voting the proxies related to the companies giving rise to such
conflict until it consults with the Board of Trustees. A Committee of the Board
with responsibility for proxy oversight will instruct the Advisor on the
appropriate course of action.
The Policy is designed to promote accountability of a company's management to
its shareholders and to align the interests of management with those
shareholders. The Advisor generally reviews each matter on a case-by-case basis
in order to make a determination of how to vote in a manner that best serves the
interests of Fund shareholders. The Advisor may abstain from voting from time to
time where it determines that the costs associated with voting a proxy outweigh
the benefits derived from exercising the right to vote. In addition, the Advisor
will monitor situations that may result in a conflict of interest between the
Fund's shareholders and the Advisor or any of its affiliate or any affiliate of
the Fund by maintaining a list of significant existing and prospective corporate
clients. Effective August 31, 2004, information on how the Fund voted proxies
relating to portfolio securities during the 12 month period ended June 30, 2004
will be available (1) without charge, upon request, by calling 1-800-262-1122,
and (2) on the Securities and Exchange Commission's website at
http://www.sec.gov.
The above information is not covered by the Report of Independent Registered
Public Accounting Firm.
46
1ST SOURCE MONOGRAM FUNDS
TRUSTEES AND OFFICERS
TERM OF PRINCIPAL
NAME, ADDRESS POSITION(S) OFFICE AND OCCUPATION(S)
AND HELD WITH LENGTH OF DURING FIVE
AGE THE FUNDS TIME SERVED* YEARS
- ----------------------------- ------------------- --------------------- ---------------------------------
INTERESTED TRUSTEES
Walter B. Grimm Trustee Trustee since 1999. From June 1992 to
3435 Stelzer Road present, employee of
Columbus, Ohio 43219 BISYS Fund Service.
Age: 58
R. Jeffrey Young Chairman, President Chairman and From 1993 to
3435 Stelzer Road and Trustee Trustee since 1999. present, employee of
Columbus, Ohio 43219 President since 2003. BISYS Fund Service.
Age: 39
INDEPENDENT TRUSTEES
Maurice G. Stark Trustee Since 1992. Retired.
3435 Stelzer Road
Columbus, Ohio 43219
Age: 68
Michael M. Van Buskirk Trustee Since 1992. From June 1991 to
3435 Stelzer Road present, employee of
Columbus, Ohio 43219 and currently President
Age: 56 of The Ohio Bankers'
League (trade association)
John H. Ferring IV Trustee Since 1998. From 1979 to present,
3435 Stelzer Road President and Owner of Plaze,
Columbus, Ohio 43219 Incorporated, Clair, Missouri
Age: 51 (packaging manufacturer).
OFFICERS WHO ARE NOT TRUSTEES
Lara Bocskey Vice President Since 2002. From 1998 to present, employee of
3435 Stelzer Road BISYS Fund Services.
Columbus, Ohio 43219
Age: 34
Nadeem Yousaf Treasurer Since 1999. From August 1999 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from March 1997 to June 1999,
Age: 35 employee of
Investors Bank and Trust.
George L. Stevens Secretary Since 1996. From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 53
Alaina V. Metz Assistant Secretary Since 1995. From June 1995 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 36
NUMBER OF FUNDS OTHER
NAME, ADDRESS IN FUND COMPLEX DIRECTORSHIPS
AND OVERSEEN BY HELD BY
AGE TRUSTEE TRUSTEE
- ---------------------------- --------------- ---------------
INTERESTED TRUSTEES
Walter B. Grimm 16 American
3435 Stelzer Road Performance
Columbus, Ohio 43219 Funds
Age: 58
R. Jeffrey Young 16 N/A
3435 Stelzer Road
Columbus, Ohio 43219
Age: 39
INDEPENDENT TRUSTEES
Maurice G. Stark 16 N/A
3435 Stelzer Road
Columbus, Ohio 43219
Age: 68
Michael M. Van Buskirk 16 BISYS Variable
3435 Stelzer Road Insurance Funds
Columbus, Ohio 43219
Age: 56
John H. Ferring IV 16 N/A
3435 Stelzer Road
Columbus, Ohio 43219
Age: 51
OFFICERS WHO ARE NOT TRUSTEE
Lara Bocskey
3435 Stelzer Road
Columbus, Ohio 43219
Age: 34
Nadeem Yousaf
3435 Stelzer Road
Columbus, Ohio 43219
Age: 35
George L. Stevens
3435 Stelzer Road
Columbus, Ohio 43219
Age: 53
Alaina V. Metz
3435 Stelzer Road
Columbus, Ohio 43219
Age: 36
*There is no defined term of office for Trustees of the Group.
The above information is not covered by the Report of Independent Registered
Public Accounting Firm.
47
[MONOGRAM LOGO]
INVESTMENT ADVISOR
1ST SOURCE CORPORATION INVESTMENT ADVISORS, INC.
100 NORTH MICHIGAN STREET
SOUTH BEND, IN 46601
DISTRIBUTOR
BISYS FUND SERVICES
3435 STELZER ROAD
COLUMBUS, OH 43219
FOR ADDITIONAL INFORMATION, CALL:
1-800-766-8938
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED
BY A CURRENT PROSPECTUS.
FSMAR 05/04
[LOGO] BOSTON TRUST INVESTMENT MANAGEMENT, INC
BOSTON BALANCED FUND
BOSTON EQUITY FUND
ANNUAL REPORT
March 31, 2004
[LOGO] BOSTON TRUST INVESTMENT MANAGEMENT, INC
ANNUAL REPORT
Table of Contents March 31, 2004
Boston Balanced Fund
Market and Performance Review......................................... 1
Investment Performance................................................ 3
Schedule of Portfolio Investments..................................... 4
Financial Statements.................................................. 6
Financial Highlights.................................................. 8
Boston Equity Fund
Market and Performance Review......................................... 9
Investment Performance................................................ 11
Schedule of Portfolio Investments..................................... 12
Financial Statements.................................................. 13
Financial Highlights.................................................. 15
Notes to Financial Statements.............................................. 16
Report of Independent Certified Public Accountants......................... 19
Trustees & Officers........................................................ 20
[LOGO] BOSTON TRUST INVESTMENT MANAGEMENT, INC
Market and Performance BOSTON BALANCED FUND
Review (unaudited) Manager Commentary by Domenic Colasacco
INVESTMENT CONCERNS:
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes. Common stocks, and funds
investing in common stocks, generally provide greater return potential when
compared with other types of investments. Bonds offer a relatively stable level
of income, although bond prices will fluctuate providing the potential for
principal gain or loss. Intermediate-term, higher-quality bonds generally offer
less risk than longer-term bonds and a lower rate of return.
MARKET & PERFORMANCE SUMMARY
A securely fastened emotional seat belt was especially useful through the
volatile financial markets of recent years. The second half of 2003 was a
welcome respite from unpleasant economic and political surprises, and the
relatively smooth economic and financial journey has continued thus far in 2004.
Gross Domestic Product (the measure of the market value of the goods and
services produced by labor and property in the United States) and corporate
profits both expanded in line with most forecasts in the first quarter, and
interest rates remained near the low levels that prevailed at year-end. The most
disappointing economic news in recent months involved the anemic level of job
creation, but that was hardly a major surprise given the lackluster 2003 trend.
The domestic political scene and emerging debate also unfolded well within most
market expectations. Presumed Democratic nominee Kerry has attributed the
skyrocketing Federal budget deficit to President Bush's economic
irresponsibility, while President Bush has already characterized Senator Kerry
as a classic tax and spend liberal. On the global political front, the Senator
accuses the President of alienating our allies and bungling the Iraq war and
restoration, while the President labels the Senator as vacillating on key
positions and soft on defense - political stances that are neither new nor
surprising.
Within the welcome blandness of the recent domestic economic and political
environment, Boston Balanced Fund increased by 18.61% for the year ended March
31, 2004.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL US AT 1.800.282.8782 EXT. 7253.
The modest shortfall in Fund performance relative to the Lipper Balanced Funds
Average came from the equity segment and primarily reflects the high quality,
conservative approach employed by the Fund. Stocks of smaller and more
aggressive companies led the market advance over this period, particularly of
those firms that operate in the technology and telecommunications sectors, both
of which are underrepresented in the Fund. This type of disparity is typical
during periods of rapid economic and stock market gains. We are confident that
the Fund's emphasis on stocks of well-established companies with proven sales
and earnings trends may lead to an attractive risk/return balance over the long
term.
During the period, we kept the equity allocation of Boston Balanced at roughly
70% of total assets, with the remaining 30% comprised primarily of high quality,
short-term bonds, and Treasury Inflation Protected Securities - so called TIPS.
In light of our still favorable economic assessment and historically low bond
yields, we expect to continue to favor stocks rather than bonds in the months
ahead. Our economic and market views are outlined in more detail in the Economic
Summary and Investment Strategy segments that follow.
ECONOMIC SUMMARY & OUTLOOK
Not only were there few material surprises in the first quarter economic
reports, but the fundamental economic question we outlined in our year-end
report also remains the same. Specifically, more pessimistic economists (and
most political candidates who seek to replace incumbents) still argue that
1
Market and Performance BOSTON BALANCED FUND
Review (cont.) Manager Commentary by Domenic Colasacco
we are in a short-lived, jobless recovery, fueled by last year's mortgage
refinancings and unbalanced tax cuts. More sanguine forecasters opine that the
2003 Federal tax cut together with low interest rates will lift the previously
low level of consumer and business confidence sufficiently to foster capital
investment and innovation, and support an extended period of economic
well-being. The answer to this debate will become more evident as the year
progresses, and will no doubt have a major influence on the fall elections.
Politics aside, our own assessment for the year ahead remains on the more
optimistic side of the economic debate. We are most encouraged by the continued
strong improvement in productivity and a rise in the level of business capital
investment. Both should contribute to the retention of a low rate of inflation
in the quarters and years ahead, which in turn may allow the Federal Reserve
greater latitude with respect to raising interest rates. We also expect better
news on job creation in the months ahead. Even if the news on new jobs is not
particularly positive, however, it is important to recognize that corporate
profits, which are the primary driver of stock prices, should continue to
increase. The reason lies in the benefit corporate profit margins receive from
relatively stable unit labor costs that result from strong productivity gains.
If our economic optimism proves correct, stock values should trend higher for
the balance of 2004.
INVESTMENT STRATEGY
The essence of investment strategy involves an assessment of prevailing stock
and bond values in light of economic and corporate developments. We utilize
three primary components in applying our investment strategy conclusions - asset
allocation, portfolio composition, and individual security selection. We will
briefly summarize our current thoughts on each.
ASSET ALLOCATION: Our belief that the economic and corporate profit trend will
remain positive in the months ahead led us to retain the Fund's equity
allocation near the top of its typical range through the past quarter.
Historically low interest rates also contributed to our preference for stocks
rather than bonds or money market instruments. From the current equity
allocation level of just over 70%, the next significant shift will be downward,
but not until either a deterioration in business conditions appears likely or
stock prices reach unsustainable valuations such as occurred during the latter
part of 1999 and early 2000.
As always, we will strive to anticipate such conditions and to protect the
Fund's unit value. I caution, as I did in my year-end 2003 report, that the
combination of high (if reasonable) absolute stock prices and low interest rates
mean that loss avoidance will be more difficult to achieve in the future than it
has been since the Fund's inception in 1995. If your financial circumstances
have changed to the point where the level of risk inherent in the Fund's
investments is no longer appropriate or comfortable for you, or if you are just
not sure, please call us. We would welcome an opportunity to talk with you about
ways to reduce your risk exposure.
PORTFOLIO COMPOSITION & SECURITY SELECTION: We made comparatively few changes in
the compositions of either the bond or the equity segments during the quarter.
TIPS, which we believe offer the best risk/return trade-off in the current low
interest rate environment, represent roughly one-half of the bond allocation.
Among stocks, financial and health-care issues have the largest sector weights
at roughly 27% and just over 17%, respectively. Although they have performed
competitively, we continue to find many banking and insurance issues with
reasonable valuations, while health-care should benefit from favorable
demographics and innovation for many years to come. Conversely, a combination of
high valuations and greater concern about the sustainability of profit growth
has led us once again to comparative underweights in both technology and
telecommunications. Please refer to the complete list of holdings beginning on
page 4 of this report.
On behalf of Boston Trust, we are very pleased to announce that the senior
managers recently signed an agreement to purchase 100% of the equity of our firm
from Citizens Financial Group. Please refer to Footnote No. 6 of the financial
statements for additional information.
Thank you for your continued confidence in our services. Please feel free to
contact us at (617) 726-7252 should you have any questions about our investment
views or your account.
/s/ Domenic Colasacco
Domenic Colasacco
Portfolio Manager and President
Boston Trust Investment Management, Inc.
2
BOSTON BALANCED FUND
Investment Performance (unaudited) March 31, 2004
Fund Net Asset Value: $27.63
ANNUALIZED
------------------------------------------
QUARTER SINCE INCEPTION
TO DATE 1 YEAR 5 YEARS DECEMBER 1, 1995
BOSTON BALANCED FUND* 1.88% 18.61% 3.60% 9.29%
Lipper Balanced Funds Average** 2.08% 23.86% 2.50% 7.33%
Standard & Poor's 500 Stock Index** 1.69% 35.10% -1.20% 9.46%
Lehman Brothers Government/Credit Bond Index** 3.08% 6.15% 7.56% 7.20%
90-Day U.S. Treasury Bills** 0.23% 0.97% 3.16% 3.90%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL
1-888-282-8782 EXT. 7253.
*After all expenses at an annual rate of 1.00%, the adviser's expense
limitation.
**Performance is calculated from November 30, 1995.
[PERFORMANCE GRAPH]
90-Day U.S. Treasury Bills Lehman Brothers Gov't./Credit Bond Index
Lipper Balanced Funds Average Boston Balanced Fund S&P 500 Stock Index
- -------------------------------------------------------------------------------
<Table>
12/01/95 10000 10000 10000 10000 10000
12/31/95 10041 10147 10144 10123 10193
10087 10211 10334 10314 10539
10126 9994 10364 10254 10637
10166 9910 10399 10265 10740
10210 9842 10499 10298 10898
10253 9825 10636 10456 11178
10294 9957 10649 10510 11221
10342 9980 10354 10233 10726
10385 9955 10541 10380 10952
10430 10132 10939 10875 11568
10474 10369 11147 11087 11887
10515 10560 11653 11729 12785
12/31/96 10561 10442 11536 11584 12531
10606 10454 11883 12051 13314
10646 10476 11895 12173 13418
10692 10352 11547 11773 12868
10738 10503 11885 12324 13636
10782 10601 12412 12774 14469
10827 10729 12787 13180 15112
10873 11057 13529 13858 16315
10917 10933 13168 13330 15401
10965 11105 13688 13931 16244
11011 11282 13462 13753 15702
11054 11342 13689 14314 16429
12/31/97 11106 11461 13889 14718 16711
11152 11622 13980 15005 16895
11195 11599 14571 15765 18113
11244 11635 14991 16381 19040
11290 11693 15097 16588 19235
11335 11819 14929 16260 18905
11384 11939 15168 16813 19672
11431 11948 14972 16485 19464
11479 12182 13645 15040 16652
11522 12530 14235 15782 17720
11559 12442 14837 16611 19159
11602 12516 15407 17106 20320
12/31/98 11645 12547 15983 17555 21490
11685 12636 16282 17841 22388
11725 12335 15837 17318 21692
11772 12397 16244 17568 22560
11813 12427 16718 18115 23434
11854 12299 16473 17890 22881
11902 12261 16949 18383 24147
11947 12227 16616 17926 23397
11996 12217 16409 17841 23281
12041 12327 16194 17452 22643
12088 12359 16677 18012 24076
12141 12352 16902 18097 24565
12/31/99 12194 12277 17463 18357 26010
12249 12274 16991 17778 24703
12303 12427 17052 17346 24236
12362 12607 17996 18370 26605
12416 12546 17644 18268 25805
12480 12534 17403 17944 25276
12538 12790 17764 18325 25899
12601 12926 17720 17956 25494
12666 13108 18557 18669 27077
12727 13157 18106 18185 25648
12795 13240 18032 18465 25539
12860 13466 17299 18014 23527
12/31/00 12918 13732 17727 18424 23642
12979 13962 18151 18487 24481
13028 14106 17336 17903 22250
13075 14171 16721 17452 20841
13118 14065 17457 17839 22459
13158 14146 17592 18043 22610
13195 14214 17353 17811 22060
13235 14568 17330 18107 21843
13273 14755 16795 17741 20477
13302 14891 15886 17240 18823
13328 15269 16218 17529 19182
13348 15018 16885 17910 20654
12/31/01 13367 14900 16989 18139 20835
13385 15009 16817 18212 20531
13403 15136 16645 18358 20135
13421 14829 17003 18635 20892
13441 15117 16598 18431 19626
13460 15256 16530 18482 19482
13478 15386 15774 18037 18095
13499 15571 15004 17651 16684
13517 15920 15162 17921 16794
13536 16263 14272 17440 14970
13555 16107 14828 17782 16287
13568 16117 15382 17913 17244
12/31/02 13582 16544 14960 17897 16232
13596 16543 14735 17636 15807
13608 16838 14636 17733 15570
13622 16816 14697 17674 15721
13635 16996 15475 18210 17015
13647 17479 16174 18852 17910
13658 17409 16297 18777 18139
13668 16679 16315 18874 18459
13679 16789 16591 19105 18819
13690 17321 16588 19142 18619
13701 17102 17122 19895 19672
13711 17147 17285 20014 19845
12/31/03 13722 17316 17869 20575 20885
13732 17473 18116 20848 21268
13742 17687 18345 21068 21564
03/31/04 13754 17850 18252 20962 21238
</Table>
The chart represents a historical investment of $10,000 in the Boston Balanced
Fund from December 1, 1995, to March 31, 2004, and represents the reinvestment
of dividends and capital gains in the Fund.
The Boston Balanced Fund is compared to the Standard & Poor's 500 Stock Index
and the Lehman Brothers Government/Credit Bond Index. These indices are
unmanaged and generally representative of the U.S Stock market, U.S.
treasury/government agencies and corporate debt securities, respectively. The
performance of an index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. The
Fund's performance reflects the deduction of fees for these value-added
services. Investors cannot invest directly in an index, although they can invest
in the underlying securities.
The 90-Day U.S. Treasury Bills are represented by the U.S. Treasury Bill Total
Return Index. Treasury bills are government guaranteed and offer a fixed rate of
return. Return and principal of stocks and bonds will vary with market
conditions. Treasury bills are less volatile than longer term fixed-income
securities and are guaranteed as to timely payment of principal and interest by
the U.S. Government.
The Lipper Balanced Funds Average is an average of managed mutual funds whose
primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio
ranges around 60%/40%.
The returns shown do not reflect the deduction of taxes a shareholder would pay
on the redemption of fund shares or fund distributions.
3
BOSTON BALANCED FUND
Schedule of Portfolio Investments March 31, 2004
COMMON STOCKS (72.0%)
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- ------ ---------
BASIC MATERIALS (3.1%)
Air Products & Chemicals, Inc....... 15,000 751,800
Donaldson Co., Inc.................. 80,000 2,122,400
Ecolab, Inc......................... 75,000 2,139,750
-----------
5,013,950
-----------
CAPITAL GOODS (2.8%)
Illinois Tool Works, Inc............ 25,000 1,980,750
Precision Castparts Corp............ 40,000 1,761,200
W.W. Grainger, Inc.................. 15,000 720,000
-----------
4,461,950
-----------
CONSUMER CYCLICALS (6.0%)
Emerson Electric Co................. 25,000 1,498,000
Gannett Co., Inc.................... 30,000 2,644,200
Johnson Controls, Inc............... 50,000 2,957,500
McClatchy Co. - Class A............. 35,000 2,486,400
-----------
9,586,100
-----------
CONSUMER PRODUCTS (2.6%)
Anheuser-Busch Cos., Inc............ 50,000 2,550,000
Aptargroup, Inc..................... 40,000 1,536,000
-----------
4,086,000
-----------
CONSUMER STAPLES (8.6%)
Alberto-Culver Co................... 45,000 1,974,150
Clorox Co........................... 20,000 978,200
Costco Wholesale Corp. (b).......... 60,000 2,253,600
Hershey Foods Corp.................. 25,000 2,071,250
Kimberly-Clark Corp................. 20,000 1,262,000
Procter & Gamble Co................. 25,000 2,622,000
Sysco Corp.......................... 60,000 2,343,000
Wm. Wrigley, Jr. Co................. 5,000 295,600
-----------
13,799,800
-----------
ENERGY (2.1%)
BP PLC, ADR......................... 25,000 1,280,000
Exxon Mobil Corp.................... 50,000 2,079,500
-----------
3,359,500
-----------
FINANCIAL SERVICES (19.4%)
AmSouth Bancorporation.............. 35,000 822,850
Bank of America Corp................ 25,000 2,024,500
Cincinnati Financial Corp........... 60,000 2,607,000
Comerica, Inc....................... 20,000 1,086,400
Commerce Bancshares, Inc............ 52,500 2,504,775
Fannie Mae.......................... 20,000 1,487,000
First Midwest Bancorp, Inc.......... 30,000 1,024,200
Marsh & McLennan Cos., Inc.......... 40,000 1,852,000
MBNA Corp........................... 100,000 2,763,000
Morgan Stanley...................... 25,000 1,432,500
Northern Trust Corp................. 20,000 931,800
State Street Corp................... 25,000 1,303,250
SunTrust Banks, Inc................. 15,000 1,045,650
T. Rowe Price Group, Inc............ 40,000 2,153,200
Wachovia Corp....................... 40,000 1,880,000
Wells Fargo & Co.................... 50,000 2,833,500
Wilmington Trust Corp............... 90,000 3,363,300
-----------
31,114,925
-----------
HEALTH CARE (12.2%)
Becton, Dickinson & Co.............. 50,000 2,424,000
Biomet, Inc......................... 50,000 1,918,000
C.R. Bard, Inc...................... 30,000 2,929,200
Dentsply International, Inc......... 40,000 1,773,200
Henry Schein, Inc. (b).............. 10,000 714,200
Hillenbrand Industries, Inc......... 15,000 1,018,350
Johnson & Johnson................... 35,000 1,775,200
Medtronic, Inc...................... 40,000 1,910,000
Pfizer, Inc......................... 45,000 1,577,250
Saint Jude Medical, Inc. (b)........ 25,000 1,802,500
Stryker Corp........................ 20,000 1,770,600
-----------
19,612,500
-----------
PRODUCER PRODUCTS (3.4%)
Carlisle Cos., Inc.................. 20,000 1,133,000
General Electric Co................. 100,000 3,052,000
Teleflex, Inc....................... 25,000 1,230,750
-----------
5,415,750
-----------
RETAIL STORES (0.9%)
TJX Cos., Inc....................... 60,000 1,473,600
-----------
TECHNOLOGY (10.3%)
Applied Materials, Inc. (b)......... 80,000 1,710,400
Automatic Data Processing, Inc...... 10,000 420,000
Dell, Inc. (b)...................... 60,000 2,017,200
Diebold, Inc........................ 50,000 2,406,000
Intel Corp.......................... 90,000 2,448,000
International Business Machines Corp 25,000 2,296,000
Microsoft Corp...................... 125,000 3,121,250
Waters Corp. (b).................... 50,000 2,042,000
-----------
16,460,850
-----------
TRANSPORTATION (0.6%)
C.H. Robinson Worldwide, Inc........ 25,000 1,037,500
-----------
TOTAL COMMON STOCKS
(COST $83,898,090).................. 115,422,425
-----------
CORPORATE OBLIGATIONS (5.1%)
BASIC MATERIALS (0.2%)
Weyerhaeuser Co., 7.25%, 7/1/13..... 300,000 350,392
-----------
CONSUMER CYCLICALS (0.8%)
Eaton Corp., 8.90%, 8/15/06......... 600,000 691,340
Leggett & Platt, Inc., 6.25%,
9/9/08 (c)........................ 500,000 549,942
-----------
1,241,282
-----------
CONSUMER STAPLES (0.6%)
Albertson's, Inc., 6.66%, 7/21/08... 500,000 551,559
Sysco Corp., 6.50%, 6/15/05......... 375,000 396,270
-----------
947,829
FINANCIAL SERVICES (3.5%)
Ford Motor Credit Co., 7.20%,
6/15/07........................... 1,000,000 1,098,569
--------- -----------
General Electric Cap Corp., 7.38%,
9/15/04........................... 1,000,000 1,027,594
General Electric Cap Corp., 8.30%,
9/20/09........................... 1,000,000 1,237,097
General Motors Acceptance Corp.,
6.13%, 9/15/06.................... 825,000 882,574
Marsh & McLennan Cos., 6.63%,
6/15/04........................... 1,300,000 1,313,516
-----------
5,559,350
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $7,557,316)................... 8,098,853
-----------
Continued
4
BOSTON BALANCED FUND
Schedule of Portfolio Investments March 31, 2004
U.S. GOVERNMENT AGENCY OBLIGATIONS (21.6%)
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE ($)
-------------------- ------ ---------
FEDERAL FARM CREDIT BANK (2.9%)
6.80%, 10/12/07................................. 2,500,000 2,860,553
6.30%, 12/20/10................................. 1,500,000 1,736,559
-------------
4,597,112
-------------
U.S. TREASURY INFLATION PROTECTED BONDS (18.7%)
3.50%, 1/15/11.................................. 17,500,000 21,723,240
3.00%, 7/15/12.................................. 7,000,000 8,209,221
-------------
29,932,461
-------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST $31,051,352).................. 34,529,573
-------------
INVESTMENT COMPANIES (1.1%)
Fifth Third Institutional Government
Money Market Fund.............................. 1,796,443 1,796,443
-------------
TOTAL INVESTMENT COMPANIES
(COST $1,796,443)............................... 1,796,443
-------------
TOTAL INVESTMENTS
(COST $124,303,201) (a) - 99.8%................. 159,847,294
Other assets in excess of liabilities - 0.2% ... 354,651
-------------
NET ASSETS - 100.0%............................. $160,201,945
=============
- ------------------
Percentages indicated are based on net assets of $160,201,945.
(a) At March 31, 2004, the basis of investments for federal income tax
purposes was the same as their cost for financial reporting purposes.
Unrealized appreciation and depreciation were as follows:
Unrealized appreciation $36,235,784
Unrealized depreciation (691,691)
-----------
Net unrealized appreciation $35,544,093
===========
(b) Represents non-income producing security.
(c) Security exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers.
ADR - American Depositary Receipt
See Notes to Financial Statements
5
Financial Statements BOSTON BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004
ASSETS:
Investments, at value (cost $124,303,201).............. $ 159,847,294
Interest and dividends receivable...................... 533,877
Prepaid expenses....................................... 12,219
-------------
Total Assets.............................. 160,393,390
LIABILITIES:
Accrued expenses and other liabilities:
Investment Adviser................................. 91,724
Administration..................................... 3,923
Custodian.......................................... 2,675
Transfer Agent..................................... 1,500
Audit.............................................. 54,278
Legal.............................................. 15,913
Shareholder Reporting.............................. 14,819
Other.............................................. 6,613
-------------
Total Liabilities......................... 191,445
-------------
NET ASSETS............................................. $ 160,201,945
=============
COMPOSITION OF NET ASSETS:
Capital................................................ $ 124,800,848
Accumulated net investment income...................... 474,455
Accumulated net realized (losses) from
investment transactions....................... (617,451)
Unrealized appreciation from investments............... 35,544,093
-------------
NET ASSETS............................................. $ 160,201,945
=============
Shares outstanding (par value $0.001, unlimited
number of shares authorized).................. 5,797,523
=============
Net Asset Value, Offering Price and Redemption
Price per share............................... $ 27.63
=============
STATEMENT OF OPERATIONS
For the year ended March 31, 2004
INVESTMENT INCOME:
Interest........................................... $ 2,496,659
Dividend........................................... 1,568,064
-------------
TOTAL INVESTMENT INCOME................... 4,064,723
-------------
EXPENSES:
Investment Adviser................................. $ 1,130,964
Accounting......................................... 11,469
Administration..................................... 301,591
Auditing........................................... 29,398
Custodian.......................................... 30,197
Legal.............................................. 30,495
Shareholder Reporting.............................. 43,760
Transfer Agency.................................... 18,000
Other.............................................. 56,827
-------------
Total expenses before fee reductions...... 1,652,701
Fees reduced by the Administrator......... (75,397)
Fees reduced by the Investment Adviser ... (68,575)
-------------
NET EXPENSES.............................. 1,508,729
-------------
NET INVESTMENT INCOME.................................. 2,555,994
-------------
NET REALIZED/UNREALIZED GAINS FROM
INVESTMENTS:
Net realized gains from investment transactions........ 2,605,756
Change in unrealized appreciation/(depreciation)
from investments.............................. 20,129,868
-------------
Net realized/unrealized gains from investments......... 22,735,624
-------------
CHANGE IN NET ASSETS FROM OPERATIONS................... $ 25,291,618
=============
See Notes to Financial Statements
6
Financial Statements BOSTON BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended For the year ended
March 31, 2004 March 31, 2003
------------------ ------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................................................. $ 2,555,994 $ 2,988,258
Net realized gains (losses) from investment transactions............... 2,605,756 (1,824,404)
Change in unrealized appreciation/(depreciation) from investments...... 20,129,868 (8,027,270)
------------------ ------------------
CHANGE IN NET ASSETS FROM OPERATIONS........................................ 25,291,618 (6,863,416)
------------------ ------------------
DIVIDENDS:
Net investment income.................................................. (2,753,290) (2,900,000)
------------------ ------------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............................. (2,753,290) (2,900,000)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................................ 23,146,737 15,518,088
Dividends reinvested................................................... 2,714,363 2,854,987
Cost of shares redeemed................................................ (19,890,074) (7,479,852)
------------------ ------------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........................ 5,971,026 10,893,223
------------------ ------------------
CHANGE IN NET ASSETS........................................................ 28,509,354 1,129,807
NET ASSETS:
Beginning of year...................................................... 131,692,591 130,562,784
------------------ ------------------
End of year............................................................ $ 160,201,945 $ 131,692,591
================== ==================
SHARE TRANSACTIONS:
Issued................................................................. 893,110 641,085
Reinvested............................................................. 101,662 119,256
Redeemed............................................................... (751,828) (310,386)
------------------ ------------------
CHANGE IN SHARES............................................................ 242,944 449,955
================== ==================
See Notes to Financial Statements
7
Financial Statements BOSTON BALANCED FUND
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout the period indicated.
For the For the For the
year ended year ended year ended
March 31, 2004 March 31, 2003 March 31, 2002
--------------- --------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 23.71 $ 25.58 $ 24.77
--------------- --------------- ---------------
INVESTMENT ACTIVITIES:
Net investment income.................................. 0.43 0.57 0.55
Net realized and unrealized gains/(losses) from
investments........................................ 3.97 (1.88) 1.09
--------------- --------------- ---------------
Total from investment activities....................... 4.40 (1.31) 1.64
--------------- --------------- ---------------
DIVIDENDS:
Net investment income.................................. (0.48) (0.56) (0.59)
Net realized gains from investments.................... -- -- (0.24)
--------------- --------------- ---------------
Total dividends........................................ (0.48) (0.56) (0.83)
--------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD.............................. $ 27.63 $ 23.71 $ 25.58
=============== =============== ===============
TOTAL RETURN................................................ 18.61% (5.16%) 6.78%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000's).................... $ 160,202 $ 131,693 $ 130,563
Ratio of net expenses to average net assets............ 1.00% 1.00% 1.00%
Ratio of net investment income to average net assets .. 1.69% 2.34% 2.26%
Ratio of expenses to average net assets................ 1.10%(d) 1.07%(d) 1.09%(d)
Portfolio turnover..................................... 30.04% 20.77% 24.01%
For the For the period For the
year ended July 1, 1999 to year ended
March 31, 2001 March 31, 2000 (a) June 30, 1999
--------------- ----------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 28.89 $ 30.22 $ 29.21
--------------- ----------------- ---------------
INVESTMENT ACTIVITIES:
Net investment income.................................. 0.59 0.40 0.52
Net realized and unrealized gains/(losses) from
investments........................................ (1.91) (0.43) 2.07
--------------- ----------------- ---------------
Total from investment activities....................... (1.32) (0.03) 2.59
--------------- ----------------- ---------------
DIVIDENDS:
Net investment income.................................. (0.58) (0.54) (0.49)
Net realized gains from investments.................... (2.22) (0.76) (1.09)
--------------- ----------------- ---------------
Total dividends........................................ (2.80) (1.30) (1.58)
--------------- ----------------- ---------------
NET ASSET VALUE, END OF PERIOD.............................. $ 24.77 $ 28.89 $ 30.22
=============== =============== ===============
TOTAL RETURN................................................ (5.00%) (0.63%)(b) 9.34%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000's).................... $ 116,627 $ 136,486 $ 147,020
Ratio of net expenses to average net assets............ 1.00% 1.00%(c) 0.95%
Ratio of net investment income to average net assets .. 2.01% 1.75%(c) 1.87%
Ratio of expenses to average net assets................ 1.10%(d) 1.09%(c)(d) 0.95%
Portfolio turnover..................................... 20.17% 28.72% 23.61%
- ----------
(a) Subsequent to the annual report at June 30, 1999, the Fund changed its
fiscal year end to March 31.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
See Notes to Financial Statements
8
[LOGO] BOSTON TRUST INVESTMENT MANAGEMENT, INC
Market and Performance BOSTON EQUITY FUND
Review (unaudited) Manager Commentary by Domenic Colasacco
INVESTMENT CONCERNS:
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes. Common stocks, and funds
investing in common stocks, generally provide greater return potential when
compared with other types of investments.
MARKET & PERFORMANCE SUMMARY
After generally positive economic reports through the final months of 2003, the
first quarter of 2004 proved relatively quiet as Gross Domestic Product (the
measure of the market value of the goods and services produced by labor and
property in the United States) and corporate profits both expanded in line with
consensus forecasts and interest rates remained near the low levels prevailing
at year-end. The most disappointing economic news in recent months involved the
anemic level of job creation, but while a surprise to most forecasters, this
simply continued the lackluster trend set in 2003. The domestic political scene
and emerging debate also unfolded well within most market expectations. Presumed
Democratic nominee Kerry has attributed the skyrocketing Federal budget deficit
to President Bush's economic irresponsibility, while President Bush has already
characterized Senator Kerry as a classic tax and spend liberal. On the global
political front, the Senator accuses the President of alienating our allies and
bungling the Iraq nation building project, while the President labels the
Senator as vacillating on key positions and generally soft on defense -
political stances that are neither new nor surprising.
The Boston Equity Fund posted a 12.06% total return from its inception on
October 1, 2003 through the period end on March 31, 2004, compared to a 14.07%
total return for the Fund's benchmark, the S&P 500 Index.(1)
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL US AT 1.800.282.8782 EXT. 7253.
The modest shortfall in performance relative to the S&P 500 Index over the past
six months primarily reflects the high quality, more conservative investment
approach employed by the Fund. Stocks of smaller and more aggressive companies
led the market advance over this period, particularly of those firms that
operate in the technology and telecommunications sectors, both of which are
underrepresented in the Fund. This type of disparity in performance is typical
during periods of rapid economic and stock market gains. We are confident that
the Fund's emphasis on stocks of well-established companies with proven sales
and earnings trends will lead to an attractive risk/return balance over the long
term.
The Boston Equity Fund participated in the increase in security values over the
past six months. Our economic and market views are outlined in more detail in
the Economic Summary and Investment Strategy segments that follow.
ECONOMIC SUMMARY AND OUTLOOK
Not only were there few material surprises in the first quarter economic
reports, but the fundamental economic question has not changed since last
summer. Specifically, more pessimistic economists still argue that we are in a
short-lived, jobless recovery, fueled by last year's mortgage refinancings and
unbalanced tax cuts. More sanguine forecasters opine that the 2003 Federal tax
cut together with low interest rates will lift the previously low level of
consumer and business confidence sufficiently to foster capital investment and
innovation, supporting an extended period of economic growth. The answer to this
debate will become more evident as the year progresses and will no doubt have a
major influence on the fall elections.
Politics aside, our own assessment for the year ahead remains on
(1) The S&P 500 STOCK INDEX is generally representative of the U.S. stock
market as a whole.
9
Market and Performance BOSTON EQUITY FUND
Review (cont.) Manager Commentary by Domenic Colasacco
the more optimistic side of the economic debate. We are most encouraged by the
continued strong improvement in productivity and a rise in the level of business
capital investment. Both should contribute to the retention of a low rate of
inflation in the quarters and years ahead, thereby allowing the Federal Reserve
greater latitude with respect to raising interest rates. We also expect better
news on job creation in the months ahead. Even if the news on new jobs is not
particularly positive, however, it is important to recognize that corporate
profits, which are the primary driver of stock prices, should continue to
increase. The reason lies in the benefit corporate profit margins receive from
relatively stable unit labor costs that result from strong productivity gains.
If our economic optimism proves correct, stock prices should trend higher for
the balance of 2004.
SECURITY SELECTION
We made comparatively few changes in the composition of equity segments during
the period. Among the equity holdings of the Fund, financial and healthcare
issues have the largest sector weights. Although they have performed
competitively, we continue to find many banking and insurance issues with
reasonable valuations, while healthcare should benefit from favorable
demographics and innovation for many years to come. Conversely, a combination of
high valuations and greater concern about the sustainability of profit growth
has led us once again to comparative underweights in technology and
telecommunications companies.
On behalf of Boston Trust, we are very pleased to announce that the senior
managers recently signed an agreement to purchase 100% of the equity of our firm
from Citizens Financial Group. Please refer to Footnote No. 6 of the financial
statements for additional information.
On behalf of Boston Trust Investment Management Co., Inc., we thank you for your
continued confidence in our services. Please feel free to contact us at
617.726.7252 should you have any questions about our investment views.
/s/ Domenic Colasacco
Domenic Colasacco
Portfolio Manager and President
Boston Trust Investment Management, Inc.
10
BOSTON EQUITY FUND
Investment Performance (unaudited) March 31, 2004
Fund Net Asset Value: $11.19
AGGREGATE
---------------------------------
QUARTER SINCE INCEPTION
TO DATE OCT. 1, 2003
BOSTON EQUITY FUND* 1.18% 12.06%
Standard & Poor's 500 Stock Index** 1.69% 14.07%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL
1-888-282-8782 EXT. 7253.
*After all expenses at an annual rate of 1.00%, the adviser's expense
limitation.
**Performance is calculated from September 30, 2003
[PERFORMANCE GRAPH]
Boston Equity Fund S&P 500 Stock Index
- -------------------------------------------------------------------------------
<Table>
10/01/03 10000 10000
10560 10566
10660 10659
12/31/03 11076 11218
11216 11424
11327 11582
03/31/04 11206 11408
</Table>
The chart represents a historical investment of $10,000 in the Boston Equity
Fund from October 1, 2003, to March 31, 2004, and represents the reinvestment of
dividends and capital gains in the Fund.
The Boston Equity Fund is compared to the Standard & Poor's 500 Stock Index This
index is unmanaged and generally representative of the U.S Stock market. The
performance of an index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. The
Fund's performance reflects the deduction of fees for these value-added
services. Investors cannot invest directly in an index, although they can invest
in the underlying securities.
The returns shown do not reflect the deduction of taxes a shareholder would pay
on the redemption of fund shares or fund distributions.
11
BOSTON EQUITY FUND
Schedule of Portfolio Investments March 31, 2004
COMMON STOCKS (98.7%)
SECURITY DESCRIPTION SHARES VALUE ($)
-------------------- ------ ---------
BASIC MATERIALS (5.4%)
Air Products & Chemicals Inc........................... 7,500 375,900
Avery Dennison Corp.................................... 2,500 155,525
Donaldson Co., Inc..................................... 30,000 795,900
Ecolab, Inc............................................ 20,000 570,600
----------
1,897,925
----------
CAPITAL GOODS (4.4%)
Illinois Tool Works, Inc............................... 10,000 792,300
Precision Castparts Corp............................... 15,000 660,450
W.W. Grainger, Inc..................................... 2,500 120,000
----------
1,572,750
----------
CONSUMER CYCLICALS (7.6%)
Gannett Co., Inc....................................... 11,000 969,540
Johnson Controls, Inc.................................. 15,000 887,250
Leggett & Platt, Inc................................... 10,000 237,100
McClatchy Co........................................... 8,500 603,840
----------
2,697,730
----------
CONSUMER PRODUCTS (3.5%)
Anheuser-Busch Cos., Inc............................... 15,000 765,000
Aptargroup, Inc........................................ 12,500 480,000
----------
1,245,000
----------
CONSUMER STAPLES (11.4%)
Alberto-Culver Co...................................... 7,500 329,025
Clorox Co.............................................. 7,500 366,825
Costco Wholesale Corp. (b)............................. 15,000 563,400
Hershey Foods Corp..................................... 7,500 621,375
Kimberly-Clark Corp.................................... 2,500 157,750
Procter & Gamble Co.................................... 8,000 839,040
Sysco Corp............................................. 25,000 976,250
Wm. Wrigley, Jr. Co.................................... 3,000 177,360
----------
4,031,025
----------
ENERGY (3.9%)
BP PLC, ADR............................................ 12,500 640,000
Exxon Mobil Corp....................................... 17,500 727,825
----------
1,367,825
----------
FINANCIAL SERVICES (25.1%)
AmSouth Bancorporation................................. 20,000 470,200
Bank of America Corp................................... 6,000 485,880
Cincinnati Financial Corp.............................. 15,000 651,750
Comerica, Inc.......................................... 10,000 543,200
Commerce Bancshares, Inc............................... 12,600 601,146
Fannie Mae............................................. 4,000 297,400
First Midwest Bancorp, Inc............................. 15,000 512,100
Marsh & McLennan Cos., Inc............................. 10,000 463,000
MBNA Corp.............................................. 25,000 690,750
Morgan Stanley......................................... 10,000 573,000
Northern Trust Corp.................................... 3,000 139,770
State Street Corp...................................... 6,000 312,780
SunTrust Banks, Inc.................................... 8,000 557,680
T. Rowe Price Group, Inc............................... 15,000 807,450
Wachovia Corp.......................................... 10,000 470,000
Wells Fargo & Co....................................... 10,000 566,700
Wilmington Trust Corp.................................. 20,000 747,400
----------
8,890,206
----------
HEALTH CARE (18.4%)
Becton, Dickinson & Co................................. 12,500 606,000
Biomet, Inc............................................ 12,000 460,320
C.R. Bard, Inc......................................... 8,000 781,120
Charles River Laboratories International, Inc. (b)..... 7,000 299,950
Dentsply International, Inc............................ 12,500 554,125
Henry Schein, Inc. (b)................................. 6,000 428,520
Hillenbrand Industry, Inc.............................. 7,000 475,230
IMS Health, Inc........................................ 15,000 348,900
Johnson & Johnson...................................... 8,000 405,760
Medtronic, Inc......................................... 15,000 716,250
Merck & Co., Inc....................................... 3,000 132,570
Pfizer, Inc............................................ 15,000 525,750
Saint Jude Medical, Inc. (b)........................... 6,000 432,600
Stryker Corp........................................... 4,000 354,120
----------
6,521,215
----------
PRODUCER PRODUCTS (3.9%)
Carlisle Cos., Inc..................................... 4,000 226,600
General Electric Co.................................... 25,000 763,000
Teleflex, Inc.......................................... 8,000 393,840
----------
1,383,440
----------
RETAIL STORES (1.6%)
TJX Cos., Inc.......................................... 22,500 552,600
----------
TECHNOLOGY (12.3%)
Applied Materials, Inc. (b)............................ 20,000 427,600
Automatic Data Processing, Inc......................... 3,000 126,000
Dell, Inc. (b)......................................... 15,000 504,300
Diebold, Inc........................................... 12,000 577,440
Intel Corp............................................. 22,000 598,400
International Business Machines Corp................... 7,000 642,880
Microsoft Corp......................................... 30,000 749,100
Waters Corp. (b)....................................... 17,500 714,700
----------
4,340,420
----------
TRANSPORTATION (1.2%)
C.H. Robinson Worldwide, Inc........................... 10,000 415,000
----------
TOTAL COMMON STOCKS
(COST $22,564,156)..................................... 34,915,136
----------
INVESTMENT COMPANIES (1.3%)
Fifth Third Institutional Government
Money Market Fund..................................... 454,675 454,675
----------
TOTAL INVESTMENT COMPANIES
(COST $454,675)........................................ 454,675
----------
TOTAL INVESTMENTS
(COST $23,018,831) (a) - 100.0%........................ 35,369,811
Other assets in excess of liabilities - 0.0%........... 16,041
----------
NET ASSETS - 100.0%.................................... 35,385,852
==========
Percentages indicated are based on net assets of $35,385,852.
(a) At March 31, 2004, the basis of investments for federal income tax
purposes was the same as their cost for financial reporting purposes.
Unrealized appreciation and depreciation were as follows:
Unrealized appreciation $12,421,926
Unrealized depreciation (70,946)
-----------
Net unrealized appreciation $12,350,980
===========
(b) Represents non-income producing security.
ADR - American Depositary Receipt
See Notes to Financial Statements
12
Financial Statements BOSTON EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004
ASSETS:
Investments, at value (cost $23,018,831)............. $ 35,369,811
Interest and dividends receivable.................... 49,728
Prepaid expenses..................................... 1,257
------------
TOTAL ASSETS............................ 35,420,796
LIABILITIES:
Accrued expenses and other liabilities:
Investment Adviser.............................. 18,125
Administration.................................. 863
Custodian....................................... 916
Transfer Agent.................................. 1,500
Audit........................................... 6,403
Legal........................................... 2,429
Shareholder Reporting........................... 3,230
Other........................................... 1,478
------------
TOTAL LIABILITIES....................... 34,944
------------
NET ASSETS........................................... $ 35,385,852
============
COMPOSITION OF NET ASSETS:
Capital.............................................. $ 22,733,606
Accumulated net investment income.................... 48,745
Accumulated net realized gains from investment
transactions................................ 252,521
Unrealized appreciation from investments............. 12,350,980
------------
NET ASSETS........................................... $ 35,385,852
============
Shares outstanding (par value $0.001, unlimited
number of shares authorized)................ 3,161,291
============
Net Asset Value, Offering Price and Redemption
Price per share............................. $ 11.19
============
STATEMENT OF OPERATIONS
For the period ended March 31, 2004 (a)
INVESTMENT INCOME:
Dividend............................................. $ 245,885
Interest............................................. 2,932
------------
TOTAL INVESTMENT INCOME.............................. 248,817
------------
EXPENSES:
Investment Adviser................................... $ 116,343
Accounting........................................... 3,890
Administration....................................... 31,025
Auditing............................................. 6,403
Custodian............................................ 4,251
Legal................................................ 2,551
Shareholder Reporting................................ 4,812
Transfer Agency...................................... 9,000
Other................................................ 5,688
------------
Total expenses before fee reductions................. 183,963
Fees reduced by the Administrator.................... (7,756)
Fees reduced by the Investment Adviser............... (18,574)
------------
NET EXPENSES......................................... 157,633
------------
NET INVESTMENT INCOME................................ 91,184
------------
NET REALIZED/UNREALIZED GAINS FROM INVESTMENTS:
Net realized gains from investment transactions...... 252,521
Change in unrealized appreciation/(depreciation)
from investments............................ 12,350,980
------------
Net realized/unrealized gains from investments....... 12,603,501
------------
CHANGE IN NET ASSETS FROM OPERATIONS................. $ 12,694,685
============
(a) Fund commenced operations on October 1, 2003.
See Notes to Financial Statements
13
Financial Statements BOSTON EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the period ended
March 31, 2004(a)
--------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................................................. $ 91,184
Net realized gains from investment transactions........................ 252,521
Change in unrealized appreciation/(depreciation) from investments...... 12,350,980
--------------------
CHANGE IN NET ASSETS FROM OPERATIONS........................................ 12,694,685
--------------------
DIVIDENDS:
Net investment income.................................................. (43,956)
--------------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............................. (43,956)
--------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................................ 23,174,399
Dividends reinvested................................................... 43,955
Cost of shares redeemed................................................ (483,231)
--------------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........................ 22,735,123
--------------------
CHANGE IN NET ASSETS........................................................ 35,385,852
NET ASSETS:
Beginning of period (a)................................................ --
--------------------
End of period.......................................................... $ 35,385,852
====================
SHARE TRANSACTIONS:
Issued................................................................. 3,200,715
Reinvested............................................................. 4,066
Redeemed............................................................... (43,490)
--------------------
CHANGE IN SHARES............................................................ 3,161,291
====================
(a) Fund commenced operations on October 1, 2003.
See Notes to Financial Statements
14
Financial Statements BOSTON EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout the period indicated.
For the
period ended
3/31/2004(a)
-----------
NET ASSET VALUE, BEGINNING OF PERIOD............................ $ 10.00
-----------
INVESTMENT ACTIVITIES:
Net investment income...................................... 0.03
Net realized and unrealized gains (losses) from investments 1.18
-----------
Total from investment activities........................... 1.21
-----------
DIVIDENDS:
Net investment income...................................... (0.02)
Net realized gains from investments........................ --
-----------
Total dividends............................................ (0.02)
-----------
NET ASSET VALUE, END OF PERIOD.................................. $ 11.19
===========
TOTAL RETURN.................................................... 12.06%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000's)........................ $ 35,386
Ratio of net expenses to average net assets................ 1.00%(c)
Ratio of net investment income to average net assets....... 0.59%(c)
Ratio of expenses to average net assets.................... 1.18%(c)(d)
Portfolio turnover......................................... 2.97%(c)
- ----------
(a) Fund commenced operations on October 1, 2003.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
See Notes to Financial Statements
15
Notes to Financial Statements March 31, 2004
1. ORGANIZATION:
The Coventry Group (the "Group") was organized as a Massachusetts business
trust on January 8, 1992 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. The accompanying financial statements are those of the
Boston Balanced Fund and Boston Equity Fund (individually, a "Fund",
collectively, the "Funds"). The Funds are a separate series of the
Coventry Group. Financial statements for all other series are published
separately.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed
by the Fund in preparation of the financial statements. These policies are
in conformity with accounting principles generally accepted in the United
States of America. 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
SECURITY VALUATION:
The value of each equity security is based either on the last sale price
on a national securities exchange, or in the absence of recorded sales, at
the closing bid prices on such exchanges, or at the quoted bid price in
the over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued by or at the direction of
the Group's Board of Trustees.
Bonds and other fixed income securities (other than short-term obligations
but including listed issues) are valued on the basis of valuations
furnished by a pricing service, the use of which has been approved by the
Group's Board of Trustees. In making such valuations, the pricing service
utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, and trading characteristics
other than market data and without exclusive reliance upon quoted prices
or exchanges or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities. All
debt portfolio securities with a remaining maturity of 60 days or less are
valued at amortized cost, which approximates value. Under the amortized
cost method, discount or premium, if any, is accreted or amortized,
respectively, on a constant (straight-line) basis to the maturity of the
security.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on trade date. Securities gains
and losses are calculated on the identified cost basis. Interest income is
recognized on the accrual basis and includes, where applicable, the
accretion or amortization of discount or premium. Dividend income is
recorded on the ex-dividend date.
EXPENSE ALLOCATION:
Expenses directly attributable to a Fund are generally charged directly to
that Fund. Expenses relating to the Group are generally allocated
proportionately to each Fund within the Group according to the relative
net assets of each Fund or on another reasonable basis.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income and net realized gains, if any, are
declared and distributed annually. Additional dividends are also paid to
the Fund's shareholders to the extent necessary to avoid the federal
excise tax on certain undistributed net investment income and net realized
gains.
The amount of dividends from net investment income and net realized gains
are determined in accordance with federal income tax regulations which may
differ from accounting principles generally accepted in the United States
of America. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified to capital; temporary differences do
not require reclassification.
FEDERAL INCOME TAXES:
Each Fund is a separate entity for federal tax purposes. Each Fund has
qualified and intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code, as amended and
to distribute substantially all of its taxable net investment income and
net realized gains, if any, to its shareholders. For federal income tax
purposes, the Boston Balanced Fund and Boston Equity Fund have capital
loss carry forwards of $617,451 and $0, respectively, available to offset
future realized gains, if any, which is broken down by expiration date as
follows. Accordingly, no provision for federal tax is required.
Amount Expiration
-------- ----------
Boston Balanced Fund $264,425 2010
$353,026 2011
Boston Equity Fund $ 0 NA
Continued
16
Notes to Financial Statements March 31, 2004
3. RELATED PARTY TRANSACTIONS:
INVESTMENT ADVISER:
Boston Trust Investment Management, Inc. (the "Investment Adviser") acts
as the investment adviser to the Funds. For its services, the Investment
Adviser is entitled to receive a fee, computed daily and paid monthly,
based on the average daily net assets of each Fund, at an annual rate of
0.75%.
ADMINISTRATION:
BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), who serves the Funds as
administrator, is a wholly owned subsidiary of The BISYS Group, Inc., with
whom certain officers and trustees of the Group are affiliated. Such
persons are paid no fees directly by the Funds for serving as officers and
trustees of the Group. Under the terms of the administration agreement,
BISYS Ohio receives an annual fee, computed daily and paid monthly, based
on the average daily net assets of each Fund, at an annual rate of 0.20%.
DISTRIBUTION:
BISYS Fund Services Limited Partnership, a wholly owned subsidiary of The
BISYS Group, Inc., serves as the Funds' distribution agent.
CUSTODIAN, TRANSFER AGENCY, AND FUND ACCOUNTING:
Boston Trust & Investment Management Company acts as the Fund's custodian
and transfer agent. Under the custody agreement, Boston Trust & Investment
Management Company receives an annual fee computed daily and paid monthly
based on the average daily net assets. Boston Trust & Investment
Management Company receives a fixed fee accrued daily and paid monthly for
its services as the transfer agent. BISYS Ohio provides fund accounting
services for the Funds. For these services to the Funds, BISYS Ohio
receives an annual fee accrued daily and paid monthly.
FEE REDUCTIONS:
The Investment Adviser has agreed to reduce its fees payable by the Funds
to the extent necessary to limit the Fund's aggregate annual operating
expenses to 1.00% of the average daily net assets. Any such reductions
made by the Investment Adviser in its fees or payments or reimbursement of
expenses which are the Fund's obligation may be subject to repayment by
the Fund within three years provided the Funds are able to effect such
repayment and remain in compliance with applicable limitations. Pursuant
to its agreement, for the periods ended March 31, 2004, the Investment
Adviser reimbursed fees in the amount of $68,575 and $18,574 for the
Boston Balanced Fund and Boston Equity Fund, respectively. As of March 31,
2004, the Investment Advisor may recoup $133,568 and $18,574 from the
Boston Balanced Fund and Boston Equity Fund, respectively.
BISYS Ohio has agreed to reduce its administrative fees. For the periods
ended March 31, 2004, BISYS Ohio voluntarily waived fees in the amount of
$75,397 and $7,756 for the Boston Balanced Fund and Boston Equity Fund,
respectively.
4. PURCHASES AND SALES OF SECURITIES:
Purchases of and proceeds from sales, excluding short-term securities, for
the Fund for the periods ended March 31, 2004, totaled:
Purchases Sales
--------- -----
Boston Balanced Fund $48,916,829 $44,166,656
Boston Equity Fund 23,254,296 942,661
5. OTHER FEDERAL INCOME TAX INFORMATION (UNAUDITED):
The tax character of dividends paid during the periods ended March 31,
2004 and 2003 for the Boston Balanced Fund and Boston Equity Fund, were as
follows:
Boston Balanced 2004 2003
--------------- ---- ----
Ordinary Income $2,753,290 $2,900,000
Long Term Capital Gains -- --
---------- ----------
$2,753,290 $2,900,000
========== ==========
Boston Equity 2004 2003
------------- ---- ----
Ordinary Income $ 43,956 NA
Long Term Capital Gains -- NA
----------
$ 43,956 NA
==========
Continued
17
Notes to Financial Statements March 31, 2004
As of March 31, 2004, the components of distributable earnings on a tax basis
were as follows:
Boston Balanced Boston Equity
--------------- -------------
Undistributed Ordinary Income $ 474,455 $ 48,745
Capital Loss Carry Forward (617,451) --
Undistributed Long Term Gains -- 252,521
Unrealized Appreciation 35,544,093 12,350,980
--------------- ---------------
Accumulated Earnings $ 35,401,097 $ 12,652,246
--------------- ---------------
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of capital losses incurred
after October 31, 2003.
6. MATERIAL EVENT (UNAUDITED):
In March, 2004 Citizens Financial Group, Inc., parent company of Boston
Trust & Investment Management Company ("Boston Trust"), agreed to sell the
capital stock of Boston Trust, parent company of the Investment Adviser,
to a holding company created by the principals of Boston Trust. The
transaction will give the current five principals of Boston Trust control
of the firm. The transaction is expected to close, subject to regulatory
approval, prior to the end of the third quarter of 2004.
The transaction is a transfer of ownership from one holding company to
another and will not impact the Adviser's investment philosophy, approach,
process, fee structures or rebates applied to the Funds, or the
constitution of current personnel, including the portfolio managers of the
Funds. The transaction will trigger a proxy solicitation to shareholders
asking their approval of a new investment advisory agreement for the Funds
having the same fees, terms and conditions as the existing agreement.
7. PROXY VOTING INFORMATION (UNAUDITED):
A description of the policies and procedures that the Funds' use to
determine how to vote proxies relating to portfolio securities is
available (i) without charge, upon request, by calling 1-800-282-8782 and
(ii) on the Securities and Exchange Commission's website at
http://www.sec.gov.
18
Report of Independent Certified Public Accountants
To the Shareholders and Board of Trustees of the Boston Balanced Fund and the
Boston Equity Fund of The Coventry Group:
We have audited the accompanying statements of assets and liabilities of the
Boston Balanced Fund and Boston Equity Fund, each a series of shares of The
Coventry Group (a Massachusetts business trust), including the schedules of
portfolio investments, as of March 31, 2004, the related statements of
operations for the periods then ended, and the statements of changes in net
assets and financial highlights for each of the two years in the period then
ended for the Boston Balanced Fund, and the statement of changes in net assets
and financial highlights for the period October 1, 2003 (commencement of
operations) to March 31, 2004 for the Boston Equity Fund. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The Boston Balanced
Fund financial highlights for each of the two years in the period ended March
31, 2002 and the period ended March 31, 2000 were audited by other auditors
whose report dated May 15, 2002 expressed an unqualified opinion on such
financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 and financial highlights. Our procedures
included confirmation of securities owned as of March 31, 2004 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
Boston Balanced Fund and the Boston Equity Fund as of March 31, 2004, the
results of their operations for the periods then ended and the changes in net
assets and financial highlights for each of the two years in the period then
ended for the Boston Balanced Fund and the changes in net assets and financial
highlights for the period October 1, 2003 to March 31, 2004 for the Boston
Equity Fund, in conformity with accounting principles generally accepted in the
United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 28, 2004
19
Information about Trustees and Officers (unaudited) March 31, 2004
POSITION(S) TERM OF OFFICE AND NUMBER OF PORTFOLIOS OTHER TRUSTEE-
HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) IN FUND COMPLEX SHIPS HELD BY
NAME, ADDRESS, AND AGE FUND SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE TRUSTEE*
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Maurice G. Stark Trustee 2/92 to present Retired. 16
3435 Stelzer Road
Columbus, OH 43219
Age: 68
John H. Ferring IV Trustee 5/98 to present President and owner, Plaze, Inc., 16
3435 Stelzer Road St. Clair, MO (packaging manu-
Columbus, OH 43219 facturer) - 1979 to present
Age: 51
Michael M. Van Buskirk Trustee 2/92 to present Employee of and currently 16 BISYS Variable
3435 Stelzer Road President of The Ohio Bankers Insurance Funds
Columbus, OH 43219 League (trade association) --
Age: 57 6/91 to present
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Jeffrey R. Young(1) Chairman and 8/99 to present Employee of BISYS Fund Ser- 16
3435 Stelzer Road Trustee vices--10/93 to present
Columbus, OH 43219
Age: 39
Walter B. Grimm(1) President 4/96 to present Employee of BISYS Fund Ser- 16 American
3435 Stelzer Road vices--6/92 to present Performance
Columbus, OH 43219 Funds
Age: 58
OFFICERS WHO ARE NOT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Jennifer J. Hankins Vice President Since 1998 Employee of BISYS Fund Ser-
3435 Stelzer Road vices--9/88 to present
Columbus, OH 43219
Age: 37
Lara Bocskey Vice President Since 2002 Employee of BISYS Fund
3435 Stelzer Road Services--5/98 to present;
Columbus, OH 43219 Employee of First of America
Age: 33 Bank Corporation from 1996
to 1998
Nadeem Yousaf Treasurer Since 1999 Employee of BISYS Fund Servic-
3435 Stelzer Road es--8/99 to present; Employee
Columbus, OH 43219 of Investors Bank and Trust
Age: 35 from 3/97 - 6/99; Employee of
PricewaterhouseCoopers LLP
from 10/94 - 3/97
George L. Stevens Secretary Since 1996 Employee of BISYS Fund Ser-
3435 Stelzer Road vices--9/96 to present
Columbus, OH 43219
Age: 52
Alaina V. Metz Assistant Since 1995 Employee of BISYS Fund Ser-
3435 Stelzer Road Secretary vices--6/95 to present
Columbus, OH 43219
Age: 35
- ----------
* Not reflected in prior column.
(1) Mr. Grimm and Mr. Young may be deemed to be an "interested person," as
defined by the 1940 Act, because of their employment with BISYS Fund
Services.
The Statement of Additional Information contains more information about the
Funds and can be obtained free of charge by calling 1-800-282-8782.
20
INVESTMENT ADVISER
Boston Trust Investment Management, Inc.
40 Court Street
Boston, MA 02108
CUSTODIAN AND TRANSFER AGENT
Boston Trust & Investment Management Company
40 Court Street
Boston, MA 02108
ADMINISTRATOR
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
Tait, Weller & Baker
1818 Market Street
Suite 2400
Philadelphia, PA 19103
LEGAL COUNSEL
Dechert LLP
1775 Eye Street, N.W.
Washington, D.C. 20006
This report is intended for the shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown should not be considered a representation of
future performance. Share price and returns will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Statements and
other information herein are dated and subject to change.
5/04 [LOGO] Printed on Recycled Paper
[LOGO] WALDEN ASSET MANAGEMENT
INVESTING FOR SOCIAL CHANGE SINCE 1975
WALDEN SOCIAL BALANCED FUND
WALDEN SOCIAL EQUITY FUND
ANNUAL REPORT
MARCH 31, 2004
ANNUAL REPORT
TABLE OF CONTENTS March 31, 2004
Social Research and Action Update........................... 1
Walden Social Balanced Fund
Market and Performance Review............................ 3
Investment Performance................................... 5
Schedule of Portfolio Investments........................ 6
Financial Statements..................................... 8
Financial Highlights..................................... 10
Walden Social Equity Fund
Market and Performance Review............................ 11
Investment Performance................................... 13
Schedule of Portfolio Investments........................ 14
Financial Statements..................................... 15
Financial Highlights..................................... 17
Notes to Financial Statements............................... 18
Report of Independent Certified Public Accountants.......... 21
Trustees & Officers......................................... 22
Social Research and Action Update March 31, 2004
In early 2004, concerned investors representing a broad range of constituencies
with increasing effectiveness engaged directors and executives to strengthen
corporate social responsibility and governance. These efforts, led by state and
city pension funds, unions, religious and nongovernmental organizations, and
social investors, are raising company standards, practices and public
accountability.
Walden's shareholder resolution at COSTCO, our first to go to a shareholder vote
this year, requested a policy of annual elections of all directors in order to
increase board accountability. The resolution was supported by 73 percent of the
votes cast, prompting Costco's cofounder, and director Jeff Brotman to commit to
study the issue and report to shareholders. On other matters, Costco has been
the subject of major news stories in the Wall Street Journal (March 26, 2004),
New York Times, Business Week Online and other media for its above average
compensation, benefits and relatively moderate executive compensation policies.
Despite impressive recent profit and sales growth, Wall Street penalized Costco
for not being more Wal-Mart-like, that is, for not being as aggressive in
pursuing lower employee costs. A Deutsche Bank analyst declaration that "At
Costco, it's better to be an employee or a customer than a shareholder," came
despite analysis arguing that Costco's policies improve productivity and
employee retention - both of which lower labor costs over the longer term.
Walden expressed support of Costco's' forward looking policies to the company
directly, as well as in a letter to the editor of the Wall Street Journal (not
published) expressing our belief that good financial results can be consistent
with strong employment practices.
Amidst the divisive national debate on gay marriage, corporations are advancing
policies and programs that recognize the importance of a discrimination-free
workplace. After STRYKER and DOVER adopted policies that explicitly prohibit
discrimination based on sexual orientation, Walden withdrew its 2004
resolutions. They join what are now three-quarters of the Fortune 500 companies
and 98 of the Fortune 100 that have inclusive policies, according to our
research along with that of The Human Rights Campaign Foundation. Further, at
least 210 of the Fortune 500 offer domestic partner benefits, a number that has
steadily grown in recent years. Walden continues to encourage additional
companies to adopt inclusive policies including ALLTEL, CINCINNATI FINANCIAL,
Fifth Third Bank, First Midwest Bank, as well as Exxon Mobil, which has proven
especially challenging.
Tim Smith, our senior vice president and the Director of Socially Responsive
Investing at Walden, along with New York City Comptroller representative and
corporate governance expert, Ken Sylvester, spoke about governance and corporate
social responsibility at an annual conference of NOVARTIS lawyers. These 80
lawyers from around the world sought investor input to advance the company's
work on compliance and corporate citizenship. Novartis has been praised recently
for its revised human rights policies and guidelines, a central focus of its
corporate social responsibility work. The company is among a very small group
that has pledged to work with new United Nations principles under its "Business
Leaders Initiative on Human Rights", a commitment demonstrating their openness
to investigation if they appear to fail to meet the guidelines.
We are already witnessing an impact from the proposed Securities and Exchange
Commission (SEC) rule to increase shareholder access to the proxy to nominate
directors. An investor group consisting of state and municipal union employees
(AFSCME), along with retirement systems in New York and California, filed a
shareholder resolution at MARSH & MCLENNAN seeking proxy access to nominate an
independent director not selected by management. This was the first resolution
of its type, designed to cause a "triggering event" as specified in the proposed
SEC rule that could lead to shareholder nominations in 2005. Marsh & McLennan
was targeted for lack of board oversight related to the mutual fund trading
scandal at its Putnam Funds subsidiary. In a surprise response, the company
agreed to place a prominent shareholder nominee on its director slate this year
for a vote at its May 20 meeting. The resolution was withdrawn.
The relatively recent investor campaign focusing on the HIV/AIDS pandemic, led
by the Interfaith Center on Corporate Responsibility (ICCR), is generating
increased responsiveness on the part of many companies. Coca-Cola asked its
shareholders to support an ICCR led proposal seeking a review of the economic
impact on its operations of the HIV/AIDS, malaria, and tuberculosis pandemics -
a sign of support rarely demonstrated by companies. In contrast, its
arch-competitor PEPSICO has been relatively unresponsive to an institutional
investor group that includes Walden. We are organizing a May meeting of
COLGATE-PALMOLIVE executives on this issue, which is expected to include the
head of its South African operations.
Walden has been in dialogue with several companies on a variety of environmental
concerns. We pressed ALBERTO-CULVER on its continued use in Alberto VO5 shampoo
bottles of polyvinyl chloride plastic packaging (PVC #3), which has low
recycling rates and can contaminate the more highly recycled polyethylene
terephthalalte plastic (PET #1) recovered waste stream. The company responded
that it is phasing out PVC packaging, which is not currently used by most
consumer product companies. In a March teleconference meeting with STAPLES,
Walden was encouraged to learn that 21 percent of Staples' paper sold has post
consumer recycled content, and that its goal is to achieve a 30 percent level.
BP hosted a daylong meeting at its Washington, D.C. offices addressing protected
areas and biodiversity issues. Participants focused on its policies and
processes governing
1
Social Research and Action Update March 31, 2004
operations in ecologically sensitive areas and BP's reluctance to adopt a simple
"no-go zone" policy. The company just published its first sustainability report,
Defining Our Path, using the Global Reporting Initiative guidelines.
Several portfolio companies are coalition partners in a project of the World
Resources Institute known as the Green Power Market Development Group. Staples
is one of the largest corporate purchasers of renewable energy certificates
(RECs) from wind, biomass, and landfill gas resources. RECs help reduce reliance
on more polluting fossil fuels. Through this partnership, IBM increased its use
of wind power significantly in 2003. JOHNSON & JOHNSON is among the largest
corporate purchasers of wind power, and has expanded its use of solar and
hydropower energy sources.
It is clear from these examples that the influence of investors, working in
cooperation with other similarly concerned constituencies, is on the rise.
We invite your questions and comments. E-mail Tim Smith at
tsmith@bostontrust.com, or Heidi Soumerai at hsoumerai@bostontrust.com.
PORTFOLIO HOLDINGS AND PERCENTAGES AS OF 3/31/04 AND ARE SUBJECT TO CHANGE.
AN INVESTOR SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, AND CHARGES
AND EXPENSES CAREFULLY BEFORE INVESTING OR SENDING MONEY. THIS AND OTHER
IMPORTANT INFORMATION ABOUT THE INVESTMENT COMPANY CAN BE FOUND IN THE FUND'S
PROSPECTUS. TO OBTAIN A PROSPECTUS, PLEASE CALL 1-800-282-8782 EXT. 7050. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
Boston Trust Investment Management, Inc., a subsidiary of Boston Trust &
Investment Management Company (BTIM) and an affiliate of Walden Asset Management
(Walden) serves as investment adviser (the Adviser) to the Walden Social
Balanced Fund and receives a fee for its services. Walden, a division of BTIM,
performs shareholder advocacy, proxy voting, screening services, and other
social initiatives for the Adviser and is paid a fee for these services by the
Adviser.
Shares of the Fund are not deposits of, obligations of, or guaranteed by Boston
Trust & Investment Management Company or its affiliates, nor are they federally
insured by the FDIC. Investments in the Fund involve investment risks, including
the possible loss of principal. Fund distributed by BISYS Fund Services,
Columbus, Ohio.
The foregoing information and opinions are for general information only. Boston
Trust Funds and Boston Trust Investment Management, Inc do not assume liability
for any loss, which may result from the reliance by any person upon any such
information or opinions. Such information and opinions are subject to change
without notice, are for general information only, and are not intended as an
offer or solicitation with respect to the purchase or sale of any security or
offering individual or personalized investment advice.
- --------------------------------------------------------------------------------
2
WALDEN SOCIAL BALANCED FUND
Market and Performance Review (unaudited) Manager Commentary by Stephen Moody
INVESTMENT CONCERNS:
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes. Common stocks, and funds
investing in common stocks, generally provide greater return potential when
compared with other types of investments. Bonds offer a relatively stable level
of income, although bond prices will fluctuate providing the potential for
principal gain or loss. Intermediate-term, higher-quality bonds generally offer
less risk than longer-term bonds and a lower rate of return.
MARKET AND PERFORMANCE SUMMARY
After a strong 2003, the equity markets (as measured by the Standard and Poor's
500 Stock Index(1)) rested, rising a modest 1.7%, this after a rise of 35.1% for
the prior 12-months. With the rest came the bond market's (as measured by the
Lehman Brothers Government/Credit Bond Index(2)) modest rally, a rise of some
3.1%.
The Walden Social Balanced Fund rose 18.91% for the twelve months that ended
March 31, 2004, trailing both stocks and the Lipper Balanced Fund Index. The
Fund participated significantly in equity market returns, as one would expect
with a portfolio more than half invested in equities throughout the year. It
underperformed stocks due to its bond holdings and the underperformance of its
holdings in stocks of higher quality, relative to the market as a whole. (Bonds
had but single digit returns, only slightly above their coupons.) By higher
quality we mean that the Fund's equities were on average, relative to the broad
equity market, less risky, of companies which are larger, less in debt, and
generally faster in long-term growth in sales and earnings, with higher
historical returns to assets and shareholder equity. The stocks in the portfolio
are also normally less volatile in price and earnings per share.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL US AT 1.800.282.8782 EXT. 7253.
The reasons for the pause in the market's rise were many. One was indications of
slightly slower current economic growth. A second was the continued very slow
pace of job formation. The media continued to bombard us with anecdotal
information suggesting that the job formation was in China and India, not the
United States, despite evidence that the picture was more complex. Third, and
probably the most important, is that the undervaluation of the market as a whole
is now history. While the market is not back to its highs of early 2001, it is,
overall, reasonably valued relative to earnings adjusted for inflation and
interest rates. From this point on, the primary question is what the character
of corporate earnings will be, how robust will they be, how they manifest
themselves, and at what pace. Extracting corporate earnings growth will not be
easy. The stocks of those companies that falter may not fair well, given the
fair and full valuation of the equity markets.
Another reason for the pause, more ambiguous, and more confusing, was the
unfolding political economy: the appearance on the scene, early, but
surprisingly, of the Democratic Presidential candidate believed by most pundits
to be the strongest challenger to the current Administration; and the saga, both
sad and increasingly risky, of America's involvement in Iraq, including the
Madrid bombing, the investigation into the biggest intelligence failure since
Pearl Harbor, an Administration in danger of losing credibility with moderate
voters (and some fiscal and non-interventionist conservatives), and the
increasingly virulent Iraqi resistance to the American occupation. Security
problems, wars, civil unrest to which we must respond, as we have noted ever
since September 11, 2001, in coldly economic terms often mean a loss of
productivity in an apparently economically active period, and ultimately more
inflation. Likewise, Democratic successes often mean market trepidation. This
time around, the inflation has been invisible, held back by a strong dollar, a
virtually fixed Yuan exchange rate, and the global pop of the technology bubble.
Those phenomena have, it seems, largely run their course. In addition, the
Democratic candidate seems more fiscally conservative than the Republican
incumbent. Therefore, the market's response has been to note all this with
increasing quizzicality, and uncertainty.
THE CHARACTER OF THE MARKET ACTION CHANGED THIS QUARTER.
In 2003, the market rewarded risk. Indeed, there was close to perfect rank order
in performance. If one divides the Standard and Poor's 500 into quintiles or 20%
cohorts: the more volatile the stocks in a quintile, the better the quintile
performed in 2003. The worse the historical shareholder return on equity
- --------------------------------------------------------------------------------
(1) The S&P 500 Stock Index is generally representative of the U.S. stock
market as a whole.
(2) The Lehman Brothers Government/Credit Bond Index is generally
representative of the performance of U.S. Treasury, U.S. government agency,
and corporate debt securities.
- --------------------------------------------------------------------------------
3
WALDEN SOCIAL BALANCED FUND
Market and Performance Review (cont.) Manager Commentary by Stephen Moody
in a quintile, the better the quintile did last year. The larger the companies
in a quintile were, as measured by market capitalization, the worse the quintile
did. For those companies with earnings, the higher the prices of companies were
relative to their earnings (in terms of a price-to-earnings ratio(3), or P/E)
the better the stock did. (Companies with no earnings and an infinite P/E did
best of all.) Standard and Poor's ranks companies by financial quality and here
too the poorest tended to do best. In almost every respect, the better did worse
and the worse did better with surprising consistency.
In the first quarter, by way of contrast, there was a modest turn away from risk
and toward more stable companies. Consumer staple stocks did best, firms that
manufacture soap, sell groceries appreciating 5.1%. (This compares with
relatively poor returns of 23.5% over the prior twelve months.) The information
technology sector, with its boom and bust cyclicality and poorer earnings
quality, actually declined 2.6% after soaring 43.5% in the previous 12 months.
OUR ECONOMIC OUTLOOK
So what does the future promise? The honest answer, of course, is nothing.
Nevertheless, there are many reasons to think, as we have noted during all of
last year, why this recovery is likely to persist. The first is momentum across
almost every economic variable. The second is fiscal and monetary policy, both
of which remain as expansionary as possible. The third is the falling dollar,
which can drive U.S. exports. All of these bode well for corporate profits. The
sustainability of this recovery does depend its breadth of the recovery, but all
signs point to a strengthening job market that is likely to deepen as time goes
on. There is now no economic indicator that is not trending up, though the climb
is slow.
Where are the risks? First, there is the actual possibility, after all of these
years, of renewed inflation. The falling dollar is one cause. The recovery is
another. The replenishment of very low inventories could add to the pressure.
Once the economy is not only firing on all cylinders, but at a more rapid rate,
the supply lines will tighten. In addition, there is geopolitical risk, all of
which portends continuing Governmental stimulus, as we continue to spend for
internal and external security. In the end, as we noted after September 11, this
will negatively influence the strong growth in productivity, but not initially.
The continuing stimulus also creates a massive deficit, which could become
costly in the future.
OUR PORTFOLIO STRATEGY
In this environment, we believe stocks are, for the time being, likely to remain
a superior asset. Continued good earnings growth, particularly in the kinds of
stocks we own should make stocks the superior, if not necessarily highly
attractive, asset. Interest rate rises could hurt bonds. While inflation
protected bonds may not suffer as much as interest rates rise due to inflation,
longer fixed income assets could do quite poorly. Money market instruments do
not even provide returns above inflation, so they are especially unattractive.
For these reasons, we remain very equity-oriented in balanced portfolios. As of
the quarter's end, as we have noted, the portfolio was about 70% in equities.
The bonds we own in the portfolio have been, in character, shorter than those of
the broad bond market indices. This is likely to become more so as indications
of inflation become more than a whiff.
In equities, we are shifting away from a greater emphasis on smaller companies
and those with significant economic sensitivity to a greater emphasis on those
with even more certain earnings growth, companies like SUN TRUST BANK (0.7%), an
Atlantic coastal bank operating primarily below the Mason-Dixon line; DENTSPLY
(1.5%), a leading distributor of dental supplies; and BECTON DICKINSON (0.6%), a
manufacturer of medical supplies.+
AN ANNOUNCEMENT
We are delighted to announce that your investment managers have reached an
agreement with our owners to purchase a one hundred percent interest in Boston
Trust Investment Management, Inc. and with it, Walden Asset Management and
Boston Trust and Investment Management Inc., which serves as investment adviser
to this Fund. With this change, which should take place in three to six months,
BTIM Corp., a new, solely employee-owned company, will become the sole owner of
these subsidiaries. Please refer to Footnote No. 6 of the financial statements
for additional information. We think it will result in no visible changes to you
but will better align your interests with ours by making it easier to attract
and keep the most talented individuals. If you have any questions whatsoever,
please feel free to contact us directly.
/s/ Stephen Moody
Stephen Moody
Portfolio Manager
Boston Trust Investment Management, Inc.
- --------------------------------------------------------------------------------
+ Portfolio composition is subject to change.
(3) PRICE/EARNINGS (P/E) RATIO is the price of a stock divided by its
historical earnings per share.
- --------------------------------------------------------------------------------
4
WALDEN SOCIAL BALANCED FUND
Investment Performance (unaudited) March 31, 2004
Fund Net Asset Value: $ 10.71
ANNUALIZED
---------------------------
QUARTER SINCE INCEPTION
TO DATE 1 YEAR JUNE 20, 1999
WALDEN SOCIAL BALANCED FUND* 1.61% 18.91% 3.08%
Lipper Balanced Funds Average** 2.08% 23.86% 1.90%
Standard & Poor's 500 Stock Index** 1.69% 35.10% -2.15%
Lehman Brothers Government/Credit Bond Index** 3.08% 6.15% 8.23%
90-Day U.S. Treasury Bills** 0.23% 0.97% 3.10%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL
1-888-282-8782 EXT. 7253.
* After all expenses at an annual rate of 1.00%, the adviser's expense
limitation.
** The performance data is calculated from June 17, 1999.
[LINE GRAPH]
S&P 500 Stock Index Lipper Balanced Funds Average Walden Social Balanced Fund
90-Day U.S. Treasury Bills Lehman Brothers Gov't./Credit Bond Index
- -------------------------------------------------------------------------------
<Table>
06/20/99 10000 10000 10000 10000 10000
9689 9818 9970 10037 9972
9641 9702 9830 10078 9964
9377 9581 9600 10117 10054
9970 9854 9930 10156 10080
10173 9994 10060 10200 10075
12/31/99 10771 10329 10329 10245 10013
10230 10056 10127 10291 10011
10037 10101 10006 10336 10136
11018 10635 10783 10386 10283
10687 10439 10642 10431 10232
10468 10307 10410 10486 10223
10725 10503 10743 10534 10432
10558 10476 10712 10587 10542
11213 10950 11106 10642 10691
10621 10705 10773 10693 10731
10576 10668 10965 10750 10799
9743 10260 10642 10804 10983
12/31/00 9791 10523 10859 10854 11200
10138 10753 10859 10905 11388
9214 10300 10438 10945 11505
8631 9947 10182 10985 11558
9301 10370 10520 11022 11472
9363 10443 10592 11055 11538
9136 10300 10356 11086 11593
9046 10295 10479 11120 11882
8480 9994 10192 11151 12034
7795 9471 9874 11176 12145
7944 9669 10018 11198 12453
8553 10046 10428 11215 12249
12/31/01 8628 10111 10549 11231 12152
8502 10011 10549 11246 12242
8338 9918 10559 11260 12346
8652 10127 10685 11276 12095
8128 9906 10549 11293 12329
8068 9869 10538 11309 12443
7493 9436 10057 11324 12549
6909 8981 9775 11341 12700
6955 9068 9921 11357 12985
6200 8545 9556 11373 13264
6745 8864 9880 11388 13137
7141 9182 10036 11400 13145
12/31/02 6722 8943 9904 11411 13493
6546 8811 9691 11423 13493
6448 8754 9670 11433 13733
6510 8789 9723 11444 13715
7046 9244 10107 11455 13862
7417 9649 10383 11465 14256
7512 9723 10426 11475 14199
7644 9734 10564 11484 13604
7793 9894 10692 11492 13693
7711 9904 10660 11502 14127
8147 10220 11054 11511 13948
8218 10317 11140 11520 13985
12/31/03 8649 10661 11378 11529 14123
8808 10801 11486 11537 14252
8930 10936 11594 11546 14426
03/31/04 8795 10886 11561 11556 14558
</Table>
The chart represents a historical investment of $10,000 in the Walden Social
Balanced Fund from June 20, 1999, to March 31, 2004, and represents the
reinvestment of dividends and capital gains in the Fund.
The Fund's performance is compared to the Standard & Poor's 500 Stock Index, the
Lehman Brothers Government/Credit Bond Index, the Lipper Balanced Funds Average
and the 90-Day U.S. Treasury Bill Total Return Index.
The Standard & Poor's 500 Stock Index is an index of stocks that measures the
asset-weighted performance of 500 stocks of large-capitalization companies. The
Lehman Brothers Government/Credit Bond Index is generally representative of the
performance of U.S. Treasury, U.S. government agency, and corporate debt
securities. The 90-Day U.S. Treasury Bills are represented by the U.S. Treasury
Bill Total Return Index. Treasury bills are government guaranteed and offer a
fixed rate of return. Return and principal of stocks and bonds will vary with
market conditions. All indices except the Lipper Balanced Funds Average are
unmanaged; they do not reflect the deduction of expenses associated with a
mutual fund, such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services. The
Lipper Average is an equally weighted index of the largest managed mutual funds
within their respective investment objectives, adjusted for the reinvestment of
capital gains distributions and income dividends. Investors cannot invest
directly in an index, although they can invest in the underlying securities.
The returns shown do not reflect the deduction of taxes a shareholder would pay
on the redemption of fund shares or fund distributions.
5
WALDEN SOCIAL BALANCED FUND
Schedule of Portfolio Investments March 31, 2004
COMMON STOCKS (70.1%)
SECURITY DESCRIPTION SHARES VALUE ($)
- -------------------- ------ -----------
BASIC MATERIALS (4.0%)
Bemis Co. .................................... 12,000 312,000
Donaldson Co., Inc. .......................... 12,000 318,360
Praxair, Inc. ................................ 9,000 334,080
-----------
964,440
-----------
CAPITAL GOODS (2.0%)
Dover Corp. .................................. 4,000 155,080
Illinois Tool Works, Inc. .................... 2,000 158,460
W.W. Grainger, Inc ........................... 3,700 177,600
-----------
491,140
-----------
COMMUNICATION SERVICES (1.3%)
CenturyTel, Inc. ............................. 6,000 164,940
Nokia AB, ADR ................................ 7,000 141,960
-----------
306,900
-----------
CONSUMER CYCLICALS (5.7%)
AutoZone, Inc. (b) ........................... 600 51,582
Home Depot, Inc. ............................. 3,200 119,552
Honda Motor Co. Ltd., ADR .................... 7,000 161,980
Lear Corp. ................................... 2,500 154,900
McClatchy Co. - Class A ...................... 2,500 177,600
Omnicom Group, Inc. .......................... 5,000 401,250
Staples, Inc. ................................ 6,000 152,340
Washington Post Co. - Class B ................ 200 176,882
-----------
1,396,086
-----------
CONSUMER PRODUCTS (1.1%)
Aptargroup, Inc. ............................. 4,000 153,600
Herman Miller, Inc. .......................... 4,000 106,520
-----------
260,120
-----------
CONSUMER STAPLES (7.1%)
Alberto-Culver Co. ........................... 7,500 329,025
Colgate-Palmolive Co. ........................ 4,000 220,400
Costco Wholesale Corp. (b) ................... 8,500 319,260
Hershey Foods Corp. .......................... 2,000 165,700
McCormick & Co., Inc. ........................ 5,000 167,600
Pepsico, Inc. ................................ 3,000 161,550
Sysco Corp ................................... 9,500 370,975
-----------
1,734,510
-----------
ENERGY (2.1%)
BP PLC, ADR .................................. 10,000 512,000
-----------
FINANCIAL SERVICES (15.5%)
Bank of America Corp. ........................ 4,000 323,920
BB&T Corp. ................................... 3,780 133,434
Cincinnati Financial Corp .................... 6,000 260,700
Comerica, Inc. ............................... 4,000 217,280
Commerce Bancshares, Inc. .................... 5,250 250,478
Fair Issac Corp. ............................. 5,550 200,244
Fannie Mae ................................... 5,400 401,490
Marsh & McLennan Cos., Inc. .................. 3,000 138,900
MBNA Corp. ................................... 12,000 331,560
Northern Trust Corp. ......................... 3,700 172,383
State Street Corp. ........................... 4,000 208,520
Suntrust Banks, Inc. ......................... 2,500 174,275
T. Rowe Price Group, Inc. .................... 5,000 269,150
Wells Fargo & Co. ............................ 6,000 340,020
Wilmington Trust Corp. ....................... 10,000 373,700
-----------
3,796,054
-----------
HEALTH CARE (15.5%)
Amgen, Inc. (b) .............................. 2,200 127,974
Beckman Coulter, Inc ......................... 3,000 163,620
Becton, Dickinson & Co ....................... 3,000 145,440
Biomet, Inc. ................................. 6,000 230,160
C.R. Bard, Inc. .............................. 2,000 195,280
Dentsply International, Inc. ................. 8,000 354,640
Henry Schein, Inc. (b) ....................... 2,500 178,550
Hillenbrand Industries, Inc. ................. 2,400 162,936
IMS Health, Inc. ............................. 7,000 162,820
Johnson & Johnson ............................ 5,000 253,600
Medtronic, Inc. .............................. 7,600 362,899
Novartis AG - ADR ............................ 8,000 340,800
Patterson Dental Co. (b) ..................... 2,400 164,664
Pfizer, Inc .................................. 9,000 315,450
Respironics, Inc. (b) ........................ 3,200 172,864
Stryker Corp. ................................ 1,800 159,354
Teva Pharmaceutical Industries Ltd., ADR ..... 5,000 317,050
-----------
3,808,101
-----------
PRODUCER PRODUCTS (2.8%)
Baldor Electric Co. .......................... 5,000 114,900
Carlisle Cos., Inc. .......................... 5,600 317,240
Teleflex, Inc. ............................... 5,000 246,150
-----------
678,290
-----------
RETAIL STORES (1.5%)
Ross Stores, Inc. ............................ 6,000 183,660
TJX Cos., Inc. ............................... 7,000 171,920
-----------
355,580
-----------
TECHNOLOGY (9.4%)
Adobe Systems, Inc. .......................... 4,000 157,720
Affiliated Computer Services, Inc. (b) ....... 3,800 197,220
Applied Materials, Inc. (b) .................. 13,300 284,354
Automatic Data Processing, Inc. .............. 7,000 294,000
Cisco Systems, Inc. (b) ...................... 8,000 188,160
Dell, Inc. (b) ............................... 4,000 134,480
EMC Corp. (b) ................................ 200 2,722
Hewlett-Packard Co. .......................... 6,000 137,040
Intel Corp. .................................. 6,000 163,200
International Business Machines Corp. ........ 1,500 137,760
Jabil Circuit, Inc. (b) ...................... 5,000 147,150
KLA-Tencor Corp. (b) ......................... 2,500 125,875
Microsoft Corp. .............................. 5,000 124,850
Waters Corp. (b) ............................. 5,000 204,200
-----------
2,298,731
-----------
TRANSPORTATION (2.1%)
Expeditors International of Washington, Inc... 4,000 157,960
Southwest Airlines Co. ....................... 9,750 138,548
United Parcel Service, Inc. - Class B ........ 3,000 209,520
-----------
506,028
-----------
TOTAL COMMON STOCKS
(COST $14,764,061)............................ 17,107,980
-----------
Continued
6
WALDEN SOCIAL BALANCED FUND
Schedule of Portfolio Investments March 31, 2004
U.S. GOVERNMENT AGENCY OBLIGATIONS (23.1%)
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE ($)
- -------------------- --------- -----------
FEDERAL FARM CREDIT BANK (2.8%)
5.95%, 3/5/08 ..................................................... 100,000 112,109
6.00%, 3/7/11 ..................................................... 500,000 568,850
-----------
680,959
-----------
FEDERAL HOME LOAN BANK (1.0%)
7.36%, 7/1/04 ..................................................... 250,000 254,009
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.9%)
5.25%, 1/15/09 .................................................... 500,000 549,842
6.00%, 5/15/11 .................................................... 350,000 399,180
-----------
949,022
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (2.2%)
6.50%, 2/15/32 .................................................... 137,097 144,798
6.50%, 5/15/32 .................................................... 381,612 403,048
-----------
547,846
-----------
HOUSING AND URBAN DEVELOPMENT (3.1%)
7.15%, 8/1/04 ..................................................... 500,000 510,102
7.50%, 8/1/11 ..................................................... 200,000 236,766
-----------
746,868
-----------
U.S. TREASURY INFLATION PROTECTED BONDS (10.1%)
3.63%, 1/15/08 .................................................... 1,000,000 1,297,805
3.00%, 7/15/12 .................................................... 1,000,000 1,172,746
-----------
2,470,551
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $ 5,323,800) ................................................ 5,649,255
-----------
INVESTMENT COMPANIES (4.4%)
Fifth Third Institutional
Government Money Market Fund ..................................... 1,069,642 1,069,642
-----------
TOTAL INVESTMENT COMPANIES
(COST $1,069,642) ................................................. 1,069,642
-----------
CERTIFICATES OF DEPOSIT (1.3%)
Albina Community Bancorp, 4.30%, 3/15/05 .......................... 25,000 25,000
Central Appalachian Peoples Federal Credit Union, 4.00%, 3/14/09... 25,000 25,000
Community Capital Bank, 4.57%, 7/20/04 ............................ 50,000 50,000
Elk Horn Bank, 1.55%, 3/14/05 ..................................... 25,000 25,000
Northeast Community Federal Credit Union, 1.00%, 3/15/05 .......... 25,000 25,000
Quitman TRI-COUNTY Bank, 2.00%, 1/9/06 ............................ 25,000 25,000
ShoreBank Pacific, 4.55%, 7/13/04 ................................. 50,000 50,539
ShoreBank, 1.10%, 2/10/05 ......................................... 50,000 50,000
Vermont Development Credit, 5.20%, 7/13/04 ........................ 50,000 50,000
-----------
TOTAL CERTIFICATES OF DEPOSIT
(COST $325,000) ................................................... 325,539
-----------
MUNICIPAL BONDS (0.9%)
MASSACHUSETTS (0.9%)
Massachusetts State Port Authority Revenue, 6.30%, 7/1/05 ......... 200,000 211,632
-----------
TOTAL MUNICIPAL BONDS ($201,625) .................................. 211,632
-----------
TOTAL INVESTMENTS
(COST $21,684,128) (A) - 99.8% .................................... 24,364,048
Other assets in excess of liabilities - 0.2% ...................... 46,129
-----------
NET ASSETS - 100.0% ............................................... $24,410,177
-----------
Percentages indicated are based on net assets of $24,410,177.
(a) At March 31, 2004, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Unrealized appreciation $ 2,962,683
Unrealized depreciation (282,763)
-----------
Net unrealized appreciation $ 2,679,920
===========
(b) Represents non-income producing security.
ADR - American Depositary Receipt
See Notes to Financial Statements
7
Financial Statements WALDEN SOCIAL BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004
ASSETS:
Investments, at value (cost $21,684,128)...................................... $ 24,364,048
Interest and dividends receivable............................................. 69,160
Prepaid expenses.............................................................. 4,900
------------
Total Assets.............................................................. 24,438,108
LIABILITIES:
Accrued expenses and other liabilities:
Investment Adviser........................................................... $ 10,843
Administration............................................................... 595
Custodian.................................................................... 657
Transfer Agent............................................................... 1,500
Audit........................................................................ 7,965
Legal........................................................................ 2,677
Shareholder Reporting........................................................ 2,291
Other........................................................................ 1,403
------------
Total Liabilities.......................................................... 27,931
------------
NET ASSETS.................................................................... $ 24,410,177
============
COMPOSITION OF NET ASSETS:
Capital....................................................................... $ 22,806,388
Accumulated net investment income............................................. 67,957
Accumulated net realized losses from investment transactions.................. (1,144,088)
Unrealized appreciation from investments...................................... 2,679,920
------------
NET ASSETS.................................................................... $ 24,410,177
============
Shares outstanding (par value $0.001, unlimited number of shares authorized).. 2,278,760
============
Net Asset Value, Offering Price and Redemption Price per share................ $ 10.71
============
STATEMENT OF OPERATIONS
For the year ended March 31, 2004
INVESTMENT INCOME:
Interest..................................................................... $ 334,656
Dividend..................................................................... 188,933
------------
TOTAL INVESTMENT INCOME.................................................... 523,589
------------
EXPENSES:
Investment Adviser........................................................... $ 165,223
Administration............................................................... 44,060
Accounting................................................................... 12,340
Custodian.................................................................... 7,167
Transfer Agency.............................................................. 18,000
Audit........................................................................ 4,443
Legal........................................................................ 4,672
Shareholder Reporting........................................................ 6,162
Other........................................................................ 15,019
------------
Total expenses before fee reductions....................................... 277,086
Fees reduced by the Administrator.......................................... (11,015)
Fees reduced by the Investment Adviser..................................... (45,614)
------------
NET EXPENSES............................................................... 220,457
------------
NET INVESTMENT INCOME......................................................... 303,132
------------
NET REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized losses from investment transactions.............................. (63,726)
Change in unrealized appreciation/(depreciation) from investments............. 3,428,466
------------
Net realized/unrealized gains from investments................................ 3,364,740
------------
CHANGE IN NET ASSETS FROM OPERATIONS.......................................... $ 3,667,872
============
See Notes to Financial Statements
8
Financial Statements WALDEN SOCIAL BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended For the year ended
March 31, 2004 March 31, 2003
------------------ ------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................................... $ 303,132 $ 351,132
Net realized losses from investment transactions.................... (63,726) (247,699)
Change in unrealized appreciation/(depreciation) from investments... 3,428,466 (1,768,130)
------------ ------------
CHANGE IN NET ASSETS FROM OPERATIONS................................... 3,667,872 (1,664,697)
------------ ------------
DIVIDENDS:
Net investment income............................................... (313,402) (340,000)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS........................ (313,402) (340,000)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................................... 4,659,866 4,282,014
Dividends reinvested................................................ 310,821 336,371
Cost of shares redeemed............................................. (2,442,908) (1,871,696)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS................... 2,527,779 2,746,689
------------ ------------
CHANGE IN NET ASSETS................................................... 5,882,249 741,992
NET ASSETS:
Beginning of year................................................... 18,527,928 17,785,936
------------ ------------
End of year......................................................... $ 24,410,177 $ 18,527,928
============ ============
SHARE TRANSACTIONS:
Issued.............................................................. 461,624 449,648
Reinvested.......................................................... 29,944 36,014
Redeemed............................................................ (241,181) (198,186)
------------ ------------
CHANGE IN SHARES....................................................... 250,387 287,476
============ ============
See Notes to Financial Statements
9
FINANCIAL STATEMENTS WALDEN SOCIAL BALANCED FUND
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout the period indicated.
For the For the For the For the For the period
year ended year ended year ended year ended June 20, 1999 to
March 31, 2004 March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 (a)
-------------- -------------- -------------- -------------- ------------------
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 9.13 $ 10.22 $ 9.93 $ 10.69 $ 10.00
--------- --------- --------- --------- ---------
INVESTMENT ACTIVITIES:
Net investment income ......................... 0.13 0.18 0.18 0.19 0.13
Net realized and unrealized gains
(losses) from investment transactions.......... 1.59 (1.10) 0.31 (0.77) 0.65
--------- --------- --------- --------- ---------
Total from investment activities .............. 1.72 (0.92) 0.49 (0.58) 0.78
--------- --------- --------- --------- ---------
DIVIDENDS:
Net investment income ......................... (0.14) (0.17) (0.20) (0.18) (0.09)
--------- --------- --------- --------- ---------
Total dividends ............................... (0.14) (0.17) (0.20) (0.18) (0.09)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ................. $ 10.71 $ 9.13 $ 10.22 $ 9.93 $ 10.69
========= ========= ========= ========= =========
TOTAL RETURN ................................... 18.91% (9.00%) 4.94% (5.57%) 7.83%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000's) ........... $ 24,410 $ 18,528 $ 17,786 $ 13,612 $ 13,117
Ratio of net expenses to average net assets ... 1.00% 1.00% 1.00% 1.00% 1.01%(c)
Ratio of net investment income to average
net assets.................................... 1.38% 1.95% 1.85% 1.88% 1.70%(c)
Ratio of expenses to average net assets (d) ... 1.21% 1.26% 1.28% 1.33% 1.34%(c)
Portfolio turnover ............................ 26.47% 40.07% 22.09% 29.06% 28.80%(c)
- --------------------------------------------------------------------------------
(a) Period from commenced operations.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
See Notes to Financial Statements
10
WALDEN SOCIAL EQUITY FUND
MARKET AND PERFORMANCE REVIEW (UNAUDITED) Manager Commentary by Robert Lincoln
INVESTMENT CONCERNS:
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes. Common stocks, and funds
investing in common stocks, generally provide greater return potential when
compared with other types of investments.
THE WALDEN SOCIAL EQUITY MUTUAL FUND AND THE FINANCIAL MARKETS
In contrast to the volatile financial markets of recent years, the first quarter
of 2004 proved relatively quiet as the Gross Domestic Product (the measure of
the market value of the goods and services produced by labor and property in the
United States) and corporate profits both expanded in line with consensus
forecasts and interest rates remained near the low levels prevailing at
year-end. The most disappointing economic news in recent months involved the
anemic level of job creation, but while a surprise to most forecasters, this
simply continued the lackluster trend set in 2003. The domestic political scene
and emerging debate also unfolded well within most market expectations. Presumed
Democratic nominee Kerry has attributed the skyrocketing Federal budget deficit
to President Bush's economic irresponsibility, while President Bush has already
characterized Senator Kerry as a classic tax and spend liberal. On the global
political front, the Senator accuses the President of alienating our allies and
bungling the Iraq nation building project, while the President labels the
Senator as vacillating on key positions and generally soft on defense -
political stances that are neither new nor surprising.
For the year ended March 31, 2004 the Walden Social Equity Fund produced a
32.14% total return compared to a 35.15% total return for the Fund's benchmark
the S&P 500 Stock Index.(1)
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL
COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END,
PLEASE CALL US AT 1.800.282.8782 EXT. 7253.
The modest shortfall in performance relative to the S&P 500 Index(1) over the
past twelve months primarily reflects the high quality, more conservative
investment approach employed by the Fund. Stocks of smaller and more aggressive
companies led the market advance over this period, particularly of those firms
that operate in the technology and telecommunications sectors, both of which are
underrepresented in the Fund. This type of disparity in performance is typical
during periods of rapid economic and stock market gains. We are confident that
the Fund's emphasis on stocks of well-established companies with proven sales
and earnings trends may lead to an attractive risk/return balance over the long
term.
OUR ECONOMIC OUTLOOK
Not only were there few material surprises in the first quarter economic
reports, but the fundamental economic question we outlined in our year-end
report also remains the same. Specifically, more pessimistic economists still
argue that we are in a short-lived, jobless recovery, fueled by last year's
mortgage refinancings and unbalanced tax cuts. More sanguine forecasters opine
that the 2003 Federal tax cut together with low interest rates will lift the
previously low level of consumer and business confidence sufficiently to foster
capital investment and innovation, supporting an extended period of economic
growth. The answer to this debate will become more evident as the year
progresses and will no doubt have a major influence on the fall elections.
Politics aside, our own assessment for the year ahead remains on the more
optimistic side of the economic debate. We are most encouraged by the continued
strong improvement in productivity and a rise in the level of business capital
investment. We believe both should contribute to the retention of a low rate of
inflation in the quarters and years ahead, thereby allowing the Federal Reserve
greater latitude with respect to raising interest rates. We also expect better
news on job creation in the months ahead. Even if the news on new jobs is not
particularly positive, however, it is important to recognize that corporate
profits, which are the primary driver of stock prices, could continue to
increase. The reason lies in the benefit corporate profit margins receive from
relatively stable unit labor costs that result from strong productivity gains.
If our economic optimism proves correct, stock prices should trend higher for
the balance of 2004.
INVESTMENT STRATEGY
We continue to adhere to our primary investment style by focusing on companies
with superior financial quality. Key issues in identifying such companies have
evolved over the past year. For instance, balance sheets at many companies were
strengthened as managements paid down long-term debt or took advantage of lower
rates to refinance. Working capital has also been allocated more efficiently at
many companies as managements improved inventory controls, and capital spending
budgets have often been pared with the goal of employing more efficiently assets
acquired during the high spending years of the late 1990s. On the other
- --------------------------------------------------------------------------------
(1) The S&P 500 STOCK INDEX is generally representative of the U.S. stock market
as a whole.
- --------------------------------------------------------------------------------
11
WALDEN SOCIAL EQUITY FUND
Market and Performance Review, (Cont.) Manager Commentary by Robert Lincoln
hand, large option grants at many companies still threaten to absorb a hefty
share of cash flows, and we have found that the analysis of pension fund
obligations and assets is ever more critical in understanding the long-term
health of the companies we consider for investment.
Our analysis of market economic sector attractiveness has led us to emphasize
financial and healthcare companies. Many of the former, particularly regional
banks could benefit from the improving financial conditions of corporate
borrowers and the cost savings generated by in-market mergers. Equally
important, many companies in the sector continue to be valued at
price-to-earnings ratios (ratio of stock's price divided by it
earnings-per-share) of 15 or lower, a level that we believe reflects growth
prospects that may be readily achievable. Healthcare companies, we believe, will
continue to benefit from favorable demographics. Within this sector, we have
favored medical device manufacturers where the pace of innovation is steady and
pricing flexibility is relatively strong. Finally, we continue to underweight
technology stocks. While many of these companies have underperformed the market
over the past quarter, prices will need to fall further before their valuation
levels, according to our analysis, appropriately discounts their prospects.+
On behalf of Boston Trust, we are very pleased to announce that the senior
managers recently signed an agreement to purchase 100% of the equity of our firm
from Citizens Financial Group. Please refer to Footnote No. 6 of the financial
statements for additional information.
/s/ Robert Lincoln
Robert Lincoln
Portfolio Manager
Boston Trust Investment Management, Inc.
- --------------------------------------------------------------------------------
+ Portfolio composition is subject to change.
- --------------------------------------------------------------------------------
12
WALDEN SOCIAL EQUITY FUND
Investment Performance (unaudited) March 31, 2004
Fund Net Asset Value: $10.85
ANNUALIZED
--------------------------
QUARTER SINCE INCEPTION
TO DATE 1 YEAR JUNE 20, 1999
WALDEN SOCIAL EQUITY FUND* 1.97% 32.14% 2.24%
Standard & Poor's 500 Stock Index** 1.69% 35.10% -2.15%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL
1-888-282-8782 EXT. 7253.
* After all expenses at an annual rate of 1.00%, the adviser's expense
limitation.
** The performance data being shown for the S&P 500 is calculated from June 17,
1999.
[LINE GRAPH]
S&P 500 Stock Index Walden Social Equity Fund
- ------------------------------------------------------------------------------
<Table>
06/20/99 10000 10000
9689 10110
9641 9910
9377 9460
9970 9850
10173 10100
12/31/99 10771 10290
10230 9937
10037 9665
11018 10694
10687 10492
10468 10361
10725 10482
10558 10210
11213 10734
10621 10341
10576 10553
9743 10149
12/31/00 9791 10513
10138 10554
9214 9986
8631 9612
9301 10138
9363 10270
9136 9936
9046 10108
8480 9723
7795 9034
7944 9156
8553 9835
12/31/01 8628 10065
8502 10035
8338 10086
8652 10432
8128 10106
8068 9974
7493 9293
6909 8744
6955 8917
6200 8134
6745 8754
7141 9079
12/31/02 6722 8762
6546 8455
6448 8363
6510 8414
7046 9027
7417 9405
7512 9497
7644 9783
7793 10007
7711 9895
8147 10446
8218 10528
12/31/03 8649 10904
8808 11150
8930 11273
03/31/04 8795 11119
</Table>
The chart represents a historical investment of $10,000 in the Walden Social
Equity Fund from June 20, 1999, to March 31, 2004, and represents the
reinvestment of dividends and capital gains in the Fund.
The Fund's performance is compared to the Standard & Poor's 500 Stock Index,
which is an unmanaged index of stocks that measures the asset-weighted
performance of 500 stocks of large capitalization companies. The index does not
reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance reflects
the deduction of fees for these value-added services. Investors cannot invest
directly in an index, although they can invest in the underlying securities.
The returns shown do not reflect the deduction of taxes a shareholder would pay
on the redemption of fund shares or fund distribution.
13
WALDEN SOCIAL EQUITY FUND
Schedule of Portfolio Investments March 31, 2004
COMMON STOCKS (99.0%)
SECURITY DESCRIPTION SHARES VALUE ($)
- -------------------- ------ -----------
BASIC MATERIALS (4.3%)
Bemis Co....................................... 16,000 416,000
Donaldson Co., Inc............................. 20,000 530,600
Ecolab, Inc.................................... 14,000 399,420
Sealed Air Corp. (b)........................... 8,000 397,840
-----------
1,743,860
-----------
CAPITAL GOODS (4.6%)
Dover Corp..................................... 12,000 465,240
Eaton Corp..................................... 11,000 618,090
Illinois Tool Works, Inc....................... 10,000 792,300
-----------
1,875,630
-----------
COMMUNICATION SERVICES (2.9%)
Alltel Corp.................................... 8,000 399,120
Bellsouth Corp................................. 15,000 415,350
Nokia AB, ADR.................................. 18,000 365,040
-----------
1,179,510
-----------
CONSUMER CYCLICALS (8.4%)
La-Z-Boy, Inc.................................. 15,000 326,400
Leggett & Platt, Inc........................... 20,000 474,200
McClatchy Co. - Class A........................ 10,000 710,400
Nike, Inc. - Class B........................... 10,000 778,700
Staples, Inc. (b).............................. 15,500 393,545
Washington Post Co. - Class B.................. 800 707,528
-----------
3,390,773
-----------
CONSUMER PRODUCTS (1.6%)
Aptargroup, Inc................................ 16,500 633,600
-----------
CONSUMER STAPLES (9.0%)
Alberto-Culver Co.............................. 9,900 434,313
Colgate-Palmolive Co........................... 6,000 330,600
Costco Wholesale Corp. (b)..................... 20,000 751,200
CVS Corp....................................... 10,000 353,000
Hershey Foods Corp............................. 6,500 538,525
Pepsico, Inc................................... 10,000 538,500
Sysco Corp..................................... 17,600 687,280
-----------
3,633,418
-----------
ENERGY (3.5%)
Apache Corp.................................... 7,000 302,190
BP PLC, ADR.................................... 22,000 1,126,400
-----------
1,428,590
-----------
FINANCIAL SERVICES (25.7%)
American International Group, Inc.............. 6,000 428,100
AmSouth Bancorporation......................... 20,000 470,200
Bank of America Corp........................... 10,000 809,800
Chubb Corp..................................... 7,000 486,780
Cincinnati Financial Corp...................... 18,000 782,100
Comerica, Inc.................................. 9,000 488,880
Commerce Bancshares, Inc....................... 12,600 601,146
Fannie Mae..................................... 10,000 743,500
Marsh & McLennan Cos., Inc..................... 10,000 463,000
MBNA Corp...................................... 20,000 552,600
Northern Trust Corp............................ 13,200 614,988
State Street Corp.............................. 12,000 625,560
Suntrust Banks, Inc............................ 11,400 794,694
T. Rowe Price Group, Inc....................... 16,500 888,195
Wells Fargo & Co............................... 14,000 793,380
Wilmington Trust Corp.......................... 22,000 822,140
-----------
10,365,063
-----------
HEALTH CARE (17.8%)
Amgen, Inc. (b)................................ 6,000 349,020
Becton, Dickinson & Co......................... 11,000 533,280
Biomet, Inc.................................... 14,000 537,040
C.R. Bard, Inc................................. 9,000 878,760
Dentsply International, Inc.................... 10,000 443,300
Henry Schein, Inc. (b)......................... 6,000 428,520
Hillenbrand Industries, Inc.................... 7,700 522,753
IMS Health, Inc................................ 20,000 465,200
Johnson & Johnson.............................. 12,000 608,640
Medtronic, Inc................................. 15,000 716,250
Merck & Co., Inc............................... 12,000 530,280
Pfizer, Inc.................................... 20,000 701,000
Teva Pharmaceutical Industries Ltd., ADR....... 7,100 450,211
-----------
7,164,254
-----------
PRODUCER PRODUCTS (1.8%)
Teleflex, Inc.................................. 15,000 738,450
-----------
RETAIL STORES (2.7%)
Ross Stores, Inc............................... 20,000 612,200
TJX Cos., Inc.................................. 20,000 491,200
-----------
1,103,400
-----------
TECHNOLOGY (15.0%)
Adobe Systems, Inc............................. 9,000 354,870
Applied Materials, Inc. (b).................... 25,000 534,500
Automatic Data Processing, Inc................. 11,000 462,000
Cisco Systems, Inc. (b)........................ 20,000 470,400
Dell, Inc. (b)................................. 16,500 554,730
Diebold, Inc................................... 14,000 673,680
EMC Corp. (b).................................. 16,500 224,565
Intel Corp..................................... 20,000 544,000
International Business Machines Corp........... 6,000 551,040
Jabil Circuit, Inc. (b)........................ 11,000 323,730
KLA-Tencor Corp. (b)........................... 7,000 352,450
Microsoft Corp................................. 25,000 624,250
Waters Corp. (b)............................... 10,000 408,400
-----------
6,078,615
-----------
TRANSPORTATION (1.7%)
United Parcel Service, Inc. - Class B.......... 10,000 698,400
-----------
TOTAL COMMON STOCKS
(COST $33,455,669)............................. 40,033,563
-----------
INVESTMENT COMPANIES (1.0%)
Fifth Third Institutional Government
Money Market Fund......................... 397,047 397,047
-----------
TOTAL INVESTMENT COMPANIES
(COST $397,047)................................ 397,047
-----------
TOTAL INVESTMENTS
(COST $33,852,716) (A) - 100.0%................ 40,430,610
Other assets in excess of liabilities - 0.0%... 15,100
-----------
NET ASSETS - 100.0%............................ $40,445,710
-----------
Percentages indicated are based on net assets of $40,445,710.
(a) At March 31, 2004, the basis of investments for federal income tax purposes
was $33,856,144. Unrealized appreciation and depreciation were as follows:
Unrealized appreciation $ 7,460,054
Unrealized depreciation (885,588)
-----------
Net unrealized appreciation $ 6,574,466
===========
(b) Represents non-income producing security.
ADR - American Depositary Receipt
See Notes to Financial Statements
14
Financial Statements WALDEN SOCIAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004
ASSETS:
Investments, at value (cost $33,852,716 )...................................... $ 40,430,610
Interest and dividends receivable.............................................. 55,607
Prepaid expenses............................................................... 5,137
------------
TOTAL ASSETS............................................................... 40,491,354
LIABILITIES:
Accrued expenses and other liabilities:
Investment Adviser............................................................ $ 20,946
Administration................................................................ 982
Custody....................................................................... 951
Transfer Agent................................................................ 1,500
Audit......................................................................... 12,324
Legal......................................................................... 3,998
Shareholder Report............................................................ 3,688
Other......................................................................... 1,255
------------
TOTAL LIABILITIES........................................................... 45,644
------------
NET ASSETS..................................................................... $ 40,445,710
============
COMPOSITION OF NET ASSETS:
Capital........................................................................ $ 36,098,125
Accumulated net investment income.............................................. 52,511
Accumulated net realized losses from investment transactions................... (2,282,820)
Unrealized appreciation from investments....................................... 6,577,894
------------
NET ASSETS..................................................................... $ 40,445,710
============
Shares outstanding (par value $0.001, unlimited number of shares authorized)... 3,728,882
============
Net Asset Value, Offering Price and Redemption Price per share................. $ 10.85
============
STATEMENT OF OPERATIONS
For the year ended March 31, 2004
INVESTMENT INCOME:
Dividend....................................................................... $ 508,715
Interest....................................................................... 4,917
------------
TOTAL INVESTMENT INCOME.................................................... 513,632
------------
EXPENSES:
Investment Adviser............................................................ $ 265,878
Administration................................................................ 70,901
Accounting.................................................................... 8,070
Custodian..................................................................... 10,728
Transfer Agency............................................................... 18,000
Audit......................................................................... 7,256
Legal......................................................................... 6,872
Shareholder Reporting......................................................... 10,118
Other......................................................................... 14,484
------------
Total expenses before fee reductions........................................ 412,307
Fees reduced by the Administrator........................................... (17,725)
Fees reduced by the Investment Adviser...................................... (39,696)
------------
NET EXPENSES................................................................ 354,886
------------
NET INVESTMENT INCOME.......................................................... 158,746
------------
NET REALIZED/UNREALIZED GAINS FROM INVESTMENTS:
Net realized gains from investment transactions................................ 1,191,725
Change in unrealized appreciation/(depreciation) from investments.............. 7,795,313
------------
Net realized/unrealized gains from investments................................. 8,987,038
------------
CHANGE IN NET ASSETS FROM OPERATIONS........................................... $ 9,145,784
============
See Notes to Financial Statements.
15
Financial Statements WALDEN SOCIAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended For the year ended
March 31, 2004 March 31, 2003
------------------ ------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................................... $ 158,746 $ 117,337
Net realized gains (losses) from investment transactions............ 1,191,725 (2,151,761)
Change in unrealized appreciation/(depreciation) from investments... 7,795,313 (3,223,746)
------------ ------------
CHANGE IN NET ASSETS FROM OPERATIONS................................... 9,145,784 (5,258,170)
------------ ------------
DIVIDENDS:
Net investment income............................................... (134,257) (109,000)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS........................ (134,257) (109,000)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued......................................... 9,132,887 7,543,476
Dividends reinvested................................................ 121,057 108,960
Cost of shares redeemed............................................. (4,269,957) (1,450,934)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS................... 4,983,987 6,201,502
------------ ------------
CHANGE IN NET ASSETS................................................... 13,995,514 834,332
NET ASSETS:
Beginning of year................................................... 26,450,196 25,615,864
------------ ------------
$ 40,445,710 $ 26,450,196
============ ============
SHARE TRANSACTIONS:
Issued.............................................................. 931,495 871,957
Reinvested.......................................................... 11,674 12,524
Redeemed............................................................ (425,842) (170,784)
------------ ------------
CHANGE IN SHARES....................................................... 517,327 713,697
============ ============
See Notes to Financial Statements
16
Financial Statements WALDEN SOCIAL EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout the period indicated.
For the For the For the For the For the period
year ended year ended year ended year ended June 20, 1999 to
March 31, 2004 March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 (a)
-------------- -------------- -------------- -------------- ------------------
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 8.24 $ 10.26 $ 9.49 $ 10.60 $ 10.00
------- ------- ------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income........................... 0.04 0.04 0.04 0.03 0.02
Net realized and unrealized gains (losses)
from investment transactions.................. 2.61 (2.02) 0.77 (1.10) 0.67
------- ------- ------- ------- -------
Total from investment activities................ 2.65 (1.98) 0.81 (1.07) 0.69
------- ------- ------- ------- -------
DIVIDENDS:
Net investment income........................... (0.04) (0.04) (0.04) (0.04) (0.01)
In excess of net realized gains................. -- -- -- -- (0.08)
------- ------- ------- ------- -------
Total dividends................................. (0.04) (0.04) (0.04) (0.04) (0.09)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD..................... $ 10.85 $ 8.24 $ 10.26 $ 9.49 $ 10.60
======= ======= ======= ======= =======
TOTAL RETURN....................................... 32.14% (19.34%) 8.53% (10.12%) 6.94%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000's)............. $40,446 $26,450 $25,616 $21,366 $ 25,064
Ratio of net expenses to average net assets..... 1.00% 1.00% 1.00% 1.00% 1.00%(c)
Ratio of net investment income to average
net assets................................... 0.45% 0.48% 0.35% 0.33% 0.28%(c)
Ratio of expenses to average net assets (d)..... 1.16% 1.18% 1.18% 1.19% 1.18%(c)
Portfolio turnover.............................. 22.33% 16.10% 22.42% 45.26% 28.57%(c)
- --------------------------------------------------------------------------------
(a) Period from commenced operations.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
See Notes to Financial Statements
17
Notes to Financial Statements March 31, 2004
1. ORGANIZATION:
The Coventry Group (the "Group") was organized as a Massachusetts business
trust on January 8, 1992 and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The accompanying financial statements are those of the Walden
Social Balanced Fund and Walden Social Equity Fund (individually, a "Fund",
collectively, the "Funds"). The Funds are a separate series of the Coventry
Group. Financial statements for all other series are published separately.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed
by the Funds in preparation of the financial statements. These policies are
in conformity with accounting principles generally accepted in the United
States of America. 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
SECURITY VALUATION:
The value of each equity security is based either on the last sale price on
a national securities exchange, or in the absence of recorded sales, at the
closing bid prices on such exchanges, or at the quoted bid price in the
over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued by or at the direction of
the Group's Board of Trustees.
Bonds and other fixed income securities (other than short-term obligations
but including listed issues) are valued on the basis of valuations
furnished by a pricing service, the use of which has been approved by the
Group's Board of Trustees. In making such valuations, the pricing service
utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, and trading characteristics other
than market data and without exclusive reliance upon quoted prices or
exchanges or over-the-counter prices, since such valuations are believed to
reflect more accurately the fair value of such securities. All debt
portfolio securities with a remaining maturity of 60 days or less are
valued at amortized cost, which approximates value. Under the amortized
cost method, discount or premium, if any, is accreted or amortized,
respectively, on a constant (straight-line) basis to the maturity of the
security.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on trade date. Securities gains and
losses are calculated on the identified cost basis. Interest income is
recognized on the accrual basis and includes, where applicable, the
accretion or amortization of discount or premium. Dividend income is
recorded on the ex-dividend date.
EXPENSE ALLOCATION:
Expenses directly attributable to a Fund are generally charged directly to
that Fund. Expenses relating to the Group are generally allocated
proportionately to each Fund within the Group according to the relative net
assets of each Fund or on another reasonable basis.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income and net realized gains, if any, are
declared and distributed annually. Additional dividends are also paid to
the Fund's shareholders to the extent necessary to avoid the federal excise
tax on certain undistributed net investment income and net realized gains.
The amount of dividends from net investment income and net realized gains
are determined in accordance with federal income tax regulations which may
differ from accounting principles generally accepted in the United States
of America. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified to capital; temporary differences do
not require reclassification.
FEDERAL INCOME TAXES:
Each Fund is a separate taxable entity for federal tax purposes. Each Fund
has qualified and intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code, as amended and to
distribute substantially all of its taxable net investment income and net
realized gains, if any, to its shareholders. For federal income tax
purposes, the Walden Social Balanced Fund and Walden Social Equity Fund
have capital loss carry forwards of $1,144,088 and $2,279,392,
respectively, available to offset future gains, if any, which are broken
down by expiration date as follows. Accordingly, no provision for federal
income tax is required.
AMOUNT EXPIRES
---------- -------
Walden Social Balanced Fund $ 28,136 2008
17,496 2009
463,541 2010
571,189 2011
63,726 2012
Walden Social Equity Fund 950,879 2010
1,328,513 2011
Continued
18
Notes to Financial Statements March 31, 2004
3. RELATED PARTY TRANSACTIONS:
INVESTMENT ADVISER:
Boston Trust Investment Management, Inc. (the "Investment Adviser") acts as
the investment adviser to the Funds. For its services, the Investment
Adviser is entitled to receive a fee, computed daily and paid monthly,
based on the average daily net assets of each Fund, at an annual rate of
0.75%.
ADMINISTRATION:
BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), who serves the Funds as
administrator, is a wholly owned subsidiary of The BISYS Group, Inc., with
whom certain officers and trustees of the Group are affiliated. Such
persons are paid no fees directly by the Funds for serving as officers and
trustees of the Group. Under the terms of the administration agreement,
BISYS Ohio receives an annual fee, computed daily and paid monthly, based
on the average daily net assets of each Fund, at an annual rate of 0.20%.
DISTRIBUTION:
BISYS Fund Services Limited Partnership, a wholly owned subsidiary of The
BISYS Group, Inc., serves as the Funds' distribution agent.
CUSTODIAN, TRANSFER AGENCY AND FUND ACCOUNTING:
Boston Trust & Investment Management Company acts as the Fund's custodian
and transfer agent. Under the custody agreement, Boston Trust & Investment
Management Company receives an annual fee computed daily and paid monthly
based on the average daily net assets. Boston Trust & Investment Management
Company receives a fixed fee accrued daily and paid monthly for its
services as the transfer agent. BISYS Ohio provides fund accounting
services for the Funds. For these services to the Funds, BISYS Ohio
receives an annual fee accrued daily and paid monthly.
FEE REDUCTIONS:
The Investment Adviser has agreed to reduce its fees payable by the Funds
to the extent necessary to limit the Funds' aggregate annual operating
expenses to 1.00% of the average daily net assets. Any such reductions made
by the Investment Adviser in its fees or payments or reimbursement of
expenses which are the Funds' obligation may be subject to repayment by the
Funds within three years provided the Funds are able to effect such
repayment and remain in compliance with applicable limitations. Pursuant to
its agreement, for the year ended March 31, 2004, the Investment Adviser
reimbursed fees in the amount of $45,614 and $39,696 for the Walden Social
Balanced Fund and Walden Social Equity Fund, respectively. As of March 31,
2004, the Investment Advisor may recoup $119,617 and $102,706 from the
Walden Social Balanced Fund and Walden Social Equity Fund, respectively.
BISYS Ohio has agreed to reduce its administrative fees. For the year ended
March 31, 2004, BISYS Ohio voluntarily waived fees in the amount of $11,015
and $17,725 for the Walden Social Balanced Fund and Walden Social Equity
Fund, respectively.
4. PURCHASES AND SALES OF SECURITIES:
Purchases of and proceeds from sales, excluding short-term securities, for
the Funds for the year ended March 31, 2004, totaled:
Purchases Sales
---------- ----------
Walden Social Balanced Fund $ 7,580,382 $5,490,589
Walden Social Equity Fund 12,760,144 7,748,306
5. OTHER FEDERAL INCOME TAX INFORMATION (UNAUDITED):
The tax character of dividends paid during the years ended March 31, 2004
and 2003 for the Walden Social Balanced and Walden Social Equity Fund, were
as follows:
Walden Social Balanced 2004 2003
-------- --------
Ordinary Income $313,402 $340,000
Long Term Capital Gains -- --
-------- --------
$313,402 $340,000
======== ========
Walden Social Equity 2004 2003
-------- --------
Ordinary Income $134,257 $109,000
Long Term Capital Gains -- --
-------- --------
$134,257 $109,000
======== ========
As of March 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Walden Social Balanced Walden Social Equity
---------------------- --------------------
Undistributed Ordinary Income $ 67,957 $ 52,511
Capital Loss Carry Forward (1,144,088) (2,279,392)
Unrealized Appreciation 2,679,920 6,574,466
------------ ------------
Accumulated Earnings $ 1,603,789 $ 4,347,585
------------ ------------
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of wash sales.
Continued
19
Notes to Financial Statements March 31, 2004
6. MATERIAL EVENT (UNAUDITED):
In March, 2004 Citizens Financial Group, Inc., parent company of Boston
Trust & Investment Management Company ("Boston Trust"), agreed to sell the
capital stock of Boston Trust, parent company of the Investment Adviser, to
a holding company created by the principals of Boston Trust. The
transaction will give the current five principals of Boston Trust control
of the firm. The transaction is expected to close, subject to regulatory
approval, prior to the end of the third quarter of 2004.
The transaction is a transfer of ownership from one holding company to
another and will not impact the Adviser's investment philosophy, approach,
process, fee structures or rebates applied to the Funds, or the
constitution of current personnel, including the portfolio managers of the
Funds. The transaction will trigger a proxy solicitation to shareholders
asking their approval of a new investment advisory agreement for the Funds
having the same fees, terms and conditions as the existing agreement.
7. PROXY VOTING INFORMATION (UNAUDITED):
A description of the policies and procedures that the Funds' use to
determine how to vote proxies relating to portfolio securities is available
(i) without charge, upon request, by calling 1-800-282-8782 and (ii) on the
Securities and Exchange Commission's website at http://www.sec.gov.
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the Walden Social Balanced Fund and
the Walden Social Equity Fund of The Coventry Group:
We have audited the accompanying statements of assets and liabilities of the
Walden Social Balanced Fund and Walden Social Equity Fund, each a series of
shares of The Coventry Group (a Massachusetts business trust), including the
schedules of portfolio investments, as of March 31, 2004, the related statements
of operations for the year then ended, and the statements of changes in net
assets and the financial highlights for each of the two years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the two years ended March 31, 2002
and the period ended March 31, 2000 were audited by other auditors whose report
dated May 15, 2002 expressed an unqualified opinion on such financial
highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 and financial highlights. Our procedures
included confirmation of securities owned as of March 31, 2004 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
Walden Social Balanced Fund and Walden Social Equity Fund as of March 31, 2004,
the results of their operations for the year then ended, and the changes in net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 28, 2004
21
Information about Trustees and Officers (unaudited) March 31, 2004
POSITION(S) TERM OF OFFICE AND NUMBER OF PORTFOLIOS OTHERTRUSTEE-
HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) IN FUND COMPLEX SHIPS HELD BY
NAME, ADDRESS, AND AGE FUND SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE TRUSTEE*
- ---------------------- -------------- ------------------- --------------------------------- -------------------- ---------------
INDEPENDENT TRUSTEES
Maurice G. Stark Trustee 2/92 to present Retired. 16
3435 Stelzer Road
Columbus, OH 43219
Age: 68
John H. Ferring IV Trustee 5/98 to present President and owner, Plaze, Inc., 16
3435 Stelzer Road St. Clair, MO (packaging manu-
Columbus, OH 43219 facturer) - 1979 to present
Age: 51
Michael M. Van Buskirk Trustee 2/92 to present Employee of and currently 16 BISYS Variable
3435 Stelzer Road President of The Ohio Bankers Insurance Funds
Columbus, OH 43219 League (trade association)--
Age: 57 6/91 to present
INTERESTED TRUSTEES
Jeffrey J. Young(1) Chairman and 8/99 to present Employee of BISYS Fund Ser- 16
3435 Stelzer Road Trustee vices--10/93 to present
Columbus, OH 43219
Age: 39
Walter B. Grimm(1) President 4/96 to present Employee of BISYS Fund Ser- 16 American
3435 Stelzer Road vices--6/92 to present Performance
Columbus, OH 43219 Funds
Age: 58
OFFI CERS WHO ARE NOT TRUSTEES
Jennifer J. Hankins Vice President Since 1998 Employee of BISYS Fund Ser-
3435 Stelzer Road vices--9/88 to present
Columbus, OH 43219
Age: 37
Lara Bocskey Vice President Since 2002 Employee of BISYS Fund
3435 Stelzer Road Services--5/98 to present;
Columbus, OH 43219 Employee of First of America
Age: 33 Bank Corporation from 1996
to 1998
Nadeem Yousaf Treasurer Since 1999 Employee of BISYS Fund Servic-
3435 Stelzer Road es--8/99 to present; Employee
Columbus, OH 43219 of Investors Bank and Trust
Age: 35 from 3/97 - 6/99; Employee of
PricewaterhouseCoopers LLP
from 10/94 - 3/97
George L. Stevens Secretary Since 1996 Employee of BISYS Fund Ser-
3435 Stelzer Road vices--9/96 to present
Columbus, OH 43219
Age: 52
Alaina V. Metz Assistant Since 1995 Employee of BISYS Fund Ser-
3435 Stelzer Road Secretary vices--6/95 to present
Columbus, OH 43219
Age: 35
- --------------------------------------------------------------------------------
* Not reflected in prior column.
(1) Mr. Grimm and Mr. Young may be deemed to be an "interested person," as
defined by the 1940 Act, because of their employment with BISYS Fund
Services.
22
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23
INVESTMENT ADVISER
Boston Trust Investment Management, Inc.
40 Court Street
Boston, MA 02108
CUSTODIAN AND TRANSFER AGENT
Boston Trust & Investment Management Company
40 Court Street
Boston, MA 02108
ADMINISTRATOR
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
Tait, Weller & Baker
1818 Market Street
Suite 2400
Philadelphia, PA 19103
LEGAL COUNSEL
Dechert LLP
1775 Eye Street, N.W.
Washington, D.C. 20006
This report is intended for the shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown should not be considered a representation of
future performance. Share price and returns will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Statements and
other information herein are dated and subject to change.
[LOGO] Printed on Recycled Paper
[LOGO] THE SHELBY FUNDS
SMC Capital, Inc.
Investment Advisor
ANNUAL REPORT
TO
SHAREHOLDERS
March 31, 2004
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
MESSAGE FROM THE INVESTMENT ADVISOR
The Shelby Funds
Dear Shareholder: April 21, 2004
A year ago, uncertainty dominated the headlines. The market had just completed
its third consecutive year of negative declines - a grueling bear market that
saw, peak to trough, the S&P 500 lose nearly half its value. Scandals plagued
Wall Street and Corporate America, while our Nation stood on the brink of war.
Investor confidence was the lowest in nearly a decade.
Against that backdrop of doom and gloom, we outlined our case for a market
recovery. In our previous Annual Letter to Shareholders, we stated that we
believed, "both the economy and the market have turned." We further stated that
valuations, though not low by historical measures, offered room for upside. We
concluded that, "as 2003 progresses, investors will become increasingly
comfortable returning to equity markets." Fortunately, we were correct in our
analysis.
For the twelve-month period ending March 31, 2004, The Shelby Fund Class Y
returned 36.87%, versus 35.12% for the S&P 500 and 63.83% for the Russell 2000.
The Shelby Large Cap Fund returned 26.98%. The Shelby Fund benefited from its
more aggressive objective, as high growth Sectors such as Technology and
Consumer Discretionary led the early stage of the recovery. The Shelby Large Cap
Fund was modestly impacted by the same trend, as its objective is to seek more
stable growth in earnings. As the recovery matures, we believe both funds could
capitalize on their complementary strategies.
Overall, our outlook has not changed. Virtually all of our key indicators point
toward continued strength across the global economy. While growth in corporate
profits may be moderate over the coming months, and interest rates should slowly
begin to rise, we believe the market is in the mid-stages of a sustained
recovery that could lift equities to higher levels in the months ahead.
Sincerely,
/s/ Darrell R. Wells /s/ Holland N. McTyeire IV /s/ James C. Shircliff
Darrell R. Wells Holland N. McTyeire, IV, CFA James C. Shircliff, CFA
/s/ R. Andrew Beck /s/ Brian S. Stivers
R. Andrew Beck Brian S. Stivers
-1-
The Shelby Funds
[CHART]
The Shelby Fund
Value of a $10,000 Investment**
(Class Y Shares)
The Shelby Fund S&P 500 Russell 2000
--------------- --------- ------------
03/31/1994 $ 10,000 $ 10,000 $ 10,000
03/31/1995 10,459 11,558 10,550
03/31/1996 13,712 15,262 13,615
03/31/1997 13,295 18,281 14,310
03/31/1998 18,476 27,073 20,322
03/31/1999 20,425 32,071 17,019
03/31/2000 37,184 37,826 23,366
03/31/2001 17,290 29,626 19,784
03/31/2002 17,802 29,698 22,550
03/31/2003 13,624 22,343 16,470
03/31/2004 18,647 30,193 26,983
Past performance is not predictive of future results.
This chart shows the impact of market changes on a theoretical $10,000
invested in The Shelby Fund on 3/31/94, compared to the same theoretical
$10,000 invested in the S&P 500 and Russell 2000.
Average Annual Return**
Since
1 Year 5 Year 10 Year Inception
------ ------ ------- ---------
The Shelby Fund Class A (no load) 36.38% -1.88% 6.39% 11.30% (1/1/1981)
The Shelby Fund Class A* 29.81% -2.82% 5.87% 11.07% (1/1/1981)
The Shelby Fund Class Y 36.87% -1.65% 6.64% 11.57% (1/1/1981)
* Reflects 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. The 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-
The Shelby Funds
The performance of The Shelby Fund is measured against the Standard & Poor's 500
Index (the Fund's primary benchmark), an unmanaged index generally
representative of the U.S. stock market as a whole, and the Russell 2000 Index,
an unmanaged index representative of the performance of a basket of 2000 mid-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. Investors cannot invest directly in an index, although they can invest
in its underlying securities.
Performance data represents past performance and is not predictive of future
performance. Investment return and the principal value of an investment in the
Funds will fluctuate so that an investor's share, when redeemed, may be worth
more or less than their original cost. The composition of the Funds' 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 Limited
Partnership.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, Commonwealth Bank & Trust Co. 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.
-3-
The Shelby Funds
[CHART]
The Shelby Large Cap Fund
Value of a $10,000 Investment**
(Class A Shares)*
The Shelby Large
Cap Fund S&P 500
---------------- ---------
09/01/1995 $ 10,000 $ 9,965
03/31/1996 11,367 11,172
03/31/1997 13,457 13,382
03/31/1998 19,731 19,818
03/31/1999 23,822 23,477
03/31/2000 29,403 27,689
03/31/2001 22,796 21,687
03/31/2002 22,792 21,740
03/31/2003 17,397 16,356
03/31/2004 22,090 22,102
Past performance is not predictive of future results.
This chart shows the impact of market changes on a theoretical $10,000
invested in The Shelby Large Cap Fund on 10/1/95, compared to the same
theoretical $10,000 invested in the S&P 500.
Average Annual Return**
Since
1 Year 5 Year Inception
------ ------ ---------
The Shelby Large Cap Fund Class A
(no load) 26.98% -1.50% 9.77% (10/1/1995)
The Shelby Large Cap Fund Class A* 20.93% -2.44% 9.15% (10/1/1995)
* Reflects 4.75% sales charge.
** The quoted performance of The Shelby Large Cap 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
September 10, 2001. 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. The
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.
-4-
The Shelby Funds
The performance of The Shelby Large Cap Fund is measured against the Standard &
Poor's 500 Index, an unmanaged index generally representative of the U.S. stock
market. This index does 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.
Performance data represents past performance and is not predictive of future
performance. Investment return and the principal value of an investment in the
Funds will fluctuate so that an investor's share, when redeemed, may be worth
more or less than their original cost. The composition of the Funds' 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 Limited
Partnership.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, Commonwealth Bank & Trust Co. 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.
-5-
Table of Contents
Report of Independent Auditors
PAGE 7
The Shelby Fund
Statement of Assets and Liabilities
PAGE 8
Statement of Operations
PAGE 9
Statements of Changes in Net Assets
PAGE 10
Schedule of Portfolio Investments
PAGE 11
The Shelby Large Cap Fund
Statement of Assets and Liabilities
PAGE 13
Statement of Operations
PAGE 14
Statements of Changes in Net Assets
PAGE 15
Schedule of Portfolio Investments
PAGE 16
Notes to Financial Statements
PAGE 19
Financial Highlights
PAGE 27
-6-
REPORT OF INDEPENDENT AUDITORS
The Shelby Funds
To the Board of Trustees and Shareholders of The Shelby Fund and The Shelby
Large Cap Fund of the Coventry Group:
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of the Shelby Fund and the Shelby Large
Cap Fund of the Coventry Group (a Massachusetts business trust) (collectively
"the Funds") as of March 31, 2004, and the related statements of operations for
the year then ended, and the changes in net assets and financial highlights for
each of the two years then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights presented herein for each of the
respective years ended March 31, 2002 were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on the
financial highlights in their report dated May 15, 2002.
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 and financial highlights. Our procedures included
confirmation of securities owned as of March 31, 2004, by correspondence with
the custodians and brokers. 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 and the Shelby Large Cap Fund of the Coventry Group as of March 31,
2004, the results of their operations, the changes in their net assets, and
their financial highlights for each of the two years then ended, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Columbus, Ohio
May 14, 2004
-7-
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Assets and Liabilities
March 31, 2004
ASSETS:
Investments, at value (cost $13,639,300) ................................................. $ 17,971,887
Repurchase agreements, at cost ........................................................... 1,077,563
Cash ..................................................................................... 112,138
Interest and dividends receivable ........................................................ 11,590
Prepaid expenses and other assets ........................................................ 4,196
-------------
Total Assets ...................................................................... 19,177,374
-------------
LIABILITIES:
Accrued expenses and other payables:
Investment advisory fees .............................................................. 16,237
Administration fees ................................................................... 466
Distribution fees ..................................................................... 179
Transfer agent ........................................................................ 9,654
Other ................................................................................. 29,234
-------------
Total Liabilities ................................................................. 55,770
-------------
NET ASSETS: .............................................................................. 19,121,604
=============
Capital .................................................................................. 26,836,304
Accumulated net realized losses from investment transactions and option transactions ..... (12,047,287)
Unrealized appreciation from investments ................................................. 4,332,587
-------------
Net Assets ........................................................................ $ 19,121,604
=============
Class Y Shares
Net Assets ............................................................................ $ 18,276,303
Shares outstanding .................................................................... 2,179,526
Net asset value, redemption and offering price per share .............................. $ 8.39
=============
Class A Shares
Net Assets ............................................................................ $ 845,301
Shares outstanding .................................................................... 101,073
Net asset value and redemption price per share ........................................ $ 8.36
=============
Maximum Sales Charge .................................................................. 4.75%
Maximum Offering Price Per Share (100%/(100%-Maximum Sales Charge) of
net asset value adjusted to the nearest cent) ................................... $ 8.78
=============
See notes to financial statements.
-8-
THE COVENTRY GROUP
THE SHELBY FUND
Statement of Operations
For the Year Ended March 31, 2004
INVESTMENT INCOME:
Interest .............................................................................. $ 2,355
Dividends ............................................................................. 114,798
-------------
Total Investment Income ........................................................... 117,153
-------------
EXPENSES:
Investment advisory ................................................................... 190,936
Administration ........................................................................ 38,187
Distribution--Class A ................................................................. 1,918
Accounting ............................................................................ 45,475
Custodian ............................................................................. 5,317
Transfer agent ........................................................................ 52,077
Professional fees ..................................................................... 30,606
Other ................................................................................. 28,443
-------------
Total expenses before waiver ...................................................... 392,959
Expenses waived by Administrator .................................................. (9,547)
-------------
Net expenses ...................................................................... 383,412
-------------
Net Investment Loss ...................................................................... (266,259)
-------------
REALIZED/UNREALIZED GAINS FROM INVESTMENTS AND OPTION CONTRACTS:
Net realized gains from investment transactions and option contracts ..................... 687,553
Change in unrealized appreciation/depreciation from investments and option contracts ..... 5,435,362
-------------
Net realized/unrealized gains from investments and option contracts ...................... 6,122,915
-------------
Change in net assets resulting from operations ........................................... $ 5,856,656
=============
See notes to financial statements.
-9-
THE COVENTRY GROUP
THE SHELBY FUND
Statements of Changes in Net Assets
Year Ended Year Ended
March 31, March 31,
2004 2003
------------- -------------
OPERATIONS:
Net investment loss ........................................................... $ (266,259) $ (267,107)
Net realized gain/loss from investment transactions and option contracts ...... 687,553 (2,388,978)
Change in unrealized appreciation/depreciation from investments and option
contracts ................................................................... 5,435,362 (2,831,351)
------------- -------------
Change in net assets resulting from operations ................................... 5,856,656 (5,487,436)
------------- -------------
CAPITAL TRANSACTIONS:
CLASS Y SHARES
Proceeds from shares issued ................................................... 1,219,732 281,101
Cost of shares redeemed ....................................................... (4,802,341) (2,553,080)
------------- -------------
Class Y capital transactions ..................................................... (3,582,609) (2,271,979)
------------- -------------
CLASS A SHARES
Proceeds from shares issued ................................................... 35,620 35,894
Cost of shares redeemed ....................................................... (36,531) (168,608)
------------- -------------
Class A capital transactions ..................................................... (911) (132,714)
------------- -------------
Change in net assets from capital transactions ................................... (3,583,520) (2,404,693)
------------- -------------
Change in net assets ............................................................. 2,273,136 (7,892,129)
NET ASSETS:
Beginning of period ........................................................... 16,848,468 24,740,597
------------- -------------
End of period ................................................................. $ 19,121,604 $ 16,848,468
============= =============
SHARE TRANSACTIONS:
CLASS Y SHARES
Issued ........................................................................ 164,379 40,672
Redeemed ...................................................................... (633,269) (367,096)
------------- -------------
Change in Class Y Shares ......................................................... (468,890) (326,424)
============= =============
CLASS A SHARES
Issued ........................................................................ 4,817 5,181
Redeemed ...................................................................... (4,796) (26,250)
------------- -------------
Change in Class A Shares ......................................................... 21 (21,069)
============= =============
See notes to financial statements.
-10-
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments
March 31, 2004
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ---------
Common Stocks (89.6%):
Advertising (2.1%):
10,000 Lamar Advertising Co.(b)....................... 402,200
---------
Aerospace (1.7%):
10,000 Empresa Brasileira de Aeronautica S.A.--ADR.... 321,000
---------
Air Transportation (1.0%):
7,500 JetBlue Airways Corp.(b)....................... 189,675
---------
Applications Software (3.8%):
15,000 Fair Isaac Corp................................ 541,200
10,000 Jack Henry & Associates, Inc................... 192,600
---------
733,800
---------
Banks (8.8%):
5,000 Commerce Bancorp, Inc.......................... 329,400
5,000 M & T Bank Corp................................ 449,250
14,000 S.Y. Bancorp, Inc.............................. 313,600
10,000 TCF Financial Corp............................. 510,700
5,000 Texas Capital Bancshares, Inc (b).............. 81,100
---------
1,684,050
---------
Biotechnology (6.4%):
10,000 Amgen, Inc.(b)................................. 581,700
5,000 Genentech, Inc.(b)............................. 529,100
2,000 Martek Biosciences Corp.(b).................... 114,000
---------
1,224,800
---------
Broadcasting/Cable (13.1%):
10,000 Comcast Corp., Special Class A(b).............. 278,800
10,000 Cox Communications, Inc., Class A(b) .......... 316,000
15,000 Cox Radio, Inc., Class A(b).................... 319,500
1,500 Radio One, Inc., Class D(b).................... 27,750
52,000 Sirius Satellite Radio, Inc.(b)................ 176,800
50,000 XM Satellite Radio Holdings, Inc., Class A(b).. 1,400,000
---------
2,518,850
---------
Casinos & Gambling (1.2%):
5,000 International Game Technology.................. 224,800
---------
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ---------
Common Stocks, continued:
Communications Equipment (5.1%):
15,000 Cisco Systems, Inc.(b)......................... 352,800
25,000 Corning, Inc.(b)............................... 279,500
10,000 Juniper Networks, Inc.(b)...................... 260,100
20,000 Sonus Networks, Inc.(b)........................ 74,200
---------
966,600
---------
Data Processing/Management (1.7%):
20,000 eFunds Corp.(b)................................ 328,000
---------
Electronic Components--Semiconductors (7.8%):
30,000 ARM Holdings PLC--ADR.......................... 195,600
20,000 PMC-Sierra, Inc.(b)............................ 339,400
20,000 Texas Instruments, Inc......................... 584,400
10,000 Xilinx, Inc.(b)................................ 380,000
---------
1,499,400
---------
Financial Services (1.8%):
27,000 Providian Financial Corp.(b)................... 353,700
---------
Healthcare--Distributors (1.1%):
3,000 Cardinal Health, Inc........................... 206,700
---------
Healthcare Equipment & Supplies (7.7%):
14,500 BioLase Technology, Inc.(b).................... 253,895
10,000 Medtronic, Inc................................. 477,500
10,000 Zimmer Holdings, Inc.(b)....................... 737,800
---------
1,469,195
---------
Home Furnishings (2.0%):
24,200 Tempur-Pedic International, Inc.(b) ........... 378,488
---------
Internet Software & Services (0.3%):
10,000 Corillian Corp.(b)............................. 49,500
---------
Medical--Hospitals (1.1%):
5,000 HCA, Inc....................................... 203,100
---------
Medical Products/Supplies (5.3%):
14,600 Alcon, Inc..................................... 924,180
10,000 Anika Therapeutics, Inc.(b).................... 82,900
---------
1,007,080
---------
Continued
-11-
THE COVENTRY GROUP
THE SHELBY FUND
Schedule of Portfolio Investments
March 31, 2004
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ----------
Common Stocks, continued:
Personal Products (1.9%):
10,000 NBTY, Inc.(b).................................. 371,800
----------
Pharmaceuticals (0.7%):
4,000 Eyetech Pharmaceuticals, Inc.(b)............... 132,800
----------
Publishing (4.2%):
120,000 Gemstar-TV Guide International, Inc.(b)........ 805,200
----------
Retail (3.4%):
20,000 Walgreen Co.................................... 659,000
----------
Security Services (1.1%):
57,100 ICTS International N.V.(b)..................... 210,699
----------
Semiconductors (4.0%):
10,000 Applied Materials, Inc.(b)..................... 213,800
20,000 Intel Corp..................................... 544,000
----------
757,800
----------
Systems Software (1.3%):
10,000 Microsoft Corp................................. 249,700
----------
Telecommunications (1.0%):
20,000 Sprint Corp., PCS Group(b)..................... 184,000
----------
Total Common Stocks ................................... 17,131,937
----------
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- -----------
Preferred Stocks (2.5%):
Broadcasting/Cable (0.6%):
2,500 Sinclair Broadcasting Group, Inc. ............ 116,250
-----------
Multimedia (1.9%):
7,500 Emmis Communications Corp., Class A........... 366,000
-----------
Total Preferred Stocks ................................ 482,250
-----------
Exchange-traded Funds (1.9%):
10,000 Nasdaq--100 Index Tracking Stock(b)........... 357,700
-----------
Total Exchange-traded Funds ........................... 357,700
-----------
Repurchase Agreements (5.6%):
$1,077,563 Fifth Third Bank, .57%, 4/1/04, dated
3/31/04, with a maturity value of $1,077,580
(Collateralized by U.S. Government Securities)..... 1,077,563
-----------
Total Repurchase Agreements ........................... 1,077,563
-----------
Total Investments (Cost $14,716,863)(a)--99.6%......... 19,049,450
Other assets in excess of liabilities--0.4%............ 72,154
-----------
NET ASSETS--100.0% .................................... $19,121,604
===========
- --------------
(a) Represents cost for financial reporting purposes. Cost for federal income
tax purposes is $14,746,239, which differs from value by unrealized
appreciation of securities as follows:
Unrealized appreciation............... $ 5,221,595
Unrealized depreciation............... (918,384)
-----------
Net unrealized appreciation........... $ 4,303,211
===========
(b) Represents non-income producing security.
ADR--American Depositary Receipt
See notes to financial statements.
-12-
THE COVENTRY GROUP
THE SHELBY LARGE CAP FUND
Statement of Assets and Liabilities
March 31, 2004
ASSETS:
Investments, at value (cost $18,559,736) ................................................. $ 20,709,466
Repurchase agreements, at cost ........................................................... 237,536
Interest and dividends receivable ........................................................ 23,363
Receivable from investments sold ......................................................... 41,226
Prepaid expenses and other assets ........................................................ 3,233
-------------
Total Assets ...................................................................... 21,014,824
-------------
LIABILITIES:
Accrued expenses and other payables:
Investment advisory fees .............................................................. 15,380
Administration fees ................................................................... 512
Distribution fees ..................................................................... 4,524
Transfer agent ........................................................................ 4,701
Other ................................................................................. 34,640
-------------
Total Liabilities ................................................................. 59,757
-------------
NET ASSETS: .............................................................................. 20,955,067
=============
Capital .................................................................................. 21,855,387
Accumulated net realized losses from investment transactions ............................. (3,050,050)
Unrealized appreciation from investments ................................................. 2,149,730
-------------
Net Assets ........................................................................ $ 20,955,067
=============
Shares outstanding .................................................................... 2,014,780
Net asset value and redemption price per share ........................................ $ 10.40
=============
Maximum Sales Charge ..................................................................... 4.75%
Maximum Offering Price Per Share (100%/(100%-Maximum Sales Charge) of net asset value
adjusted to the nearest cent) ........................................................ $ 10.92
=============
See notes to financial statements.
-13-
THE COVENTRY GROUP
THE SHELBY LARGE CAP FUND
Statement of Operations
For the Year Ended March 31, 2004
INVESTMENT INCOME:
Interest .............................................................................. $ 2,762
Dividends ............................................................................. 358,476
-------------
Total Investment Income ........................................................... 361,238
-------------
EXPENSES:
Investment advisory ................................................................... 197,882
Administration ........................................................................ 46,561
Distribution .......................................................................... 58,201
Accounting ............................................................................ 38,370
Custodian ............................................................................. 5,949
Transfer agent ........................................................................ 9,420
Professional fees ..................................................................... 34,202
Other ................................................................................. 33,202
-------------
Total expenses before waivers/reimbursements ...................................... 423,787
Expenses waived/reimbursed by Investment Advisor .................................. (17,257)
Expenses waived by Administrator .................................................. (11,640)
-------------
Net expenses ...................................................................... 394,890
-------------
Net Investment Loss ...................................................................... (33,652)
-------------
REALIZED/UNREALIZED GAINS/LOSSES FROM INVESTMENTS:
Net realized losses from investment transactions ......................................... (1,418,017)
Change in unrealized appreciation/depreciation from investments .......................... 6,886,733
-------------
Net realized/unrealized gains from investments ........................................... 5,468,716
-------------
Change in net assets resulting from operations ........................................... $ 5,435,064
=============
See notes to financial statements.
-14-
THE COVENTRY GROUP
THE SHELBY LARGE CAP FUND
Statements of Changes in Net Assets
Year Ended Year Ended
March 31, March 31,
2004 2003
------------- --------------
OPERATIONS:
Net investment loss ........................................................... $ (33,652) $ (35,196)
Net realized losses from investment transactions .............................. (1,418,017) (1,158,423)
Change in unrealized appreciation/depreciation from investments ............... 6,886,733 (4,758,663)
------------- -------------
Change in net assets resulting from operations ................................... 5,435,064 (5,952,282)
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ................................................... 3,200,671 3,947,802
Cost of shares redeemed ....................................................... (7,753,170) (2,545,979)
------------- -------------
Change in net assets from capital transactions ................................... (4,552,499) 1,401,823
------------- -------------
Change in net assets ............................................................. 882,565 (4,550,459)
NET ASSETS:
Beginning of period ........................................................... 20,072,502 24,662,961
------------- -------------
End of period ................................................................. $ 20,955,067 $ 20,072,502
============= =============
SHARE TRANSACTIONS:
Issued ........................................................................ 338,135 443,546
Redeemed ...................................................................... (774,392) (287,306)
------------- -------------
Change in shares ................................................................. (436,257) 156,240
============= =============
See notes to financial statements.
-15-
THE COVENTRY GROUP
THE SHELBY LARGE CAP FUND
Schedule of Portfolio Investments
March 31, 2004
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ----------
Common Stocks (98.9%):
Aerospace/Defense (2.0%):
1,500 General Dynamics Corp.......................... 133,995
1,700 Lockheed Martin Corp........................... 77,588
2,400 United Technologies Corp....................... 207,120
---------
418,703
---------
Banks (11.2%):
6,325 Bank of America Corp........................... 512,198
6,200 Bank of New York Co., Inc...................... 195,300
3,725 Fifth Third Bancorp............................ 206,253
5,600 National City Corp............................. 199,248
3,300 Northern Trust Corp............................ 153,747
9,325 SouthTrust Corp................................ 309,217
4,200 State Street Corp.............................. 218,946
2,350 SunTrust Banks, Inc............................ 163,819
6,900 Wells Fargo & Co............................... 391,022
---------
2,349,750
---------
Beverages (3.5%):
3,900 Anheuser-Busch Cos., Inc....................... 198,900
3,689 Coca-Cola Co................................... 185,557
6,400 PepsiCo, Inc................................... 344,640
---------
729,097
---------
Biotechnology (1.9%):
5,300 Amgen, Inc.(b)................................. 308,301
1,495 Biogen Idec, Inc.(b)........................... 83,122
---------
391,423
---------
Casinos & Gambling (0.3%):
1,200 International Game Technology ................. 53,952
---------
Chemicals--Speciality (0.7%):
9,250 RPM International, Inc......................... 152,995
---------
Communications Equipment (3.6%):
19,016 Cisco Systems, Inc.(b)......................... 447,257
3,700 Motorola, Inc.................................. 65,120
4,808 Nokia Corp.--ADR............................... 97,506
2,300 QUALCOMM, Inc.................................. 152,766
---------
762,649
---------
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ----------
Common Stocks, continued:
Computer Hardware (5.0%):
5,425 Dell, Inc.(b).................................. 182,389
11,800 Hewlett-Packard Co............................. 269,512
5,300 International Business Machines Corp........... 486,752
23,727 Sun Microsystems, Inc.(b)...................... 98,704
---------
1,037,357
---------
Computers--Peripheral Equipment (0.4%):
6,400 EMC Corp.(b)................................... 87,104
---------
Consumer Discretionary (0.8%):
1,200 Constellation Brands, Inc., Class A(b) ........ 38,520
1,800 Fortune Brands, Inc............................ 137,934
---------
176,454
---------
Data Processing/Management (2.0%):
4,150 Automatic Data Processing, Inc................. 174,300
5,700 First Data Corp................................ 240,312
---------
414,612
---------
Distribution/Wholesale (0.3%):
1,500 W.W. Grainger, Inc............................. 72,000
---------
Electronic Components (0.8%):
2,800 Emerson Electric Co............................ 167,776
---------
Financial Services (8.9%):
3,910 American Express Co............................ 202,734
16,600 Citigroup, Inc................................. 858,219
2,625 Fannie Mae..................................... 195,169
9,700 MBNA Corp...................................... 268,011
6,650 Providian Financial Corp.(b)................... 87,115
5,900 Washington Mutual, Inc......................... 251,989
---------
1,863,237
---------
Food Products & Services (2.3%):
6,500 ConAgra Foods, Inc............................. 175,110
700 Hershey Foods Corp............................. 57,995
6,600 SYSCO Corp..................................... 257,730
---------
490,835
---------
Food Stores (0.3%):
3,000 Albertson's, Inc............................... 66,450
---------
Continued
-16-
THE COVENTRY GROUP
THE SHELBY LARGE CAP FUND
Schedule of Portfolio Investments
March 31, 2004
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ----------
Common Stocks, continued:
Health Services (0.3%):
1,800 Lincare Holdings, Inc.(b)...................... 56,556
---------
Healthcare--Distributors (2.2%):
4,600 Cardinal Health, Inc........................... 316,940
2,100 Henry Schein, Inc.(b).......................... 149,982
---------
466,922
---------
Healthcare Equipment & Supplies (2.2%):
6,742 Medtronic, Inc................................. 321,931
800 Stryker Corp................................... 70,824
1,000 Zimmer Holdings, Inc.(b)....................... 73,780
---------
466,535
---------
Household Products (2.8%):
2,900 Colgate-Palmolive Co........................... 159,790
4,050 Procter & Gamble Co............................ 424,764
---------
584,554
---------
Industrial Conglomerates (4.5%):
2,600 3M Co.......................................... 212,862
23,800 General Electric Co............................ 726,376
---------
939,238
---------
Insurance (5.5%):
4,000 AFLAC, Inc..................................... 160,560
4,650 Allstate Corp.................................. 211,389
9,400 American International Group, Inc.............. 670,690
2,400 Marsh & McLennan Cos., Inc..................... 111,120
---------
1,153,759
---------
IT Consulting & Services (0.3%):
Infosys Technologies, Ltd.--ADR(b)............. 57,190
---------
Machinery--Industrial (1.1%):
2,800 Donaldson Co., Inc............................. 74,284
1,982 Illinois Tool Works, Inc....................... 157,034
---------
231,318
---------
Medical--Hospitals (1.2%):
5,900 Health Management Associates, Inc., Class A.... 136,939
2,400 Universal Health Services, Inc., Class B ...... 110,568
---------
247,507
---------
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ---------
Common Stocks, continued:
Multimedia (1.7%):
10,500 Time Warner, Inc.(b)........................... 177,030
4,700 Viacom, Inc., Class B.......................... 184,287
---------
361,317
---------
Office Equipment & Supplies (1.3%):
1,550 Lexmark International, Inc.(b)................. 142,600
2,900 Pitney Bowes, Inc.............................. 123,569
---------
266,169
---------
Pharmaceuticals (9.0%):
750 Barr Laboratories, Inc.(b)..................... 34,425
1,100 Forest Laboratories, Inc.(b)................... 78,782
2,100 GlaxoSmithKline PLC--ADR....................... 83,895
11,825 Johnson & Johnson.............................. 599,764
4,650 Merck & Co., Inc............................... 205,484
25,400 Pfizer, Inc.................................... 890,270
---------
1,892,620
---------
Restaurants (1.1%):
1,200 Krispy Kreme Doughnuts, Inc.(b)................ 41,208
6,700 McDonald's Corp................................ 191,419
---------
232,627
---------
Retail (13.3%):
2,100 AutoZone, Inc.(b).............................. 180,537
4,850 Bed Bath & Beyond, Inc.(b)..................... 202,536
2,800 Best Buy Co., Inc.............................. 144,816
1,200 Chico's FAS, Inc.(b)........................... 55,680
10,725 Home Depot, Inc................................ 400,686
1,200 Kohl's Corp.(b)................................ 57,996
6,100 Lowe's Cos., Inc............................... 342,393
3,800 Sherwin-Williams Co............................ 146,034
1,800 Staples, Inc.(b)............................... 45,702
7,049 Target Corp.................................... 317,487
10,700 Wal-Mart Stores, Inc........................... 638,682
6,974 Walgreen Co.................................... 229,793
---------
2,762,342
---------
Semiconductors (2.9%):
5,000 Applied Materials, Inc.(b)..................... 106,900
18,550 Intel Corp..................................... 504,560
---------
611,460
---------
Continued
-17-
THE COVENTRY GROUP
THE SHELBY LARGE CAP FUND
Schedule of Portfolio Investments
March 31, 2004
Shares
or
Principal Security Value
Amount Description $
- --------- ----------------------------------------------- ----------
Common Stocks, continued:
Services--Data processing (1.1%):
3,875 Computer Sciences Corp.(b)..................... 156,279
3,300 Electronic Data Systems Corp................... 63,855
----------
220,134
----------
Shipping/Transportation (0.8%):
2,400 United Parcel Service, Inc., Class B........... 167,616
----------
Systems Software (3.6%):
22,100 Microsoft Corp................................. 551,837
17,100 Oracle Corp.(b)................................ 205,371
----------
757,208
----------
Total Common Stocks ................................... 20,709,466
----------
Shares
or
Principal Security Value
Amount Description $
- --------- ---------------------------------------------- -----------
Repurchase Agreements (1.1%):
$237,536 Fifth Third Bank, .57%, 4/1/04, dated 3/31/04,
with a maturity value of $237,540 (Collateralized
by U.S. Government Securities)....................... 237,536
-----------
Total Repurchase Agreements .................................... 237,536
-----------
Total Investments (Cost $18,797,272)(a)--100.0%................. 20,947,002
Other assets in excess of liabilities--0.0%..................... 8,065
-----------
NET ASSETS--100.0% ............................................. $20,955,067
===========
- --------
(a) Represents cost for financial reporting purposes. Cost for federal income
tax purposes is $18,805,553, which differs from value by unrealized
appreciation as follows:
Unrealized appreciation................. $ 3,834,334
Unrealized depreciation................. (1,692,885)
-----------
Net unrealized appreciation ............ $ 2,141,449
===========
(b) Represents non-income producing security.
ADR--American Depositary Receipt
See notes to financial statements.
-18-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
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. As of the date of this report, the
Group offered multiple separate series, each with its own investment
objective. The accompanying financial statements are for The Shelby Fund
and The Shelby Large Cap Fund (collectively, the "Funds" and individually,
a "Fund"), two series within the Group. The other funds of the Group are
not included herein.
As of March 31, 2004, the Funds are authorized to sell three classes of
shares, namely Class Y shares, Class A shares and Class B shares. Class B
shares of the Funds and Class Y Shares of The Shelby Large Cap Fund have
not been offered for sale as of March 31, 2004. Each Class A and Class Y
share of the Fund represents identical interests in the Fund's investment
portfolio and have 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.
Under the Group's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of
their duties to the Group. In addition, in the normal course of business,
the Group enters into contracts with its vendors and others that provide
general indemnification. Each Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be
made against a Fund. However, based on experience, the Funds expect the
risk of loss to be remote.
2. Significant Accounting Principles:
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies
are in conformity with accounting principles generally accepted in the
United States of America ("GAAP"). The preparation of financial statements
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
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:
Equity securities listed on an established securities exchange are
valued at the closing sale price on the exchange where primarily
traded or, if there is no reported sale during the day, and in the
case of over-the-counter securities not so listed, at the last bid
price. Securities listed on NASDAQ are valued at the NASDAQ Official
Close Price. Long-term debt securities are valued by a pricing
service, which determines valuations of normal institutional-size
trading units of long-term debt securities. Short-term
Continued
-19-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
debt securities having a maturity of 60 days or less from the
valuation date are valued at amortized cost, which approximates
market value. Securities, including restricted securities, for which
market quotations are not readily available, are valued at fair
value by the Pricing Committee under the supervision of the Group's
Board of Trustees.
Share Valuation:
The net asset value per share of each class of shares of the Funds
is calculated daily by dividing the total value of the Fund's assets
attributable to that class, less liabilities attributable to that
class, by the number of shares of that class outstanding.
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 Funds may enter into repurchase agreements with financial
institutions such as banks and broker-dealers which the investment
advisor, SMC Capital, Inc., 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 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, 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 a
Fund's custodian or another qualified custodian.
Short Sale Transactions:
The Funds may from time to time sell securities short. Short sales
are transactions in which a Fund sells a security it does not own
(but has borrowed), in anticipation of a decline in the market value
of that security. The Funds may engage in short sales "against the
box", in which a Fund, at the time of the short sale, owns or has
the right to obtain securities equivalent in kind and amount. A 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 a Fund must
purchase or deliver the security sold short. A 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. A 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.
Continued
-20-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
Options Transactions:
The Funds may write (sell) and purchase 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 the purpose of earning additional income
(i.e. speculation).
When a Fund writes a covered call or put option, an amount equal to
the net premium received is included in a 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 a 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 a 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 a Fund purchases a call or put option, an amount equal to the
premium paid is included in a 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 a Fund enters into a
closing sale transaction, a gain or loss is realized. If a Fund
exercises a call option, the cost of the security acquired is
increased by the premium paid for the call. If a 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 a Fund pays a premium whether or not the option is
exercised. Additionally, a Fund bears the risk of loss of premium
and change in market value should the counterparty not perform under
the contract. Written and purchased options are non-income producing
securities.
Continued
-21-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
The table below reflects The Shelby Fund's activity in written
options during the year ended March 31, 2004. The Shelby Large Cap
Fund had no written option activity during the period. 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 Year Ended March 31, 2004:
The Shelby Fund
Put Options
---------------------
Number of
Contracts Premiums
--------- ---------
Balance at beginning of year............. 15 $ 42,805
Options written.......................... 20 102,440
Options closed........................... (35) (145,245)
--- ---------
Options outstanding at end of year....... -- $ --
=== =========
Distributions to Shareholders:
Distributions from net investment income, if any, are declared and
paid semi-annually by the Funds. Distributable net realized gains,
if any, are declared and distributed at least annually by the Funds.
Distributions from net investment income and from net realized
capital gains are determined in accordance with income tax
regulations, which may differ from GAAP. These "book/tax"
differences are considered to be either temporary or permanent in
nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the composition of net assets
based on their federal tax-basis treatment; temporary differences do
not require reclassifications. To the extent these differences
exceed net investment income and net realized gains for tax
purposes, they are reported as distribution of capital.
Federal Income Taxes:
It is the policy of each Fund to continue 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 ("the Code"), and to make distributions of
net investment income and net realized capital gains sufficient to
relieve the Funds from all, or substantially all, federal income
taxes.
Expense Allocation:
Expenses that are directly related to a Fund are charged directly to
that Fund, while general Group expenses are allocated between the
Funds based on their relative net assets or another appropriate
method.
Continued
-22-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
3. Purchases and Sales of Securities:
Purchases and sales of portfolio securities (excluding short-term
securities and U.S. government securities) for the year ended March 31,
2004 were as follows:
Purchases Sales
----------- ------------
The Shelby Fund...................... $ 7,994,018 $ 12,544,934
The Shelby Large Cap Fund............ $ 3,324,286 $ 7,890,492
4. Related Party Transactions:
Investment advisory services are provided to the Funds by SMC Capital,
Inc. ("SMC"). Under the terms of the Investment Advisory Agreement, SMC is
entitled to receive fees computed based on an annual percentage of 1.00%
of the average daily net assets of The Shelby Fund and 0.85% of the
average daily net assets of The Shelby Large Cap Fund.
BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), with whom certain
officers and trustees of the Group are affiliated, serves the Funds as
administrator. Such officers and trustees are paid no fees directly by
the Funds for serving as officers and trustees of the Group. Under the
terms of the Administration Agreement, BISYS Ohio is entitled to
receive fees computed based on an annual percentage of 0.20% of the
average daily net assets of the Funds. For the year ended March 31,
2004, BISYS Ohio waived fees for The Shelby Fund and The Shelby Large
Cap Fund in the amounts of $9,547 and $11,640, respectively.
BISYS Ohio also serves the Funds 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 average daily net assets, respectively, plus
out-of-pocket expenses.
BISYS Fund Services Limited Partnership ("BISYS") serves as the Funds'
distributor and has entered into a Service and Distribution Plan (the
"Plan"). This Plan is pursuant to Rule 12b-1 under the 1940 Act under
which the Class A and Class B shares of the Funds may directly incur or
reimburse BISYS for expenses related to the distribution and promotion
of such shares. The annual limitation for payment of such expenses is
0.25% and 1.00% of the average daily net assets of Class A and Class B,
respectively. BISYS receives no fees from the Funds for providing
distribution services to the Funds. BISYS is entitled to receive
commissions on sales of shares of the Funds. For the year ended March
31, 2004, BISYS received $31 from commissions earned on the sale of
Class A Shares.
SMC entered into an expense limitation agreement with The Shelby Large
Cap Fund to limit the total fund operating expenses of the Fund's Class
A and Class B Shares to 1.65% and 2.40% of the Fund's average daily net
assets, respectively, for the Fund's current fiscal year. The Fund has
agreed contractually to repay SMC for amounts waived or reimbursed by
SMC pursuant to the expense limitation
Continued
-23-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
agreement provided that such repayment does not cause the total fund
operating expenses of the Class A Shares and the Class B Shares to exceed
1.65% and 2.40%, respectively, and the repayment is made within three
years after the year in which SMC incurred the expense. For the year ended
March 31, 2004, SMC waived fees and/or reimbursed expenses for the Fund in
the amount of $17,257. Since the Fund's commencement of operations on
September 10, 2001, the Advisor has waived fees and/or reimbursed expenses
for the Fund in the amount of $116,484, and SMC is currently eligible to
be repaid this amount by the Fund, subject to the percentage limitations
referenced above. Effective August 1, 2003, the expense limitation
agreement was eliminated.
5. Federal Income Tax Information:
As of March 31, 2004, the components of accumulated earnings/(deficit) on
a tax basis were as follows:
Undistributed Accumulated Total
Undistributed Long-Term Capital Unrealized Accumulated
Ordinary Capital Accumulated Distributions and Other Appreciation/ Earnings/
Income Gains Earnings Payable Losses** (Depreciation)*** (Deficit)
------------- ------------- ----------- ------------- -------------- ----------------- -------------
The Shelby Fund..... $ -- $ -- $ -- $ -- $ (12,017,909) $ 4,303,211 $ (7,714,698)
The Shelby Large
Cap Fund........... $ -- $ -- $ -- $ -- $ (3,041,771) $ 2,141,449 $ (900,322)
- ----------
** At March 31, 2004, the Funds had the following capital loss carryforwards,
which are available to offset future capital gains, if any, on securities
transactions to the extent provided for in the Code:
Amount Expires
------------ -------
The Shelby Fund...................... $ 10,280,842 2010
$ 1,187,691 2011
$ 535,444 2012
The Shelby Large Cap Fund............ $ 441,098 2010
$ 813,588 2011
$ 859,364 2012
- ----------
*** The difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributed primarily to tax deferral of
losses on wash sales.
Under current tax law, capital losses realized after October 31, within the
Fund's fiscal year may be deferred and treated as occurring on the first day
of the following fiscal year. The following deferred losses will be treated
as arising on the first day of the fiscal year ended March 31, 2005:
The Shelby Fund................... $ 13,932
The Shelby Large Cap Fund......... $ 927,721
Continued
-24-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
6. Trustees (Unaudited):
Number of
Portfolios
Term of in Fund Other
Position(s) Office and Complex Trusteeships
Held with Length of Principal Occupation(s) Overseen Held by
Name, Address, and Age Fund Time Served During Past 5 Years by Trustee Trustee*
- ---------------------- ----------- ----------- --------------------------- ---------- ------------
Independent Trustees
Maurice G. Stark........ Trustee 2/92 to Retired. 15
3435 Stelzer Road present
Columbus, OH 43219
Age: 68
John H. Ferring IV...... Trustee 5/98 to President and owner, Plaze, 15
3435 Stelzer Road present Inc., St. Clair, MO
Columbus, OH 43219 (packaging manufacturer)
Age: 50 --1979 to present
Michael M. Van Buskirk.. Trustee 2/92 to Employee of and currently 15 BISYS
3435 Stelzer Road present President of The Ohio Variable
Columbus, OH 43219 Bankers League (trade Insurance
Age: 57 association)--6/91 to Funds
present
Interested Trustees
R. Jeffrey Young/1/..... President 8/99 to Employee of BISYS Fund 15
3435 Stelzer Road and present Services--10/93 to present
Columbus, OH 43219 Trustee
Age: 39
Walter B. Grimm/1/...... Trustee 4/96 to Employee of BISYS Fund 15 American
3435 Stelzer Road present Services--6/92 to present Performance
Columbus, OH 43219 Funds
Age: 58
- ------------
* Not reflected in prior column.
/1/ Mr. Young and Mr. Grimm may be deemed to be an "interested person," as
defined by the 1940 Act, because of their employment with BISYS Fund
Services.
Continued
-25-
THE COVENTRY GROUP
THE SHELBY FUNDS
Notes to the Financial Statements
March 31, 2004
7. Officers Who Are Not Trustees (Unaudited):
Term of
Position(s) Office and
Held with Length of Principal Occupation(s)
Name, Address, and Age Fund Time Served During Past 5 Years
- ------------------------- ----------- ----------- -----------------------
Jennifer R. Hankins...... Vice Since Employee of BISYS
3435 Stelzer Road President 1998 Fund Services--10/98
Columbus, OH 43219 to present
Age: 37
Lara Bocskey............. Vice Since Employee of BISYS
3435 Stelzer Road President 2002 Fund Services--5/98 to
Columbus, OH 43219 present; Employee of
Age: 33 First of America Bank
Corporation from 1996
to 1998
Nadeem Yousaf............ Treasurer Since Employee of BISYS
3435 Stelzer Road 1999 Fund Services--8/99 to
Columbus, OH 43219 present; Employee of
Age: 35 Investors Bank and
Trust from 3/97--6/99;
Employee of
PricewaterhouseCoopers
LLP from 10/94--3/97
George L. Stevens........ Secretary Since Employee of BISYS
3435 Stelzer Road 1996 Fund Services--9/96 to
Columbus, OH 43219 present
Age: 53
Alaina V. Metz........... Assistant Since Employee of BISYS
3435 Stelzer Road Secretary 1995 Fund Services--6/95 to
Columbus, OH 43219 present
Age: 36
The Statement of Additional Information contains more information about the
Funds and can be obtained free of charge by calling 1-800-774-3529.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling 1-800-774-3529; and (ii) on the Securities and
Exchange Commission's website at http://www.sec.gov.
-26-
THE COVENTRY GROUP
THE SHELBY FUND
Financial Highlights
Selected data for a share outstanding throughout the periods indicated:
Class Y Shares
----------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31,
2004 2003 2002 2001 2000
------------- ------------- ------------- ------------- ----------------
Net Asset Value, Beginning of Period ................. $ 6.13 $ 7.99 $ 7.75 $ 20.08 $ 11.53
----------- ----------- ----------- ----------- -----------
Operations:
Net investment loss ................................. (0.12) (0.10) (0.08) (0.09) (0.16)
Net realized/unrealized gains/(losses) from
investments and options ........................... 2.38 (1.76) 0.32 (10.08) 9.39
----------- ----------- ----------- ----------- -----------
Total from operations ................................ 2.26 (1.86) 0.24 (10.17) 9.23
----------- ----------- ----------- ----------- -----------
Dividends:
Net realized gains from investment transactions ..... -- -- -- (2.16) (0.68)
----------- ----------- ----------- ----------- -----------
Total from dividends ................................. -- -- -- (2.16) (0.68)
----------- ----------- ----------- ----------- -----------
Change in Net Asset Value per share .................. 2.26 (1.86) 0.24 (12.33) 8.55
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ....................... $ 8.39 $ 6.13 $ 7.99 $ 7.75 $ 20.08
=========== =========== =========== =========== ===========
Total Return ......................................... 36.87% (23.28%) 3.10% (53.42%) 82.50%
Ratios/Supplemental Data:
Net assets, end of period (000) ..................... $ 18,276 $ 16,229 $ 23,763 $ 29,248 $ 68,417
Ratio of net expenses to average net assets ......... 2.00% 1.99% 1.78% 1.45% 1.59%
Ratio of net investment loss to average net assets .. (1.38%) (1.36%) (0.84%) (0.67%) (1.18%)
Ratio of gross expenses to average net assets* ...... 2.05% 2.05% 1.83% 1.50% 1.64%
Portfolio turnover** ................................ 43.39% 83.54% 70.83% 284.76% 122.25%
- --------------
* During the period, certain fees were reduced. If such 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.
See notes to financial statements.
-27-
THE COVENTRY GROUP
THE SHELBY FUND
Financial Highlights
Selected data for a share outstanding throughout the periods indicated:
Class A Shares
----------------------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31,
2004 2003 2002 2001 2000(a)
------------- ------------- ------------- ------------- ----------------
Net Asset Value, Beginning of Period ................. $ 6.13 $ 8.01 $ 7.78 $ 20.18 $ 12.38
----------- ----------- ----------- ----------- -----------
Operations:
Net investment loss ................................. (0.12) (0.12) (0.07) (0.12) (0.03)
Net realized/unrealized gains/(losses) from
investments and options ........................... 2.35 (1.76) 0.30 (10.12) 8.51
----------- ----------- ----------- ----------- -----------
Total from operations ................................ 2.23 (1.88) 0.23 (10.24) 8.48
----------- ----------- ----------- ----------- -----------
Dividends:
Net realized gains from investment transactions ..... -- -- -- (2.16) (0.68)
----------- ----------- ----------- ----------- -----------
Total from dividends ................................. -- -- -- (2.16) (0.68)
----------- ----------- ----------- ----------- -----------
Change in Net Asset Value per share .................. 2.23 (1.88) 0.23 (12.40) 7.80
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ....................... $ 8.36 $ 6.13 $ 8.01 $ 7.78 $ 20.18
=========== =========== =========== =========== ===========
Total Return (excludes sales charge) ................. 36.38% (23.47%) 2.96% (53.50%) 74.29%(b)
Ratios/Supplemental Data:
Net assets, end of period (000) ..................... $ 845 $ 619 $ 978 $ 529 $ 54
Ratio of net expenses to average net assets ......... 2.24% 2.23% 2.03% 1.72% 1.64%(c)
Ratio of net investment loss to average net
assets ............................................ (1.63%) (1.60%) (1.15%) (0.86%) (1.42%)(c)
Ratio of gross expenses to average net assets* ...... 2.29% 2.28% 2.08% 1.77% 1.70%(c)
Portfolio turnover** ................................ 43.39% 83.54% 70.83% 284.76% 122.25%
- ------------
(a) For the period from October 28, 1999 (commencement of operations) through
March 31, 2000.
(b) Not annualized.
(c) Annualized.
* During the period, certain fees were reduced. If such 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.
See notes to financial statements.
-28-
THE COVENTRY GROUP
THE SHELBY LARGE CAP FUND
Financial Highlights
Selected data for a share outstanding throughout the periods indicated:
Year Year Period
Ended Ended Ended
March 31, March 31, March 31,
2004 2003 2002 (a)
------------- ------------- ----------------
Net Asset Value, Beginning of Period ....................... $ 8.19 $ 10.73 $ 10.00
----------- ----------- -----------
Operations:
Net investment loss ....................................... (0.02) (0.01) (0.02)
Net realized/unrealized gains/(losses) from investments ... 2.23 (2.53) 0.75
----------- ----------- -----------
Total from operations ...................................... 2.21 (2.54) 0.73
----------- ----------- -----------
Change in Net Asset Value per share ........................ 2.21 (2.54) 0.73
----------- ----------- -----------
Net Asset Value, End of Period ............................. $ 10.40 $ 8.19 $ 10.73
=========== =========== ===========
Total Return (excludes sales charge) ....................... 26.98% (23.67%) 7.30%(b)
Ratios/Supplemental Data:
Net assets, end of period (000) ........................... $ 20,955 $ 20,073 $ 24,623
Ratio of net expenses to average net assets ............... 1.70% 1.65% 1.65%(c)
Ratio of net investment loss to average net assets ........ (0.14%) (0.17%) (0.43%)(c)
Ratio of gross expenses to average net assets* ............ 1.82% 1.97% 2.04%(c)
Portfolio turnover ........................................ 14.76% 16.58% 9.55%
- -----------
(a) For the period from September 10, 2001 (commencement of operations)
through March 31, 2002.
(b) Not annualized.
(c) Annualized.
* During the period, certain fees were reduced/reimbursed. If such fee
reductions/reimbursements had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
-29-
INVESTMENT ADVISOR
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 LLP
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
Ernst & Young, LLP
1100 Huntington Center
41 South High Street
Columbus, Ohio 43215
This report is for the information of shareholders of The Shelby Funds, 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.
5/04
INVESTMENT ADVISOR
Signal Capital Management, Inc.
420 Main Street
Evansville, Indiana 47708
ADMINISTRATOR,
TRANSFER AGENT AND DISTRIBUTOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Huntington National Bank
7 Easton Oval
Columbus, Ohio 43219
COUNSEL
Dechert LLP
1775 I Street, NW
Washington, DC 20006
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, Ohio 43215
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS OF THE SIGNAL FAMILY OF
MUTUAL FUNDS. ITS USE IN CONNECTION WITH ANY OFFERING OF THE FUNDS' SHARES IS
AUTHORIZED ONLY IN CASE OF CONCURRENT OR PRIOR DELIVERY OF THE FUNDS' CURRENT
PROSPECTUS.
[THE SIGNAL FUNDS LOGO] THE SIGNAL FUNDS
ANNUAL REPORT
MARCH 31, 2004
[SIGNAL CAPITAL MANAGEMENT LOGO]
SIGNAL CAPITAL MANAGEMENT
INVESTMENT ADVISOR
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, OLD NATIONAL BANCORP., AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF
THE FUNDS INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. PAST
PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
SIGNAL FUNDS
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDERS:
We are pleased to present the second annual report for the Signal Funds. The
report covers the 12-month period from April 1, 2003 to March 31, 2004 which is
the Funds' 2004 fiscal year.
Many of the same issues investors wrestled with last year such as the strength
of the economic recovery and war with Iraq remained unresolved as the new year
unfolded. By year's end, investors' confidence in the economic recovery was
growing, but news of increased attacks on coalition forces in Iraq was weighing
on investors' minds which to some extent overshadowed the good news of an
improving economy.
THE EQUITY MARKET
The mood on Wall Street was anything but up-beat early on in 2003. The S&P 500
Index(1) was still range bound between 780 on the low side to about 950 on the
high end -- a condition that had persisted since mid-year 2002. Would the rally
that began in March have some staying power, or would it end in frustration and
lower prices as was the case with the two previous rally attempts? Not only did
the rally have staying power, leading to a 31% gain for the three quarters
ending in December, but many of the stocks that had been beaten down in the last
three years led the way back. During the rally, investors risk tolerance levels
made a dramatic u-turn. Investors' greater appetite for risk was never more
evident than in the March to June time frame, when the market advanced almost
15%. Stocks that led the rally had relatively high price-to-earnings ratios(2),
poor earnings growth, high betas, and were in general of low quality. It may
come as no surprise that the Technology Sector, with more than its share of
lower quality and cyclical companies, posted the best total return for calendar
year 2003 by gaining 46.8%. In this environment, your Fund's performance
suffered due to the fact that its "quality growth" approach to selecting stocks
meant that many of the top performing stocks didn't meet the Fund's guidelines.
The impact of the massive amounts of fiscal and monetary stimulus hit the
economy in a big way in the second half of last year, sending gross domestic
product growth(2) up 8.2% in the third quarter and up 4.1% in the fourth
quarter. Above trend economic growth continued in the first quarter of 2004, by
expanding 4.2%. By early 2004, the maturing of the economic recovery combined
with a nearly 45% rise in the market from the March lows led to a shift in
market leadership. A preference for risk was replaced with an aversion of risk.
Consequently, the two top performing sectors in the first quarter were Consumer
Staples (+5.6%) and Utilities (+5.1%). The Technology Sector fell to the bottom
of the performance ranking with a loss of 2.4%. An attitude shift focusing on
earnings growth and good quality companies helped your fund post market beating
performance in the first quarter.
THE FIXED INCOME MARKET
Point to point, the interest rate experience during fiscal 2004 was rather dull.
The ten year Treasury yield was 3.80% on March 31, 2003 and it was 3.83% on
March 31, 2004. However, that point to point comparison covers up some dramatic
events during the year. In June of last year, the Federal Reserve cut short term
rates from 1.25% to 1.00%. It marked the 13th consecutive cut in the Fed Funds
rate. Earlier in the month, the ten year Treasury yield fell to almost 3% after
receiving more disappointing economic reports. The low
1
SIGNAL FUNDS
LETTER TO SHAREHOLDERS
yield didn't last long. Rates quickly reversed course over the next two months
so that the yield on the ten year Treasury hit a high just over 4.50%. The
change in thinking was spurred by fears of higher federal budget deficits from
recent tax cuts and greater costs of the Iraq war.
Stock investors and bond investors were reading the same data in different ways.
While stock investors were pushing prices higher based on a belief in the
strength of the economic recovery, bond investors had little conviction in the
recovery. As a result, yields moved somewhat lower through the end of the year.
Even though yields were falling, there was some evidence that bond investors
thought economic conditions were at least stabilizing. The difference in yields
between corporate bonds and Treasuries (the yield spread) which had been
historically wide began to narrow. If bond investors weren't convinced of the
sustainability of the recovery, at the least they believed the economy wouldn't
fall back into another recession. Accordingly, investors began to buy the higher
yielding corporate bonds forcing their yields to fall more quickly than
Treasuries. This led corporate bonds to outperform Treasuries. The best
performing corporate bonds were the lower quality bonds. Just as in the stock
market, bond investors were willing to take additional risk. For most of the
fiscal year, the fixed income fund did not invest in lowest rated investment
grade bonds which restrained the Fund's performance. The Fund's managers believe
the economic recovery could lead to upward pressure on interest rates over the
next 12-months. In order to help protect the Fund from the negative effects of
rising interest rates, the managers have positioned the Fund with a shorter
duration than that of the Fund's benchmark, the Lehman Brothers Intermediate
Government/Credit Index(1).
Sincerely,
The Signal Capital Management Team
(1)The Standard & Poor's 500 Index (the "S&P 500") which tracks the performance
of 500 select common stocks, most of which are listed on the New York Stock
Exchange, and is a measure of the U.S. stock market as a whole. The Lehman
Brothers Intermediate Government/Credit Index (LBIG/C) is composed of investment
grade corporate debt issues as well as debt issues of U.S. government agencies
and the U.S. Treasury. The debt issues all maintain maturities within a range of
one to ten years. Investor cannot invest directly in an index.
(2)PRICE/EARNINGS (P/E) RATIO is the price of a stock divided by its historical
earnings per share. BETA is a measure of the volatility of a stock relative to
the overall market. A beta of less than one indicates lower historical risk than
the market; a beta of more than one indicates higher historical risk than the
market. GROSS DOMESTIC PRODUCT GROWTH (GDP) is the measure of the market value
of the goods and servies produced by labor and property in the United States.
2
SIGNAL FUNDS
LARGE CAP GROWTH FUND
INVESTMENT CONCERNS
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes. Common stocks, and funds
investing in common stocks, generally provide greater return potential when
compared with other types of investments.
Over the past 12-months, stocks have enjoyed a strong resurgence as investor
confidence returned. For the 12-month period ended March 31, 2004 the Signal
Large Cap Growth Fund returned 29.00% (Class I Shares). Normally, this would be
a strong return. However, the Standard and Poor's 500 Index returned 35.10%
during the period.
For the year ended March 31, 2004, the Fund underperformed its benchmark as the
market rewarded low quality stocks with either no current earnings or very poor
outlooks. As the Fund primarily invests in better quality companies with solid
earnings growth, the Fund failed to exceed its benchmark.
One of our observations has been the market's leadership during the rally
consisted of lower quality companies with either no earnings or very poor
earnings prospects. While this situation occurs from time to time, the Fund's
managers believe that this behavior is abnormal and at some point the market
could begin to reward those companies with strong earnings prospects. Thus far
in calendar 2004 it appears the market is doing just that as dependable growth
as well as other companies with strong earnings prospects are indeed
outperforming the averages.
As such, the Fund has performed better than the index, gaining 3.09% for the
first three months of the year while the S&P 500 gained only 1.69%.
At this juncture, the Fund is underexposed to the interest sensitive segments of
the market. Given the continued strength in the economy along with rising energy
costs, our view is interest rates may rise further. We are also modestly
underexposed to the consumer segments as higher energy costs and higher interest
rates may very well impact consumers' ability to maintain their discretionary
spending. We are modestly underexposed to the healthcare sector with the bulk of
the under-weight in the large capitalization pharmaceutical companies. It is our
view that the pharmaceutical industry is losing its pricing power (note the new
Viagra value card - fill six prescriptions and the seventh is free-a 14% defacto
price cut) and this could result in lowered earnings expectations. We are
overexposed to the energy sector as we believe earnings estimates for these
companies are too low and might be increased throughout the year. We are also
overexposed to the capital expenditure beneficiaries - both the industrial as
well as the technology stocks - as we believe global growth could drive demand
for new infrastructure. In addition, we believe new developments in technology
may keep demand for semiconductors, hardware and selected software at high
levels for at least the balance of 2004.
TOTAL RETURN AS OF MARCH 31, 2004
AGGREGATE ANNUALIZED
----------------- ------------------------
SINCE INCEPTION
1 MONTH 3 MONTH 1 YEAR (7/15/02)
------- ------- ------ ---------------
CLASS I........................... 0.00% 3.09% 29.00% 9.64%
CLASS A
Without Sales Charge......... 0.00% 3.11% 28.60% 9.30%
With Sales Charge*........... -4.73% -1.83% 22.51% 6.24%
CLASS B
Without CDSC................. -0.09% 2.95% 27.67% 8.56%
With CDSC*................... -5.09% -2.05% 22.67% 6.35%
S&P 500 INDEX..................... -1.51% 1.69% 35.10% 14.71%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE
CONTACT US AT 888-426-9709.
*Class A Shares reflect the maximum sales charge of 4.75%. Class B Shares
reflects the maximum contingent deferred sales charge of 5.00%.
The total return set forth reflects certain expenses that were voluntarily
reduced. In such instances, and without this activity, total return would have
been lower.
FUND STATISTICS AS OF MARCH 31, 2004 subject to change
SIGNAL LARGE
S&P 500 CAP GROWTH FUND
----------- ---------------
AVG. MARKET CAP $89 Billion $62 Billion
LONG TERM GROWTH RATE 7% 14%
BETA(1) 1.00 0.95
2004 P/E RATIO(1) 17.4 19.3
(1)PRICE/EARNINGS (P/E) RATIO is the price of a stock divided by its historical
earnings per share. BETA is a measure of the volatility of a stock relative to
the overall market. A beta of less than one indicates lower historical risk than
the market; a beta of more than one indicates higher historical risk than the
market.
3
SIGNAL FUNDS
LARGE CAP GROWTH FUND
GROWTH OF $10,000 INVESTMENT FROM INCEPTION
[LINE GRAPH]
7/15/2002 2-Sep 2-Dec 3-Mar 3-Jun 3-Sep 3-Dec 4-Mar
--------- ----- ----- ----- ----- ----- ----- -----
Class I 10,000 9,016 9,425 9,080 9,909 10,370 11,362 11,714
S&P 500 10,000 8,914 9,666 9,361 10,803 11,089 12,439 12,650
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
The chart above represents a comparison of a hypothetical investment in the
indicated Fund versus a similar investment in the Fund's benchmark, and
represents the reinvestment of dividends and capital gains in the Fund.
The total return set forth reflects certain expenses that were voluntarily
reduced. In such instances, and without this activity, total return would have
been lower.
The performance of the Signal Large Cap Growth Fund is measured against the
Standard & Poor's 500 Index (the "S&P 500") which tracks the performance of 500
select common stocks, most of which are listed on the New York Stock Exchange,
and is a measure of the U.S. stock market as a whole. The index is unmanaged and
does not reflect the deduction of fees associated with a mutual fund, such as
investment management fees. The Fund's performance does reflect the deduction of
fees for these value-added services. Investors cannot invest directly in an
index, although they can invest in its underlying securities.
4
SIGNAL FUNDS
INCOME FUND
INVESTMENT CONCERNS
Bonds offer a relatively stable level of income, although bond prices will
fluctuate providing the potential for principal gain or loss. Intermediate-term,
higher-quality bonds generally offer less risk than longer-term bonds and a
lower rate of return.
Total returns for the Signal Income Fund for the 12-month period ended March 31,
2004 lagged its benchmark index, particularly in the first half of the year, but
significantly narrowed the gap as the period progressed. As mentioned, this is
mostly due to the conservative stance with regard to interest rate risk (or
lower fund duration).
The bond market had another positive year in 2003; however, it was a year marked
with volatility. As the economy continued to show distinct improvement, pockets
of deceleration continued in some market and geographical segments. This
combined with currency fluctuations, geopolitical uncertainty and large-scale
fund shifts into equities led to bond yields and prices fluctuating with the ebb
and flow of market news. Likewise, the market value of bonds was in flux.
Overall, the bond market had positive returns for the 12-month period with
interest rate levels in-line to slightly higher than those at March 31, 2003.
Overall, bonds had modestly positive returns for the year-ending March 31, 2004
as measured by the ("LBIG/C Index"). The overall positive returns from price
appreciation enjoyed in the prior three years has begun to taper off as
expected, we believe, leaving total return primarily dependent on current
income.
We took a conservative approach throughout 2003 with the management of the Fund,
particularly with regard to interest rate risk. We have taken the stance that
our shareholders will be at an advantage over a three to five year time period
by potentially reaping a more modest current income in the current investment
period while striving to keep the risk of principal decline relatively low.
Accordingly, we have maintained portfolio duration (a measure of interest rate
sensitivity) relatively low throughout the year. Signal Capital Management
research and proprietary market models suggest that this approach is still valid
and one that we expect to continue in the next 12-months. Another approach to
conservative management over the past year (consistent with the goal of
preservation of capital) has been the relative credit quality of the Fund. We
have taken an approach to bond investing that reflects, on average, higher
investment quality than the overall index. As the economy improved throughout
the year, we added a higher level of corporate and credit risk to the Fund,
helping to boost current yields in a low interest rate environment. This added
higher coupon return to the Fund in the latter half of 2003.
TOTAL RETURN AS OF MARCH 31, 2004
AGGREGATE ANNUALIZED
----------------- ------------------------
SINCE INCEPTION
1 MONTH 3 MONTH 1 YEAR (7/15/02)
------- ------- ------ ---------------
CLASS I....................... 0.70% 2.11% 3.43% 5.19%
CLASS A
Without Sales Charge..... 0.68% 2.05% 3.17% 5.15%
With Sales Charge*....... -2.58% -1.29% -0.15% 3.12%
CLASS B
Without CDSC............. 0.62% 1.86% 2.40% 4.35%
With CDSC*............... -2.88% -1.64% -1.09% 2.65%
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CREDIT INDEX....... 0.78% 2.47% 5.30% 7.20%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE
CONTACT US AT 888-426-9709.
*Class A Shares reflect the maximum sales charge of 3.25%. Class B Shares
reflects the maximum contingent deferred sales charge of 3.50%.
The total return set forth reflects certain expenses that were voluntarily
reduced. In such instances, and without this activity, total return would have
been lower.
FUND STATISTICS AS OF MARCH 31, 2004 subject to change
SIGNAL
LBIG/C INCOME FUND
------ -----------
AVG. MOD. DURATION...................... 3.75 3.05
AVG. MATURITY........................... 4.49 3.60
AVG. COUPON............................. 4.89 5.08
30 DAY EFFECTIVE YLD.
Class I ........................... N/A 3.65%
Class A ........................... N/A 3.39%
Class B ........................... N/A 2.62%
AVG. CREDIT RATING (AS RATED BY
STANDARD & POOR'S) ..................... N/A AA1
5
SIGNAL FUNDS
INCOME FUND
GROWTH OF $10,000 INVESTMENT FROM INCEPTION
[LINE GRAPH]
7/12/2002 2-Sep 2-Dec 3-Mar 3-Jun 3-Sep 3-Dec 4-Mar
--------- ----- ----- ----- ----- ----- ----- -----
Class I 10,000 10,357 10,452 10,547 10,741 10,691 10,683 10,908
LB Gov/Credit Index 10,000 10,331 10,505.7 10,663 10,952 10,950 10,957 11,229
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
The chart above represents a comparison of a hypothetical investment in the
indicated Fund versus a similar investment in the Fund's benchmark, and
represents the reinvestment of dividends and capital gains in the Fund.
The total return set forth reflects certain expenses that were voluntarily
reduced. In such instances, and without this activity, total return would have
been lower.
The performance of the Signal Income Fund is measured against the Lehman
Brothers Intermediate Government/Credit Index (the "LBIG/C" ) which is composed
of investment grade corporate debt issues as well as debt issues of U.S.
government agencies and the U.S. Treasury. The debt issues all maintain
maturities within a range of one to ten years. The index is unmanaged and does
not reflect the deduction of fees associated with a mutual fund, such as
investment management fees. The Fund's performance does reflect the deduction of
fees for these value-added services. Investors cannot invest directly in an
index, although they can invest in its underlying securities.
6
SIGNAL FUNDS
TAX-EXEMPT INCOME FUND
INVESTMENT CONCERNS
Bonds offer a relatively stable level of income, although bond prices will
fluctuate providing the potential for principal gain or loss. Intermediate-term,
higher-quality bonds generally offer less risk than longer-term bonds and a
lower rate of return.
A portion of income may be subject to some state and or local taxes and for
certain investors a portion may be subject to the federal alternative minimum
tax.
The Signal Tax-Exempt Income Fund rode several interest rate swings in the year
ending March 31, 2004. Rates ended the period virtually unchanged, however, the
momentum seems to be waning for bonds. Although it was a positive year for the
Fund, it did underperform its benchmark. The underperformance can be attributed
to lower interest rate-risk exposure than that of the benchmark.
Signs of higher rates have been starting to trickle in the past month. March
employment surprised investors as they learned more news that suggests a
stronger economic recovery is underway. The report sparked a sell-off in bonds
that appears to have some technical significance. The yield on the 10-Year U.S.
Treasury increased more than seventy basis points (0.70%) in less than a month
- -- a move that violates an eight-month downtrend in rates. In addition, our
proprietary model has resumed its course into sell territory. The recent
activity shows how sensitive bond investors are to the threat of rising rates.
Unfortunately, the recent inflationary report indicates that pressure exists,
and it may be simply a matter of time before the Federal Reserve begins to raise
short-term rates. Interestingly, though, the debate as to when this will occur
continues.
The Signal Tax-Exempt Income Fund is keeping its appeal for investors seeking
income exempt from federal taxes. The Fund remains invested defensively toward
rising rates; and although it has underperformed its benchmark, it has narrowed
the gap in recent months.
TOTAL RETURN AS OF MARCH 31, 2004
AGGREGATE ANNUALIZED
----------------- ------------------------
SINCE INCEPTION
1 MONTH 3 MONTH 1 YEAR (7/15/02)
------- ------- ------ ---------------
CLASS I........................ -0.48% 1.07% 4.41% 5.35%
CLASS A
Without Sales Charge...... -0.50% 1.01% 4.14% 5.25%
With Sales Charge*........ -3.77% -2.25% 0.78% 3.23%
CLASS B
Without CDSC.............. -0.57% 0.82% 3.37% 4.44%
With CDSC*................ -4.04% -2.68% -0.13% 2.73%
LEHMAN BROTHERS 7 - YEAR
MUNICIPAL BOND INDEX .......... -0.85% 1.31% 5.60% 6.23%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE
CONTACT US AT 888-426-9709.
*Class A Shares reflect the maximum sales charge of 3.25%. Class B Shares
reflects the maximum contingent deferred sales charge of 3.50%.
The total return set forth reflects certain expenses that were voluntarily
reduced. In such instances, and without this activity, total return would have
been lower.
FUND STATISTICS AS OF MARCH 31, 2004 subject to change
LB 7-YEAR SIGNAL
MUNI BOND TAX-EXEMPT INCOME FUND
--------- ----------------------
AVG. MOD. DURATION...................... 5.45 4.57
AVG. MATURITY........................... 6.93 5.29
AVG. COUPON............................. 5.26 4.77
30 DAY EFFECTIVE YLD.
Class I............................ N/A 3.55%
Class A............................ N/A 3.29%
Class B............................ N/A 2.52%
AVG. CREDIT RATING (AS RATED BY
STANDARD & POOR'S)...................... AA1 AA1
7
SIGNAL FUNDS
TAX-EXEMPT INCOME FUND
GROWTH OF $10,000 INVESTMENT FROM INCEPTION
[LINE GRAPH]
7/12/2002 2-Sep 2-Dec 3-Mar 3-Jun 3-Sep 3-Dec 4-Mar
--------- ----- ----- ----- ----- ----- ----- -----
Class I 10,000 10,358 10,341 10,475 10,735 10,726 10,822 10,937
LB 7Yr Mun Bond 10,000 10,324 10,354 10,473 10,752 10,810 10,917 11,060
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
The chart above represents a comparison of a hypothetical investment in the
indicated Fund versus a similar investment in the Fund's benchmark, and
represents the reinvestment of dividends and capital gains in the Fund.
The total return set forth reflects certain expenses that were voluntarily
reduced. In such instances, and without this activity, total return would have
been lower.
The performance of the Signal Tax-Exempt Income Fund is measured against the
Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index generally
representative of investment grade fixed rate debt obligations issued by state
and local government entities, with maturities of no more than seven years. The
index is unmanaged and does not reflect the deduction of fees associated with a
mutual fund, such as investment management fees. The Fund's performance does
reflect the deduction of fees for these value-added services. Investors cannot
invest directly in an index, although they can invest in its underlying
securities.
8
SIGNAL FUNDS
MONEY MARKET FUND
INVESTMENT CONCERNS
An investment in the fund is not insured or guaranteed by the FDIC or any other
government agency. Although the fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
fund.
ECONOMIC ACTIVITY APPEARS TO HAVE ACCELERATED THROUGHOUT THE PAST 12 MONTHS.
The economy began the year plagued by uncertainties of the war in Iraq.
Moreover, business investment slowed, and the employment situation remained
dismal. The Federal Open Markets Committee (FOMC) cut the Federal Funds rate by
25 basis points at the June meeting in an effort to further support economic
growth. The FOMC believed a slightly more expansive monetary policy would
improve business spending, resulting in an improved labor market over time.
Business activity continued to improve in the second half of 2003, as the
economic rebound appeared to gain momentum. The FOMC kept interest rates at a
45-year low, as inflation remained muted. Moreover, activity in the housing
market remained at a very high level as homeowners took advantage of extremely
low mortgage rates. Positive returns in the stock market boosted consumer
confidence further. In addition, business confidence continued to grow amid
solid profits and strong cash flows. Finally, the labor market appeared to be
improving in the first quarter of 2004.
The FOMC may raise short-term interest rates this year if economic activity
continues at a rapid pace. Furthermore, improving labor markets coupled with
rising inflation may put pressure on short-term rates. The Signal Money Market
Fund will maintain a longer average maturity with the belief the FOMC could be
on hold until the second half of 2004.
TOTAL RETURN AS OF MARCH 31, 2004
AGGREGATE ANNUALIZED
----------------- ------------------------
SINCE INCEPTION
1 MONTH 3 MONTH 1 YEAR (7/15/02)
------- ------- ------ ---------------
CLASS I..................... 0.05% 0.14% 0.57% 0.75%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. THE
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO
OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE
CONTACT US AT 888-426-9709.
The total return set forth reflects certain expenses that were voluntarily
reduced. In such instances, and without this activity, total return would have
been lower.
FUND STATISTICS AS OF MARCH 31, 2004 subject to change
30-DAY 7-DAY
EFFECTIVE YIELD YIELD
--------------- -----
CLASS I..................... 0.57% 0.57%
THE YIELD QUOTATION MORE CLOSELY REFLECTS THE CURRENT EARNINGS OF THE FUND THAN
THE TOTAL RETURN QUOTATIONS.
9
SIGNAL FUNDS
LARGE CAP GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL SECURITY
AMOUNT ($) DESCRIPTION VALUE ($)
- ---------- ----------- ---------
COMMON STOCKS -- 96.8%
AEROSPACE/DEFENSE -- 2.0%
8,100 United Technologies Corp. .......................... 699,030
---------
AIR FREIGHT & LOGISTICS -- 0.7%
6,000 Expeditors International
of Washington, Inc. .............................. 236,940
---------
ALUMINUM -- 1.4%
13,500 Alcoa, Inc. ........................................ 468,315
---------
AUTO PARTS & EQUIPMENT -- 0.4%
2,500 Johnson Controls, Inc. ............................. 147,875
---------
COMMUNICATIONS EQUIPMENT -- 3.6%
24,000 Cisco Systems, Inc.* ............................... 564,480
10,000 Qualcomm, Inc. ..................................... 664,200
---------
1,228,680
---------
COMPUTER HARDWARE -- 1.8%
18,000 Dell Computer Corp.* ............................... 605,160
---------
COMPUTERS - MEMORY DEVICES -- 1.3%
32,000 EMC Corp.* ......................................... 435,520
---------
CONSTRUCTION MATERIALS -- 0.7
6,000 Florida Rock Industries, Inc. ...................... 252,900
---------
CONSUMER FINANCE -- 1.9%
24,000 MBNA Corp. ......................................... 663,120
---------
DISTILLER & VINTNERS -- 2.3%
25,000 Constellation Brands, Inc.* ........................ 802,500
---------
DIVERSIFIED FINANCIAL SERVICES -- 4.8%
23,000 Citigroup, Inc. .................................... 1,189,100
9,000 State Street Corp. ................................. 469,170
---------
1,658,270
---------
FINANCE - INVESTMENT BANKERS AND BROKERS -- 5.1%
6,000 Goldman Sachs Group, Inc. .......................... 626,100
6,000 J.P. Morgan Chase & Co. ............................ 251,700
9,500 Legg Mason, Inc. ................................... 881,410
---------
1,759,210
---------
FOOD DISTRIBUTORS -- 1.4%
12,500 Sysco Corp. ........................................ 488,125
---------
GENERAL MERCHANDISE -- 2.2%
8,700 Family Dollar Stores ............................... 312,765
9,700 Target Corp. ....................................... 436,888
---------
749,653
---------
HEALTHCARE - DISTRIBUTION/SERVICES -- 1.0%
4,500 Express Scripts, Inc., Class A* .................... 335,655
---------
HEALTHCARE - EQUIPMENT -- 3.3%
13,000 Medtronic, Inc. .................................... 620,750
5,600 Stryker Corp. ...................................... 495,768
---------
1,116,518
---------
HEALTHCARE - MANAGED CARE -- 1.9%
7,000 Anthem, Inc.* ...................................... 634,480
---------
HOTELS & MOTELS -- 1.8%
14,000 Choice Hotels International, Inc. .................. 626,360
---------
HOUSEHOLD PRODUCTS -- 1.0%
6,000 Colgate-Palmolive Co. .............................. 330,600
---------
HYPER MARKETS & SUPER CENTERS -- 1.5%
8,500 Wal-Mart Stores, Inc. .............................. 507,365
---------
INDUSTRIAL CONGLOMERATES -- 3.8%
10,400 3M Co. ............................................. 851,448
14,800 General Electric Co. ............................... 451,696
---------
1,303,144
---------
INDUSTRIAL GASES -- 1.5%
13,600 Praxair, Inc. ...................................... 504,832
---------
INSURANCE - LIFE/HEALTH -- 1.2%
10,000 AFLAC, Inc. ........................................ 401,400
---------
INSURANCE-MULTI-LINE -- 2.8%
13,600 American International Group, Inc. ................. 970,360
---------
MACHINERY - INDUSTRIAL -- 5.1%
6,700 Danaher Corp. ...................................... 625,579
9,000 Illinois Tool Works, Inc. .......................... 713,070
6,100 Ingersoll-Rand Co. - ADR ........................... 412,665
---------
1,751,314
---------
MEDICAL PRODUCTS -- 1.1%
10,000 Biomet, Inc. ....................................... 383,600
---------
OIL & GAS - INTEGRATED -- 3.4%
10,300 BP Plc - ADR ....................................... 527,360
15,000 Exxon Mobil Corp. .................................. 623,850
---------
1,151,210
---------
OIL & GAS EXPLORATION SERVICES -- 3.5%
14,300 Apache Corp. ....................................... 617,331
13,000 Pogo Producing Co. ................................. 596,310
---------
1,213,641
---------
OIL FIELD MACHINERY AND EQUIPMENT -- 0.7%
4,500 Smith International, Inc.* ......................... 240,795
---------
PERSONAL PRODUCTS -- 1.4%
6,500 Avon Products, Inc. ................................ 493,155
---------
continued
10
SIGNAL FUNDS
LARGE CAP GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL SECURITY
AMOUNT ($) DESCRIPTION VALUE ($)
- ---------- ----------- ---------
PHARMACEUTICALS -- 4.9%
15,300 Barr Laboratories, Inc.* ................................................ 702,270
7,000 Johnson & Johnson ....................................................... 355,040
17,300 Pfizer, Inc. ............................................................ 606,365
----------
1,663,675
----------
PREPACKAGED SOFTWARE -- 0.6%
4,500 DST Systems, Inc.* ...................................................... 204,075
----------
REGIONAL BANKS -- 3.8%
14,500 BB&T Corp. .............................................................. 511,850
24,000 SouthTrust Corp. ........................................................ 795,840
----------
1,307,690
----------
REITS - EQUITY OFFICE -- 1.7%
20,000 Equity Office Properties ................................................ 577,800
----------
RETAIL - COMPUTER/ELECTRONICS -- 1.2%
8,000 Best Buy Co., Inc. ...................................................... 413,760
----------
RETAIL - HOME IMPROVEMENT -- 3.1%
18,800 Lowe's Cos., Inc. ....................................................... 1,055,244
----------
SEMICONDUCTORS -- 3.5%
28,000 Intel Corp. ............................................................. 761,600
12,000 Linear Technology Corp. ................................................. 444,240
----------
1,205,840
----------
SERVICES - COMMERCIAL -- 1.5%
5,800 Apollo Group, Inc.* ..................................................... 499,438
----------
SOFT DRINKS -- 1.6%
10,000 PepsiCo, Inc. ........................................................... 538,500
----------
SPECIALTY STORES -- 0.5%
4,000 Bed Bath & Beyond, Inc.* ................................................ 167,040
----------
SYSTEMS SOFTWARE -- 7.3%
18,000 Adobe Systems, Inc. ..................................................... 709,740
30,000 Microsoft Corp. ......................................................... 749,100
22,000 Symantec Corp.* ......................................................... 1,018,600
----------
2,477,440
----------
TELEPHONE - INTEGRATED -- 0.4%
4,200 Verizon Communications .................................................. 153,468
----------
UTILITIES - ELECTRIC -- 2.1%
6,800 Cinergy Corp. ........................................................... 278,052
6,500 FPL Group, Inc. ......................................................... 434,525
----------
712,577
----------
TOTAL COMMON STOCKS
(Cost - $ 24,407,261) ................................................... 33,136,274
----------
U.S. GOVERNMENT AGENCIES -- 1.5%
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 1.5%
500,000 Fannie Mae 0.97%, 4/7/04** .............................................. 499,919
----------
TOTAL U.S. GOVERNMENT AGENCIES
(cost - $ 499,919) .................................................... 499,919
----------
INVESTMENT COMPANIES -- 1.7%
567,421 Huntington Money Market Fund
Trust Class .......................................................... 567,421
----------
TOTAL INVESTMENT COMPANIES
(cost - $ 567,421) .................................................... 567,421
----------
TOTAL INVESTMENTS - 100.0%
(cost - $ 25,474,601)*** .............................................. 34,203,614
==========
- -------------
Percentages indicated are based on net assets of $34,198,903.
* Non-income producing security.
** Discount note. The rate shown is the effective yield at the time of purchase.
*** Represents cost for financial reporting purposes, is substantially the same
as cost for federal income tax purposes, and differs from market value by
unrealized appreciation of securities as follows:
Unrealized appreciation ........ $9,000,528
Unrealized depreciation ........ (271,515)
----------
Net unrealized appreciation .... $8,729,013
==========
ADR - American Depositary Receipt
See notes to financial statements.
11
SIGNAL FUNDS
INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- ---- ---- ---------
CORPORATE BONDS -- 34.7%
BANKING -- 5.4%
500,000 Credit Suisse First Boston USA, Inc. ............. 4.63% 1/15/08 529,678
1,000,000 Credit Suisse First Boston USA, Inc. ............. 6.13 11/15/11 1,116,999
105,000 First Union National Bank, BKNT .................. 5.80 12/1/08 117,196
500,000 U.S. Bancorp ..................................... 5.10 7/15/07 541,701
455,000 U.S. Bancorp ..................................... 5.70 12/15/08 503,304
500,000 Wells Fargo Co. .................................. 3.50 4/4/08 512,333
---------
3,321,211
---------
BEVERAGES -- 0.3%
180,000 Coca-Cola Enterprises, Inc. ...................... 5.38 8/15/06 193,561
---------
COMPUTER HARDWARE -- 1.2%
110,000 Hewlett-Packard Co. .............................. 7.15 6/15/05 117,047
500,000 Hewlett-Packard Co. .............................. 5.75 12/15/06 544,346
100,000 International Business Machines Corp. ............ 4.88 10/1/06 106,843
---------
768,236
---------
COMPUTER SOFTWARE & SERVICES -- 0.2%
100,000 Electronic Data Systems Corp. .................... 7.13 10/15/09 106,766
---------
DEPARTMENT STORES -- 1.3%
750,000 Target Corp. ..................................... 5.88 3/1/12 832,770
---------
DIVERSIFIED MANUFACTURING OPERATIONS -- 0.6%
350,000 Eaton Corp. ...................................... 6.95 11/15/04 361,606
---------
ELECTRIC & ELECTRONIC EQUIPMENT -- 2.2%
1,300,000 General Electric Co. ............................. 5.00 2/1/13 1,361,201
---------
FINANCIAL SERVICES -- 12.3%
125,000 Alliance Capital Management ...................... 5.63 8/15/06 134,116
100,000 Associates Corp., MTN ............................ 7.55 7/17/06 112,350
500,000 Associates Corp. ................................. 6.88 11/15/08 576,570
500,000 Bear Stearns Co., Inc. ........................... 6.63 10/1/04 513,453
157,000 Ford Motor Credit Co. ............................ 5.05 4/20/05 160,514
125,000 Ford Motor Credit Co. ............................ 6.13 1/9/06 131,622
250,000 General Electric Capital Corp. ................... 4.25 1/28/05 256,014
345,000 General Electric Capital Corp., MTN .............. 6.13 2/22/11 389,308
100,000 General Motors Acceptance Corp. .................. 7.63 6/15/04 101,238
500,000 General Motors Acceptance Corp. .................. 6.15 4/5/07 537,933
75,000 Goldman Sachs Group, Inc. ........................ 6.88 1/15/11 87,141
130,000 Homeside Lending, Inc., MTN ...................... 6.75 8/1/04 132,300
300,000 Household Finance Corp. .......................... 5.88 9/25/04 306,719
250,000 Household Finance Corp. .......................... 8.00 7/15/10 306,258
300,000 International Lease Finance Corp. ................ 5.63 6/1/07 327,179
20,000 J.P. Morgan & Co., Inc. .......................... 5.75 10/15/08 21,985
155,000 J.P. Morgan & Co., Inc., MTN ..................... 6.00 1/15/09 172,223
395,000 J.P. Morgan Chase Bank ........................... 6.13 11/1/08 439,121
500,000 J.P. Morgan Chase Bank ........................... 5.75 1/2/13 543,462
325,000 Lehman Brothers Holdings, Inc. ................... 6.63 4/1/04 325,000
continued
12
SIGNAL FUNDS
INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- ---- ---- ---------
500,000 Morgan Stanley ....................................................... 3.63% 4/1/08 511,659
1,000,000 Prudential Financial, Inc. ........................................... 4.50 7/15/13 995,854
500,000 Verizon Global Funding Corp. ......................................... 4.00 1/15/08 518,421
----------
7,600,440
----------
FOOD PRODUCTS & SERVICES -- 0.8%
140,000 Campbell Soup Co. .................................................... 6.90 10/15/06 155,922
300,000 Kraft Foods Inc. ..................................................... 4.00 10/1/08 308,694
----------
464,616
----------
INSURANCE / LIFE -- 0.9%
513,000 Lincoln National Corp. ............................................... 6.50 3/15/08 574,251
----------
INVESTMENT MANAGEMENT AND ADVISORY SERVICES -- 0.8%
500,000 FMR Corp. (a) ........................................................ 4.75 3/1/13 508,945
----------
MEDICAL - DRUGS -- 2.3%
800,000 Bristol-Meyers Squibb Co. ............................................ 5.75 10/1/11 879,456
500,000 Wyeth ................................................................ 5.50 2/1/14 524,270
----------
1,403,726
----------
OIL - INTEGRATED COMPANIES -- 0.6%
350,000 Texaco Capital, Inc. ................................................. 6.00 6/15/05 368,692
----------
PRINTING & PUBLISHING -- 1.5%
630,000 New York Times Co., MTN .............................................. 6.95 11/18/09 731,505
155,000 Tribune Co., MTN ..................................................... 5.50 10/6/08 169,839
----------
901,344
----------
RESTAURANTS -- 0.5%
280,000 McDonald's Corp. ..................................................... 6.00 4/15/11 311,814
----------
RETAIL -- 0.4%
200,000 Sherwin-Williams Co. ................................................. 6.85 2/1/07 223,129
----------
TELECOMMUNICATIONS -- 2.0%
100,000 Alltel Corp. ......................................................... 7.25 4/1/04 100,000
1,000,000 Verizon New York, Inc. ............................................... 6.88 4/1/12 1,137,834
----------
1,237,834
----------
UTILITIES - ELECTRIC -- 1.4%
95,000 National Rural Utilities ............................................. 6.00 5/15/06 102,683
200,000 Tennessee Valley Authority, Series A ................................. 5.63 1/18/11 223,148
500,000 Union Electric Co. ................................................... 6.75 5/1/08 569,747
----------
895,578
----------
TOTAL CORPORATE BONDS (Cost - $ 20,450,895) .......................... 21,435,720
----------
U.S. GOVERNMENT AGENCIES -- 44.5%
1,000,000 Fannie Mae* .......................................................... 0.96 4/15/04 999,619
230,000 Fannie Mae ........................................................... 6.55 9/12/05 246,986
350,000 Fannie Mae, MTN ...................................................... 6.89 4/25/06 385,865
200,000 Fannie Mae ........................................................... 5.60 4/27/06 200,627
300,000 Fannie Mae ........................................................... 5.25 6/15/06 321,885
400,000 Fannie Mae ........................................................... 7.13 3/15/07 455,487
1,000,000 Fannie Mae ........................................................... 4.00 9/2/08 1,037,846
250,000 Fannie Mae ........................................................... 5.25 1/15/09 274,628
500,000 Fannie Mae, Callable 4/30/04@ 100 .................................... 4.25 4/30/09 501,126
200,000 Fannie Mae ........................................................... 4.25 7/28/10 201,460
continued
13
SIGNAL FUNDS
INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- ---- ---- ---------
150,000 Fannie Mae ................................................ 6.25% 2/1/11 170,667
500,000 Fannie Mae, Callable 7/19/04 @ 100 ........................ 6.25 7/19/11 507,674
100,000 Fannie Mae ................................................ 5.25 8/1/12 106,177
300,000 Fannie Mae, Callable 04/15/04 @ 100 ....................... 5.00 4/15/13 300,392
970,065 Fannie Mae ................................................ 4.50 6/25/33 984,483
250,000 Federal Farm Credit Bank, MTN ............................. 5.96 1/6/05 259,061
500,000 Federal Farm Credit Bank, MTN ............................. 5.87 9/2/08 560,613
420,000 Federal Farm Credit Bank .................................. 5.81 1/10/11 472,316
500,000 Federal Farm Credit Bank .................................. 4.60 1/17/12 521,750
1,800,000 Federal Home Loan Bank* ................................... 1.11 5/13/04 1,797,668
50,000 Federal Home Loan Bank, Series 217 ........................ 4.75 6/28/04 50,441
200,000 Federal Home Loan Bank, Series 288 ........................ 4.13 1/14/05 204,712
650,000 Federal Home Loan Bank, Series 4G05 ....................... 7.13 2/15/05 683,240
1,000,000 Federal Home Loan Bank, Callable 9/1/2004 @ 100 ........... 1.27 3/1/05 999,966
250,000 Federal Home Loan Bank, Series L-06 ....................... 5.82 1/11/06 268,035
250,000 Federal Home Loan Bank .................................... 2.07 6/2/06 250,285
285,000 Federal Home Loan Bank, Series TV06 ....................... 4.88 11/15/06 304,991
925,000 Federal Home Loan Bank, Series HS07 ....................... 6.20 10/10/07 1,037,826
500,000 Federal Home Loan Bank, Callable 10/17/05@100 ............. 3.25 10/17/07 510,244
1,065,000 Federal Home Loan Bank, Series 100 ........................ 5.80 9/2/08 1,189,756
325,000 Federal Home Loan Bank, Series 8D08 ....................... 5.25 11/14/08 356,484
875,000 Federal Home Loan Bank .................................... 5.49 12/22/08 970,554
100,000 Federal Home Loan Bank, Series 1N11 ....................... 6.00 5/13/11 114,025
500,000 Federal Home Loan Bank .................................... 5.00 2/21/12 502,150
1,000,000 Federal Home Loan Bank, Callable 06/20/2005 @ 100 ......... 6.00 6/20/12 1,049,197
200,000 Federal Home Loan Bank, Callable 11/05/04@100 ............. 5.60 11/5/13 204,704
750,000 Federal Home Loan Bank .................................... 5.60 11/20/13 754,085
1,000,000 Federal Home Loan Bank, Callable 10/15/2004 @ 100 ......... 6.00 10/15/18 1,020,798
1,000,000 Federal Home Loan Bank, Callable 11/05/04@100 ............. 6.13 11/5/18 1,021,305
500,000 Freddie Mac ............................................... 5.00 5/15/04 502,380
500,000 Freddie Mac ............................................... 4.50 8/15/04 506,328
245,000 Freddie Mac ............................................... 6.78 8/18/05 263,090
200,000 Freddie Mac ............................................... 6.80 8/22/05 214,886
500,000 Freddie Mac ............................................... 3.25 3/14/08 506,977
50,000 Freddie Mac ............................................... 5.75 4/15/08 55,747
500,000 Freddie Mac ............................................... 3.05 12/26/08 499,148
1,000,000 Freddie Mac ............................................... 6.25 3/5/12 1,090,729
1,500,000 Freddie Mac ............................................... 4.80 7/30/13 1,512,823
500,000 Freddie Mac ............................................... 5.13 8/6/13 505,969
----------
TOTAL U.S. GOVERNMENT AGENCIES (Cost - $ 26,566,901) ...... 27,457,205
----------
U.S. TREASURY NOTES -- 17.5%
300,000 U.S. Treasury Notes ....................................... 5.25 5/15/04 301,523
300,000 U.S. Treasury Notes ....................................... 6.00 8/15/04 305,578
550,000 U.S. Treasury Notes ....................................... 6.50 5/15/05 582,377
200,000 U.S. Treasury Notes ....................................... 6.50 8/15/05 214,203
525,000 U.S. Treasury Notes ....................................... 5.88 11/15/05 562,591
700,000 U.S. Treasury Notes ....................................... 5.63 2/15/06 753,320
700,000 U.S. Treasury Notes ....................................... 6.88 5/15/06 776,426
continued
14
SIGNAL FUNDS
INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- ---- ---- ----------
1,150,000 U.S. Treasury Notes ................................... 6.50% 10/15/06 1,283,238
150,000 U.S. Treasury Notes ................................... 6.25 2/15/07 167,977
325,000 U.S. Treasury Notes ................................... 6.63 5/15/07 369,802
400,000 U.S. Treasury Notes ................................... 6.13 8/15/07 451,438
2,000,000 U.S. Treasury Notes ................................... 3.00 11/15/07 2,053,045
500,000 U.S. Treasury Notes ................................... 3.00 2/15/08 511,739
775,000 U.S. Treasury Notes ................................... 5.50 2/15/08 865,003
650,000 U.S. Treasury Notes ................................... 5.63 5/15/08 730,183
500,000 U.S. Treasury Notes ................................... 3.38 11/15/08 515,196
340,000 U.S. Treasury Notes ................................... 4.75 11/15/08 370,826
----------
TOTAL U.S. TREASURY NOTES (Cost - $ 10,060,792) ....... 10,814,465
----------
U.S. TREASURY BONDS -- 1.6%
700,000 U.S. Treasury Bonds ................................... 5.00 8/15/11 771,340
200,000 U.S. Treasury Bonds ................................... 4.88 2/15/12 218,320
----------
TOTAL U.S. TREASURY BONDS (Cost - $ 901,800) .......... 989,660
----------
INVESTMENT COMPANIES -- 0.8%
511,737 Huntington Money Market Fund - Trust Class ............ 511,737
----------
TOTAL INVESTMENT COMPANIES (Cost - $ 511,737) ......... 511,737
----------
TOTAL INVESTMENTS -- 99.1% (Cost - $ 58,492,125)** .... 61,208,787
==========
- ----------
Percentages indicated are based on net assets of $61,782,911.
* Discount note. The rate shown is the effective yield at the time of purchase.
** Represents cost for financial reporting purposes, is substantially the same
as cost for federal income tax purposes, and differs from market value by
unrealized appreciation of securities as follows:
Unrealized appreciation ......... $ 2,759,468
Unrealized depreciation ......... (42,806)
-----------
Net unrealized appreciation ..... $ 2,716,662
===========
(a) Security exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
BKNT - Bank Note
MTN - Medium Term Note
See notes to financial statements.
15
SIGNAL FUNDS
TAX-EXEMPT INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- ---- ---- ---------
MUNICIPAL BONDS -- 98.7%
ALABAMA -- 1.1%
210,000 Daphne Ala, GO, Callable 2/1/13 @ 100, Insured by: AMBAC ................ 4.00% 8/1/14 216,191
---------
ARKANSAS -- 2.2%
400,000 Pulaski County Arkansas Hospital Revenue, Series A, Callable 3/1/10 @
100 ................................................................... 4.25 3/1/11 415,956
---------
GEORGIA -- 0.5%
100,000 Athens GA Student Housing Authority Revenue, Callable 12/1/12 @ 100,
Insured by: AMBAC ..................................................... 4.00 12/1/14 102,823
---------
ILLINOIS -- 5.9%
200,000 Du Page County Illinois High School District, Series A, GO, Callable
12/1/07 @ 100 . ....................................................... 5.05 12/1/14 213,516
500,000 Illinois State, GO, Callable 9/1/06 @ 102, Insured by: FGIC ............. 5.40 9/1/08 550,129
300,000 Northlake Illinois, Series A, GO, Callable 12/1/08 @ 100, Insured by:
AMBAC ................................................................. 5.00 6/1/14 324,552
---------
1,088,197
---------
INDIANA -- 71.5%
200,000 Blackford County Indiana School Building Corp., Callable 7/15/06 @
101, Insured by: AMBAC ................................................ 5.00 7/15/11 215,340
260,000 Bloomington Indiana Municipal Facilities Corp., Callable 2/1/08 @ 101 ... 4.80 8/1/12 276,760
400,000 Carmel, Indiana Redevelopment Authority, Callable 7/1/06 @101,
Insured by: MBIA ...................................................... 5.15 7/1/11 436,815
150,000 Clarksville Indiana High School Building Corp., Callable 7/15/08 @
101, Insured by: MBIA ................................................. 5.00 7/15/14 162,771
225,000 Cloverdale Indiana Multi-School Building Corp., Callable 1/15/08 @
102, Insured by: MBIA ................................................. 4.95 1/15/11 245,504
300,000 Crawfordsville Indiana Elementary School Building Corp., Callable
1/15/07 @ 101, Insured by: FSA ........................................ 5.13 7/15/13 320,364
200,000 Crown Point Indiana Multi-School Building Corp., Callable 7/15/09 @
101, Insured by: MBIA ................................................. 4.80 1/15/14 212,838
295,000 Delaware County Indiana Edit Corp., Callable 12/1/07 @ 101, Insured
by: MBIA .............................................................. 5.00 12/1/12 320,594
400,000 Delaware County Indiana Hospital Authority, Callable 8/1/08 @ 102,
Insured by: AMBAC. .................................................... 5.00 8/1/16 433,099
125,000 Eagle Union Middle School Building Corp. Indiana, Callable 7/5/11 @
100, Insured by: AMBAC ................................................ 4.85 7/5/15 133,495
165,000 Elkhart Indiana Community Schools, GO ................................... 4.95 7/15/06 175,819
100,000 Fall Creek Indiana Regulatory Waste District, Callable 9/1/10 @ 100,
Insured by: MBIA ...................................................... 4.70 3/1/13 107,558
200,000 Fishers Ind Redev Auth Lease Rev, Callable: 7/15/13 @100, Insured by:
AMBAC ................................................................. 4.50 7/15/20 202,618
225,000 Fort Wayne Indiana South Side School Building Corp., Callable 7/15/06
@ 102, Insured by: FSA ................................................ 4.75 1/15/12 237,188
260,000 Greencastle Indiana Multi-School Building Corp., Callable 7/10/12
@100, Insured by: FGIC ................................................ 4.10 1/10/13 271,916
300,000 Greencastle Indiana Waterworks Revenue, Callable 1/1/12 @ 100,
Insured by: MBIA ...................................................... 4.25 7/1/13 315,999
120,000 Griffith Indiana Multi-School Building Corp., ........................... 5.20 7/15/06 129,258
275,000 Indiana Bank Revenue, Insured by: MBIA .................................. 4.00 4/1/09 293,224
290,000 Indiana Bank Revenue, Series A,Callable 2/1/09 @ 102, Insured by: FSA ... 4.60 2/1/13 309,375
265,000 Indiana Bank Revenue, Series A,Callable 2/1/08 @ 101 .................... 4.80 2/1/13 283,566
470,000 Indiana Health Facilities Financing Authority, Callable 8/15/07 @ 102,
Insured by: RADIAN .................................................... 5.50 2/15/10 526,578
200,000 Indiana Municipal Development Building Corp., Insured by: AMBAC ......... 5.00 7/5/06 215,010
325,000 Indiana State Educatonal Facilities Authority, Callable 10/15/08 @ 101 .. 4.95 10/15/12 350,916
continued
16
SIGNAL FUNDS
TAX-EXEMPT INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- --------- -------- ----------
300,000 Indiana State Office Building Community Facilities, Series A,
Callable 7/1/08 @ 101............................................. 4.70% 7/1/11 322,416
300,000 Indiana University Revenue, Series L, Callable 8/1/08 @ 101........ 5.00 8/1/12 328,065
300,000 Indianapolis Indiana Public Improvement, Series C, Callable 7/15/08
@100.............................................................. 5.10 1/15/11 321,609
100,000 Indianapolis-Marion County Indiana Public Library, Series A, GO,
Callable 7/1/10 @ 101............................................. 4.10 7/1/14 103,264
300,000 Johnson County Indiana, GO, Insured by: FSA........................ 4.10 7/15/07 320,970
350,000 Kosciusko County Indiana Justice Building Corp., Insured by: FSA... 4.10 8/1/08 376,079
75,000 Marion County Indiana Convention and Recreational Facilities
Authority, Series A, Callable 6/1/08 @ 101........................ 5.00 6/1/12 81,539
275,000 Mithcell Indiana Multi-School Building Corp........................ 4.65 7/5/13 301,271
200,000 Monroe County Indiana Community School Corp., Callable 1/1/07 @ 102
Insured by: MBIA.................................................. 5.25 7/1/12 220,002
150,000 Mt. Vernon of Hancock County Indiana Multi-School Building Corp.,
Series B, Callable 7/15/11 @ 100, Insured by: AMBAC............... 4.70 1/15/12 163,295
200,000 Munster Indiana School Building Corp., Callable 7/5/08 @ 101,
Insured by: FSA.................................................. 4.60 7/5/10 216,604
400,000 North Montgomery Indiana High School Building Corp., Callable
1/15/11 @ 100, Insured by: FGIC................................... 5.05 7/15/15 430,344
100,000 Northwest Allen County Indiana Middle School Building, Corp.,
Callable 1/15/09 @ 101, Insured by: MBIA.......................... 4.75 1/15/12 107,316
200,000 Northwest Allen County Indiana Middle School Building Corp.,
Callable 1/15/09 @ 101, Insured by: MBIA.......................... 4.90 1/15/14 212,746
400,000 Perry Township Indiana Multi-School Building Corp., Callable
7/15/06 @ 101,Insured by: AMBAC................................... 5.00 7/15/13 422,024
240,000 Perry Township Indiana Multi-School Building Corp., Callable
7/15/10 @ 101, Insured by: FGIC................................... 4.63 1/15/15 253,238
300,000 Porter County Indiana Jail Building Corp., Callable 7/10/11 @ 100,
Insured by: FSA................................................... 5.00 7/10/16 321,681
275,000 Princeton Indiana Sewer Works Revenue, Callable 5/1/09 @ 101....... 4.50 5/1/13 282,706
50,000 Purdue University Indiana Certificates Participation, Callable
7/1/08 @ 100...................................................... 4.50 7/1/09 53,872
250,000 Rochester Indiana Community School Building Corp., Callable 7/15/08
@ 102,Insured by: AMBAC........................................... 5.00 7/15/13 275,183
200,000 South Bend Indiana Community School Building Corp., Callable 1/1/10
@ 101,Insured by: FSA............................................. 4.60 7/1/13 213,374
225,000 South Bend Indiana Community School Building Corp., Callable 1/1/10
101,Insured by: FSA............................................... 5.10 7/1/17 240,392
190,000 South Bend Indiana Redevelopment Authority, Callable 3/1/06 @ 102.. 4.75 3/1/11 199,627
500,000 St. Joseph County Indiana Hospital Authority, Series A, Callable
2/15/08 @ 101, Insured by: MBIA.................................. 4.75 8/15/12 531,029
125,000 Terre Haute Indiana San District, GO, Callable 1/1/07 @ 102,
Insured by: AMBAC................................................. 4.60 7/1/10 133,789
200,000 Vinton-Tecumseh Indiana School Building Corp., Callable 1/5/08 @
101 Insured by: SAW............................................... 5.00 7/5/13 214,834
300,000 Warren Township Indiana School Building Corp., Callable 7/5/08 @
101,Insured by: FSA............................................... 5.00 7/5/14 325,401
275,000 Whitley County Indiana Middle School Building Corp., Callable
7/10/08 @ 101,Insured by: FSA..................................... 4.80 1/10/11 298,238
----------
13,447,513
----------
IOWA -- 2.0%
350,000 Davenport Iowa Community School District........................... 4.25 7/1/07 370,052
----------
KENTUCKY -- 1.0%
185,000 Kentucky Rural Wtr Fin Corp., Series C, Callable 02/01/12 @ 101,
Insured by: MBIA ................................................. 3.88 2/1/14 190,021
----------
continued
17
SIGNAL FUNDS
TAX-EXEMPT INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- --------- -------------------- ---------- ---------- -----------
MICHIGAN -- 3.8%
250,000 Green Oak Township Michigan - Sewer, GO, Callable 5/1/12 @ 100,
Insured by: MBIA.............................................. 4.00% 5/1/17 250,710
300,000 Macomb Township Michigan Building Authority, GO, Callable 4/1/11
@ 100, Insured by: AMBAC....................................... 4.75 4/1/16 316,785
150,000 Michigan Higher Education Facilities Authority Revenue, Callable
12/1/12 @ 100.................................................. 5.00 12/1/20 155,349
----------
722,844
----------
NEVADA -- 1.4%
250,000 University of Nevada Community College, Series A, Callable 7/1/11
@ 100, Insured by: FGIC........................................ 4.45 7/1/12 268,388
----------
NEW YORK -- 0.5%
100,000 New York New York, Series C, GO, Callable 9/15/13 @ 100.......... 5.00 9/15/22 102,986
----------
PENNSYLVANIA -- 0.8%
150,000 Pennsylvania State Higher Educational Facilities Authority
College & University Revenue, Callable 7/1/11 @ 100,
Insured by: ASST GTY........................................... 5.34 7/1/23 158,024
TEXAS -- 1.7%
300,000 Travis County Texas, Series A, GO, Callable 3/1/08 @ 100......... 4.75 3/1/15 312,456
----------
WASHINGTON -- 1.7%
300,000 Washington State, Series 2003A, GO, Callable 7/1/12 @ 100........ 5.00 7/1/14 328,650
----------
WISCONSIN -- 4.6%
50,000 Elmbrook Wisconsin School District, GO, Callable 4/1/12 @ 100.... 4.13 4/1/15 51,014
200,000 Janesville Wisconsin School District, GO, Callable 4/1/06 @ 100 4.20 4/1/07 208,696
300,000 Janesville Wisconsin School District, GO, Callable 3/1/08 @ 100,
Insured by: FGIC............................................... 4.00 3/1/12 308,628
200,000 Wisconsin State Clean Water Revenue, Series 1, Callable 6/1/08 @
100.......................................................... 4.85 6/1/18 206,576
100,000 Wisconsin State Health & Educational Facilities Authority Revenue,
Callable 2/15/09 @ 101........................................ 5.38 2/15/22 100,857
----------
875,771
----------
TOTAL MUNICIPAL BONDS (Cost - $17,450,101)....................... 18,599,872
----------
INVESTMENT COMPANIES -- 0.5%
92,288 Huntington Money Market Fund - Trust Class....................... 92,288
----------
TOTAL INVESTMENT COMPANIES (Cost - $92,288)............... 92,288
----------
TOTAL INVESTMENTS - 99.2% (Cost - $17,542,389)*........... 18,692,160
==========
- ----------
Percentages indicated are based on net assets of $18,834,682.
* Represents cost for financial reporting purposes, is substantially the same
as cost for federal income tax purposes, and differs from market value by
unrealized appreciation of securities as follows:
Unrealized appreciation............ $ 1,158,921
Unrealized depreciation............ (9,150)
-----------
Net unrealized appreciation......... $ 1,149,771
===========
AMBAC - AMBAC Indemnity Corp.
ASST GTY - Asset Guaranty
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance, Inc.
GO - General Obligation
MBIA - Municipal Bond Insurance Assoc.
RADIAN - RADIAN Guaranty, Inc.
SAW - State Aid Withholding
See notes to financial statements.
18
SIGNAL FUNDS
MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- ------------ --------- ---------
COMMERCIAL PAPER -- 61.1%
BANK HOLDING COMPANIES --2.8%
2,000,000 JP Morgan Chase*................................. 1.02% 4/29/04 1,998,413
---------
CHEMICALS & ALLIED PRODUCTS -- 2.8%
2,000,000 Dupont E.I. & CO*................................ 1.01 5/12/04 1,997,699
---------
CHOCOLATE AND COCOA PRODUCTS -- 2.8%
2,000,000 Nestle Capital Corp.*............................ 1.07 8/10/04 1,992,213
---------
FINANCE SERVICES -- 23.4%
3,000,000 Amsterdam Funding* (a)........................... 1.03 4/8/04 2,999,400
1,500,000 Edison Asset Securities* (a)..................... 1.06 9/1/04 1,493,243
3,000,000 . Fairway Finance* (a)............................. 1.03 4/14/04 2,998,884
3,000,000 Kitty Hawk Funding* (a).......................... 1.03 5/17/04 2,996,052
3,000,000 Old Line Funding* (a)............................ 1.04 4/20/04 2,998,353
3,000,000 Windmill Funding Corp.* (a)...................... 1.02 5/4/04 2,997,195
----------
16,483,127
----------
FOREIGN BANK & BRANCHES & AGENCIES -- 13.8%
1,000,000 ABN Amro NA Finance, Inc.*....................... 1.06 9/20/04 994,936
2,500,000 CBA Finance*..................................... 1.03 4/13/04 2,499,142
2,000,000 Dexia Delaware LLC*.............................. 1.03 4/15/04 1,999,199
3,000,000 HBOS Treasury Service*........................... 1.08 7/15/04 2,990,549
1,300,000 Societe Generale*................................ 1.03 4/7/04 1,299,777
-----------
9,783,603
-----------
PERSONAL CREDIT INSTITUTIONS -- 14.1%
2,000,000 America Honda Finance*........................... 1.03 5/5/04 1,998,054
2,000,000 Barton Capital Corp.* (a)........................ 1.03 4/21/04 1,998,856
3,000,000 General Electric Capital Corp.*.................. 1.04 6/16/04 2,993,413
3,000,000 Toyota Motor*.................................... 1.03 6/23/04 2,992,876
---------
9,983,199
---------
PHARMACEUTICAL PREPARATIONS -- 1.4%
1,000,000 Pfizer Inc.*..................................... 1.01 5/18/04 998,681
----------
TOTAL COMMERCIAL PAPER(COST - $43,236,935)....... 43,236,935
----------
U.S. GOVERNMENT AGENCIES -- 14.8%
1,000,000 Fannie Mae*...................................... 1.17 9/17/04 994,508
1,000,000 Fannie Mae....................................... 1.50 11/16/04 1,000,000
3,000,000 Freddie Mac*..................................... 1.09 4/5/04 2,999,636
1,500,000 Freddie Mac*..................................... 1.16 6/9/04 1,496,665
1,000,000 Freddie Mac ..................................... 1.60 12/30/04 1,000,000
1,000,000 Freddie Mac ..................................... 1.38 2/25/05 1,000,000
2,000,000 Sallie Mae**..................................... 1.01 5/20/04 2,000,000
-----------
TOTAL U.S. GOVERNMENT AGENCIES (Cost - $10,490,809) 10,490,809
-----------
REPURCHASE AGREEMENTS -- 14.1%
3,000,000 Bank of America Corp. (Dated 03/31/04, proceeds
at maturity $3,000,078, collateralized by various
U.S. Treasury Notes)........................... 0.93 4/1/04 3,000,000
3,500,000 Goldman Sachs Group, Inc. (Dated 03/31/04, proceeds
at maturity $3,500,095, collateralized by
various U.S. Treasury Notes)................... 0.98 4/1/04 3,500,000
continued
19
SIGNAL FUNDS
MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 2004
SHARES OR
PRINCIPAL INTEREST MATURITY
AMOUNT ($) SECURITY DESCRIPTION RATE DATE VALUE ($)
- ---------- -------------------- -------- -------- -----------
3,500,000 Wachovia (Dated 03/31/04, proceeds at maturity $3,500,096,
collateralized by various U.S. Treasury Notes).................... 0.99% 4/1/04 3,500,000
----------
TOTAL REPURCHASE AGREEMENTS (Cost - $10,000,000)................... 10,000,000
----------
CERTIFICATES OF DEPOSIT -- 5.6%
FOREIGN BANK & BRANCHES & AGENCIES -- 5.6%
2,000,000 CIBC............................................................... 1.05 4/6/04 2,000,000
2,000,000 Toronto-Dominion Bank.............................................. 1.03 6/24/04 2,000,000
----------
TOTAL CERTIFICATES OF DEPOSIT (Cost - $4,000,000).................. 4,000,000
----------
INVESTMENT COMPANIES -- 4.5%
1,244,983 BlackRock Provident Institutional TempFund......................... 1,244,983
316,938 Goldman Sachs Financial Square Prime Obligations Fund.............. 316,938
1,600,446 Merrill Lynch Premier Institutional Fund........................... 1,600,446
----------
TOTAL INVESTMENT COMPANIES (Cost - $3,162,367)..................... 3,162,367
----------
TOTAL INVESTMENTS - 100.1% (Cost - $70,890,111).................... 70,890,111
==========
- ---------------
Percentages indicated are based on net assets of $70,829,225.
* Discount note. The rate shown is the effective yield at the time of purchase.
** Variable rate securities having liquidity agreements. The interest rate,
which will change periodically, is based upon an index of market rates.
The rate reflected on the Schedule of Portfolio Investments is the rate in
effect at March 31, 2004.
(a) 4-2 security exempt from registration under the Securities Act of 1933.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
See notes to financial statements.
20
SIGNAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2004
LARGE CAP TAX-EXEMPT
GROWTH INCOME INCOME MONEY MARKET
FUND FUND FUND FUND
------------ ------------ ------------ ------------
ASSETS:
Investments, at value (Cost $25,474,601; $58,492,125;
$17,542,389; and $60,890,111, respectively)................... $ 34,203,614 $ 61,208,787 $ 18,692,160 $ 60,890,111
Repurchase agreements, at cost.................................. - - - 10,000,000
------------ ------------ ------------ ------------
Total Investments............................................... 34,203,614 61,208,787 18,692,160 70,890,111
Interest and dividends receivable............................... 32,449 801,898 189,906 26,402
Receivable for capital shares issued............................ - 650 24,240 -
Prepaid expenses and other assets............................... 2,828 3,284 1,837 2,058
------------ ------------ ------------ ------------
TOTAL ASSETS.................................................... 34,238,891 62,014,619 18,908,143 70,918,571
------------ ------------ ------------ ------------
LIABILITIES:
Distributions payable........................................... - 188,637 56,821 36,604
Accrued expenses and other payables:
Investment advisory fees...................................... 16,142 13,109 - 3,192
Administration fees........................................... 1,109 2,022 619 2,983
Distribution fees............................................. 207 88 56 -
Other liabilities............................................. 22,530 27,852 15,965 46,567
------------ ------------ ------------ ------------
TOTAL LIABILITIES............................................... 39,988 231,708 73,461 89,346
============ ============ ============ ============
COMPOSITION OF NET ASSETS:
Capital......................................................... 24,465,130 59,137,524 17,625,607 70,824,083
Accumulated net investment income............................... - - - 5,142
Accumulated net realized gains (losses) from
investment transactions....................................... 1,004,760 (71,275) 59,304 -
Net unrealized appreciation on investments...................... 8,729,013 2,716,662 1,149,771 -
------------ ------------ ------------ ------------
NET ASSETS...................................................... $ 34,198,903 $ 61,782,911 $ 18,834,682 $ 70,829,225
============ ============ ============ ============
CLASS A SHARES:
Net assets...................................................... $ 466,136 $ 263,119 $ 136,709
============ ============ ============
Shares outstanding.............................................. 41,284 25,829 13,371
============ ============ ============
Net Asset Value and Redemption Price per share.................. $ 11.29 $ 10.19 $ 10.22
============ ============ ============
Maximum Sales Load.............................................. 4.75% 3.25% 3.25%
============ ============ ============
Maximum Offering Price per share (100%/(100%-maximum
sales charge) of net asset value adjusted to the nearest cent) $ 11.85 $ 10.53 $ 10.56
============ ============ ============
CLASS B SHARES:
Net assets...................................................... $ 133,137 $ 38,445 $ 37,722
============ ============ ============
Shares outstanding.............................................. 11,919 3,774 3,689
============ ============ ============
Net Asset Value and Offering Price per share*................... $ 11.17 $ 10.19 $ 10.22
============ ============ ============
CLASS I SHARES:
Net assets...................................................... $ 33,599,630 $ 61,481,347 $ 18,660,251 $ 70,829,225
============ ============ ============ ============
Shares outstanding.............................................. 2,964,463 6,035,119 1,825,046 70,828,657
============ ============ ============ ============
Net Asset Value, Offering Price, and Redemption Price per share $ 11.33 $ 10.19 $ 10.22 $ 1.00
============ ============ ============ ============
*Redemption price per share varies by length of time shares are held.
See notes to financial statements.
21
SIGNAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2004
LARGE CAP TAX-EXEMPT
GROWTH INCOME INCOME MONEY MARKET
FUND FUND FUND FUND
----------- ----------- ----------- ------------
INVESTMENT INCOME:
Interest.................................................. $ 5,073 $ 2,733,638 $ 850,130 $ 899,517
Dividends................................................. 437,925 3,745 699 44,302
----------- ----------- ----------- -----------
Total Investment Income.................................. 442,998 2,737,383 850,829 943,819
----------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees.................................... 259,999 318,542 97,649 85,029
Administration fees......................................... 69,332 127,416 39,059 212,585
Distribution fees (Class A)................................. 948 621 247 -
Distribution fees (Class B)................................. 1,258 380 372 -
Fund accounting fees........................................ 57,059 67,604 57,225 44,102
Professional fees........................................... 18,213 24,604 14,941 30,394
Custodian fees.............................................. 7,437 9,143 3,104 27,472
Transfer agent fees......................................... 48,920 43,960 33,587 44,512
Other expenses.............................................. 20,659 34,795 13,341 55,967
----------- ----------- ----------- -----------
Total expenses before fee reductions..................... 483,825 627,065 259,525 500,061
Expenses reduced by Investment Advisor...................... (69,332) (159,274) (96,072) (42,511)
----------- ----------- ----------- -----------
Net Expenses................................................ 414,493 467,791 163,453 457,550
----------- ----------- ----------- -----------
Net Investment Income....................................... 28,505 2,269,592 687,376 486,269
----------- ----------- ----------- -----------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investment transactions.. 1,880,763 (71,273) 115,538 154
Change in unrealized appreciation/depreciation on
investments.............................................. 6,825,306 (112,624) 44,641 -
----------- ----------- ----------- -----------
Net realized/unrealized gains (losses) from investments... 8,706,069 (183,897) 160,179 154
----------- ----------- ----------- -----------
Change in net assets resulting from operations.............. $ 8,734,574 $ 2,085,695 $ 847,555 $ 486,423
=========== =========== =========== ===========
See notes to financial statements.
22
SIGNAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
LARGE CAP GROWTH FUND INCOME FUND
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 2004 MARCH 31, 2003 (a) MARCH 31, 2004 MARCH 31, 2003 (a)
-------------- ------------------ -------------- ------------------
OPERATIONS:
Net investment income..................................... $ 28,505 $ 67,550 $ 2,269,592 $ 1,196,383
Net realized gains (losses) from investment transactions.. 1,880,763 195,080 (71,273) 148,124
Change in unrealized appreciation/depreciation
on investments.......................................... 6,825,306 (3,077,564) (112,624) 767,689
------------ ------------ ------------ ------------
Change in net assets from operations........................ 8,734,574 (2,814,934) 2,085,695 2,112,196
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income............................... (50) (162) (8,230) (3,287)
From net realized gain on investment..................... (12,008) - (9) (770)
CLASS B:
From net investment income............................... - - (976) (511)
From net realized gain on investment..................... (3,787) - (1) (111)
CLASS I:
From net investment income............................... (31,930) (66,947) (2,261,582) (1,192,585)
From net realized gain on investment..................... (1,053,217) - (2,246) (144,989)
------------ ------------ ------------ ------------
Change in net assets from shareholder distributions......... (1,100,992) (67,109) (2,273,044) (1,342,253)
------------ ------------ ------------ ------------
Change in net assets from capital share transactions........ (5,029,062) 34,476,426 1,990,928 59,209,389
------------ ------------ ------------ ------------
Change in net assets........................................ 2,604,520 31,594,383 1,803,579 59,979,332
------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period....................................... 31,594,383 - 59,979,332 -
------------ ------------ ------------ ------------
End of period*............................................ $ 34,198,903 $ 31,594,383 $ 61,782,911 $ 59,979,332
============ ============ ============ ============
CAPITAL TRANSACTIONS:
CLASS A SHARES
Proceeds from shares issued............................... $ 178,766 $ 240,543 $ 56,443 $ 228,080
Dividends reinvested...................................... 12,077 142 8,033 3,503
Cost of shares redeemed................................... (26,285) (5,556) (18,674) (14,118)
------------ ------------ ------------ ------------
Change in net assets from Class A capital transactions... $ 164,558 $ 235,129 $ 45,802 $ 217,465
============ ============ ============ ============
CLASS B SHARES
Proceeds from shares issued............................... $ 3,732 $ 117,662 $ - $ 37,482
Dividends reinvested...................................... 3,787 - 455 371
Cost of shares redeemed................................... (11,036) (1,075) - -
------------ ------------ ------------ ------------
Change in net assets from Class B capital transactions... ($ 3,517) $ 116,587 $ 455 $ 37,853
============ ============ ============ ============
CLASS I SHARES
Proceeds from shares issued............................... $ 12,166,724 $ 12,145,266 $ 24,763,959 $ 29,780,142
Shares issued from common trust fund conversion........... - 26,885,690 - 34,848,943
Dividends reinvested...................................... 801,136 1,087 830,569 250,445
Cost of shares redeemed................................... (18,157,963) (4,907,333) (23,649,857) (5,925,459)
------------ ------------ ------------ ------------
Change in net assets from Class I capital transactions... ($ 5,190,103) $ 34,124,710 $ 1,944,671 $ 58,954,071
============ ============ ============ ============
SHARE TRANSACTIONS:
CLASS A SHARES
Issued.................................................... 17,924 25,352 5,551 22,352
Reinvested................................................ 1,129 16 793 345
Redeemed.................................................. (2,541) (596) (1,833) (1,379)
------------ ------------ ------------ ------------
Net change................................................ 16,512 24,772 4,511 21,318
============ ============ ============ ============
CLASS B SHARES
Issued.................................................... 389 12,340 - 3,692
Reinvested................................................ 357 - 45 37
Redeemed.................................................. (1,056) (111) - -
------------ ------------ ------------ ------------
Net change................................................ (310) 12,229 45 3,729
============ ============ ============ ============
CLASS I SHARES
Issued.................................................... 1,165,321 1,288,341 2,440,827 2,924,441
Shares issued from common trust
fund conversion......................................... - 2,688,569 - 3,484,894
Reinvested................................................ 74,622 118 82,059 24,697
Redeemed.................................................. (1,724,485) (528,023) (2,336,870) (584,929)
------------ ------------ ------------ ------------
Net change................................................ (484,542) 3,449,005 186,016 5,849,103
============ ============ ============ ============
- -----------------
(a) For the period July 15, 2002 (commencement of operations) through March 31,
2003.
* Includes undistributed net investment income of $0, $1,404, $0 and
$1,196, respectively.
See notes to financial statements.
23
SIGNAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
TAX-EXEMPT INCOME FUND MONEY MARKET FUND
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 2004 MARCH 31, 2003 (a) MARCH 31, 2004 MARCH 31, 2003 (a)
-------------- ------------------ -------------- ------------------
OPERATIONS:
Net investment income..................................... $ 687,376 $ 494,591 $ 486,269 $ 845,618
Net realized gains (losses) on investment transactions.... 115,538 80,441 154 -
Change in unrealized appreciation/depreciation
on investment transactions............................. 44,641 336,627 - -
------------- ------------- ------------- -------------
Change in net assets from operations....................... 847,555 911,659 486,423 845,618
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income............................... (3,214) (759) (2) (26)
From net realized gain on investment..................... (391) (121) - -
CLASS B:
From net investment income............................... (940) (513) (1) (1)
From net realized gain on investment..................... (145) (112) - -
CLASS I:
From net investment income............................... (683,888) (493,319) (485,853) (845,591)
From net realized gain on investment..................... (75,486) (60,420) - -
------------- ------------- ------------- -------------
Change in net assets from shareholder distributions........ (764,064) (555,244) (485,856) (845,618)
------------- ------------- ------------- -------------
Change in net assets from capital share transactions....... (495,806) 18,890,582 (39,500,589) 110,329,247
------------- ------------- ------------- -------------
Change in net assets....................................... (412,315) 19,246,997 (39,500,022) 110,329,247
------------- ------------- ------------- -------------
NET ASSETS:
Beginning of period...................................... 19,246,997 - 110,329,247 -
------------- ------------- ------------- -------------
End of period*........................................... $ 18,834,682 $ 19,246,997 $ 70,829,225 $ 110,329,247
============= ============= ============= =============
CAPITAL TRANSACTIONS:
CLASS A SHARES
Proceeds from shares issued.............................. $ 92,241 $ 55,718 $ - $ 1,000
Dividends reinvested..................................... 3,405 709 2 5
Cost of shares redeemed.................................. (15,122) - (1,007) -
------------- ------------- ------------- -------------
Change in net assets from Class A capital transactions.. $ 80,524 $ 56,427 ($ 1,005) $ 1,005
============= ============= ============= =============
CLASS B SHARES
Proceeds from shares issued.............................. $ - $ 36,000 $ - $ 1,000
Dividends reinvested..................................... 1,094 537 1 1
Cost of shares redeemed.................................. - - (1,002) -
------------- ------------- ------------- -------------
Change in net assets from Class B capital transactions... $ 1,094 $ 36,537 ($ 1,001) $ 1,001
============= ============= ============= =============
CLASS I SHARES
Proceeds from shares issued.............................. $ 6,125,245 $ 4,295,725 $ 119,574,218 $ 238,762,845
Shares issued from common trust fund conversion.......... - 18,813,088 - -
Dividends reinvested..................................... 83,431 64,212 11,321 3,214
Cost of shares redeemed.................................. (6,786,100) (4,375,407) (159,084,123) (128,438,818)
------------- ------------- ------------- -------------
Change in net assets from Class I capital transactions.. ($ 577,424) $ 18,797,618 ($ 39,498,584) $ 110,327,241
============= ============= ============= =============
SHARE TRANSACTIONS:
CLASS A SHARES
Issued.................................................. 8,948 5,508 - 1,000
Reinvested.............................................. 334 70 2 5
Redeemed................................................ (1,489) - (1,007) -
------------- ------------- ------------- -------------
Net change.............................................. 7,793 5,578 (1,005) 1,005
============= ============= ============= =============
CLASS B SHARES
Issued.................................................. - 3,529 - 1,000
Reinvested.............................................. 107 53 1 1
Redeemed................................................ - - (1,002) -
------------- ------------- ------------- -------------
Net change.............................................. 107 3,582 (1,001) 1,001
============= ============= ============= =============
CLASS I SHARES
Issued.................................................. 599,239 425,427 119,574,218 238,762,845
Shares issued from common trust fund conversion......... - 1,881,309 - -
Reinvested.............................................. 8,216 6,391 11,321 3,214
Redeemed................................................ (663,352) (432,184) (159,084,123) (128,438,818)
------------- ------------- ------------- -------------
Net change.............................................. (55,897) 1,880,943 (39,498,584) 110,327,241
============= ============= ============= =============
- ---------------
(a) For the period July 15, 2002 (commencement of operations) through March 31,
2003.
* Includes undistributed net investment income of $0, $666, $5,142 and $4,575,
respectively.
See notes to financial statements.
24
SIGNAL FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Operations: Less Dividends from:
Net Realized Net
Net Asset and Unrealized Change in Realized
Value, Net Gains Net Asset Value Net Gains
Beginning Investment (Losses) Resulting from Investment (Losses) from Total
of Period Income Investments Operations Income Investments Dividends
--------- ----------- -------------- --------------- ---------- ------------- ---------
- ----------------------------------------------------------------------------------------------------------------------
CLASS A
======================================================================================================================
LARGE CAP GROWTH FUND
Year ended March 31, 2004 $ 9.05 $ (0.01) $ 2.58 $ 2.57 $ -(e) $ (0.33) $ (0.33)
Period ended March 31, 2003 (d) 10.00 -(e) (0.95) (0.95) -(e) - -
- ----------------------------------------------------------------------------------------------------------------------
INCOME FUND
Year ended March 31, 2004 10.21 0.34 (0.02) 0.32 (0.34) -(e) (0.34)
Period ended March 31, 2003 (d) 10.00 0.31 0.25 0.56 (0.31) (0.04) (0.35)
- ----------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUND
Year ended March 31, 2004 10.18 0.33 0.08 0.41 (0.33) (0.04) (0.37)
Period ended March 31, 2003 (d) 10.00 0.27 0.21 0.48 (0.27) (0.03) (0.30)
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
======================================================================================================================
LARGE CAP GROWTH FUND
Year ended March 31, 2004 9.02 (0.10) 2.58 2.48 - (0.33) (0.33)
Period ended March 31, 2003 (d) 10.00 - (0.98) (0.98) - - -
- ----------------------------------------------------------------------------------------------------------------------
INCOME FUND
Year ended March 31, 2004 10.21 0.26 (0.02) 0.24 (0.26) -(e) (0.26)
Period ended March 31, 2003 (d) 10.00 0.25 0.25 0.50 (0.25) (0.04) (0.29)
- ----------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUND
Year ended March 31, 2004 10.18 0.26 0.08 0.34 (0.26) (0.04) (0.30)
Period ended March 31, 2003 (d) 10.00 0.21 0.21 0.42 (0.21) (0.03) (0.24)
- ----------------------------------------------------------------------------------------------------------------------
CLASS I
======================================================================================================================
LARGE CAP GROWTH FUND
Year ended March 31, 2004 9.06 0.01 2.60 2.61 (0.01) (0.33) (0.34)
Period ended March 31, 2003 (d) 10.00 0.02 (0.94) (0.92) (0.02) - (0.02)
- ----------------------------------------------------------------------------------------------------------------------
INCOME FUND
Year ended March 31, 2004 10.21 0.36 (0.02) 0.34 (0.36) -(e) (0.36)
Period ended March 31, 2003 (d) 10.00 0.29 0.25 0.54 (0.29) (0.04) (0.33)
- ----------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUND
Year ended March 31, 2004 10.18 0.36 0.08 0.44 (0.36) (0.04) (0.40)
Period ended March 31, 2003 (d) 10.00 0.26 0.21 0.47 (0.26) (0.03) (0.29)
- ----------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
Year ended March 31, 2004 1.000 0.006 - 0.006 (0.006) - (0.006)
Period ended March 31, 2003 (d) 1.000 0.007 - 0.007 (0.007) - (0.007)
- ----------------------------------------------------------------------------------------------------------------------
Ratios/Supplementary Data:
Ratio of Ratio of Ratio of
Net Expenses Net Expenses
Net Asset Assets, to Investment to
Value End of Average Income to Average
End of Total Period Net Average Net Portfolio
Period Return* (000's) Asset Net Assets Assets* Turnover(c)
--------- ----------- -------- ---------- ------------- ---------- -----------
- -------------------------------------------------------------------------------------------------------------------
CLASS A
===================================================================================================================
LARGE CAP GROWTH FUND
Year ended March 31, 2004 $ 11.29 28.60% $ 466 1.44% (0.16%) 1.64% 39.64%
Period ended March 31, 2003 (d) 9.05 (9.40%)(a) 224 1.45%(b) 0.11%(b) 1.67%(b) 34.11%
- -------------------------------------------------------------------------------------------------------------------
INCOME FUND
Year ended March 31, 2004 10.19 3.17% 263 0.98% 3.31% 1.23% 43.76%
Period ended March 31, 2003 (d) 10.21 5.65%(a) 218 1.07%(b) 3.54%(b) 1.32%(b) 7.47%
- -------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUND
Year ended March 31, 2004 10.22 4.14% 137 1.09% 3.25% 1.58% 9.11%
Period ended March 31, 2003 (d) 10.18 4.85%(a) 57 1.09%(b) 3.36%(b) 1.52%(b) 8.54%
- -------------------------------------------------------------------------------------------------------------------
CLASS B
===================================================================================================================
LARGE CAP GROWTH FUND
Year ended March 31, 2004 11.17 27.67% 133 2.19% (0.91%) 2.39% 39.64%
Period ended March 31, 2003 (d) 9.02 (9.80%)(a) 110 2.20%(b) (0.60%)(b) 2.42%(b) 34.11%
- -------------------------------------------------------------------------------------------------------------------
INCOME FUND
Year ended March 31, 2004 10.19 2.40% 38 1.73% 2.56% 1.98% 43.76%
Period ended March 31, 2003 (d) 10.21 5.07%(a) 38 1.82%(b) 2.81%(b) 2.07%(b) 7.47%
- -------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUND
Year ended March 31, 2004 10.22 3.37% 38 1.84% 2.53% 2.33% 9.11%
Period ended March 31, 2003 (d) 10.18 4.23%(a) 36 1.85%(b) 2.60%(b) 2.27%(b) 8.54%
- -------------------------------------------------------------------------------------------------------------------
CLASS I
===================================================================================================================
LARGE CAP GROWTH FUND
Year ended March 31, 2004 11.33 29.00% 33,600 1.19% 0.09% 1.39% 39.64%
Period ended March 31, 2003 (d) 9.06 (9.20%)(a) 31,260 1.21%(b) 0.32%(b) 1.43%(b) 34.11%
- -------------------------------------------------------------------------------------------------------------------
INCOME FUND
Year ended March 31, 2004 10.19 3.43% 61,481 0.73% 3.56% 0.98% 43.76%
Period ended March 31, 2003 (d) 10.21 5.47%(a) 59,724 0.82%(b) 3.88%(b) 1.07%(b) 7.47%
- -------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUND
Year ended March 31, 2004 10.22 4.41% 18,660 0.83% 3.52% 1.33% 9.11%
Period ended March 31, 2003 (d) 10.18 4.75%(a) 19,154 0.86%(b) 3.58%(b) 1.27%(b) 8.54%
- -------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
Year ended March 31, 2004 1.000 0.57% 70,829 0.54% 0.57% 0.59% N/A
Period ended March 31, 2003 (d) 1.000 0.72%(a) 110,327 0.53%(b) 1.02%(b) 0.58%(b) N/A
- -------------------------------------------------------------------------------------------------------------------
* Excludes Sales and Redemption Charges
** During the period certain fees were reduced. If such fee reductions had not
occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing among the classes of shares issued.
(d) For the period July 15, 2002 through March 31, 2003.
(e) Amount is less than $0.005.
See notes to financial statements.
25
SIGNAL FUNDS
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004
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 an open-end management investment
company. The Large Cap Growth Fund, the Income Fund, the Tax-Exempt Income Fund,
the Money Market Fund, and the Tax-Exempt Money Market Fund (collectively, the
"Funds" and individually, a "Fund") are a series within the Group. The Funds are
each authorized to issue Class A, Class B, and Class I Shares. Currently no
classes of the Tax-Exempt Money Market are offered to investors. On August 1,
2003, Class A and Class B of the Money Market Fund liquidated all of their
assets and are not currently offered to any investors.
Under the Group's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Group. In addition, in the normal course of business, the Group
enters into contracts with its vendors and others that provide general
indemnifications. Each Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund.
However, based on experience, the Group expects the risk of loss to be remote.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Funds in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles ("GAAP") in the United
States of America. The preparation of financial statements requires management
to make estimates and assumptions that may affect the reported amounts of income
and expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
The value of each equity security is based either on the closing price on a
national securities exchange, or in the absence of recorded sales, at fair value
as determined by the Funds' Trustees. Securities or other assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or at the direction of the Funds' Trustees.
Bonds and other fixed income securities (other than short-term obligations but
including listed issues) are valued on the basis of valuations furnished by a
pricing service, the use of which has been approved by the Funds' Trustees. In
making such valuations, the pricing service utilizes both dealer-supplied
valuations and electronic data processing techniques which take into account
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, and trading
characteristics other than market data and without exclusive reliance upon
quoted prices or exchanges or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities. All
short-term securities with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates fair value. Under the amortized cost method,
discount or premium, if any, is accreted or amortized, respectively, on a
constant basis to the maturity of the security.
continued
26
SIGNAL FUNDS
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004
Securities held in the Money Market Fund are valued utilizing the amortized cost
method, which approximates market value. Under the amortized cost method,
discount or premium is amortized on a constant basis to maturity or reset date
of the security.
REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements with a bank or broker-dealer that
the Advisor deems creditworthy. The repurchase price generally equals 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, is required to maintain
the collateral held pursuant to the agreement, with a market value equal to or
greater than the repurchase price (including accrued interest). Collateral
subject to repurchase agreements is held by the Funds' custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry system. If the
counterparty defaults and the fair value of the collateral declines, realization
of the collateral by the Funds may be delayed or limited.
SECURITY TRANSACTIONS AND RELATED INCOME:
Changes in holdings of portfolio securities shall be reflected no later than in
the first calculation on the first business day following the trade date.
However, for financial reporting purposes, portfolio security transactions are
reported on 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. Income and realized and unrealized gains and
losses on investments are allocated to each class of shares based upon relative
net assets or other appropriate basis.
EXPENSES:
Expenses directly attributable to a Fund are charged directly to the Fund.
Expenses relating to the Group are allocated proportionately to each Fund within
the Group according to the relative net assets of each Fund or on another
reasonable basis. Expenses are allocated to each class based upon relative net
assets or other appropriate basis, except that each class separately bears
expenses related specifically to that class, such as distribution fees.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income, if any, are declared daily and paid
monthly for all of the Funds, except the Large Cap Growth Fund. Dividends for
the Large Cap Growth Fund are declared and distributed quarterly. Dividends from
net realized gains, if any, are declared and distributed annually for all Funds.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations, which may differ from
GAAP. Permanent book and tax basis differences have been reclassified among the
components of net assets.
continued
27
SIGNAL FUNDS
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004
FEDERAL INCOME TAXES:
Each Fund intends to continue to qualify as a regulated investment company by
complying with the provisions available to certain investment companies, as
defined in Subchapter M of the Internal Revenue Code, and to make distributions
from net investment income and from net realized capital gains sufficient to
relieve it from all, or substantially all, federal income taxes.
3. RELATED PARTY TRANSACTIONS:
INVESTMENT ADVISOR:
The Funds and Signal Capital Management, Inc., (the "Advisor"), a wholly owned
subsidiary of Old National Trust Company, are parties to an Investment Advisory
Agreement under which the Advisor is entitled to receive an annual fee, computed
daily and paid monthly, equal to the average daily net assets of each Fund, at
the following annual percentage rates after the imposition of certain
contractual fee waivers by the Advisor of its advisory fees:
NAME FEE RATE*
---- ---------
Large Cap Growth Fund . . . . . . . . . . . . . . . . . 0.55%
Income Fund . . . . . . . . . . . . . . . . . . . . . . 0.25
Tax-Exempt Income Fund . . . . . . . . . . . . . . . . 0.10
Money Market Fund . . . . . . . . . . . . . . . . . . . 0.05
*Without the imposition of these contractual fee waivers by the Advisor, total
advisory fees for the Funds on an annual basis are 0.75% for the Large Cap
Growth Fund, 0.50% for the Income Fund and Tax-Exempt Income Fund, and 0.10% for
the Money Market Fund.
The Advisor may from time to time voluntarily reduce all or a portion of its
advisory fee with respect to a Fund.
For the first 36 full months of the Funds' operations, the Advisor may recoup
these waived advisory fees over a period of up to three years from the year the
fees were waived in accordance with the terms of the expense limitation
agreement entered into between the Advisor and the Funds. For the fiscal years
ended March 31, 2003 and March 31, 2004, the Advisor waived $45,759 and $69,332,
respectively, for the Large Cap Growth Fund; $77,007 and $159,274, respectively,
for the Income Fund; $57,868 and $96,072, respectively, for the Tax-Exempt Fund;
and $41,464 and $42,511, respectively, for the Money Market Fund.
ADMINISTRATION:
The Funds and BISYS Fund Services Ohio, Inc. (the "Administrator"), a wholly
owned subsidiary of The BISYS Group, Inc., are parties to an Administration
Agreement under which the Administrator provides services for a fee that is
computed daily and paid monthly at an annual rate of 0.20% of the average daily
net assets for the Large Cap Fund, Income Fund, and the Tax-Exempt Income Fund.
The Money Market Fund has an annual rate of 0.25%. Certain officers and trustees
of the Group are also officers of the Administrator and are paid no fees
directly by the
continued
28
SIGNAL FUNDS
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004
Funds for serving as officers of the Group. The Administrator also provides fund
accounting and transfer agency services to the Funds pursuant to certain fee
arrangements, as reflected in the Statement of Operations.
DISTRIBUTION:
The Funds and BISYS Fund Services Limited Partnership (the "Distributor"), a
wholly owned subsidiary of The BISYS Group, Inc., are parties to a Distribution
Agreement under which shares of the Funds are sold on a continuous basis. The
Group has adopted a Service and Distribution Plan for Class A and Class B shares
pursuant to Rule 12b-1 under the 1940 Act under which the Class A and Class B
shares of each fund are authorized to pay the Distributor for payments it makes
to banks, other institutions and broker-dealers, and for expenses the
Distributor and any of its affiliates incur for providing distribution or
shareholder service assistance to the Funds. The calculated annual rate will not
exceed 0.25% and 1.00% of the average daily net asset value of Class A and Class
B shares, respectively.
For the period ended March 31, 2004, the Distributor received $6,947 from
commissions earned on sales of Class A shares and redemption of Class B shares,
of which the Distributor re-allowed $1 to affiliated broker-dealers of the
Funds.
4. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of investment securities, excluding short-term securities,
for the year ended March 31, 2004, totaled:
PURCHASES SALES
--------- -----
Large Cap Growth Fund .................. $13,027,928 $16,526,297
Income Fund ............................ 33,402,598 24,696,755
Tax-Exempt Income Fund ................. 1,740,189 2,321,411
5. CLASS A CONTINGENT DEFERRED SALES CHARGES:
There is no initial sales charge on purchases of $1 million or more of the Class
A Shares of the Funds. However, a contingent deferred sales charge ("CDSC") will
be charged to the shareholder if shares are redeemed in the first 18 months
after purchase. The Funds collected no CDSC fees on Class A Shares during the
year ended March 31, 2004.
6. FEDERAL INCOME TAX INFORMATION:
The dividends from net investment income and of distributions from net realized
gains are determined in accordance with federal income tax regulations, which
may differ from accounting principles generally accepted in the United States of
America. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the composition of net assets based on
their federal tax-basis treatment; temporary differences do not require
reclassification. To the extent dividends exceed net investment income and net
realized gains for tax purposes, they are reported as distributions of capital.
continued
29
SIGNAL FUNDS
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004
The character of dividends paid to shareholders during the fiscal year ended
March 31, 2004 was as follows:
DIVIDENDS PAID FROM
ORDINARY NET LONG-TERM TOTAL TAXABLE TAX EXEMPT TOTAL
INCOME CAPITAL GAINS DIVIDENDS DIVIDENDS DIVIDENDS PAID
------ ------------- --------- --------- --------------
Large Cap
Growth Fund $ 51,939 $ 1,069,012 $ 1,120,951 $ - $ 1,120,951
----------- ----------- ----------- ----------- -----------
Income Fund 2,250,789 2,255 2,253,044 - 2,253,044
----------- ----------- ----------- ----------- -----------
Tax-Exempt
Income Fund 566 76,023 76,589 693,268 769,857
Money
Market Fund 520,863 - 520,863 - 520,863
----------- ----------- ----------- ----------- -----------
The character of dividends paid to shareholders during the period ended March
31, 2003 were as follows:
DIVIDENDS PAID FROM
ORDINARY NET LONG-TERM TOTAL TAXABLE TAX EXEMPT TOTAL
INCOME CAPITAL GAINS DIVIDENDS DIVIDENDS DIVIDENDS PAID
------ ------------- --------- --------- --------------
Large Cap
Growth Fund $ 47,150 $ - $ 47,150 $ - $ 47,150
----------- -------- ----------- --------- -----------
Income Fund 1,027,746 145,870 1,173,616 - 1,173,616
----------- -------- ----------- --------- -----------
Tax-Exempt
Income Fund 6,405 55,251 61,656 430,973 492,629
----------- -------- ----------- --------- -----------
Money
Market Fund 774,007 - 774,007 - 774,007
----------- -------- ----------- --------- -----------
As of March 31, 2004, the components of accumulated earnings on a tax basis were
as follows: (These differences between GAAP-basis and tax-basis unrealized
appreciation (depreciation) are attributable primarily to tax deferral of losses
on wash sales and the difference between GAAP and tax amortization methods for
premium and market discount.)
UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED TOTAL
TAX EXEMPT ORDINARY LONG-TERM ACCUMULATED DIVIDENDS CAPITAL AND APPRECIATION / ACCUMULATED
INCOME INCOME CAPITAL GAINS EARNINGS PAYABLE OTHER LOSSES (DEPRECIATION) EARNINGS/ (DEFICIT)
------ ------ ------------- -------- ------- ------------ -------------- -------------------
Large Cap
Growth Fund $ - $ 102,167 $ 902,592 $1,004,759 $ - $ - $ 8,729,013 9,733,772
------- ---------- ---------- ---------- --------- -------- ----------- ---------
Income Fund - 188,637 - 188,637 (188,637) (71,275) 2,716,662 2,645,387
------- ---------- ---------- ---------- --------- -------- ----------- ---------
Tax-Exempt
Income Fund 56,821 - 59,303 116,124 (56,821) - 1,149,771 1,209,074
------- ---------- ---------- ---------- --------- -------- ----------- ---------
Money
Market Fund - 41,746 - 41,746 (36,604) - - 5,142
------- ---------- ---------- ---------- --------- -------- ----------- ---------
continued
30
SIGNAL FUNDS
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004
As of March 31, 2003 the components of accumulated earnings on a tax basis were
as follows: (These differences between GAAP-basis and tax-basis unrealized
appreciation (depreciation) is attributable primarily to tax deferral of losses
on wash sales and the difference between GAAP and tax amortization methods for
premium and market discount.)
TOTAL
UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED UNREALIZED ACCUMULATED
TAX EXEMPT ORDINARY LONG-TERM ACCUMULATED DIVIDENDS APPRECIATION/ EARNINGS/
INCOME INCOME CAPITAL GAINS EARNINGS PAYABLE DEPRECIATION (DEFICIT)
---------- ------------ ------------- ------------ ------------ ------------ ------------
Large Cap
Growth Fund $ - $ 21,363 $ 195,080 $ 216,443 ($ 19,959) $ 1,903,707 $ 2,100,191
---------- ------------ ------------ ------------ ------------ ------------ ------------
Income Fund - 169,833 2,254 172,087 (168,637) 2,829,286 2,832,736
---------- ------------ ------------ ------------ ------------ ------------ ------------
Tax-Exempt
Income Fund 63,281 - 19,788 83,069 (62,615) 1,105,130 1,125,584
---------- ------------ ------------ ------------ ------------ ------------ ------------
Money Market
Fund - 76,186 - 76,186 (71,611) - 4,575
---------- ------------ ------------ ------------ ------------ ------------ ------------
CAPITAL LOSS CARRYFORWARDS:
At March 31, 2004, the following Fund had net capital loss carryforwards to
offset future net capital gains, if any, to the extent provided by the Treasury
regulations:
AMOUNT EXPIRES
------- -------
Income Fund . . . . . . . . . . . . . $70,655 2012
POST OCTOBER LOSS DEFERRAL:
Capital losses incurred after October 31 within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. The following Fund has incurred and will elect to defer such capital
losses:
AMOUNT
------
Income Fund . . . . . . . . . . . . . $620
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Signal Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Large Cap Growth Fund, Income Fund,
Tax-Exempt Income Fund, and Money Market Fund (four funds constituting the
Signal Funds, hereafter referred to as the "Funds") at March 31, 2004, the
results of their operations for the year then ended, the changes in their net
assets and the financial highlights for the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
May 19, 2004
32
SIGNAL FUNDS
MARCH 31, 2004
ADDITIONAL INFORMATION (UNAUDITED)
DIVIDENDS RECEIVED DEDUCTION:
For corporate shareholders the following percentage of the total ordinary income
distributions paid during the fiscal year ended March 31, 2004 qualify for the
corporate dividends received deduction for the following Fund:
PERCENTAGE
----------
Large Cap Growth Fund . . . . . . . . . . . 100%
QUALIFIED DIVIDEND INCOME:
For the fiscal year ended March 31, 2004 the following dividends paid by the
Funds may be subject to a maximum tax rate of 15% as provided for by the Jobs
and Growth Relief Reconciliation Act of 2003:
DIVIDENDS PAID
--------------
Large Cap Growth Fund . . . . . . . . . . $51,939
33
SIGNAL FUNDS
MARCH 31, 2004
TRUSTEES AND OFFICERS (UNAUDITED)
TERM OF PRINCIPAL NUMBER OF FUNDS OTHER
POSITION(S) OFFICE AND OCCUPATION(S) IN FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH LENGTH OF DURING FIVE OVERSEEN BY HELD BY
AND AGE THE FUNDS TIME SERVED* YEARS TRUSTEE TRUSTEE
------- --------- ------------ ----- ------- -------
INTERESTED TRUSTEES
Walter B. Grimm Trustee Trustee From June 1992 16 American
3435 Stelzer Road since 1996. to present, employee of Performance Funds
Columbus, Ohio 43219 BISYS Fund Services.
Age: 58
R. Jeffrey Young President, Chairman and From 1993 to 16 N/A
3435 Stelzer Road Chairman Trustee since present, employee of
Columbus, Ohio 43219 and Trustee 1999. BISYS Fund Services.
Age: 39 President
since 2003.
INDEPENDENT TRUSTEES
Maurice G. Stark Trustee Since 1992. Retired. 16 N/A
3435 Stelzer Road
Columbus, Ohio 43219
Age: 68
Michael M. Van Buskirk Trustee Since 1992. From June 1991 to 16 BISYS Variable
3435 Stelzer Road present, employee of Insurance Funds
Columbus, Ohio 43219 and currently President
Age: 57 of The Ohio Bankers'
League (trade association)
John H. Ferring IV Trustee Since 1998. From 1979 to present, 16 N/A
3435 Stelzer Road President and Owner of
Columbus, Ohio 43219 Plaze, Incorporated,
Age: 50 Clair, Missouri (packaging
manufacturer).
OFFICERS WHO ARE
NOT TRUSTEES
Jennifer R. Hankins Vice Since 1998. From October 1988 to
3435 Stelzer Road President present, employee of
Columbus, Ohio 43219 BISYS Fund Services.
Age: 37
Lara Bocskey Vice Since 2002. From 1998 to present,
3435 Stelzer Road President employee of
Columbus, Ohio 43219 BISYS Fund Services.
Age: 33
*There is no defined term of office for Trustees of the Group.
34
SIGNAL FUNDS
MARCH 31, 2004
OFFICERS WHO ARE NOT TRUSTEES, CONTINUED (UNAUDITED)
TERM OF PRINCIPAL
NAME, ADDRESS POSITION(S) OFFICE AND OCCUPATION(S)
AND HELD WITH LENGTH OF DURING FIVE
AGE THE FUNDS TIME SERVED* YEARS
--- --------- ------------ -----
Nadeem Yousaf Treasurer Since 1999. From August 1999 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from March 1997 to June 1999,
Age: 35 employee of
Investors Bank and Trust.
George L. Stevens Secretary Since 1996. From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 53
Alaina V. Metz Assistant Secretary Since 1995. From June 1995 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 37
*There is no defined term of office for Trustees of the Group.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling 1-888-426-9709 and (ii) on the Securities and
Exchange Commission's website at http://www.sec.gov.
35
ITEM 2. CODE OF ETHICS.
Disclose whether, as of the end of the period covered by the report, the
registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. If the registrant has not adopted such a code of ethics,
explain why it has not done so.
THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER,
PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR
FUNCTIONS. THIS CODE OF ETHICS IS INCLUDED AS EXHIBIT 11(a)(1).
The registrant must briefly describe the nature of any amendment, during
the period covered by the report, to a provision of its code of ethics that
applies to the registrant's principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these individuals are
employed by the registrant or a third party, and that relates to any
element of the code of ethics definition enumerated in paragraph (b) of
this Item. The registrant must file a copy of any such amendment as an
exhibit pursuant to Item 11(a)(1), unless the registrant has elected to
satisfy paragraph (f) of this Item by posting its code of ethics on its
website pursuant to paragraph (f)(2) of this Item, or by undertaking to
provide its code of ethics to any person without charge, upon request,
pursuant to paragraph (f)(3) of this Item.
If the registrant has, during the period covered by the report, granted a
waiver, including an implicit waiver, from a provision of the code of
ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, that relates
to one or more items set forth in paragraph (b) of this Item, the
registrant must briefly describe the nature of the waiver, the name of the
person to whom the waiver was granted, and the date of the waiver.
DURING THE PERIOD COVERED BY THE REPORT, WITH RESPECT TO THE REGISTRANT'S
CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL
FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS
PERFORMING SIMILAR FUNCTIONS; THERE HAVE BEEN NO AMENDMENTS TO, NOR ANY
WAIVERS GRANTED FROM, A PROVISION THAT RELATES TO ANY ELEMENT OF THE CODE
OF ETHICS DEFINITION ENUMERATED IN PARAGRAPH (b) OF THIS ITEM 2.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) (1) Disclose that the registrant's board of directors has determined
that the registrant either:
(i) Has at least one audit committee financial expert serving on
its audit committee; or
(ii) Does not have an audit committee financial expert serving
on its audit committee.
(2) If the registrant provides the disclosure required by paragraph
(a)(1)(i) of this Item, it must disclose the name of the audit
committee financial expert and whether that person is "independent."
In order to be considered "independent" for purposes of this Item, a
member of an audit committee may not, other than in his or her
capacity as a member of the audit committee, the board of directors,
or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or
other compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as
defined in Section 2(a)(19) of the Act (15 U.S.C. 80a-2(a)(19)).
(3) If the registrant provides the disclosure required by paragraph
(a)(1)(ii) of this Item, it must explain why it does not have an
audit committee financial expert.
3(a)(1) THE REGISTRANT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE REGISTRANT
HAS AT LEAST ONE AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT
COMMITTEE.
3(a)(2) THE AUDIT COMMITTEE FINANCIAL EXPERT IS MAURICE STARK, WHO IS
"INDEPENDENT" FOR PURPOSES OF THIS ITEM 3 OF FORM N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Disclose, under the caption Audit Fees, the aggregate fees billed
for each of the last two fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
For the fiscal years ended March 31, 2003 and March 31, 2004, PWC billed
Audit Fees to the First Source Monogram Funds of $33,000 and $40,000,
respectively.
For the fiscal years ended March 31, 2003 and March 31, 2004, Tait
Weller Baker billed Audit Fees to the Boston Trust Funds of $28,500 and $39,000,
respectively.
For the fiscal years ended March 31, 2003 and March 31, 2004, E&Y billed
Audit Fees to the Shelby Funds of $22,800 and $25,900, respectively.
For the fiscal years ended March 31, 2003 and March 31, 2004, PWC billed
Audit Fees to the Signal Funds of $34,000 and $34,000, respectively.
(b) Disclose, under the caption Audit-Related Fees, the aggregate fees
billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
Not Applicable.
(c) Disclose, under the caption Tax Fees, the aggregate fees billed in
each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the fees
disclosed under this category.
For the fiscal years ended March 31, 2003 and March 31, 2004, PWC billed
Tax Fees to the First Source Monogram Funds of $10,520 and $12,500,
respectively.
For the fiscal years ended March 31, 2003 and March 31, 2004, Tait
Weller Baker billed Tax Fees to the Boston Trust Funds of $7,500 and $8,000,
respectively.
For the fiscal years ended March 31, 2003 and March 31, 2004, E&Y billed
Tax Fees to the Shelby Funds of $2,500 and $5,000, respectively.
For the fiscal years ended March 31, 2003 and March 31, 2004, PWC billed
Tax Fees to the Signal Funds of $7,650 and $8,000, respectively.
(d) Disclose, under the caption All Other Fees, the aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant, other than the services reported in paragraphs (a)
through (c) of this Item. Registrants shall describe the nature of the services
comprising the fees disclosed under this category.
Not Applicable.
(e) (1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Not Applicable.
(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
For the fiscal years ended March 31, 2003 and March 31, 2004,
100% of all the fees in paragraphs (b) through (d) were approved by the audit
committee.
(f) If greater than 50 percent, disclose the percentage of hours
expended on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's full-time,
permanent employees.
Not Applicable.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
each of the last two fiscal years of the registrant.
Not Applicable.
(h) Disclose whether the registrant's audit committee of the board of
directors has considered whether the provision of nonaudit services that were
rendered to the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) If the registrant is a listed issuer as defined in Rule 10A-3
under the Exchange Act (17CFR 240.10A-3), state whether or not
the registrant has a separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of
the Exchange Act (15 U.S.C. 78c(a)(58)(A)). If the registrant
has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as
the registrant's audit committee as specified in Section
3(a)(58)(B) of the Exchange Act (15 U.S.C. 78c(a)(58)(B)), so
state.
(b) If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act (17CFR 240.10A-3(d)) regarding an
exemption from the listing standards for all audit committees.
NOT APPLICABLE.
ITEM 6. SCHEDULE OF INVESTMENTS.
File Schedule I - Investments in securities of unaffiliated issuers as of the
close of the reporting period as set forth in ss. 210.12-12 of Regulation S-X,
unless the schedule is included as part of the report to shareholders filed
under Item 1 of this Form.
NOT APPLICABLE.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
A closed-end management investment company that is filing an annual
report on this Form N-CSR must, unless it invests exclusively in non-voting
securities, describe the policies and procedures that it uses to determine how
to vote proxies relating to portfolio securities, including the procedures that
the company uses when a vote presents a conflict between the interests of its
shareholders, on the one hand, and those of the company's investment adviser;
principal underwriter; or any affiliated person (as defined in Section 2(a)(3)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules
thereunder) of the company, its investment adviser, or its principal
underwriter, on the other. Include any policies and procedures of the company's
investment adviser, or any other third party, that the company uses, or that are
used on the company's behalf, to determine how to vote proxies relating to
portfolio securities.
NOT APPLICABLE.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
If the registrant is a closed-end management investment company, provide the
information specified in paragraph (b) of this Item with respect to any purchase
made by or on behalf of the registrant or any "affiliated purchaser," as defined
in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares
or other units of any class of the registrant's equity securities that is
registered by the registrant pursuant to Section 12 of the Exchange Act (15
U.S.C. 781).
NOT APPLICABLE.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Describe any material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors, where those changes
were implemented after the registrant last provided disclosure in response to
the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this Item.
NOT APPLICABLE.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Disclose the conclusions of the registrant's principal executive and
principal financial officers, or persons performing similar functions, regarding
the effectiveness of the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) as of a date
within 90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or
240.15d-15(b)).
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
HAVE CONCLUDED, BASED ON THEIR EVALUATION OF THE REGISTRANT'S DISCLOSURE
CONTROLS AND PROCEDURES AS CONDUCTED WITHIN 90 DAYS OF THE FILING DATE OF THIS
REPORT, THAT THESE DISCLOSURE CONTROLS AND PROCEDURES ARE ADEQUATELY DESIGNED
AND ARE OPERATING EFFECTIVELY TO ENSURE THAT INFORMATION REQUIRED TO BE
DISCLOSED BY THE REGISTRANT ON FORM N-CSR IS (i) ACCUMULATED AND COMMUNICATED TO
THE INVESTMENT COMPANY'S MANAGEMENT, INCLUDING ITS CERTIFYING OFFICERS, TO ALLOW
TIMELY DECISIONS REGARDING REQUIRED DISCLOSURE; AND (ii) RECORDED,
PROCESSED, SUMMARIZED AND REPORTED WITHIN THE TIME PERIODS SPECIFIED IN THE
SECURITIES AND EXCHANGE COMMISSION'S RULES AND FORMS.
(b) Disclose any change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that
occurred during the registrant's last fiscal half-year (the registrant's second
fiscal half-year in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL
REPORTING THAT OCCURRED DURING THE REGISTRANT'S MOST RECENT FISCAL HALF-YEAR
(THE REGISTRANT'S SECOND FISCAL HALF-YEAR IN THE CASE OF AN ANNUAL REPORT) THAT
HAVE MATERIALLY AFFECTED OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, THE
REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING.
ITEM 11. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or
number the exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of
the disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit.
THE CODE OF ETHICS THAT IS THE SUBJECT OF THE DISCLOSURE REQUIRED BY
ITEM 2 IS ATTACHED HERETO.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2).
CERTIFICATIONS PURSUANT TO RULE 30a-2(a) ARE ATTACHED HERETO.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1
under the Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons.
NOT APPLICABLE.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange
Act, provide the certifications required by rule 30a-2(b) under the Act as an
exhibit. A certification furnished pursuant to this paragraph will not be deemed
"filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to
the liability of that section. Such certification will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or
the Exchange Act, except to the extent that the registrant incorporates it by
reference.
CERTIFICATIONS PURSUANT TO RULE 30a-2(b) ARE FURNISHED HEREWITH.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Coventry Group
By: /s/ R. Jeffrey Young
--------------------
R. Jeffrey Young
President
Date: June 9, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jeffrey Young
--------------------
R. Jeffrey Young
President
Date: June 9, 2004
By: /s/ Nadeem Yousaf
-----------------
Nadeem Yousaf
Treasurer
Date: June 9, 2004