<PAGE> 1
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Semi-Annual Report
- --------------------------------------------
- --------------------------------------------
June 30, 1996
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Your Foundation for Investment Strength
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[LOGO]
THE THE KENT SHORT TERM BOND FUND
KENT THE KENT INTERMEDIATE BOND FUND
FUNDS[REGISTRATION MARK] THE KENT INCOME FUND
<PAGE> 2
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MESSAGE TO SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Kent Fund Shareholder:
Enclosed is the semi-annual report for The Kent Taxable Bond Funds for the
six months ended June 30, 1996. Inside, you'll find a Market Overview that
describes the economic and market conditions that we believe affected the Funds'
performances during this time. There are also Portfolio Reviews for each Fund
that explain how the Fund managers adjusted their portfolios in the prevailing
investment environment and what the managers expect in the months to come.
During the period, the Kent Funds concentrated on providing shareholders
with good value and attractive potential for growth while managing risk. If you
have any questions about your investments after reading this report, please call
1-800-633-KENT (1-800-633-5368) to speak to a Kent Funds Specialist. We remain
committed to providing you with useful information that can help you make the
most of your investments.
Sincerely,
The Kent Funds
<PAGE> 3
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TAXABLE BOND MARKET OVERVIEW
- -------------------------------------------------------------------------------
After posting strong gains in 1995, the fixed-income markets hit the
proverbial brick wall in the first six months of 1996. During that time
fixed-income securities suffered losses in total return that reminded many
investors of the losses they suffered in 1994.
The two key reasons behind the sell-off were the unexpected pickup in
the pace of economic activity and a surge in commodity prices. Many investors
believed the rise in commodity prices was largely due to temporary dislocations
in the oil market and poor weather conditions at planting time, rather than to
an increase in underlying inflation. Indeed, the inflation rate remained
virtually unchanged during the period. Some investors were somewhat disturbed,
however, that the rise in prices should occur at the same time that the economy
picked up steam.
Investors worry that the economy's growth rate cannot exceed 2%
without rekindling inflation. After the Federal Reserve cut short-term rates to
5.25% on January 31, the reports of unexpectedly strong gains in employment,
retail sales and housing activity convinced many investors that the Federal
Reserve would have to raise interest rates to keep inflation under control.
As the current business expansion passed its five-year anniversary
during the first six months of 1996, the unemployment rate fell below 5.5% and
capacity utilization reached 83%. As a result, investors raised bond yields to
curb the pace of economic growth. Yields on one-year Treasury bills rose from
5.13% to 5.67%, an increase of 54 basis points, and yields on 30-year Treasury
bonds rose from 5.95% to 6.98%, a hike of 103 basis points. Intermediate-term
securities saw the largest jump, with yields on 10-year Treasury notes rising
114 basis points.
TIGHT SUPPLIES
ENHANCE CORPORATE PRICES
Corporate securities outperformed Treasury issues in the first half of
1996, further narrowing the spread between the yields of these two issuing
sectors. The strength of corporate bond prices was due largely to an imbalance
between market demand and supply. Strong financial performance by many issuers,
which reduced the need for long-term debt, combined with higher yield levels to
limit new corporate supply.
We took advantage of the "richness" of yields or corporate securities
with lower credit ratings to upgrade the credit quality of portfolios for The
Kent Taxable Bond Funds. Because the yields for lower rated corporate bonds does
not offset the added credit risk involved with these issues, we are willing to
wait for a more opportune time to increase the Funds' exposure to corporate
securities in general and to lower rated securities, in particular.
RISK REWARD TRADE-OFF
NOW MORE ATTRACTIVE
Although the drop in prices and rise in yields has been less severe
than in 1994, the tradeoff between potential risk and reward for fixed-income
securities still has grown much more positive than at the end of 1995.
Currently, we cannot help but be attracted to a market where the reaction of
investors to economic reports has produced a sharp price decline in a short
amount of time. A 10-year Treasury note, which yielded 6.71% at the end of June
would earn a total return of 13.7% if yields fell by 100 basis points. Even if
yields rose another 100 basis points, investors would still earn a positive
return of 0.3%.
Yields are also quite attractive at current levels of inflation. After
adjusting for inflation, the "real" yield (the yield after adjustment for
inflation) on 30-year Treasury bonds was 4.9% at the end of June. This is the
average for real yields since 1980 and well above the average of 3.2% since
1956. While inflation-adjusted yields are not as high as they were late in 1994,
they are significantly better than they were at the end of 1995.
If higher bond yields slow the economy in the second half of the year,
as we expect, and inflation remains relatively low, our Funds will benefit from
us keeping the average maturities of investments in The Kent Taxable Bond Funds
somewhat longer than the average maturities of their benchmarks. When the
psychology of a market changes, as it has in recent months, market fundamentals
are often ignored and price moves can become quite exaggerated. So if bond
prices continue to fall, we anticipate purchasing additional longer-term issues
to make the most of what we view as even greater investment opportunities. Once
investors see that the economy is slowing and inflation remains under control,
prices for fixed-income securities will start to move higher.
JOSEPH T. KEATING
Chief Investment Officer
MITCHELL L. STAPLEY,
Director of Taxable Fixed Income
1
<PAGE> 4
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PORTFOLIO REVIEWS
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THE KENT SHORT TERM BOND FUND
BY ALLAN J. MEYERS,
PORTFOLIO MANAGER
The Kent Short Term Bond Fund maintains an average portfolio maturity
of one to three years. Because bonds with longer maturities tend to gain more in
price when yields fall than bonds with shorter maturities, we began purchasing
issues with five-year maturities for the Fund in the second quarter of 1996 --
expecting yields to decline later in the year. As for the six months ended June
30, 1996, total returns for the Fund's Institutional and Investment Shares were
0.78% and 0.72%, respectively, before the deduction of sales charges. Over the
same time, the Lehman Brothers One- to Three-Year Government Bond Index ("Lehman
Index") had a total return of 1.44%.
BOOSTING YIELDS
AND POTENTIAL GAINS
When the year began, the average maturity of the Fund's investments
was about 2 years, and bond yields were still falling. During the second
quarter, after stronger economic reports pushed interest rates higher in
February and March, we increased the average maturity of the Fund to 2.5 years.
Besides giving the Fund extra potential for capital gains if bond yields fall,
the longer average maturity helped us lock in higher yields. We maintained this
average maturity through the end of June. The average maturity
of the Lehman Index at that time was 1.9 years.
The spread between yields of government and corporate bonds remained
relatively narrow for much of the period, leading us to favor the higher credit
quality of government bonds. We did, however, find selected opportunities in
high-quality corporate securities with five-year maturities.
<TABLE>
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<CAPTION>
THE KENT SHORT TERM BOND FUND
DISTRIBUTION OF NET ASSETS
AS OF JUNE 30, 1996
-------------------
<S> <C>
CORPORATE NOTES & BONDS 38.81%
U.S. GOVERNMENT & AGENCY OBLIGATIONS 58.35%
CASH EQUIVALENTS &
NET OTHER ASSETS & LIABILITIES 2.84%
- -------------------------------------------------------------------------------
</TABLE>
LOOKING FORWARD
If economic growth and inflation are moderate in coming months, and
interest rates start to decline, investments in longer-maturity issues should
outperform benchmark indices as bond prices rally. Believing interest rates will
eventually fall as the pace of economic activity slows, we may use any further
declines in prices to make additional investments in the five-year maturity
sector. In addition, we will seek to focus on securities with strong credit
quality.
- -------------------------------------------------------------------------------
THE KENT SHORT TERM BOND FUND
SEC 30-Day Yields as of June 30, 1996
INSTITUTIONAL CLASS INVESTMENT CLASS
-----------------------------------------------------------------
5.89% 5.50%
SEC 30-day yield is computed based on net income during the 30-day period ended
June 30, 1996. Yield calculations represent past performance and will fluctuate.
- -------------------------------------------------------------------------------
2
<PAGE> 5
Taxable Funds
- -------------------------------------------------------------------------------
PORTFOLIO REVIEWS
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<TABLE>
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<CAPTION>
THE KENT SHORT TERM BOND FUND
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 1996
------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(inception: 12/4/92) (inception: 11/2/92)
---------------------------------------------------------------------
<S> <C> <C>
One Year 0.26% 4.66%
Three Years 3.01% 4.54%
Life of Fund 3.05% 4.38%
* Reflects 4.00% sales charge.
- -------------------------------------------------------------------------------
</TABLE>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS 1 - 3 YEAR GOVERNMENT BOND INDEX, CONSUMER PRICE
INDEX, AND 91-DAY TREASURY BILL
<TABLE>
<CAPTION>
LEHMAN BROS.
1-5 YR. GOV'T BOND CONSUMER PRICE 91-DAY KENT FUNDS
INDEX INDEX TREASURY BOND (INSTITUTIONAL)
<S> <C> <C> <C> <C>
11/02/92 10,000 10,000 10,000 10,000
06/30/96 12,037 11,639 11,050 11,699
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROS.
1-5 YR. GOV'T BOND CONSUMER PRICE 91-DAY KENT FUNDS
INDEX INDEX TREASURY BOND (INVESTMENT)
<S> <C> <C> <C> <C>
12/04/92 10,000 10,000 10,000 9,600
06/30/96 11,794 11,043 11,611 11,133
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Performance for each class will
differ based on differences in sales charges and expenses for each class of
shares. Return figures and investment values are quoted after deducting class
expenses and sales charges (if applicable). Investment class shares are sold
with a maximum front-end sales charge of 4.00%. The Lehman Brothers 1-3 Year
Government Bond Index is an unmanaged index of U.S. Treasury issues and publicly
issued debt of U.S. Government agencies with maturities of one to three years.
The 91-day Treasury Bill return tracks the investment returns pai d on U.S.
Treasury bills maturing in 91 days. The Consumer Price Index is an unmanaged
index measuring price increases in a standardized "market basket" of consumer
products. Total Return is based on changes in Net Asset Value assuming
reinvestment of all dividends and capital gains distributions.
3
<PAGE> 6
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PORTFOLIO REVIEWS
- -------------------------------------------------------------------------------
THE KENT INTERMEDIATE BOND FUND
BY MITCHELL L. STAPLEY,
PORTFOLIO MANAGER
At the start of 1996, The Kent Intermediate Bond Fund had an average
maturity of 4.7 years. As bond yields rose between February and April, we added
high-quality, longer-term bonds with attractive yields to the Fund's portfolio.
By the end of June, the Fund's average maturity stood at 5.8 years. The Lehman
Brothers Government/Corporate Intermediate Bond Index, by comparison, had an
average maturity of 4.3 years.
For the six months ended June 30, 1996, The Fund's Institutional and
Investment Shares had total returns of -1.17% and -1.28%, respectively, before
the deduction of sales charges. That compares to a total return of -0.21% for
the Lehman Brothers Government/Corporate Intermediate Bond Index.
ADJUSTING THE MATURITY STRUCTURE
During the period, we shifted from a "laddered" maturity structure,
with large holdings in intermediate-term securities, to a "barbelled" structure,
with large holdings in short- and long-term securities. The larger investments
in short-term issues, which suffered less when prices fell, helped offset the
greater price decline that longer-term issues endured.
Because the difference in yields between Treasury and corporate issues
remained too small for the added credit risk that corporate bonds have, we
focused new investments on Treasury securities and selected issues of U.S.
government agencies. We also invested in top-quality "Yankee" bonds, which are
dollar-denominated securities issued in the U.S. by foreign banks. These bonds
offered credit quality that was higher and yields that were more attractive than
bonds of domestic banks.
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
THE KENT INTERMEDIATE BOND FUND
DISTRIBUTION OF NET ASSETS
AS OF JUNE 30, 1996
- -------------------
<S> <C>
CASH EQUIVALENTS &
NET OTHER ASSETS & LIABILIITES 6.18%
CORPORATE NOTES & BONDS 16.63%
U.S. GOVERNMENT & AGENCY OBLIGATIONS 77.19%
- -------------------------------------------------------------------------------
</TABLE>
MOVING AHEAD
We expect to make additional investments in longer-maturity issues in
the months to come. If moderate economic growth keeps inflation in check, bond
yields should peak and start to head lower. At that point, longer-maturity
issues should outperform shorter-maturity issues. Because slower growth could
dampen corporate earnings and raise the credit risks for corporate bonds, we
will probably invest little new money in corporate securities until their yield
spreads with Treasuries have widened to more attractive levels.
- -------------------------------------------------------------------------------
THE KENT INTERMEDIATE BOND FUND
SEC 30-DAY YIELDS AS OF JUNE 30, 1996
INSTITUTIONAL CLASS INVESTMENT CLASS
---------------------------------------------------------------
6.07% 5.68%
SEC 30-day yield is computed based on net income during the 30-day period ended
June 30, 1996. Yield calculations represent past performance and will fluctuate.
- -------------------------------------------------------------------------------
4
<PAGE> 7
Taxable Funds
- -------------------------------------------------------------------------------
PORTFOLIO REVIEWS
- -------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
THE KENT INTERMEDIATE BOND FUND
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 1996
INVESTMENT CLASS* INSTITUTIONAL CLASS
(inception: 11/25/92) (inception: 11/2/92)
------------------------------------------------------------------------------
<S> <C> <C>
One Year -0.65% 3.79%
Three Years 2.77% 4.34%
Life of Fund 4.04% 5.48%
* Reflects 4.00% sales charge.
- -------------------------------------------------------------------------------
</TABLE>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX
<TABLE>
<CAPTION>
LEHMAN BROS. KENT FUND
GOV'T/CORP. BOND INDEX (INSTITUTIONAL)
<S> <C> <C>
11/02/92 10,000 10,000
06/30/96 12,485 12,155
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROS. KENT FUND
GOV'T/CORP. BOND INDEX (INVESTMENT)
<S> <C> <C>
12/02/92 10,000 9,600
06/30/96 12,474 11,569
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Performance for each class will
differ based on differences in sales charges and expenses for each class of
shares. Return figures and investment values are quoted after deducting class
expenses and sales charges (if applicable). Investment class shares are sold
with a maximum front-end sales charge of 4.00%. The Lehman Brothers
Government/Corporate Intermediate Bond Index is an unmanaged index comprised of
U.S. Treasury issues, publicly issued debt of U.S. Government agencies,
corporate debt guarateed by the U.S.Government and all publicly issued, fixed
rate, nonconvertible investment grade dollar denominated, SEC-registered
corporate debt. Total Return is based on changes in Net Asset Value, assuming
reinvestment of all dividends and capital gains distributions.
5
<PAGE> 8
- -------------------------------------------------------------------------------
PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
THE KENT INCOME FUND
BY MITCHELL L. STAPLEY,
PORTFOLIO MANAGER
As bond yields rose in the first half of 1996, and bond prices fell,
prices for longer-term securities suffered more than prices for shorter-term
securities. The sharp rise in bond yields thus offered a tremendous opportunity
for us to add longer-term bonds to the Fund at very attractive yields. At the
end of June, the average maturity of investments in the Fund was 13.9 years,
versus 9.3 years for investments in the Lehman Brothers Government/Corporate
Bond Index. At the start of 1996, the Fund had an average maturity of 9.8
years.
For the six months ended June 30, 1996, Institutional and Investment
Shares of the Fund had total returns of -4.04% and -4.16%, respectively, before
the deduction of sales charges. That compares with returns of -1.88% for the
Lehman Brothers Government/Corporate Bond Index and -5.98% for The Lehman
Brothers Long Government/Corporate Bond Index, which carried an average maturity
of 23.1 years at the end of June.
FOCUS ON GOVERNMENT ISSUES
During the period we increased positions in cash and longer-term
issues -- creating a somewhat "barbelled" maturity structure for the Fund's
portfolio. This helped to soften the steep decline in prices for longer-term
bonds.
For most of the period, the yields on government and corporate bonds
remained quite close. Feeling yields on corporate securities did not compensate
investors for the extra credit risk that corporate securities carry, we
continued to focus on Treasury issues and U.S. government agency securities.
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
THE KENT INCOME FUND
DISTRIBUTION OF NET ASSETS
AS OF JUNE 30, 1996
- -------------------
<S> <C>
OTHER BONDS 0.86%
CORPORATE NOTES & BONDS 29.05%
CASH & NET OTHER ASSETS & LIABILITIES 2.98%
U.S. GOVERNMENT & AGENCY OBLIGATIONS 67.11%
- -------------------------------------------------------------------------------
</TABLE>
At the end of June these issues accounted for 67% of the Fund's
portfolio -- up from 55% when the period began. We did find attractive yields
among dollar-denominated "Yankee" bonds issued in the U.S. by foreign banks,
however, and added several of these issues to the portfolio.
FUTURE OPPORTUNITIES
In an environment of moderate economic growth, stable inflation and
falling bond yields, longer-term investments should outperform the bond market
as a whole. Expecting this to happen later in the year, we will probably add
more longer-term issues if interest rates rise further. As in the past, we will
focus on instruments with strong credit quality and good liquidity that cannot
be called in prematurely by their issuers.
- -------------------------------------------------------------------------------
THE KENT INCOME FUND
SEC 30-DAY YIELDS AS OF JUNE 30, 1996
INSTITUTIONAL CLASS INVESTMENT CLASS
---------------------------------------------------------------
6.52% 6.01%
SEC 30-day yield is computed based on net income during the 30-day period ended
June 30, 1996. Yield calculations represent past performance and will fluctuate.
- -------------------------------------------------------------------------------
6
<PAGE> 9
Taxable Funds
- -------------------------------------------------------------------------------
PORTFOLIO REVIEWS
- -------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
THE KENT INCOME FUND
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 1996
INVESTMENT CLASS* INSTITUTIONAL CLASS
(inception: 3/22/95) (inception: 3/20/95)
---------------------------------------------------------------
<S> <C> <C>
ONE YEAR -1.36% 3.01%
LIFE OF FUND 4.22% 7.97%
* Reflects 4.00% sales charge.
- -------------------------------------------------------------------------------
</TABLE>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
AND THE LEHMAN BROTHERS LONG GOVERNMENT/CORPORATE BOND INDEX
- ------------------------------------------------------------
<TABLE>
<CAPTION>
LEHMAN BROS. LEHMAN BROS. KENT FUNDS
GOV'T/CORP. BOND INDEX LONG GOV'T/CORP. BOND INDEX (INSTITUTIONAL)
<S> <C> <C> <C>
03/20/95 10,000 10,000 10,000
06/30/96 10,681 11,961 11,040
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROS. LEHMAN BROS. KENT FUNDS
GOV'T/CORP. BOND INDEX LONG GOV'T/CORP. BOND INDEX (INVESTMENT)
<S> <C> <C> <C>
03/20/95 10,000 10,000 9,600
06/30/96 11,961 10,547 10,681
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Performance for each class will
differ based on differences in sales charges and expenses for each class of
shares. Return figures and investment values are quoted after deducting class
expenses and sales charges (if applicable). Investment class shares are sold
with a maximum front-end sales charge of 4.00%. The Lehman Brothers
Government/Corporate Bond Index and The Lehman Brothers Long
Government/Corporate Bond Index are unmanaged indices comprised of U.S. Treasury
issues, debt of U.S. government agencies, corporate debt guaranteed by the U.S.
government and all publicly issued, fixed rate, nonconvertible investment grade
dollar denominated, SEC-registered corporate debt. Total Return is based on net
changes in Net Asset Value, assuming the reinvestment of dividends and capital
gains distributions.
7
<PAGE> 10
INVESTMENT ADVISER
OLD KENT BANK
GRAND RAPIDS, MI 49503
DISTRIBUTOR
BISYS FUND SERVICES
3435 STELZER ROAD
COLUMBUS, OH 43219
This report is submitted for the general information of shareholders of The Kent
Short Term Bond Fund, The Kent Intermediate Bond Fund and The Kent Income Fund.
It is not authorized for distribution to prospective investors unless
accompanied or preceded by an effective prospectus for the funds, which contains
more information concerning the funds' investment policies, as well as fees and
expenses and other pertinent information. Read the prospectus carefully before
investing.
The performance indices used for comparison in this report, including the Lehman
Brothers Government/Corporate Intermediate Bond Index, the Lehman Brothers 1-3
Year Government Bond Index, the Lehman Brothers Government/Corporate Bond Index,
the Lehman Brothers Long Government/Corporate Bond Index, the 91-Day Treasury
Bill and the Consumer Price Index, are unmanaged indices. Unlike actual fund
performance, performance of an index does not reflect any management fees, other
expenses or sales charges. A direct investment in an unmanaged index is not
possible.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Old Kent Bank or any of its
affiliates. Shares of the funds are not federally insured by the
U.S. Government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other agency. Investment return and
[LOGO] principal value will vary as a result of market conditions or
other factors so that shares of the funds, when redeemed may be
worth more or less than their original cost. An investment in the
funds involves investment risks, including the possible loss of
principal.
<PAGE> 11
THE KENT FUNDS
SHORT TERM BOND FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- ------------- --------
<C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 58.35%
U.S. TREASURY NOTES - 56.61%
$ 10,000,000 5.50%, 09/30/97 .................... $ 9,953,100
26,000,000 7.38%, 11/15/97 .................... 26,463,060
5,000,000 5.13%, 04/30/98 .................... 4,915,600
17,000,000 7.13%, 10/15/98 .................... 17,334,730
25,000,000 8.88%, 11/15/98 .................... 26,433,500
15,000,000 6.50%, 04/30/99 .................... 15,079,650
43,000,000 7.50%, 10/31/99 .................... 44,404,380
15,000,000 5.63%, 02/28/01 .................... 14,496,150
---------------
159,080,170
---------------
FEDERAL HOME LOAN MORTGAGES - 1.74%
5,000,000 4.65%, 03/11/98 .................... 4,888,950
---------------
TOTAL GOVERNMENT AND
AGENCY OBLIGATIONS .................. 163,969,120
---------------
(Cost $165,595,908)
CORPORATE NOTES AND BONDS - 38.81%
FINANCE - 23.62%
5,329,000 Associates Corp. N.A., Senior Note
5.25%, 03/30/00 ..................... 5,056,848
5,000,000 Chase Manhattan Corp.
Subordinated Note
7.50%, 12/01/97 ..................... 5,073,750
5,000,000 Ford Motor Credit Co.
7.13%, 12/01/97 ..................... 5,055,550
5,000,000 General Motors Acceptance Corp., MTN
6.75%, 04/29/97 ..................... 5,023,900
5,000,000 General Motors Acceptance Corp., MTN
8.25%, 01/23/98 ..................... 5,148,000
5,000,000 Goldman Sachs Group, LP (A)
6.10%, 04/15/98 ..................... 4,933,450
5,000,000 Household Finance Corp., MTN
Senior Note
6.85%, 07/21/97 ..................... 5,033,150
6,000,000 Morgan Stanley Group, Inc., MTN
Senior Note
6.50%, 03/30/01 ..................... 5,903,100
5,000,000 National Bank of Detroit, MTN
6.45%, 07/10/97 ..................... 5,020,200
5,000,000 New England Education Loan
Marketing Corp., MTN
6.13%, 07/17/98 ..................... 4,961,750
5,000,000 Norwest Corp., MTN
7.13%, 09/09/99 ..................... 5,056,350
5,000,000 Salomon, Inc., MTN
8.71%, 02/17/98 ..................... 5,148,500
5,000,000 Travelers Group, Inc.
5.75%, 04/15/98 ..................... 4,933,250
---------------
66,347,798
---------------
TELEPHONE AND TELECOMMUNICATIONS - 4.23%
$ 6,000,000 American Telephone & Telegraph
Capital Corp., MTN
7.39%, 04/15/97 ..................... $ 6,056,700
6,000,000 Southwestern Bell Telephone Co., MTN
6.13%, 03/12/01 ..................... 5,835,900
---------------
11,892,600
---------------
CONSUMER PRODUCTS - 3.78%
5,000,000 Disney (Walt) Co., Series A, Global Bond
6.38%, 03/30/01 ..................... 4,916,150
5,500,000 Sears Roebuck & Co., Debenture
8.45%, 11/01/98 ..................... 5,692,885
---------------
10,609,035
---------------
PHARMACEUTICALS - 1.83%
5,000,000 American Home Products Corp.
7.70%, 02/15/00 ..................... 5,151,600
---------------
TRANSPORTATION - 1.82%
5,000,000 Ryder System, Inc., MTN
7.88%, 11/24/97 ..................... 5,117,800
---------------
COMPUTER HARDWARE MANUFACTURING - 1.78%
5,000,000 International Business Machines Corp.
6.38%, 11/01/97 ..................... 5,008,300
---------------
UTILITIES - 1.75%
5,000,000 Georgia Power Co., First Mortgage
6.13%, 09/01/99 ..................... 4,916,800
---------------
TOTAL CORPORATE NOTES AND BONDS ..... 109,043,933
---------------
(Cost $109,836,639)
SHARES
INVESTMENT COMPANIES - 1.42%
246,501 Dreyfus Cash Management ............. 246,501
3,745,028 Lehman Prime Value Money Market ..... 3,745,028
---------------
TOTAL INVESTMENT COMPANIES .......... 3,991,529
---------------
(Cost $3,991,529)
TOTAL INVESTMENTS - 98.58% ........................ 277,004,582
---------------
(Cost $279,424,076)**
NET OTHER ASSETS AND LIABILITIES - 1.42% .......... 3,983,515
---------------
NET ASSETS - 100.00% ..............................$ 280,988,097
===============
</TABLE>
- ------------------------------------------------------------------------------
** Aggregate cost for Federal tax purposes.
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold, in transactions exempt from
registration, to qualified institutional buyers. At June 30, 1996, these
securities amounted to $4,933,450, or 1.76% of net assets.
MTN Medium Term Note.
See Notes to Financial Statements.
9
<PAGE> 12
Taxable Funds
THE KENT FUNDS
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
VALUE
PAR VALUE (NOTE 2)
- ------------- --------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 77.19%
U.S. TREASURY NOTES - 69.45%
$33,050,000 7.88%, 04/15/98 ................. $ 34,025,967
20,000,000 8.88%, 11/15/98 ................. 21,146,800
25,000,000 5.13%, 12/31/98 ................. 24,371,000
48,210,000 9.13%, 05/15/99 ................. 51,712,939
38,000,000 7.50%, 10/31/99 ................. 39,241,080
76,250,000 7.75%, 01/31/00 ................. 79,478,425
30,000,000 6.88%, 03/31/00 ................. 30,435,900
28,000,000 8.00%, 05/15/01 ................. 29,767,360
40,000,000 7.50%, 11/15/01 ................. 41,756,400
90,000,000 6.25%, 02/15/03 ................. 88,410,600
119,735,000 6.50%, 05/15/05 ................. 118,162,879
------------
558,509,350
------------
U.S. TREASURY BONDS - 4.24%
30,000,000 9.13%, 05/15/09 ................. 34,129,800
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.38%
5,000,000 4.65%, 03/11/98 (A) ............. 4,888,950
10,410,000 8.12%, 01/31/05 ................. 11,176,072
3,000,000 7.22%, 06/14/06 ................. 3,041,730
------------
19,106,752
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.12%
9,100,000 6.15%, 07/25/16, REMIC .......... 8,980,517
------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS .............. 620,726,419
------------
(Cost $637,607,199)
CORPORATE NOTES AND BONDS - 16.63%
FINANCE - 15.21%
6,000,000 Bank of Montreal, Subordinated Note
7.80%, 04/01/07 ................. 6,122,160
6,800,000 Chase Manhattan Corp.
Subordinated Note
9.75%, 11/01/01 ................. 7,619,944
5,000,000 FCC National Bank
6.38%, 03/15/01 ................. 4,915,850
10,000,000 Ford Capital B.V., Guaranteed Notes
9.88%, 05/15/02 ................. 11,305,300
5,000,000 Ford Motor Credit Co.
8.20%, 02/15/02 ................. 5,258,850
$ 8,400,000 Ford Motor Credit Co., MTN
9.03%, 12/30/09 ................. $9,166,164
5,000,000 General Electric Capital Corp.
8.65%, 05/01/18 (A) ............. 4,979,400
4,050,000 Household Finance Corp., MTN
5.75%, 02/22/01 ................. 3,857,058
8,000,000 Midland Bank Plc, Subordinated Note
6.95%, 03/15/11 ................. 7,504,080
5,000,000 NCNB Corp., Subordinated Note
9.38%, 09/15/09 ................. 5,730,400
10,000,000 New England Education
Loan Marketing Corp., MTN
6.13%, 07/17/98 ................. 9,923,500
2,000,000 Provident Bank, Subordinated Note
7.13%, 03/15/03 ................. 1,945,860
5,000,000 Salomon, Inc., GTN
6.39%, 02/15/99 (A) ............. 4,969,250
5,000,000 Salomon, Inc., Senior Note
7.25%, 05/01/01 ................. 4,987,600
5,000,000 Sears Roebuck Acceptance Corp., MTN
6.18%, 12/01/00 ................. 4,872,650
8,000,000 Smith Barney Holdings, Inc.
6.50%, 10/15/02 ................. 7,705,680
7,000,000 Societe Generale New York
Subordinated Note
9.88%, 07/15/03 ................. 7,972,580
6,350,000 Societe Generale New York
Subordinated Note
7.40%, 06/01/06 ................. 6,342,571
8,000,000 Royal Bank of Scotland Group
Yankee Subordinated Note
6.38%, 02/01/11 ................. 7,126,560
------------
122,305,457
------------
TELEPHONE AND TELECOMMUNICATIONS - 0.76%
6,000,000 Bell Canada (Yankee Debenture)
7.75%, 04/01/06 ................. 6,104,520
------------
CONSUMER PRODUCTS - 0.66%
5,500,000 Olsten Corp., Senior Note
7.00%, 03/15/06 (A) ............. 5,349,630
------------
TOTAL CORPORATE NOTES AND BONDS . 133,759,607
------------
(Cost $135,317,318)
See Notes to Financial Statements.
10
<PAGE> 13
THE KENT FUNDS
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------------ --------------
INVESTMENT COMPANIES - 4.53%
<S> <C>
29,814,844 Dreyfus Cash Management ......... $ 29,814,844
6,627,829 Lehman Prime Value Money Market . 6,627,829
------------
TOTAL INVESTMENT COMPANIES ...... 36,442,673
------------
(Cost $36,442,673)
TOTAL INVESTMENTS - 98.35% .................... 790,928,699
------------
(Cost $809,367,190)**
NET OTHER ASSETS AND LIABILITIES - 1.65% ...... 13,271,873
------------
NET ASSETS - 100.00% .......................... $804,200,572
============
</TABLE>
- -------------------------------------------------------------------------------
** Aggregate cost for Federal tax purposes
(A) Variable Rate - the interest shown reflects the rate in effect at June
30, 1996.
MTN Medium Term Note
GTN General Term Note
REMIC Real Estate Mortgage Investment Conduit
See Notes to Financial Statements.
11
<PAGE> 14
Taxable Funds
THE KENT FUNDS
INCOME FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- ------------- -------------
<C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 67.11%
U.S. TREASURY BONDS - 46.75%
$ 32,000,000 9.13%, 05/15/09 ................... $ 36,405,120
41,800,000 9.25%, 02/15/16 ................... 51,694,896
5,250,000 7.25%, 05/15/16 ................... 5,373,060
10,755,000 7.13%, 02/15/23 ................... 10,870,939
-------------
104,344,015
-------------
U.S. TREASURY NOTES - 16.92%
38,265,000 6.50%, 05/15/05 ................... 37,762,581
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.31%
5,000,000 7.40%, 07/01/04 ................... 5,150,000
-------------
FEDERAL HOME LOAN MORTGAGE CORP. - 1.13%
2,500,000 7.22%, 06/14/06 ................... 2,534,775
-------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS ................. 149,791,371
-------------
(Cost $150,929,754)
CORPORATE NOTES AND BONDS - 29.05%
FINANCE - 21.34%
2,700,000 Bank of Montreal
Subordinated Note
7.80%, 04/01/07 ................... 2,754,972
2,000,000 Bank of New York Co., Inc.
Subordinated Note
8.50%, 12/15/04 ................... 2,149,200
2,000,000 BankAmerica Corp.
Subordinated Note
7.20%, 04/15/06 ................... 1,969,440
2,000,000 Chase Manhattan Corp.
Subordinated Debenture
7.13%, 03/01/05 ................... 1,966,780
2,000,000 Fleet Financial Group, Inc.
Subordinated Note
8.63%, 01/15/07 ................... 2,161,740
2,000,000 Ford Motor Credit Co., MTN
9.03%, 12/30/09 ................... 2,182,420
2,000,000 Geico Corp.
7.50%, 04/15/05 ................... 2,032,000
2,000,000 General Motors Acceptance Corp.
Debenture
9.13%, 07/15/01 ................... 2,174,580
2,000,000 Midland Bank Plc
Subordinated Note
6.95%, 03/15/11 ................... 1,876,020
3,000,000 NationsBank Corp.
Subordinated Note
10.20%, 07/15/15 .................. 3,707,850
3,000,000 National City Bank of Cleveland, Ohio
Subordinated Note
7.25%, 07/15/10 ................... 2,911,980
2,250,000 PNC Bank N.A.
Subordinated Note
7.88%, 04/15/05 ................... 2,315,115
2,500,000 Provident Bank
Subordinated Note
7.13%, 03/15/03 ................... 2,432,325
2,000,000 Provident Bank
Subordinated Note
6.38%, 01/15/04 ................... 1,870,260
2,000,000 Republic New York Corp.
Subordinated Note
7.00%, 03/22/11 ................... 1,913,520
3,000,000 Royal Bank of Scotland Group
Yankee Subordinated Note
6.38%, 02/01/11 ................... 2,672,460
4,000,000 St. Paul Cos., MTN
7.25%, 08/09/07 ................... 3,995,600
2,600,000 Societe Generale New York
Subordinated Note
7.40%, 06/01/06 ................... 2,596,958
2,000,000 Swiss Bank Corp.
Subordinated Debenture
7.38%, 07/15/15 ................... 1,951,400
2,000,000 Travelers Group, Inc.
7.88%, 05/15/25 ................... 2,001,480
-------------
47,636,100
-------------
INDUSTRIAL - 2.06%
5,000,000 Williams Holdings of Delaware, Inc.
Debenture
6.25%, 02/01/06 ................... 4,594,600
-------------
SECURITIES BROKER - 1.71%
2,000,000 Donaldson, Lufkin & Jenrette, Inc.
Senior Note
6.88%, 11/01/05 ................... 1,895,400
2,000,000 Salomon, Inc., Senior Note
6.75%, 02/15/03 ................... 1,914,520
-------------
3,809,920
-------------
UTILITIES - 1.33%
1,000,000 Hydro-Quebec, MTN
9.41%, 03/23/00 ................... 1,083,880
2,000,000 Pacific Gas & Electric Co.
First Mortgage
6.25%, 03/01/04 ................... 1,890,040
-------------
2,973,920
-------------
OIL, GAS, AND PETROLEUM - 1.09%
2,500,000 Enserch Corp.
7.13%, 06/15/05 ................... 2,439,850
-------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 15
THE KENT FUNDS
INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- ------------- -------------
<C> <C>
MANUFACTURING - 0.86%
$ 2,000,000 Sysco Corp., Senior Note
6.50%, 06/15/05 ................... $ 1,916,560
-------------
CONSUMER PRODUCTS - 0.66%
1,500,000 Olsten Corp., Senior Note
7.00%, 03/15/06 ................... 1,458,990
-------------
TOTAL CORPORATE NOTES AND BONDS ... 64,829,940
-------------
(Cost $65,176,034)
MUNICIPAL SECURITY - 0.86%
CALIFORNIA - 0.86%
2,000,000 San Bernardino County Authority
Pension Obligation
6.99%, 08/01/10
Insured: MBIA ..................... 1,927,500
-------------
TOTAL MUNICIPAL SECURITY .......... 1,927,500
-------------
(Cost $2,030,920)
SHARES
INVESTMENT COMPANIES - 1.08%
2,421,304 Dreyfus Cash Management ........... 2,421,304
2 Lehman Prime Value Money Market ... 2
-------------
TOTAL INVESTMENT COMPANIES ........ 2,421,306
-------------
(Cost $2,421,306)
TOTAL INVESTMENTS - 98.10% ...................... 218,970,117
-------------
(Cost $220,558,014)**
NET OTHER ASSETS AND LIABILITIES - 1.90% ........ 4,248,678
-------------
NET ASSETS - 100.00% ............................ $ 223,218,795
=============
</TABLE>
- -------------------------------------------------------------------------------
** Aggregate cost for Federal tax purposes.
MBIA Municipal Bond Insurance Association.
MTN Medium Term Note.
See Notes to Financial Statements.
13
<PAGE> 16
Taxable Funds
THE KENT FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM
BOND INTERMEDIATE
FUND BOND FUND INCOME FUND
------------- --------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost .................................. $ 279,424,076 $ 809,367,190 $ 220,558,014
Net unrealized appreciation (depreciation) ........... (2,419,494) (18,438,491) (1,587,897)
------------- ------------- -------------
Total investments at value ........................ 277,004,582 790,928,699 218,970,117
Cash ................................................... -- 1,019,885 90,304
Receivable for Trust shares sold ....................... 97,307 377,924 214,800
Interest and dividend receivables ...................... 4,051,063 12,012,677 4,039,651
Deferred organizational expenses (Note 2) .............. -- -- 6,949
------------- ------------- -------------
Total Assets ......................................... 281,152,952 804,339,185 223,321,821
------------- ------------- -------------
LIABILITIES:
Payable for Trust shares repurchased ................... 46,118 34,209 31,094
Advisory fee payable (Note 3) .......................... 15,438 48,537 14,498
Payable to administrator and transfer agent (Note 3) ... 11,454 21,051 7,025
Accrued expenses and other payables .................... 91,845 34,816 50,409
------------- ------------- -------------
Total Liabilities .................................... 164,855 138,613 103,026
------------- ------------- -------------
NET ASSETS ............................................... $ 280,988,097 $ 804,200,572 $ 223,218,795
============= ============= =============
NET ASSETS CONSIST OF:
Paid-in-capital ........................................ $ 287,339,314 $ 825,295,578 $ 222,563,999
Undistributed (overdistributed) net
investment income .................................... 624,707 (1,636,833) (637,693)
Accumulated net realized gain (loss) on
investments sold ..................................... (4,556,430) (1,019,682) 2,880,386
Net unrealized appreciation (depreciation)
of investments ....................................... (2,419,494) (18,438,491) (1,587,897)
------------- ------------- -------------
TOTAL NET ASSETS $ 280,988,097 $ 804,200,572 $ 223,218,795
============= ============= =============
INSTITUTIONAL SHARES:
Net Assets ........................................... $ 279,451,175 $ 796,777,784 $ 220,911,423
Shares Outstanding ................................... 28,675,454 82,475,454 22,000,473
Net Asset Value, offering and redemption
price per share .................................... $ 9.75 $ 9.66 $ 10.04
============= ============= =============
INVESTMENT SHARES:
Net Assets ............................................. $ 1,536,922 $ 7,422,788 $ 2,307,372
Shares Outstanding ..................................... 157,849 766,812 230,328
Net Asset Value and redemption
price per share ...................................... $ 9.74 $ 9.68 $ 10.02
============= ============= =============
Maximum offering price per share -
Investment Class (NAV/0.96) ............................ $ 10.15 $ 10.08 $ 10.44
============= ============= =============
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 17
THE KENT FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHORT TERM
BOND INTERMEDIATE
FUND BOND FUND INCOME FUND
----------- ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 2):
Interest .................................. $ 9,865,942 $ 29,016,302 $ 6,092,724
Dividends ................................. 128,512 533,214 104,264
----------- ------------ ------------
Total Investment Income ................. 9,994,454 29,549,516 6,196,988
----------- ------------ ------------
EXPENSES:
Investment advisory fee (Note 3) .......... 734,502 2,296,070 498,871
Administration fee (Note 3) ............... 293,801 834,934 166,290
Custodian fee (Note 3) ................... 5,154 10,042 4,618
Fund accounting fee (Note 3) .............. 1,506 708 1,696
Legal fee (Note 3) ........................ 471 418 2,200
Audit fee ................................. 2,190 3,591 2,857
Shareholder services (Notes 3 & 4) ........ 5,398 13,095 7,730
Trustees' fees and expenses (Note 3) ...... 1,661 1,661 1,607
Distribution fee (Note 3) ................. 1,165 8,846 2,596
Amortization of organization costs (Note 2) -- -- 930
Printing expense (Note 4) ................. 1,038 8,647 515
Registration fees ......................... 1,760 1,694 2,770
Miscellaneous ............................. -- -- 1,597
----------- ------------ ------------
Total Expenses .......................... 1,048,646 3,179,706 694,277
----------- ------------ ------------
NET INVESTMENT INCOME ........................ 8,945,808 26,369,810 5,502,711
----------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 2):
Net realized gain (loss) on investments ... (298,199) (3,478,343) 853,422
Net change in unrealized appreciation
(depreciation) of investments ........... (6,600,044) (33,966,323) (10,723,452)
----------- ------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS ................... (6,898,243) (37,444,666) (9,870,030)
----------- ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................................... $ 2,047,565 $(11,074,856) $ (4,367,319)
=========== ============ ============
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 18
THE KENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT TERM BOND FUND
------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
-------------- --------------
<S> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD ................ $ 312,313,894 $ 178,414,322
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income ......................... 8,945,808 16,283,239
Net realized gain (loss) on investments sold .. (298,199) (169,677)
Net change in unrealized appreciation
(depreciation) of investments .............. (6,600,044) 9,890,799
------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................ 2,047,565 26,004,361
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
INSTITUTIONAL:
Net investment income ......................... (8,468,498) (16,005,158)
In excess of net investment income ............ -- --
Net realized gain on investments .............. -- --
------------- -------------
Total Distributions ........................ (8,468,498) (16,005,158)
------------- -------------
INVESTMENT:
Net investment income ......................... (44,117) (86,567)
In excess of net investment income ............ -- --
Net realized gain on investments .............. -- --
------------- -------------
Total Distributions ........................ (44,117) (86,567)
------------- -------------
Total Distributions to shareholders ........ (8,512,615) (16,091,725)
------------- -------------
NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS(2) (24,860,747) 123,986,936
------------- -------------
Net increase (decrease) in net assets ....... (31,325,797) 133,899,572
------------- -------------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ... $ 280,988,097 $ 312,313,894
============= =============
(A) Accumulated undistributed (overdistributed)
net investment income ............................ $ 624,707 $ 191,514
============= =============
</TABLE>
- -------------------------------------------------------------------------------
(1) The Fund commenced operations on March 20, 1995.
(2) For detail on share transactions by class, see Statement of Changes in Net
Assets - Capital Stock Activity on pages 17 and 18.
See Notes to Financial Statements.
16
<PAGE> 19
THE KENT FUND
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND INCOME FUND
-------------------------------- ---------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995(1)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD ................ $ 861,662,351 $ 987,061,853 $ 128,017,408 $ --
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income ......................... 26,369,810 56,284,701 5,502,711 6,998,828
Net realized gain (loss) on investments sold .. (3,478,343) 26,073,254 853,422 3,044,746
Net change in unrealized appreciation
(depreciation) of investments .............. (33,966,323) 51,247,235 (10,723,452) 9,135,555
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations ............................ (11,074,856) 133,605,190 (4,367,319) 19,179,129
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
INSTITUTIONAL:
Net investment income ......................... (28,780,108) (54,864,816) (6,168,543) (6,835,136)
In excess of net investment income ............ -- -- -- --
Net realized gain on investments .............. -- -- -- (1,002,058)
------------- ------------- ------------- -------------
Total Distributions ........................ (28,780,108) (54,864,816) (6,168,543) (7,837,194)
------------- ------------- ------------- -------------
INVESTMENT:
Net investment income ......................... (241,044) (405,376) (71,913) (63,640)
In excess of net investment income ............ -- -- -- --
Net realized gain on investments .............. -- -- -- (15,724)
------------- ------------- ------------- -------------
Total Distributions ........................ (241,044) (405,376) (71,913) (79,364)
------------- ------------- ------------- -------------
Total Distributions to shareholders ........ (29,021,152) (55,270,192) (6,240,456) (7,916,558)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS(2) (17,365,771) (203,734,500) 105,809,162 116,754,837
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ....... (57,461,779) (125,399,502) 95,201,387 128,017,408
------------- ------------- ------------- -------------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ... $ 804,200,572 $ 861,662,351 $ 223,218,795 $ 128,017,408
============= ============= ============= =============
(A) Accumulated undistributed (overdistributed)
net investment income ............................ $ (1,636,833) $ 1,014,509 $ (637,693) $ 100,052
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 20
THE KENT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -
CAPITAL STOCK ACTIVITY
<TABLE>
<CAPTION>
SHORT TERM BOND FUND INTERMEDIATE BOND FUND
--------------------------------- -------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
JUNE 30, 1996 ENDED JUNE 30, 1996 ENDED
(UNAUDITED) DECEMBER 31, 1995 (UNAUDITED) DECEMBER 31, 1995
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
INSTITUTIONAL:
Shares issued .................... $ 41,037,808 $ 322,116,358 $ 126,864,000 $ 245,393,454
Reinvestment of distributions .... 4,539,345 10,643,869 15,149,177 27,671,824
Shares redeemed .................. (70,374,849) (208,678,578) (160,268,664) (473,921,393)
------------ ------------- ------------- -------------
Net increase (decrease) from
Institutional shares transactions $(24,797,696) $ 124,081,649 $ (18,255,487) $(200,856,115)
============ ============= ============= =============
INVESTMENT:
Shares issued .................... $ 138,262 $ 1,044,671 $ 1,124,687 $ 1,885,896
Reinvestment of distributions .... 39,464 76,971 194,861 327,205
Shares redeemed .................. (240,777) (1,216,355) (429,832) (5,091,486)
------------ ------------- ------------- -------------
Net increase (decrease) from
Investment shares transactions .. $ (63,051) $ (94,713) $ 889,716 $ (2,878,385)
============ ============= ============= =============
SHARE ACTIVITY
INSTITUTIONAL:
Shares issued .................... 4,065,026 32,658,819 12,812,322 24,970,345
Reinvestment of distributions .... 551,160 1,085,057 1,546,538 2,819,915
Shares redeemed .................. (7,133,003) (21,120,973) (16,351,794) (48,530,997)
------------ ------------- ------------- -------------
Net increase (decrease) from
Institutional shares transactions (2,516,817) 12,622,903 (1,992,934) (20,740,737)
============ ============= ============= =============
INVESTMENT:
Shares issued .................... 13,999 106,935 113,777 192,685
Reinvestment of distributions .... 4,026 7,878 19,860 33,253
Shares redeemed .................. (24,306) (123,971) (43,534) (536,288)
------------ ------------- ------------- -------------
Net increase (decrease) from
Investment shares transactions .. (6,281) (9,158) 90,103 (310,350)
============ ============= ============= =============
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 21
THE KENT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -
CAPITAL STOCK ACTIVITY
<TABLE>
<CAPTION>
INCOME FUND
---------------------------------------
SIX MONTHS
ENDED PERIOD
JUNE 30, 1996 ENDED
(UNAUDITED) DECEMBER 31, 1995(1)
------------- --------------------
<S> <C> <C>
DOLLAR AMOUNTS
INSTITUTIONAL:
Shares issued .................... $118,426,267 $188,610,553
Reinvestment of distributions .... 1,010,212 1,224,206
Shares redeemed .................. (14,128,799) (74,962,453)
------------ ------------
Net increase (decrease) from
Institutional shares transactions $105,307,680 $114,872,306
============ ============
INVESTMENT:
Shares issued .................... $ 731,159 $ 1,951,033
Reinvestment of distributions .... 61,012 71,331
Shares redeemed .................. (290,689) (139,833)
------------ ------------
Net increase (decrease) from
Investment shares transactions .. $ 501,482 $ 1,882,531
============ ============
SHARE ACTIVITY
INSTITUTIONAL:
Shares issued .................... 11,644,293 18,576,033
Reinvestment of distributions .... 99,294 116,628
Shares redeemed .................. (1,369,454) (7,066,321)
------------ ------------
Net increase (decrease) from
Institutional shares transactions 10,374,133 11,626,340
============ ============
INVESTMENT:
Shares issued .................... 71,897 187,592
Reinvestment of distributions .... 5,977 6,743
Shares redeemed .................. (28,823) (13,058)
------------ ------------
Net increase (decrease) from
Investment shares transactions .. 49,051 181,277
============ ============
</TABLE>
- -------------------------------
(1) The Institutional Class commenced operations on March 20, 1995.
The Investment Class date of initial public investment was March 22, 1995.
See Notes to Financial Statements.
19
<PAGE> 22
THE KENT FUNDS SHORT TERM BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED DECEMBER 31,
JUNE 30, 1996 ------------------------------------
(UNAUDITED) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $ 9.96 $ 9.52 $ 9.91 $ 9.99
-------- -------- -------- --------
Income from Investment Operations:
Net investment income ................................ 0.30 0.55 0.48 0.42
Net realized and unrealized gain (loss) on investments (0.22) 0.43 (0.38) (0.09)
-------- -------- -------- --------
Total from Investment Operations: ................. 0.08 0.98 0.10 0.33
-------- -------- -------- --------
Less Distributions from:
Net investment income ................................ (0.29) (0.54) (0.49) (0.41)
In excess of net investment income ................... -- -- *** --
-------- -------- -------- --------
Total Distributions ............................... (0.29) (0.54) (0.49) (0.41)
-------- -------- -------- --------
Net increase (decrease) in net asset value .............. (0.21) 0.44 (0.39) (0.08)
-------- -------- -------- --------
Net Asset Value, End of period .......................... $ 9.75 $ 9.96 $ 9.52 $ 9.91
======== ======== ======== ========
Total Return for period indicated (A) ................... 0.78%** 10.53% 1.03% 3.36%
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $279,451 $310,680 $176,765 $255,892
Ratios to average net assets:
Net investment income ................................ 6.09%* 5.60% 4.75% 4.24%
Operating expenses ................................... 0.71%* 0.77% 0.73% 0.81%
Portfolio Turnover Rate ................................. 16% 75% 56% 50%
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------
1992(1)
--------
<S> <C>
Net Asset Value, Beginning of period .................... $ 10.00
--------
Income from Investment Operations:
Net investment income ................................ 0.07
Net realized and unrealized gain (loss) on investments (0.01)
--------
Total from Investment Operations: ................. 0.06
--------
Less Distributions from:
Net investment income ................................ (0.07)
In excess of net investment income ................... ***
--------
Total Distributions ............................... (0.07)
--------
Net increase (decrease) in net asset value .............. (0.01)
--------
Net Asset Value, End of period .......................... $ 9.99
========
Total Return for period indicated (A) ................... 0.53%
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $186,124
Ratios to average net assets:
Net investment income ................................ 4.05%*
Operating expenses ................................... 0.14%**
Portfolio Turnover Rate ................................. 5%
</TABLE>
- ------------------
* Annualized
** Not annualized
*** Amount is less than $0.005
(1) The Institutional Class commenced operations on November 2, 1992.
(2) The Investment Class date of initial public investment was December 4,
1992.
(A) Calculation does not include sales charge for the Investment Shares.
See Notes to Financial Statements.
20
<PAGE> 23
Taxable Funds
THE KENT FUNDS
INVESTMENT SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED DECEMBER 31,
JUNE 30, 1996 -----------------------------------
(UNAUDITED) 1995 1994 1993
------------- ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $ 9.95 $ 9.52 $ 9.91 $10.02
------ ------ ------ ------
Income from Investment Operations:
Net investment income ................................ 0.29 0.52 0.47 0.38
Net realized and unrealized gain (loss) on investments (0.22) 0.44 (0.37) (0.08)
------ ------ ------ ------
Total from Investment Operations: ................. 0.07 0.96 0.10 0.30
------ ------ ------ ------
Less Distributions from:
Net investment income ................................ (0.28) (0.53) (0.48) (0.41)
In excess of net investment income ................... -- -- (0.01) --
------ ------ ------ ------
Total Distributions ............................... (0.28) (0.53) (0.49) (0.41)
------ ------ ------ ------
Net increase (decrease) in net asset value .............. (0.21) 0.43 (0.39) (0.11)
------ ------ ------ ------
Net Asset Value, End of period .......................... $ 9.74 $ 9.95 $ 9.52 $ 9.91
====== ====== ====== ======
Total Return for period indicated (A) ................... 0.72%** 10.3% 1.01% 3.04%
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $1,537 $1,634 $1,649 $ 1,427
Ratios to average net assets:
Net investment income ................................ 5.95%* 5.40% 4.79% 3.91%
Operating expenses ................................... 0.86%* 0.91% 0.74% 1.24%
Portfolio Turnover Rate ................................. 16% 75% 56% 50%
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------
1992(2)
-----
<S> <C>
Net Asset Value, Beginning of period .................... $ 9.99
------
Income from Investment Operations:
Net investment income ................................ 0.02
Net realized and unrealized gain (loss) on investments 0.01
------
Total from Investment Operations: ................. 0.03
------
Less Distributions from:
Net investment income ................................ --
In excess of net investment income ................... --
------
Total Distributions ............................... --
------
Net increase (decrease) in net asset value .............. 0.03
------
Net Asset Value, End of period .......................... $10.02
======
Total Return for period indicated (A) ................... 0.30%
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... 111
Ratios to average net assets:
Net investment income ................................ 3.31%*
Operating expenses ................................... 0.12%**
Portfolio Turnover Rate ................................. 5%
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 24
THE KENT FUNDS INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED DECEMBER 31,
JUNE 30, 1996 -------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992(1)
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $ 10.12 $ 9.29 $ 10.18 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income................................. 0.31 0.65 0.56 0.51 0.08
Net realized and unrealized gain (loss) on investments (0.43) 0.81 (0.88) 0.32 ***
-------- -------- -------- -------- --------
Total from Investment Operations: ................. (0.12) 1.46 (0.32) 0.83 0.08
-------- -------- -------- -------- --------
Less Distributions from:
Net investment income ................................ (0.34) (0.63) (0.54) (0.51) 0.08)
In excess of net investment income.................... -- -- (0.01) *** ***
Net realized gain on investments ..................... -- -- (0.02) (0.14) --
-------- -------- -------- -------- --------
Total Distributions: .............................. (0.34) (0.63) (0.57) (0.65) 0.08)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value .............. (0.46) 0.83 (0.89) 0.18 --
-------- -------- -------- -------- --------
Net Asset Value, End of period .......................... $ 9.66 $ 10.12 $ 9.29 $ 10.18 $ 10.00
======== ======== ======== ======== ========
Total Return for period indicated (A) ................... (1.17)%** 16.18% (3.19)% 8.42% 0.83%
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $796,778 $854,801 $977,865 $434,264 $203,129
Ratios to average net assets:
Net investment income ................................ 6.32%* 6.50% 6.03% 5.03% 5.32%*
Operating expenses.................................... 0.76%* 0.77% 0.80% 0.85% 0.15%**
Portfolio Turnover Rate ................................. 81% 166% 124% 126% 1%
</TABLE>
- ------------------------
* Annualized
** Not Annualized
***Amount is less than $0.005
(1)The Institutional Class commenced operations on November 2, 1992.
(2)The Investment Class date of initial public investment was November 25, 1992.
(A)Calculation does not include sales charge for the Investment Shares.
See Notes to Financial Statements.
22
<PAGE> 25
THE KENT FUNDS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED DECEMBER 31,
JUNE 30, 1996 -----------------------------------------------
(UNAUDITED) 1995 1994 1993 1992(2)
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $10.14 $9.32 $10.19 $10.03 $ 9.98
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income................................. 0.30 0.61 0.57 0.47 0.03
Net realized and unrealized gain (loss) on investments (0.43) 0.82 (0.87) 0.34 0.02
------ ------ ------ ------ ------
Total from Investment Operations: ................. (0.13) 1.43 (0.30) 0.81 0.05
------ ------ ------ ------ ------
Less Distributions from:
Net investment income ................................ (0.33) (0.61) (0.54) (0.46) --
In excess of net investment income.................... -- -- (0.01) (0.05) --
Net realized gain on investments ..................... -- -- (0.02) (0.14) --
------ ------ ------ ------ ------
Total Distributions: .............................. (0.33) (0.61) (0.57) (0.65) --
------ ------ ------ ------ ------
Net increase (decrease) in net asset value .............. (0.46) 0.82 (0.87) 0.16 0.05
------ ------ ------ ------ ------
Net Asset Value, End of period .......................... $ 9.68 $10.14 $ 9.32 $10.19 $10.03
====== ====== ====== ====== ======
Total Return for period indicated (A) ................... (1.28)%** 15.76% (3.01)% 8.19% 0.50%
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $7,423 $ 6,862 $9,196 $4,966 $ 174
Ratios to average net assets:
Net investment income ................................ 6.08%* 6.24% 5.94% 4.75% 4.94%*
Operating expenses.................................... 1.01%* 1.01% 0.81% 1.13% 0.16%**
Portfolio Turnover Rate ................................. 81% 166% 124% 126% 1%
</TABLE>
See Notes to Financial Statements.
23
<PAGE> 26
Taxable Funds
THE KENT FUNDS
INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES INVESTMENT SHARES
---------------------------- -------------------------------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995(1) (UNAUDITED) 1995(2)
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period .................... $ 10.84 $ 10.00 $10.82 $10.00
-------- -------- ------ ------
Income from Investment Operations:
Net investment income ................................ 0.33 0.55 0.33 0.52
Net realized and unrealized gain (loss) on investments (0.77) 0.92 (0.78) 0.91
-------- -------- ------ ------
Total from Investment Operations: ................. (0.44) 1.47 (0.45) 1.43
-------- -------- ------ ------
Less Distributions from:
Net investment income ................................ (0.36) (0.54) (0.35) (0.52)
Net realized gain on investments...................... -- (0.09) -- (0.09)
-------- -------- ------ ------
Total Distributions................................ (0.36) (0.63) (0.35) (0.61)
-------- -------- ------ ------
Net increase (decrease) in net asset value .............. (0.80) 0.84 (0.80) 0.82
-------- -------- ------ ------
Net Asset Value, End of period .......................... $ 10.04 $ 10.84 $10.02 $10.82
======== ======== ====== ======
Total Return for period indicated (A) ................... (4.04)%** 15.05% (4.16)%** 14.63%
Ratios/Supplemental Data:
Net Assets, End of period (000's) ....................... $220,911 $126,056 $2,307 $1,961
Ratios to average net assets:
Net investment income................................. 6.62%* 6.65%* 6.34%* 6.40%*
Operating expenses.................................... 0.83%* 0.91%* 1.08%* 1.14%*
Portfolio Turnover Rate ................................. 53% 50% 53% 50%
</TABLE>
- ---------------------------------------------
* Annualized
** Not Annualized
(1)The Institutional Class commenced operations on March 20, 1995.
(2)The Investment Class date of initial public investment was March 22, 1995.
(A)Calculation does not include sales charge for the Investment Shares.
See Notes to Financial Statements.
24
<PAGE> 27
THE KENT FUNDS
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
The Kent Funds (the "Trust") was organized as a Massachusetts business
trust on May 9, 1986 and is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company. As of the date of this
report, the Trust offered thirteen managed investment portfolios. The
accompanying financial statements and financial highlights are those of the
Short Term Bond Fund (formerly Limited Maturity Bond Fund), Intermediate Bond
Fund (formerly Fixed Income Bond Fund) and Income Fund (individually, a
"Portfolio", collectively, the "Portfolios") only. The Trust offers two classes
of shares: Investment and Institutional. The Investment Shares are offered with
a 4.00% sales load.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses during the
reporting period. Actual results could differ from those estimate. The following
is a summary of significant accounting policies in conformity with generally
accepted accounting principles consistently followed by the Portfolios in the
preparation of the financial statements.
PORTFOLIO VALUATION: Corporate debt securities, municipal securities and debt
securities of the U.S. government and its agencies (other than short-term
investments maturing in 60 days or less) are valued on the basis of valuations
provided by dealers or by an independent pricing service approved by the Board
of Trustees. Short-term obligations that mature in 60 days or less are valued at
amortized cost, which constitutes fair value and approximates market value. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
REPURCHASE AGREEMENTS: Each Portfolio may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Portfolio
takes possession of an underlying debt obligation subject to an obligation of
the seller to repurchase, and the Portfolio to resell, the obligation at an
agreed upon price and time, thereby determining the yield during the Portfolio's
holding period. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Portfolio's holding period. The value
of the collateral is at least equal at all times to the total amount of the
repurchase obligations including interest. In the event of a counterparty
default, the Portfolio has the right to use the collateral to offset losses
incurred. There is potential loss to the Portfolio in the event the Portfolio is
delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the market value of the
underlying securities during the period while the Portfolio seeks to assure its
rights. The Portfolio's investment adviser, acting under the supervision of the
Trust's Board of Trustees, reviews the value of collateral and the
creditworthiness of those banks and dealers with which the Portfolio enters into
repurchase agreements to evaluate potential risks.
FUTURES CONTRACTS: Each Portfolio may invest in futures contracts. The
Portfolios generally enter into futures contracts to hedge against declines in
the value of their portfolios' securities. This investment involves, to varying
degrees, elements of market risk and risks in excess of the amount recognized in
the Statement of Assets and Liabilities. The face or contract amounts reflect
the extent of the involvement the Portfolios have in the particular classes of
instruments. Risks include an imperfect correlation between the movements in the
price of the instruments and the price of the underlying securities and interest
rates. Risks also may arise if there is an illiquid secondary market for the
instruments or due to the inability of counterparties to perform under the terms
of the contract.
Cash or securities are deposited with brokers in order to maintain a
position. Subsequent payments made or received daily by a Portfolio based on the
change in the market value of the position are recorded as unrealized gain or
loss until the contract is closed out at which time the gain or loss is
realized.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded.
25
<PAGE> 28
THE KENT FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Net realized gains and losses on investments sold
are recorded on the basis of identified cost. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Portfolios declare and
distribute dividends from net investment income monthly. Net investment income
for this purpose consists of interest accrued, discount earned (including both
original issue and market discount), less amortization of any market premium on
municipal securities, dividends earned and accrued expenses. Net realized
capital gains, if any, are distributed at least annually.
The amounts of income and capital gains to be distributed are determined in
accordance with income tax regulations. Such amounts may vary from income and
capital gains recognized in accordance with generally accepted accounting
principles.
FEDERAL TAXES: The Trust treats each Portfolio as a separate entity for Federal
income tax purposes. Each Portfolio intends to continue to qualify each year as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, each Portfolio will not be subject to
Federal income taxes to the extent that it distributes all of its taxable or
tax-exempt income. In addition, by distributing during each calendar year
substantially all of its net investment income and capital gains, each Portfolio
will not be subject to a Federal excise tax. Therefore, no Federal income tax
provision is required.
EXPENSES: Expenses directly attributable to a Portfolio are charged to the
Portfolio, while expenses which are attributable to more than one investment
portfolio of the Trust are allocated among the respective portfolios. In
addition, investors in Investment Shares will pay the expenses directly
attributable to the Investment Shares as a class, and investors in Institutional
Shares will pay the expenses directly attributable to the Institutional Shares
as a class.
ORGANIZATION COSTS: The Kent Income Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under Federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years beginning with the Portfolio's commencement of operations. In the event
that any of the initial shares purchased by the Portfolio's sponsor are redeemed
during such period by any holder thereof, the Portfolio will be reimbursed by
such holder for any unamortized organization costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of redemption.
3. INVESTMENT ADVISORY, ADMINISTRATION,DISTRIBUTION AND OTHER FEES
Old Kent Bank ("Investment Adviser") serves as the investment adviser to
the Trust. The Investment Adviser is a Michigan State Banking Association and
the principal subsidiary of Old Kent Financial Corporation. The Trust pays the
Investment Adviser a fee, computed daily and paid monthly, at the annual rate of
0.50% of the average daily net assets of the Short Term Bond Fund, 0.55% of the
average daily net assets of the Intermediate Bond Fund and 0.60% of the average
daily net assets of the Income Fund.
Effective March 31, 1995, First Data Investor Services Group, Inc.
("FDISG"), formerly known as The Shareholder Services Group, Inc. doing business
as 440 Financial, a wholly-owned subsidiary of First Data Corporation ("First
Data"), serves as the Trust's administrator and transfer agent. FDISG (the
"Administrator") receives a fee, computed daily and paid monthly, at the annual
rate of 0.20% for up to $5.0 billion, 0.18% for $5.0 to $7.5 billion and 0.15%
for over $7.5 billion of the Trust's aggregate net assets. In addition, FDISG
also receives a separate fee from each Portfolio for certain transfer agent
("shareholder services fees") and fund accounting services. Prior to March 31,
1995, the administration, fund accounting and transfer agency services described
above were provided by 440 Financial Group of Worcester, Inc., a wholly-owned
subsidiary of State Mutual Life Assurance Company of America ("State Mutual")
for the same annual fees. On March 31, 1995, FDISG acquired substantially all
the assets of 440 Financial Group of Worcester, Inc.
Each Portfolio has adopted a distribution plan (the "Plans") on behalf of
the Investment Shares pursuant to Rule 12b-1 of the Investment Company Act of
1940. The Plans provide for payments to 440 Financial Distributors, Inc. (the
"Distributor"), an indirect wholly-owned subsidiary of First Data, of up to
0.25% of the average daily net assets of the Investment Shares of the
Portfolios. Currently, the Short Term Bond Fund makes payments at the rate of
only 0.15% the average daily net assets of its Investment Shares pursuant to its
Plan.
26
<PAGE> 29
THE KENT FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Distributor acts as the exclusive distributor of the Trust's shares.
Prior to March 31, 1995, the Distributor was an indirect wholly-owned subsidiary
of State Mutual.
Certain officers of the Trust are also officers of the current
Administrator and/or the Distributor. Such officers receive no compensation from
the Trust for serving in their respective roles.
Expenses for the Trust include legal fees paid to Drinker Biddle & Reath. A
partner of that firm serves as Secretary of the Trust.
Bankers Trust Company acts as the Trust's custodian. Prior to October 25,
1995, the Trust's custodian was The Chase Manhattan Bank, N.A., a wholly-owned
subsidiary of The Chase Manhattan Corporation.
4. CLASS LEVEL EXPENSES
Each of the Portfolios has established two classes of shares, Investment
Shares and Institutional Shares. Each share in each Portfolio, regardless of
class, represents an equal pro rata interest in a Portfolio and has identical
voting, dividend, liquidation and other rights, except in matters affecting only
a particular Portfolio or class, in which case only shares of the affected
Portfolio or class are entitled to vote. Each class may bear class specific
expenses.
Class specific expenses, if any, are currently limited to expenses directly
attributable to the Investment Shares under the Plans, shareholder services fees
and certain printing and postage expenses incurred as they relate to a
particular class of shares. Shareholder services fees were borne by each of the
Institutional and Investment Shares of each Portfolio for the six months ended
June 30, 1996 as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTMENT
------------- ----------
<S> <C> <C>
Short Term Bond............ $ 5,369 $ 29
Intermediate Bond.......... 12,984 111
Income..................... 7,629 101
</TABLE>
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest without par value. It allows
for the creation of one or more classes of shares within each series, each of
which, regardless of class designation, represents an equal proportionate
interest in the Portfolios with each other share of that series. The Portfolios
may issue more than one series of shares investing in portfolios of securities.
The Trust currently issues thirteen series of shares with two separate classes
in each series, Investment Shares and Institutional Shares. Each class of shares
is entitled upon liquidation of the Portfolios to a pro rata share in the net
assets of the class of such series.
6. PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended June 30, 1996 , were as
follows:
<TABLE>
<CAPTION>
PURCHASES
---------
FUND GOVERNMENT OTHER
- ---- ---------- -----
<S> <C> <C>
Short Term Bond .............. $ 19,801,953 $26,781,570
Intermediate Bond............. 568,903,339 63,798,128
Income........................ 166,054,848 24,552,115
<CAPTION>
SALES
-----
FUND GOVERNMENT OTHER
- --- ---------- -----
<S> <C> <C>
Short Term Bond .............. $ 55,386,875 $17,195,151
Intermediate Bond............. 598,008,686 46,386,659
Income........................ 81,196,688 5,629,790
</TABLE>
At June 30, 1996 , aggregate gross unrealized appreciation in which there was an
excess of value over tax cost and aggregate gross unrealized depreciation in
which there was an excess of tax cost over value for all securities were as
follows:
<TABLE>
<CAPTION>
TAX BASIS
---------
UNREALIZED UNREALIZED
FUND APPRECIATION DEPRECIATION
- ---- ------------ ------------
<S> <C> <C>
Short Term Bond............ $ 947,970 $ (3,367,464)
Intermediate Bond.......... 2,430,141 (20,868,632)
Income..................... 1,202,514 (2,790,411)
<CAPTION>
NET UNREALIZED
APPRECIATION
FUND (DEPRECIATION)
- ---- --------------
<S> <C>
Short Term Bond............ $ (2,419,494)
Intermediate Bond.......... (18,438,491)
Income (1,587,897)
</TABLE>
As of December 31, 1995, the following Portfolios had capital loss
carryforwards which will expire during the years indicated:
<TABLE>
<CAPTION>
FUND 2001 2002 2003
- ---- ---- ---- ----
<S> <C> <C> <C>
Short Term Bond.... $656,101 $3,015,994 $467,880
</TABLE>
Under current tax law, capital loss realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
The deferred loss for the Short Term Bond Fund of $118,256 will be treated as
arising on the first day of the fiscal year ended December 31, 1996.
27
<PAGE> 30
THE KENT FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. SUBSEQUENT EVENT
As approved by the Board of Trustees of the Trust on May 31, 1996,
effective August 5, 1996, BISYS Fund Services Limited Partnership d/b/a BISYS
Fund Services ("BISYS") will assume the duties as administrator and distributor
for the Trust from FDISG and 440 Financial Distributors, Inc., respectively.
Also effective August 5, 1996, BISYS Fund Services, Inc. will assume the duties
as Fund Accountant to the Trust from FDISG. BISYS Fund Services, Inc. will
assume the duties of Transfer Agent from FDISG effective October 6, 1996.
28
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<PAGE> 32
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THE
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KENT FUNDS[Registered Trademark] BULK RATE
4400 COMPUTER DRIVE US POSTAGE
PO BOX 5108 PAID
WESTBORO, MA 01581-5108 PERMIT NO. 54201
BOSTON, MA
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K-015 (8/96)
