As filed with the Securities and Exchange Commission on April 30,
1996
Securities Act File No. 33-8398
Investment Company Act File No. 811-4824
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
Pre-Effective Amendment No. ____
[ ]
Post-Effective Amendment No. 20 and/or
[X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. 21
THE KENT FUNDS
(Exact name of Registrant as Specified in Charter)
290 Donald Lynch Boulevard, Marlboro, Massachusetts 01752
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(508) 624-5000
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
1345 Chestnut Street, Philadelphia, PA 19107
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
X on May 1, 1996 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of rule 485
The Registrant has filed a Declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for Registrants fiscal year
ended December 31, 1995, was filed on February 29, 1995.
THE KENT FUNDS
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
under the Securities Act of 1933
N-1A Location
Item No. Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Financial Information
Item 3. Condensed Financial
Information Financial Information
Item 4. General Description of
Registrant Fund Choices; Structure
and Management of the
Funds
Item 5. Management of the Fund Structure and Management
of the Funds; Expense
Information
Item 5A. Management's Discussion of Fund Performance
Not Applicable
Item 6. Capital Stock and Other
Securities Structure and Management
of the Funds; Dividends,
Distributions and Taxes;
Additional Information
Item 7. Purchase of Securities
Being Offered Purchases of Shares;
Expense Information
Item 8. Redemption or Repurchase Redemptions
(Sales)
of Shares
Item 9. Pending Legal Proceedings Not Applicable
N-1A Statement of Additional
Item Information
No.
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History Not Applicable
Item 13. Investment Objectives and
Policies The Trust; Investment
Policies; Investment
Restrictions; Securities
Transactions; Appendix C
Item 14. Management of the Fund Trustees and Officers
Item 15. Control Persons and Principal
Holders of Securities Trustees and Officers;
Additional Information
Item 16. Investment Advisory and
Other Services Investment Adviser;
Administrator; Distributor;
Transfer Agent; Custodian,
Auditors and Counsel;
Distribution Plans
Item 17. Brokerage Allocation
and Other Practices Securities Transactions;
Distribution Plans
Item 18. Capital Stock and Other
Securities The Trust; Declaration
of Trust
Item 19. Purchase, Redemption and
Pricing of Securities Valuation of Securities;
Being Offered Additional Purchase
and Redemption Information
Item 20. Tax Status Dividends and Taxes
Item 21. Underwriters Distributor
Item 22. Calculation of Performance Data Standardized
Total Return
and Yield Quotations
Item 23 Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Registration
Statement
THE KENT FUNDS
Prospectus
Dated May 1, 1996
This Prospectus relates to the following money market funds
("Funds"):
The Kent Money Market Fund seeks current income while preserving
capital and maintaining liquidity.
The Kent Michigan Municipal Money Market Fund seeks current
income, exempt from Federal income and Michigan state personal
income taxes, while preserving capital and maintaining liquidity.
This Prospectus contains information that a prospective investor
should know before investing. Investors should read and retain
this Prospectus for future reference. The Kent Funds has filed a
Statement of Additional Information ("SAI") dated May 1, 1996 with
the Securities and Exchange Commission, which is incorporated by
reference into this Prospectus. For a free copy of the SAI, or
for other information about the Funds, write to the address or
call the telephone number listed below.
Shares of the Funds are not bank deposits or obligations of, or
guaranteed or endorsed by, the Funds' investment adviser or any of
its affiliates, and are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in mutual fund
shares involves risk, including the possible loss of principal.
Old Kent Bank receives fees from the Funds for advisory and
certain other services.
Shares of the Funds are neither insured nor guaranteed by the U.S.
Government. While each Fund intends to maintain a stable net
asset value per share of $1.00, there is no guarantee that it will
be able to do so.
The Kent Funds
PO Box 5107
4400 Computer Drive
Westboro, MA 01581-5107
Call Toll-Free For Shareholder Services:
1-800-633-KENT (5368)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
Highlights
What are the key facts regarding the Funds? 3
Financial Information
What are the Funds' key financial highlights? 5
Fund Choices
What Funds are offered? 10
What instruments do the Funds invest in? 11
What are the risks of investing in the Funds? 13
Performance
How is the Funds' performance calculated? 14
Where can I obtain performance data? 15
Expense Information
What are the Funds' expenses? 15
Purchases of Shares
Who may want to invest in the Funds? 16
When can I purchase shares? 16
What is the minimum required investment? 16
How can I purchase shares? 16
What price do I pay for shares? 18
Redemptions (Sales) of Shares
When can I redeem shares? 19
How can I redeem shares? 19
What price do I receive for shares? 20
When will I receive redemption money? 20
Structure and Management of the Funds
How are the Funds structured? 21
Who manages and services the Funds? 21
What are my rights as a Fund shareholder? 22
Dividends, Distributions and Taxes
When will I receive distributions from the Funds? 22
How will distributions be made? 22
What are the tax implications of my investments in the Funds?
22
Additional Information
Where do I get additional information about my account and the
Funds? 23
HIGHLIGHTS
What Are the Key Facts Regarding the Funds?
Q: What are The Kent Funds?
A: The Kent Funds (the "Trust") is a family of open-end
management investment companies (commonly known as mutual funds)
that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives
and policies. This prospectus describes the Trust's Money Market
Fund and Michigan Municipal Money Market Fund. See "Fund Choices
- - What Funds are Offered?" The Trust also offers the following
investment portfolios by separate prospectuses: The Kent Short
Term Bond Fund, The Kent Intermediate Bond Fund, The Kent Income
Fund, The Kent Growth and Income Fund, The Kent Small Company
Growth Fund, The Kent International Growth Fund, The Kent Index
Equity Fund, The Kent Limited Term Tax-Free Fund, The Kent
Intermediate Tax-Free Fund, The Kent Tax-Free Income Fund and The
Kent Michigan Municipal Bond Fund. To obtain a prospectus for any
Kent Fund, please call 1-800-633-KENT (5368).
Q: Who advises the Funds?
A: The Funds are managed by Old Kent Bank ("Old Kent"), an
indirect wholly-owned subsidiary of Old Kent Financial Corporation
("OKFC"). OKFC is a financial services company with total assets
as of December 31, 1995 of approximately $12 billion. See
"Structure and Management of the Funds - Who Manages and Services
the Funds?"
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a
variety of professionally managed diversified investment
portfolios without having to become involved with the detailed
accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the
economic advantages of block trading in portfolio securities and
the availability of a family of thirteen mutual funds should your
investment goals change.
Q: How does someone buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors,
Inc. ("440 Distributors") and are sold in two classes: Investment
Shares and Institutional Shares. Investment Shares can be
purchased from any broker-dealer or financial institution which
has entered into a dealer agreement with 440 Distributors, or by
completing an application and mailing it directly to 440
Distributors with a check, payable to the appropriate Fund, for
$1,000 or more, or $100 or more for Individual Retirement Accounts
("IRAs"). Institutional Shares are offered to financial and other
institutions for the benefit of fiduciary, agency or custodial
accounts. The minimum initial aggregate investment for
Institutional Shares is $100,000. The Trust may waive the minimum
purchase requirements in certain instances. Institutional Shares
purchasers should call First Data Investor Services Group, Inc.
("First Data"), the Trust's Transfer Agent and Administrator,
toll-free at 1-800-633-KENT (5368) for instructions on how to open
an account. See "Purchases of Shares." For information on how to
redeem your shares, see "Redemptions (Sales) of Shares."
Q: When are dividends paid?
A: Dividends of each Fund's net investment income are declared
daily and paid monthly. Net realized capital gains of the Funds
are distributed at least annually. See "Dividends, Distributions
and Taxes."
Q: What shareholder privileges are offered by the Trust?
A: Investors may exchange shares of a Fund having a value of at
least $100 for shares of the same class of any other investment
portfolio offered by the Trust in which the investor has an
existing account. The Trust offers IRAs, which can be established
by contacting the Trust's Distributor. The Trust also offers an
Automatic Investment Program which allows investors to
automatically invest in Investment Shares on a monthly basis. See
"Purchases of Shares - How Can I Purchase Shares?"
Q: What are the potential risks presented by the Funds'
investment practices?
A: Investing in the Funds involves the risks common to any
investment in securities. Although each Fund seeks to maintain a
stable net asset value per share of $1.00, there is no assurance
that it will be able to do so. The Michigan Municipal Money
Market Fund's performance will be closely tied to the economic and
political conditions in the State of Michigan. For a complete
description of the risks associated with each Fund, see "Fund
Choices - What Funds are Offered?" and " - What Are the Risks of
Investing in the Funds?"
FINANCIAL INFORMATION
What Are the Funds' Key Financial Highlights?
FEE TABLE
The purpose of the fee table is to assist you in understanding the
various costs and expenses that an investor in each Fund will bear
directly or indirectly. See "Expense Information" and "Purchases
of Shares" regarding such costs and expenses.
Money Market Michigan Municipal
Fund Money Market Fund
Investment Institutional Investment Institutional
Shares Shares Shares Shares
ANNUAL FUND OPERATING EXPENSES1
(as a % of average net assets)
Management Fees 0.40% 0.40% 0.40% 0.40%
12b-1 Fees2 None None None None
Other Expenses (after fee waivers)3 0.12% 0.12% 0.12% 0.12%
TOTAL FUND OPERATING EXPENSES
(after fee waivers)3 0.52% 0.52% 0.52% 0.52%
1 Expense ratios are based on amounts incurred for the fiscal year
ended December 31, 1995, restated to reflect current waivers and
reimbursements of certain expenses. Sweep, trustee, agency, custody and
certain other fees charged by Old Kent and its affiliates to their
customers who own shares of the Funds are not reflected in the fee
table.
2 Although each Fund is authorized to pay 12b-1 fees of up to 0.25%
(on an annualized basis) in connection with the sale of Investment
Shares, neither Fund currently intends to pay such fees.
3 Before waivers, Other Expenses and Total Fund Operating Expenses
would be 0.22% and 0.62%, respectively, for the Investment Shares and
the Institutional Shares of both Funds.
EXAMPLE: You would pay the following expenses on a $1,000
investment, assuming (i) 5% annual return and (ii) redemption at
the end of each period:
MONEY MARKET MICHIGAN MUNICIPAL
FUND MONEY MARKET FUND
Investment Institutional Investment Institutional
Shares Shares Shares Shares
One Year $5 $5 $5 $5
Three Years $16 $16 $16 $16
Five Years $28 $28 $28 $28
Ten Years $64 $64 $64 $64
Amounts shown in the example should not be considered a
representation of past or future investment return or expenses;
actual investment return and expenses may be greater or lesser
than those shown.
FINANCIAL HIGHLIGHTS
The Financial Highlights presented below have been audited by KPMG
Peat Marwick LLP, independent auditors, whose report, together
with the financial statements of the Funds, appears in the Funds'
annual report, which can be obtained without charge by calling 1-
800-633-KENT (5368). These tables should be read in conjunction
with the Funds' financial statements and the related notes.
MONEY MARKET FUND
(For a share outstanding throughout each period)
__________________________________________________________________
_______________
Investment Shares
__________________________________________________________________
_______________
Period Ended December 31,
1995 1994 1993 1992(1)
__________________________________________________________________
________________
Net Asset Value, Beginning of period $1.00 $1.00 $1.00 $1.00
_______________________________________________________________________
______________________________________
Income from Investment Operations:
Net investment income 0.05 0.04 0.03 ----
Net realized gain (loss) on investments ---- ---- ---- ----
_______________________________________________________________________
_______________________________________
Total from Investment Operations: 0.05 0.04 0.03 ----
_______________________________________________________________________
_______________________________________
Less Distributions from:
Net investment income (0.05) (0.04) (0.03) ----
Net realized gains on investments ---- ---- ---- ----
_______________________________________________________________________
_______________________________________
Total Distributions: (0.05) (0.04) (0.03) ----
_______________________________________________________________________
_______________________________________
Net increase (decrease) in net asset value ---- ---- ---- ----
Net Asset Value, End of period $1.00 $1.00 $1.00 $1.00
_______________________________________________________________________
_______________________________________
Total Return for period indicated 5.56% 3.71% 2.67% 0.27%
_______________________________________________________________________
_______________________________________
Ratios/Supplemental Data:
Net Assets, End of period (000's) $1,227 $369 $593 $11
Ratios to average net assets:
Net investment income
including reimbursement/waiver 5.41% 3.58% 2.63% 3.30%*
Net investment income
excluding reimbursement/waiver 5.33% 3.53% (1.24)%
3.25%*
Operating expenses
including reimbursement/waiver 0.55% 0.63% 0.63% 0.63%*
Operating expense
excluding reimbursement/waiver 0.62% 0.68% 4.49% 0.68%*
_______________________________________________________________________
_______________________________________
* Annualized.
(1) The Investment Class date of initial public investment was
December 9, 1992.
MONEY MARKET FUND (continued)
(For a share outstanding throughout each period)
__________________________________________________________________
________________
Institutional Shares
__________________________________________________________________
________________
Period Ended December 31,
1995 1994 1993 1992 1991 1990
__________________________________________________________________
________________
Net Asset Value, Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
$1.00
_______________________________________________________________________
______________________________________
Income from Investment Operations:
Net investment income 0.05 0.04 0.03 0.03 0.06 0.01
Net realized gain (loss) on investments ---- ---- ---- ---- ----
----
_______________________________________________________________________
_____________________________________________
Total from Investment Operations: 0.05 0.04 0.03 0.03
0.06 0.01
_______________________________________________________________________
_____________________________________________
Less Distributions from:
Net investment income (0.05) (0.04) (0.03) (0.03) (0.06) 0.01
Net realized gains on investments ---- ---- ---- ---- ----
----
Total Distributions: (0.05) (0.04) (0.03) (0.03) (0.06) 0.01
Net increase (decrease) in net asset value ---- ---- ---- ----
---- ----
_______________________________________________________________________
______________________________________________
Net Asset Value, End of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
_______________________________________________________________________
_____________________________________________
Total Return for period indicated 5.58% 3.75% 2.68% 3.40% 5.65%
0.60%
_______________________________________________________________________
_______________________________________________
Ratios/Supplemental Data:
Net Assets, End of year (000's) $424,815 $323,539 $359,624
$220,508 $28 $23
Ratios to average net assets:
Net investment income
including reimbursement/waiver 5.45% 3.65% 2.65% 3.23%
5.53% 7.27%
Net investment income
excluding reimbursement/waiver 5.37% 3.59% 2.57% 2.92%
5.21% 6.84%
Operating expenses
including reimbursement/waiver 0.55% 0.60% 0.60% 0.60%
0.60% 0.60%
Operating expense
excluding reimbursement/waiver 0.63% 0.65% 0.68% 0.91%
0.92% 1.02%
* Annualized
(1) The Institutional Class commenced operations on December 3, 1990.
MICHIGAN MUNICIPAL MONEY MARKET FUND
(For a share outstanding throughout each period)
__________________________________________________________________
_______________
Investment Shares
__________________________________________________________________
_______________
Period Ended December 31,
1995 1994 1993 1992(1)
__________________________________________________________________
________________
Net Asset Value, Beginning of period $1.00 $1.00 $1.00 $1.00
_______________________________________________________________________
______________________________________
Income from Investment Operations:
Net investment income 0.03 0.02 0.02 ***
Net realized gain (loss) on investments ---- ---- ---- ----
_______________________________________________________________________
_______________________________________
Total from Investment Operations: 0.03 0.02 0.02 ----
_______________________________________________________________________
_______________________________________
Less Distributions from:
Net investment income (0.03) (0.02) (0.02) ----
Net realized gains on investments ---- ---- ---- ----
_______________________________________________________________________
_______________________________________
Total Distributions: (0.03) (0.02) (0.02) ___
_______________________________________________________________________
_______________________________________
Net increase (decrease) in net asset value ---- ---- ---- ----
Net Asset Value, End of period $1.00 $1.00 $1.00 $1.00
_______________________________________________________________________
_______________________________________
Total Return for period indicated 3.48% 2.38% 1.98% 0.03%
_______________________________________________________________________
_______________________________________
Ratios/Supplemental Data:
Net Assets, End of period (000's) $1,603 $379 $149 $0
Ratios to average net assets:
Net investment income
including reimbursement/waiver 3.48% 2.47% 2.01% 2.92%*
Net investment income
excluding reimbursement/waiver 3.39% 2.37% (1.13)%
2.92%*
Operating expenses
including reimbursement/waiver 0.54% 0.63% 0.63% 0.00%*
Operating expense
excluding reimbursement/waiver 0.62% 0.73% 3.77% 0.00%*
_______________________________________________________________________
_______________________________________
* Annualized.
*** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was
December 15, 1992.
MICHIGAN MUNICIPAL MONEY MARKET FUND (continued)
(For a share outstanding throughout each period)
__________________________________________________________________
_______________
Institutional Shares
__________________________________________________________________
_______________
Period Ended December 31,
1995 1994 1993 1992 1991(1)
__________________________________________________________________
________________
Net Asset Value, Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
_______________________________________________________________________
______________________________________
Income from Investment Operations:
Net investment income 0.03 0.02 0.02 0.03 0.02
Net realized gain (loss) on investments ---- ---- ---- ---- ----
_______________________________________________________________________
_______________________________________
Total from Investment Operations: 0.03 0.02 0.02 0.03
0.02
_______________________________________________________________________
_______________________________________
Less Distributions from:
Net investment income (0.03) (0.02) (0.02) (0.03) (0.02)
Net realized gains on investments ---- ---- ---- ---- ----
_______________________________________________________________________
_______________________________________
Total Distributions: (0.03) (0.02) (0.02) (0.03) (0.02)
_______________________________________________________________________
_______________________________________
Net increase (decrease) in net asset value ---- ---- ---- ----
----
Net Asset Value, End of period $1.00 $1.00 $1.00 $1.00 $1.00
_______________________________________________________________________
_______________________________________
Total Return for period indicated 3.50% 2.40% 2.00% 2.63% 2.37%
_______________________________________________________________________
_______________________________________
Ratios/Supplemental Data:
Net Assets, End of year (000's) $145,215 $128,164 $183,366
$72,906 $49,618
Ratios to average net assets:
Net investment income
including reimbursement/waiver 3.45% 2.33% 1.96% 2.56%
4.03%*
Net investment income
excluding reimbursement/waiver 3.36% 2.23% 1.87% 2.29%
3.93%*
Operating expenses
including reimbursement/waiver 0.56% 0.60% 0.60% 0.60%
0.60%*
Operating expense
excluding reimbursement/waiver 0.65% 0.70% 0.69% 0.86%
0.77%*
_______________________________________________________________________
_______________________________________
* Annualized.
(1) The Institutional Class commenced operations on June 3, 1991.
FUND CHOICES
What Funds Are Offered?
The Trust currently offers the two money market funds described
below. Money market funds typically seek to maintain a stable net
asset value of $1.00 per share, although there is no guarantee
that their net asset value will not vary. The investment
objectives described below are considered "fundamental" and may
not be changed by a Fund without the approval of its shareholders.
MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income from short-term
securities while preserving capital and maintaining liquidity.
PRINCIPAL INVESTMENTS: The Fund invests in a broad range of
government, bank and commercial obligations. These instruments
primarily include obligations of banks having total assets in
excess of $1 billion at the time of purchase and commercial paper
that matures in 13 months or less. These instruments are
described in more detail under "What Instruments Do the Funds
Invest In?" The Fund may also invest in short-term obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Not all U.S. Government securities are backed
by the full faith and credit of the United States.
MICHIGAN MUNICIPAL MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income, exempt from Federal and
State of Michigan personal income taxes, from short-term
securities while preserving capital and maintaining liquidity.
PRINCIPAL INVESTMENTS: At least 80% of the Fund's net assets will
be invested in federally tax-exempt obligations ("Municipal
Obligations") except during periods of unusual market conditions.
This is a fundamental policy, which means it cannot be changed
without shareholder approval. Municipal Obligations consist of
municipal bonds, notes and commercial paper issued by states,
territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and
instrumentalities. Under normal conditions, at least 65% of the
Fund's total assets will be invested in municipal obligations
issued by the State of Michigan or its political subdivisions,
authorities or corporations ("Michigan Municipal Obligations").
The Fund will principally invest in municipal bonds, which are
issued by state or local governments typically for general funding
or to finance specific projects. "General Obligation" securities
are backed by the full faith, credit and taxing power of the
municipality. "Revenue" securities are backed only by the
revenues from a particular facility or facilities or other
specific revenue sources. "Private Activity Bonds," which are
revenue securities issued by industrial development authorities,
are issued to finance privately-owned facilities and are backed by
private entities. The credit quality of Private Activity Bonds is
usually related to the creditworthiness of the private entity
using the facility involved. "Moral Obligation Securities," which
are typically issued by special purpose public authorities, are
backed by a reserve fund which the issuer may draw on if it is
unable to pay its debt service obligations, but the issuer and the
state or municipality which created the issuer have no legal
obligation to restore the reserve fund. A municipal obligation's
credit may be enhanced by a letter of credit issued by a bank and
the payment of principal and interest may be insured by an
insurance company.
The Fund may enter into "Stand-By Commitments" under which a
dealer agrees when requested by the Fund to purchase a Municipal
Obligation from the Fund at a set price. Stand-by Commitments
will be used to provide portfolio liquidity and the Fund does not
intend to use them for trading purposes.
From time to time on a temporary defensive basis due to market
conditions, the Fund may hold uninvested cash reserves or invest
in short-term taxable money market obligations that are
permissible investments of the Money Market Fund (except
guaranteed investment contracts and custodial receipts), in such
proportions as, in the opinion of Old Kent, prevailing market or
economic conditions warrant. Taxable obligations acquired by the
Fund will not exceed 20% of the Fund's net assets at the time of
purchase under normal market conditions.
What Instruments Do the Funds Invest In?
The Funds may also invest in the securities and use the investment
techniques described below. Each of these securities and
investment techniques is described in more detail under
"Investment Policies" in the SAI.
The Funds will only purchase U.S. dollar-denominated "Eligible
Securities" (as defined by the Securities and Exchange
Commission), which are securities that (i) have short-term debt
ratings when purchased in the two highest rating categories by at
least two nationally recognized statistical rating organizations
("NRSROs"), (ii) are comparable in priority and security to
another security issued by an issuer which has such ratings, or
(iii) are unrated, but are deemed by Old Kent to be of comparable
quality pursuant to guidelines approved by the Board of Trustees.
Appendix A to the SAI contains a description of NRSRO ratings.
The average maturity of each Fund's portfolio will not exceed 90
days and with certain exceptions, the Funds will not purchase any
securities which mature in more than 397 days from the date of
purchase. All securities purchased by the Funds will be
determined by Old Kent, under guidelines established by the Board
of Trustees, to present minimal credit risks.
Each Fund intends to typically invest its assets in Debt
Securities. Debt securities are issued in exchange for money
borrowed. Debt securities, other than securities known as zero
coupon bonds, pay interest at set times, at either a fixed (set)
rate or a variable (changing) rate. Debt securities purchased by
the Funds may include corporate debt obligations, U.S. Government
securities, stripped securities, variable and floating rate
securities, mortgage-backed securities and asset-backed
securities. The Money Market Fund may also invest in custodial
receipts for Treasury certificates.
From time to time the Funds may acquire Commercial Paper, which
includes short-term promissory notes which are not secured by
collateral, variable rate master demand notes and instruments
issued by governmental agencies and instrumentalities. Commercial
paper acquired by the Michigan Municipal Money Market Fund will be
tax-exempt.
Bank Obligations which may be acquired by the Funds include
bankers' acceptances, certificates of deposit and time deposits.
Bankers' acceptances evidence the obligation of a bank to pay a
draft drawn on the bank by a customer. Certificates of deposit
are certificates obligating a bank to repay funds deposited with
it for a specified period of time at a specified interest rate.
The Funds may enter into Repurchase Agreements. Under a
repurchase agreement, a Fund agrees to purchase securities from a
seller and the seller agrees to repurchase the securities at a
later time, typically within seven days, at a set price. The
seller agrees to set aside collateral equal to the price it has to
pay during the term of the agreement. This ensures that the Fund
will receive the purchase price at the time it is due, unless the
seller defaults or declares bankruptcy, in which event the Fund
will bear the risk of possible loss due to adverse market action
or delays in liquidating the underlying obligation. The Funds
will not enter into repurchase agreements with Old Kent or its
affiliates. Each Fund may also borrow money for temporary
purposes by entering into Reverse Repurchase Agreements. Under
these agreements, a Fund sells portfolio securities to financial
institutions and agrees to buy them back later at an agreed upon
time and price.
Each Fund may buy Variable and Floating Rate Master Demand
Notes, which permit daily or weekly changes in the amount lent by
the Fund and provide for adjustments from time to time in the
interest rates. The notes may or may not be backed by bank
letters of credit. These notes are direct lending arrangements
between the Fund and a borrower and; therefore, the notes
generally are not traded and there is no market in which to sell
them to third parties. A Fund could suffer a loss if, for
example, the borrower defaults on the note. This type of note
will be subject to a Fund's limitations on illiquid investments if
the Fund cannot demand payment of the principal amount of the note
within seven days.
The Money Market Fund may acquire Guaranteed Investment Contracts
("GICs"). Under a GIC, the Fund gives cash to an insurance
company which credits the Fund with the amount given plus interest
based on a certain index, which interest is guaranteed to be not
less than a certain minimum rate. An active secondary market for
GICs does not exist; therefore, GICs are considered to be illiquid
investments and will be purchased only if after the purchase 10%
or less of the Fund's net assets will be invested in illiquid
securities.
Loan Participation Notes, which represent participation in a
loan by a commercial bank to a corporation, may be purchased by
the Money Market Fund. The notes must have a remaining maturity
of one year or less and the bank issuing the notes must have
assets of at least $1 billion. The Fund bears the risks that the
corporate borrower or lending bank will become insolvent. The
secondary market for loan participations is very limited and loan
participations will be considered illiquid.
Each Fund may purchase U.S. Government Obligations, which are
obligations issued by, or guaranteed by, the U.S. Government or
its agencies or instrumentalities. Such instruments include U.S.
Treasury notes, which have initial maturities of one to ten years,
U.S. Treasury bonds, which generally have initial maturities of
greater than ten years, and obligations of the Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association,
Government National Mortgage Association and many other U.S.
Government agencies and instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as
those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide
financial support to U.S. Government-sponsored instrumentalities
if it is not obligated to do so by law.
The Funds may purchase Rule 144A Securities. Rule 144A allows for
a broader institutional trading market for securities which
otherwise would be restricted on resale by allowing resales to
certain qualified institutional buyers. Old Kent will monitor the
liquidity of Rule 144A securities under the supervision of the
Board of Trustees.
The Funds may buy shares of registered Money Market Investment
Companies. The Funds will bear a portion of the expenses of any
investment company whose shares they purchase, including operating
costs and investment advisory, distribution and administration
fees. These expenses would be in addition to the Fund's own
expenses.
The Funds may Lend Securities to broker-dealers and other
financially sound institutional investors who will pay the Funds
for the use of the securities. The borrower must set aside cash
or illiquid high-grade debt securities equal to the value of the
securities borrowed at all times during the term of the loan.
Loans may not exceed one-third of the value of a Fund's total
assets. Risks involved with such transactions include possible
delay in recovering the loaned securities and possible loss of the
securities or the collateral if the borrower declares bankruptcy.
Each Fund may agree to Purchase Securities for Future Delivery,
sometimes a month or more after the date of the agreement.
Although the price to be paid by the Fund is set at the time of
the agreement, the Fund usually does not pay for the securities
until they are received. The value of the securities may change
between the time the price is set and the time the price is paid.
When a Fund purchases securities for future delivery, the Trust's
custodian will maintain a segregated account containing cash, U.S.
Government securities or other liquid high-grade debt securities.
The Funds do not intend to purchase securities for future delivery
for speculative purposes.
Except for the Michigan Municipal Money Market Fund's policy to
invest at least 80% of its net assets in federally tax-exempt
obligations, the investment policies discussed above are not
"fundamental" policies and may be changed by the Board of Trustees
without shareholder approval. However, the Funds also have in
place certain fundamental investment limitations that cannot be
changed for a Fund without the approval of a majority of that
Fund's outstanding shares. Some of these limitations are
summarized below. A complete list of the fundamental investment
limitations for the Funds is contained in the SAI.
1. With respect to 75% of each Fund's total assets, the Funds
cannot invest more than 5% of their respective total assets in any
one issuer (other than the U.S. Government, its agencies and
instrumentalities). In addition, the Funds cannot invest more
than 25% of their respective total assets in a single industry.
These restrictions require the Funds to be more diversified in
order to lower the risk to a Fund of an economic setback for any
one issuer or in any one industry.
2. Each Fund may only borrow money for temporary or emergency
purposes, and such borrowing is limited to an amount not greater
than one-third of the Fund's net assets, provided that while
borrowings from banks exceed 5% of a Fund's net assets, any such
borrowings will be repaid before additional investments are made.
The limits on the amount each Fund can borrow prevents the Fund
from significantly leveraging its assets.
3. Each Fund may not invest more than 10% of its assets in
illiquid securities. Typically, there is no ready market for such
securities, which inhibits a Fund's ability to sell the securities
and to obtain values for the securities.
As a matter of non-fundamental policy, in order to comply with
Securities and Exchange Commission regulations relating to money
market funds, the Money Market Fund will limit its investments in
securities of any one issuer (other than U.S. Government
securities and repurchase agreements collateralized by the same)
to not more than 5% of the value of its total assets at the time
of purchase, except for 25% of its total assets, which may be
invested in any one issuer for a period of up to three business
days. The Funds are also permitted to invest in excess of 25% of
their total assets in obligations of the U.S. banks and domestic
branches of foreign banks that are subject to the same regulations
as U.S. banks.
What Are the Risks of Investing in the Funds?
Although each Fund seeks to maintain a stable net asset value per
share of $1.00, there is no assurance that they will be able to do
so. There can also, of course, be no assurance that a Fund will
achieve its investment objective since there is uncertainty in
every investment.
The Funds invest mostly in debt instruments, whose values
typically rise when interest rates fall and fall when interest
rates rise. The Funds buy bonds with shorter maturities (time
period until repayment), which tend to be less affected by
interest rate changes, but generally offer lower yields than bonds
with longer maturities. Current yield levels should not be
considered representative of yields for any future time.
The Michigan Municipal Money Market Fund is concentrated in
securities issued by the State of Michigan and entities within the
State of Michigan and, therefore, an investment in this Fund may
be riskier than an investment in other types of money market
funds. Likewise, the Fund's performance is closely tied to
conditions in the State of Michigan. The economy of Michigan is
principally dependent on three sectors -- manufacturing
(particularly durable goods, automotive products and office
equipment), tourism and agriculture. Michigan encountered
financial difficulties during the late 1980s, largely as a result
of poor conditions in the automotive industry, but recovered from
the prolonged downturn in production levels in this sector in the
early 1990s. Structural changes in the automotive industry have
given the Michigan economy greater financial stability. The
state's finances continue to be in excellent condition, and a
Budget Stabilization Fund that exceeds $1 billion should help the
state weather any potential economic recession. At the end of
1995, however, after several years of rapid growth, the Michigan
economy was evidencing a slight downturn. Personal income and
employment levels were not growing as rapidly as they had for the
past several years.
The market value and the marketability of bonds issued by local
units of government in the State may be affected adversely by the
same factors that affect Michigan's economy generally. The
ability of the State and its local units of government to pay the
principal of and interest on their bonds may also be affected by
such factors and by certain constitutional, statutory and charter
limitations. For additional information on the specific risks
associated with the Michigan Municipal Money Market Fund, see
Appendix B to the SAI.
PERFORMANCE
How is the Funds' Performance Calculated?
The Money Market Fund and the Michigan Municipal Money Market Fund
may advertise "yield" and "effective yield" and the Michigan
Municipal Money Market Fund may advertise "tax equivalent" yield.
All yield figures are based on historical earnings and are not
intended to indicate future performance. Yields are calculated
separately for each class of shares. The yield refers to the
income generated by a class of shares over a specified seven-day
period. This income is then annualized. That is, the amount of
income generated by the shares during that week is assumed to be
generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed
reinvestment. Tax equivalent yield is generally the yield divided
by a factor equal to one minus a stated income tax rate and
reflects the yield a taxable investment would have to achieve in
order to equal on an after-tax basis a tax-exempt yield. Because
Investment Shares may be subject to higher expenses and Rule 12b-1
fees, the yields on Investment Shares may be lower than those on
Institutional Shares.
You should be aware that (i) past performance does not indicate
how a Fund will perform in the future and (ii) each Fund's yield
will fluctuate, so you cannot necessarily use a Fund's performance
data to compare it to investments in certificates of deposit,
savings accounts or other investments that provide a fixed or
guaranteed yield.
Each Fund may compare its performance to that of other mutual
funds, such as the performance of similar funds prepared by Lipper
Analytical Services, Inc. or information reported in national
financial publications (such as Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times) or in local or
regional publications. The Funds may report their yields in
comparison to the Consumer Price Index, an indication of inflation
reported by the U.S. government, or a 91-day U.S. Treasury Bill.
Where Can I Obtain Performance Data?
The Wall Street Journal and certain local newspapers report
information on the performance of mutual funds. In addition,
performance information is contained in the Funds' annual report
dated December 31 of each year (the Trust's fiscal year end) and
semi-annual report dated June 30 of each year, which will
automatically be mailed to shareholders. To obtain copies of
financial reports or performance information, call 1-800-633-KENT
(5368).
EXPENSE INFORMATION
What Are the Funds' Expenses?
A pro rata portion of expenses of the Trust are allocated to the
Fund you own and to the particular class of shares you own and
will be reflected in the value of your shares. Such expenses are
not paid directly by shareholders.
TRUST EXPENSES. Expenses charged at the Trust level include fees
paid to Trustees, legal counsel and auditors and administration
fees. First Data is entitled to receive, for its administration
services, an annual fee equal to 0.20% of the aggregate net assets
of all funds in the Trust up to $5 billion; 0.18% of the Trust's
aggregate net assets between $5 and $7.5 billion; and 0.15% of the
Trust's aggregate net assets over $7.5 billion.
FUND EXPENSES. Most expenses will be charged at the Fund level,
including investment advisory fees, Securities and Exchange
Commission registration fees, transfer agency fees, custody fees,
brokerage commissions, interest charges and taxes. Old Kent is
entitled to receive from each Fund an annual advisory fee equal to
0.40% of its average daily net assets. For the fiscal year ended
December 31, 1995, the Money Market Fund and the Michigan
Municipal Money Market Fund paid or accrued to Old Kent an
advisory fee, calculated daily and payable monthly, at an annual
rate of 0.37% and 0.36%, respectively, of the average daily net
assets of the Funds. Old Kent may rebate advisory fees to certain
institutional customers in accordance with Federal and state law.
CLASS EXPENSES. Expenses allocated at the class level include
printing and mailing expenses and expenses payable under the
Funds' Distribution Plans. The Distribution Plans provide that
each Fund may spend, in one year, up to 0.25% of the average daily
net assets of the Fund's Investment Shares to finance sales
activities of the Investment Shares, including marketing and
advertising shares, maintaining account records, issuing
confirmation statements and providing sub-accounting. Banks,
broker-dealers and other organizations may also receive payments
for providing support and/or distribution services to the Funds'
shareholders who are their customers. Federal banking law
currently limits the securities activities of banks. If a bank was
not allowed to provide support and/or distribution services, the
Funds would find another organization to provide such services and
no shareholder should suffer any financial loss. The Funds do not
reimburse 440 Distributors, the Funds' distributor, for any
distribution expenses in excess of the payments received by 440
Distributors under the Distribution Plans or for its overhead
expenses. Neither Fund currently intends to charge any fees under
the Plans.
PURCHASES OF SHARES
Who May Want to Invest in the Funds?
Investment Shares may be purchased by individual investors and
Institutional Shares may be purchased only by financial and other
institutions for the benefit of fiduciary, agency or custodial
accounts. The Funds, which are money market funds, are designed
for investors who primarily seek to preserve their capital. The
instruments in which the Funds invest may not earn as high a level
of current income as longer term or lower quality securities,
which generally have less liquidity, greater market risk and more
price fluctuation. Investors who desire higher returns and can
risk a potential loss of capital may wish to invest in the other
portfolios of the Trust, which have fluctuating net asset values
and typically higher returns than the Funds.
Shares of the Michigan Municipal Money Market Fund would not be
suitable for tax-exempt institutions and may not be suitable for
certain retirement plans and for entities which are substantial
users of the facilities financed by industrial development bonds.
Such investors may wish to consider instead an investment in the
Money Market Fund.
When Can I Purchase Shares?
Shares can be purchased on any day that both the New York Stock
Exchange (the "NYSE") and Bankers Trust Company, the Funds'
custodian, are open for business.
What is the Minimum Required Investment?
An investor must initially invest at least $1,000 ($100 for IRAs)
in Investment Shares and at least $100,000 in Institutional
Shares. Subsequent investments may be made in any amount. The
investment minimums may be waived for purchases by employees of
Old Kent, participants in tax-sheltered plans and certain
qualified retirement accounts.
How Can I Purchase Shares?
INVESTMENT SHARES
For your convenience, the Funds offer a wide variety of methods to
purchase Investment Shares.
* Through a Broker. Any broker authorized by 440 Distributors
can sell you Investment Shares of the Funds. Please note that
such brokers may charge you fees for their services.
* By Mail. You may open an account by mailing a completed
application and a check (payable to the applicable Fund) to: The
Kent Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer
Drive, Westboro, MA 01581-5107.
* By Telephone. You may call 1-800-633-KENT (5368) to open an
account and electronically transfer money to the account, followed
by a completed application.
* By Check. Subsequent purchases of Investment Shares can be
made by mailing a check to the address listed above.
* By Federal Funds Wire. Subsequent purchases of Investment
Shares can be made via a federal funds wire sent to Fleet Bank for
credit to a particular Fund. You should call 1-800-633-KENT
(5368) for complete wire instructions. You should be aware that
banks may charge fees for sending wires. 440 Distributors has the
right to charge fees for receiving wires, although it does not
currently do so.
* By Electronic Funds Transfer. (For subsequent purchases
only). Call 1-800-633-KENT (5368) to request a purchase to be
made or for the forms to establish Electronic Fund Transfer.
* Through an Automatic Investment Plan.
1. Call 1-800-633-KENT (5368) to establish an Automatic
Investment Plan.
2. Invest at least $1,000 in an Investment Share account.
3. On the 5th day of each month, your checking account will be
debited (minimum of
$50) and Investment Shares will be purchased and held in
your account.
To change the amount invested each month in Investment
Shares, or to stop the Automatic Investment Plan, call 1-800-633-
KENT (5368) or write to: The Kent Funds, c/o 440 Distributors, PO
Box 5107, 4400 Computer Drive, Westboro, MA 01581-5107 at least 5
days before a scheduled investment.
* Through Direct Deposit. You may authorize direct deposit of
your payroll, Social Security or Supplemental Security Income
checks.
* Through a Tax-Sheltered Plan. Investment Shares of the
Money Market Fund may be purchased through IRAs and Rollover IRAs,
which are available through the Distributor. For details and
application forms, call 1-800-633-KENT (5368) or write to: The
Kent Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer
Drive, Westboro, MA 01581-5107.
INSTITUTIONAL SHARES
You can purchase Institutional Shares by taking the following
steps:
1. To open an account, call 1-800-633-KENT (5368) to obtain an
account or wire identification number.
2. Place a purchase order for shares by telephoning the number
above.
3. Wire federal funds to Fleet Bank no later than the day after
the purchase order is placed.
You should note that (i) a purchase of Institutional Shares will
not be completed until Fleet Bank receives the purchase price and
(ii) banks may charge for wiring federal funds to Fleet Bank. You
may obtain information on how to wire funds from any national bank
and certain state banks.
EXCHANGE PRIVILEGE
You may acquire Investment or Institutional Shares of a Fund (the
"new fund") by exchanging shares of another investment portfolio
offered by the Trust (the "old fund") for shares of the new fund.
Shares of the new fund will be of the same class as the old fund.
In effect, you would be redeeming (reselling to the fund) shares
of the old fund and purchasing shares of the new fund. To
determine the price at which shares are redeemed, see "What Price
Do I Receive for Shares?" and to determine the price at which
shares are purchased, see "What Price Do I Pay for Shares?"
1. Call 1-800-633-KENT (5368) or write to: The Kent Funds, c/o
440 Distributors, PO Box 5107, 4400 Computer Drive, Westboro, MA
01581-5107 to obtain a prospectus for the new fund prior to the
exchange.
2. Call or write as indicated in 1 above to place an order to
exchange shares. Purchases of shares of a new fund must meet the
minimum purchase requirement of that fund. If the order to
exchange shares is placed prior to or at 4:00 p.m. Eastern Time on
any business day, the order will be executed on the day received,
and if the order is placed after 4:00 p.m. Eastern Time, the order
will not be executed until the next business day.
3. If a shareholder does not have an account with the new fund,
a new account will be established with the same reinvestment
options for distributions as the account for the old fund, unless
the shareholder writes to the new fund to change the option.
IMPORTANT INFORMATION ABOUT EXCHANGES. If shares of a Fund are
purchased by check, such shares cannot be exchanged for 15 days. The Trust
may disallow exchanges of shares if a shareholder has made more than five
exchanges between investment portfolios offered by the Trust in a year, or more
than three exchanges in a calendar quarter. Although unlikely, the Trust may
reject any exchanges or the Funds may change or terminate rights to exchange
shares. The exchange privilege is available only in states where shares of the
new fund may be sold.
No sales charge is imposed when Investment Shares on which a
shareholder previously paid a sales charge are exchanged for
Investment Shares of another investment portfolio. However, a
sales charge will be imposed on exchanges of Investment Shares
purchased without a sales charge (e.g. shares of the Money Market
Fund and Michigan Municipal Money Market Fund) for Investment
Shares of another portfolio which imposes a sales charge. In
order to make an exchange, shareholders will be required to
maintain the applicable minimum account balance in each investment
portfolio of the Trust in which shares are owned.
Institutional Shares of a Fund may be exchanged for Investment
Shares of the same Fund when the Institutional Shares are
distributed to the underlying beneficial owners of trust accounts,
401(k) plans and other fiduciary or agency accounts. No sales
charge is imposed in connection with such an exchange.
Investors should note that each Fund has the right to stop
offering its shares, to reject purchase orders and to suspend the
exchange privilege, although such actions are unlikely. 440
Distributors may require additional documents prior to accepting a
purchase, redemption or exchange.
SHAREHOLDER SERVICES. For further information on all
shareholder services, call 1-800-633-KENT (5368) or write to: The
Kent Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer
Drive, Westboro, MA 01581-5107.
What Price Do I Pay For Shares?
Shares are sold at the "net asset value next determined" by the
Funds. This term is explained below. You should be aware that
broker-dealers (other than the Funds' distributor) may charge
investors additional fees if shares are purchased through them.
NET ASSET VALUE. Except in certain limited circumstances, at
4:00 p.m. on each day the NYSE is open for trading each Fund
determines its NAV. NAV is calculated separately for the
Investment Shares and Institutional Shares of each Fund. The "net
asset value next determined" is the NAV calculated at 4:00 p.m. on
the day a purchase order for shares is received, if the purchase
order is received prior to or at 4:00 p.m., and is the net asset
value calculated at 4:00 p.m. on the next business day, if the
purchase order is received after 4:00 p.m. NAV is calculated by
totaling the value of all of the assets of a Fund allocated to a
particular class of shares, subtracting the Fund's liabilities and
expenses allocated to that class, and dividing the result by the
number of shares of that class outstanding.
The Funds' assets are valued on the basis of amortized cost,
meaning that instruments are valued at their acquisition cost
rather than at current market value. Material deviations in the
difference between amortized cost and market value will be
addressed by the Board of Trustees.
FOR FURTHER INFORMATION about sales charge reductions and
waivers and the programs described above, call toll-free at 1-800-
633-KENT (5368) or write to: The Kent Funds, c/o 440
Distributors, PO Box 5107, 4400 Computer Drive, Westboro, MA
01581-5107.
REDEMPTIONS (SALES) OF SHARES
When Can I Redeem Shares?
You can redeem shares on any day that the NYSE is open for
trading. Shares will not be redeemed by a Fund unless all
required documents have been received by 440 Distributors. A Fund
may temporarily stop redeeming shares when the NYSE is closed or
trading on the NYSE is restricted, when an emergency exists and
the Fund cannot sell its assets or accurately determine the value
of its assets or if the Securities and Exchange Commission orders
the Fund to stop redemptions. If you intend to redeem shares
worth more than $1,000,000, you should notify the Fund at least
one day in advance.
How Can I Redeem Shares?
INVESTMENT SHARES
Investment Shares may be redeemed in several ways.
* By Mail. You may mail your redemption notice to: The Kent
Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer Drive,
Westboro, MA 01581-5107. The redemption notice should state the
amount of money or number of shares to be redeemed, and the
account name and number. If a stock certificate has been issued
to you, you must endorse (sign the back of) the stock certificate
and return it to the Fund together with the written redemption
notice.
IMPORTANT INFORMATION REGARDING STOCK CERTIFICATES AND REDEMPTION
NOTICES FOR INVESTMENT SHARES. Signatures on all redemption
notices and stock certificates must be guaranteed by a U.S. stock
exchange member, a U.S. commercial bank or trust company and other
entities approved by 440 Distributors, unless the amount redeemed
is less than $50,000 and the account address has been the same for
at least 90 days. The Funds can change the above requirements or
require additional documents at any time.
* By Telephone. You can redeem up to $50,000 worth of
Investment Shares by calling 1-800-633-KENT (5368). If the amount
redeemed is less than $2,500, then a check will be mailed to you
and if equal to or greater than $2,500, then the proceeds will be
mailed or sent by wire or electronic funds transfer to the bank
listed on your account.
* Through a Broker. Investment Shares can be redeemed through
a broker. The broker should send the redemption notice and any
other required documents to 440 Distributors, which will send the
proceeds to the broker or directly to you, at your option, within
three days after receiving proper documents. 440 Distributors
does not charge a fee for this service, but the broker might.
* Through an Automatic Withdrawal Plan. Under the Plan, a
shareholder with an account worth at least $10,000 may redeem,
either monthly or quarterly, fixed dollar amounts of Investment
Shares. Each payment must be at least $100 and can be no more
than 1.5% per month, or 4.5% per quarter, of the value of the
shareholder's Investment Shares when the Automatic Withdrawal Plan
was opened. The proceeds can be mailed or sent by electronic
funds transfer to the bank listed on your account.
INSTITUTIONAL SHARES
You can redeem Institutional Shares by mail, by telephone or
through a broker by following the procedures described for
Investment Shares. Redemption proceeds will be wired in federal
funds only to the commercial bank and account number listed on
your account application. To change the bank account, you should
call the Funds at 1-800-633-KENT (5368) and request the
appropriate form.
GENERAL REDEMPTION INFORMATION
During periods of unusual market activity it may be difficult to
reach the Funds by telephone. In such cases, shareholders should
follow the procedures for redeeming by mail or through a broker.
Neither the Trust nor any of its service providers will be liable
for following telephone instructions reasonably believed to be
genuine unless it acts with willful misfeasance, bad faith or
gross negligence. In this regard the Trust and its transfer agent
require personal identification before accepting a telephone
redemption. To the extent that the Trust fails to use reasonable
procedures as a basis for its belief that telephone instructions
are genuine, it and/or its service providers may be liable for
instructions that prove to be fraudulent and unauthorized.
Each Fund reserves the right to redeem an account if its value
falls below $1,000 ($100 for IRA accounts) for Investment Shares
and $100,000 for Institutional Shares as a result of redemptions
(but not as a result of a decline in net asset value). A
shareholder will be notified in writing and allowed 60 days to
increase the value of the account to the minimum investment level.
What Price Do I Receive for Shares?
You will receive the NAV next determined for each share you wish
to redeem. See "Purchases of Shares - What Price Do I Pay for
Shares?" for an explanation of how the NAV next determined is
calculated.
When Will I Receive Redemption Money?
Redemption proceeds are typically sent to shareholders within
three business days after a request for redemption is made. You
should be sure that you submit all proper documents for
redemption; otherwise, the payment of redemption proceeds may be
delayed. You may call 1-800-633-KENT (5368) to be sure that you
have proper documents for redemption. If you purchase shares with
a check and try to redeem shares a short time later, the Fund may
delay paying redemption proceeds until the check has been
collected, although the amount to be paid for the shares will be
calculated when the redemption notice is received. The delay
could take 15 days or more. To avoid a delay in receiving
redemption proceeds, you should purchase shares through a bank
wire or electronic funds transfer. Information on wires can be
obtained from all national and many state banks.
STRUCTURE AND MANAGEMENT OF THE FUNDS
How Are The Funds Structured?
The Trust is an open-end management investment company, which
is a mutual fund that sells and redeems shares every day that it
is open for business. The Trust was organized on May 9, 1986 as a
Massachusetts business trust. The Trust is governed by a Board of
Trustees. The Trustees are responsible for the overall management
of the Trust and retain and supervise the Funds' Adviser,
Administrator, Distributor, Transfer Agent and Custodian.
Currently, the Trust has 13 portfolios, each of which offers two
classes of shares.
Who Manages and Services the Funds?
INVESTMENT ADVISER. The Funds are advised by Old Kent, an
indirect wholly-owned subsidiary of OKFC, which is a financial
services company with total assets as of December 31, 1995 of
approximately $12 billion. Old Kent provides investment advice to
the Funds under a contract with the Funds.
Old Kent's Investment Department employs an experienced staff of
professional investment analysts, portfolio managers and traders,
and uses several proprietary computer-based systems in conjunction
with fundamental analysis to identify investment opportunities.
Old Kent has provided investment advisory services to individual
and corporate trust accounts for over 100 years. Old Kent is
located at One Vandenberg Center, Grand Rapids, MI 49503.
Through offices in Michigan, Florida and Illinois, OKFC and its
subsidiaries provide a broad range of financial services to
individuals and businesses. Old Kent currently has the right to
vote a majority of the Trust's outstanding shares on behalf of its
underlying customer accounts and therefore it is considered to be
a controlling person of the Trust.
Old Kent selects broker-dealers to execute portfolio transactions
for the Funds based on best price and execution terms. Old Kent
may consider as a factor the number of shares of a Fund sold by
the broker-dealer. The broker-dealers may be affiliated with the
Trust or its service providers or their affiliates, subject to any
limitations imposed by applicable securities laws and regulations.
ADMINISTRATOR. First Data provides management and administrative
services to the Funds, including providing office space, equipment
and clerical personnel to the Funds, supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing
services. First Data also acts as the transfer agent and dividend
paying agent of the Funds. First Data is located at One Exchange
Place, Boston, Massachusetts 02109.
DISTRIBUTOR. 440 Distributors is the distributor of the Funds'
shares. 440 Distributors may, from time to time, provide
promotional incentives to certain dealers whose representatives
have sold or are expected to sell significant amounts of
Investment Shares. 440 Distributors may provide written
information to dealers with whom it has dealer agreements that
relate to sales incentive campaigns conducted by such dealers for
their representatives. In addition, 440 Distributors may
similarly provide financial assistance in connection with pre-
approved seminars, conferences and advertising. No such programs
or additional compensation will be offered to the extent that they
are prohibited by the laws of any state or any self-regulatory
agency, such as the NASD. Dealers to whom substantially the
entire sales charge is reallowed may be deemed to be underwriters
as that term is defined under the Securities Act of 1933.
What Are My Rights as a Fund Shareholder?
As a shareholder of a Fund, you have the right to vote on
certain matters affecting the Fund, such as elections of Trustees
and approval of advisory contracts and distribution arrangements.
The Trust will not have annual shareholder meetings, but special
meetings may be held at the request of investors holding 10% of
the shares for the purpose of removing a Trustee. You are
entitled to one vote for each share you hold and a fractional vote
for each fraction of a share you hold. You will be asked to vote
only on matters affecting the Trust as a whole and your particular
Fund and class of shares, and not on matters only affecting other
Funds or classes of shares. You should be aware that under
Massachusetts law it is possible that a shareholder may be
personally liable for the Trust's obligations. If a shareholder
were required to pay a debt of a Fund, however, the Trust has
committed to reimburse the shareholder in full from its assets.
DIVIDENDS, DISTRIBUTIONS AND TAXES
When Will I Receive Distributions From the Funds?
Each Fund will distribute substantially all of its net investment
income and long-term capital gains to shareholders each year.
Each Fund will declare dividends daily and pay dividends monthly.
Neither Fund expects to realize or distribute long-term capital
gains.
How Will Distributions Be Made?
Dividend and capital gains distributions will be paid in
additional shares of the Funds. If you wish to receive
distributions in cash, notify the Fund at 1-800-633-KENT (5368)
and a check will be mailed to you each time a distribution is
made. Your distributions may also be sent by electronic funds
transfer directly to your designated bank account. Shareholders
in IRA accounts and participants in certain tax-qualified plans
cannot receive distributions in cash.
What Are The Tax Implications of My Investments in the Funds?
Because the Funds each intend to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code"),
they generally will not be required to pay Federal income taxes on
their income and capital gains. Dividends of investment company
income by the Money Market Fund will be taxable to you as ordinary
income, unless you are exempt from Federal income taxes. Federal
income taxes for distributions to an IRA or to a qualified
retirement plan are deferred. In general, a Fund's investment
company taxable income will be its taxable income (including
interest and short-term capital gains) subject to certain
adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if
any, for such year. This tax treatment applies regardless of
whether you receive your distributions in cash or in additional
shares. Neither Fund expects to realize capital gains or make
capital gains distributions.
The Michigan Municipal Money Market Fund intends to distribute
monthly its net tax-exempt income (such distributions are known as
"exempt-interest dividends") and any investment company taxable
income. Exempt-interest dividends may be treated by you as items
of interest excludable from your gross income under Section 103(a)
of the Code, unless under the circumstances applicable to you the
exclusion would be disallowed. See the SAI under "Dividends and
Taxes." Shareholders receiving Social Security benefits should
note that all exempt-interest dividends will be taken into account
in determining the taxability of such benefits. To the extent, if
any, dividends paid to you are derived from taxable income or from
net long-term capital gains, such dividends will not be exempt
from Federal income tax, whether they are paid in cash or
reinvested in additional shares, and may also be subject to state
and local taxes.
The exemption of interest on municipal bonds for Federal income
tax purposes does not necessarily result in exemption under the
income, corporate or personal property tax laws of any state or
city. Generally, individual shareholders of the Michigan
Municipal Money Market Fund are afforded tax-exempt treatment at
the state and local levels for distributions derived from interest
on municipal securities of their state of residency.
Dividends paid by the Michigan Municipal Money Market Fund that
are derived from interest attributable to tax-exempt Michigan
Municipal Obligations will be exempt from Michigan state and local
taxes, even though the dividends may not be exempt for Federal
income tax purposes. The Fund is unable to predict in advance the
portion of its dividends that will be derived from interest on
Michigan Municipal Obligations, but will notify shareholders each
year as to the interest derived from Michigan Municipal
Obligations.
Distributions of taxable income and taxable capital gains by the
Michigan Municipal Money Market Fund are taxable for Michigan
taxation purposes when received by you, except that distributions
which are reinvested by you in shares of the Fund are exempt from
the Michigan intangibles tax. Except as noted above with respect
to Michigan income taxation, distributions of net income may be
taxable to investors as dividend income under other state or local
laws even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
You will receive from each Fund in which you are a shareholder
shortly after the end of each year a statement of the amount and
nature of distributions made to you during the year. You will
also receive a confirmation statement shortly after disposing of
shares showing the amount and value of the disposition.
Interest on indebtedness incurred by you to purchase or carry
shares of the Michigan Municipal Money Market Fund generally is
not deductible for Federal income tax purposes.
You should note that in certain cases (i) the Funds will be
required to withhold 31% of dividends or sale proceeds otherwise
due to you and (ii) in addition to Federal taxes, state and local
taxes may apply to transactions in shares.
This section contains a brief summary of the tax implications of
ownership of the Funds' shares. A lengthier description of taxes
is contained in the SAI. You should consult your tax adviser
regarding the impact of owning the Funds' shares on your own
personal tax situation, including the applicability of any state
and local taxes.
ADDITIONAL INFORMATION
Where Do I Get Additional Information About My Account and the
Funds?
For more information, call 1-800-633-KENT (5368) or write to
the Funds at: The Kent Funds, c/o 440 Distributors, PO Box 5107,
4400 Computer Drive, Westboro, MA 01581-5107.
Except as otherwise stated in this prospectus or required by law,
the Trust reserves the right to change the terms of any offer
stated in this prospectus without shareholder approval, including
the right to charge certain fees for services provided. No person
has been authorized to give any information or to make any
representation not contained in this prospectus, or in the SAI, in
connection with the offering made by this prospectus and, if given
or made, such information or representations must not be relied
upon as having been authorized by the Funds or their Distributor.
This prospectus does not constitute an offering by the Funds or by
their Distributor in any jurisdiction in which such offering may
not lawfully be made.
THE KENT FUNDS
Prospectus
Dated May 1, 1996
This Prospectus relates to the following equity funds (the
"Funds"):
The Kent Growth and Income Fund seeks long-term capital growth
with current income as a secondary objective. The Fund primarily
invests in common stock of U.S. companies with a net
capitalization of at least $100 million which are listed on the
New York Stock Exchange ("NYSE").
The Kent International Growth Fund seeks long-term capital
appreciation. The Fund principally invests in equity securities
of issuers located in at least three foreign countries.
The Kent Small Company Growth Fund seeks long-term capital
appreciation. The Fund principally invests in companies whose
securities are traded in the U.S. securities markets and whose
market capitalizations are less than $1 billion.
The Kent Index Equity Fund seeks investment results which
replicate the capital performance and dividend income of the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500").
This Prospectus contains information that a prospective investor
should know before investing. Investors should read and retain
this Prospectus for future reference. The Kent Funds has filed a
Statement of Additional Information ("SAI") dated May 1, 1996 with
the Securities and Exchange Commission, which is incorporated by
reference into this Prospectus. For a free copy of the SAI, or
for other information about the Funds, write to the address or
call the telephone number listed below.
Shares of the Funds are not bank deposits or obligations of, or
guaranteed or endorsed by, the Funds' investment adviser or any of
its affiliates, and are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in mutual fund
shares involves risk, including the possible loss of principal.
Old Kent Bank receives fees from the Funds for advisory and
certain other services.
The Kent Funds
PO Box 5107
4400 Computer Drive
Westborough, MA 01581-5107
Call Toll-Free For Shareholder Services:
1-800-633-KENT (5368)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Highlights
What are the key facts regarding the Funds? 3
Financial Information
What are the Funds' key financial highlights? 5
Fund Choices
What Funds are offered? 7
What instruments does each Fund invest in? 8
What are the risks of investing in the Funds? 11
Performance
How is the Funds' performance calculated? 12
Where can I obtain performance data? 13
Expense Information
What are the Funds' expenses? 13
Purchases of Shares
Who may want to invest in the Funds? 14
When can I purchase shares? 14
What is the minimum required investment? 15
How can I purchase shares? 15
What price do I pay for shares? 17
Redemptions (Sales) of Shares
When can I redeem shares? 20
How can I redeem shares? 20
What price do I receive for shares? 21
When will I receive redemption money? 21
Structure and Management of the Funds
How are the Funds structured? 22
Who manages and services the Funds? 22
What are my rights as a Fund shareholder? 23
Dividends, Distributions and Taxes
When will I receive distributions from the Funds? 23
How will the distributions be made? 24
Are there tax implications of my investments in the Funds? 24
Additional Information
Where do I get further information about my account and the Funds?
25
HIGHLIGHTS
What Are the Key Facts Regarding the Funds?
Q: What are The Kent Funds?
A: The Kent Funds (the "Trust") is a family of open-end
management investment companies (commonly known as mutual funds)
that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives
and policies. This prospectus describes the Trust's Growth and
Income Fund, Small Company Growth Fund, International Growth Fund
and Index Equity Fund. See "Fund Choices - What Funds Are
Offered?" The Trust also offers the following investment
portfolios by separate prospectuses: The Kent Money Market Fund,
The Kent Michigan Municipal Money Market Fund, The Kent Short Term
Bond Fund, The Kent Intermediate Bond Fund, The Kent Income Fund,
The Kent Limited Term Tax-Free Fund, The Kent Intermediate Tax-
Free Fund, The Kent Tax-Free Income Fund and The Kent Michigan
Municipal Bond Fund. To obtain a prospectus for any Kent Fund,
please call 1-800-633-KENT (5368).
Q: Who advises the Funds?
A: The Funds are managed by Old Kent Bank ("Old Kent"), an
indirect wholly-owned subsidiary of Old Kent Financial Corporation
("OKFC"). OKFC is a financial services company with total assets
as of December 31, 1995 of approximately $12 billion. See
"Structure and Management of the Funds - Who Manages and Services
the Funds?"
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a
variety of professionally managed diversified investment
portfolios without having to become involved with the detailed
accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the
economic advantages of block trading in portfolio securities and
the availability of a family of thirteen mutual funds should your
investment goals change.
Q: How does someone buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors,
Inc. ("440 Distributors") and are sold in two classes: Investment
Shares and Institutional Shares. Investment Shares can be
purchased from any broker-dealer or financial institution which
has entered into a dealer agreement with 440 Distributors, or by
completing an application and mailing it directly to 440
Distributors with a check, payable to the appropriate Fund, for
$1,000 or more, or $100 or more for Individual Retirement Accounts
("IRAs"). Institutional Shares are offered to financial and other
institutions for the benefit of fiduciary, agency or custodial
accounts. The minimum initial aggregate investment for
Institutional Shares is $100,000. The Trust may waive the minimum
purchase requirements in certain instances. Institutional Shares
purchasers should call First Data Investor Services Group, Inc.
("First Data"), the Trust's Transfer Agent and Administrator,
toll-free at 1-800-633-KENT (5368) for instructions on how to open
an account. See "Purchases of Shares." For information on how to
redeem your shares, see "Redemptions (Sales) of Shares."
Q: When are dividends paid?
A: Dividends of each Fund's net investment income are declared
and paid monthly, except for the International Growth Fund, which
declares and pays dividends of its net investment income annually.
Net realized capital gains of the Funds are distributed at least
annually. See "Dividends, Distributions and Taxes."
Q: What shareholder privileges are offered by the Trust?
A: Investors may exchange shares of a Fund having a value of at
least $100 for shares of the same class of any other investment
portfolio offered by the Trust in which the investor has an
existing account. The Trust offers IRAs, which can be established
by contacting the Trust's Distributor. The Trust also offers an
Automatic Investment Program which allows investors to
automatically invest in Investment Shares on a monthly basis. See
"Purchases of Shares - How Can I Purchase Shares?"
Q: What are the potential risks presented by the Funds'
investment practices?
A: Investing in the Funds involves the risks common to any
investment in securities. The net asset value ("NAV") of each
Fund's shares will fluctuate with changes in the market value of
its portfolio securities. The International Growth Fund will
primarily invest in foreign securities which may be subject to
certain risks in addition to those inherent in U.S. investments,
including the possible imposition of exchange control regulation,
freezes on convertibility of currency and adverse changes in
foreign currency exchange rates. The Growth and Income Fund may
also invest a portion of its assets in foreign securities. The
Small Company Growth Fund will primarily invest in the stocks of
smaller companies which tend to present increased risk and are
subject to greater price volatility. Each of the other Funds may
also invest from time to time in securities issued by smaller
companies. The Funds may also invest up to 15% of their net
assets in illiquid securities. For a complete description of the
risks associated with each Fund, see "Fund Choices - What Funds
are Offered?" and " - What Are the Risks of Investing in the
Funds?"
FINANCIAL INFORMATION
What Are the Funds' Key Financial Highlights?
Fee Table
The purpose of the fee table is to assist you in understanding the
various costs and expenses that an investor in each Fund will bear
directly or indirectly. See "Expense Information" and "Purchases
of Shares" for more information regarding such costs and expenses.
GROWTH AND SMALL COMPANY INTERNATIONAL INDEX EQUITY
INCOME FUND GROWTH FUND GROWTH FUND FUND
Investment Institutional Investment Institutional Investment
Institutional Investment
Institutional
Shares Shares Shares Shares Shares Shares Shares Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchase 1 4.00% None 4.00% None 4.00% None
4.00% None
(as a % of offering price)
ANNUAL FUND OPERATING EXPENSES 2
(as a % of average net assets)
Management Fees 0.70% 0.70% 0.70% 0.70% 0.75% 0.75% 0.30% 0.30%
12b-1 Fees 3 0.25% None 0.25% None 0.25% None 0.25% None
Other Expenses (after fee waivers) 4 0.25% 0.25% 0.25% 0.25% 0.40% 0.40%
0.16% 0.16%
TOTAL FUND OPERATING EXPENSES 1.20% 0.95% 1.20% 0.95% 1.40% 1.15% 0.71%
0.46%
(after fee waivers) 4
1 The sales charge applied to the purchase of a Fund's Investment Shares
declines as the
amount invested increases. See "Purchases of Shares - What Price Do I
Pay For Shares?"
2 Expense ratios are based on amounts incurred for the fiscal year ended
December 31, 1995,
restated, in the case of Index Equity Fund, to reflect current waivers,
fees and expenses. Sweep,
trustee, agency, custody and certain other fees charged by Old Kent and its
affiliates to their
customers who own shares of the Funds are not reflected in the fee table.
3 Investment Shares may pay 12b-1 fees of up to 0.25%
(on an annualized basis). As a result of
the payment of sales charges and 12b-1 and certain other related fees
discussed below, long
term Investment Class shareholders may pay more than the economic
equivalent of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.
("NASD").
4 In the case of Index Equity Fund, reflects a voluntary waiver of a
portion of the Fund's
administration fees. This waiver will not be changed for at least one year
from the date of this
prospectus. Absent such waiver, Other Expenses and Total Fund Operating
Expenses would be
0.26% and 0.81%, respectively, for the Fund's Investment Shares and 0.26%
and 0.56%,
respectively, for its Institutional Shares.
EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (i)
5% annual return and (ii) redemption at the end of each period:
GROWTH AND SMALL COMPANY INTERNATIONAL INDEX EQUITY
INCOME FUND GROWTH FUND GROWTH FUND FUND
Investment Institutional Investment Institutional Investment
Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares Shares Shares
One Year $ 52 $ 10 $ 52 $ 10 $ 54 $ 12 $ 47 $ 5
Three Years $ 76 $ 30 $ 76 $ 30 $ 82 $ 36 $ 62 $14
Five Years $103 $ 52 $103 $ 52 $113 $ 62 $ 77 $25
Ten Years $178 $114 $178 $114 $199 $137 $123 $57
Amounts shown in the example should not be considered a representation of past
or future investment return or expenses; actual investment return and expenses
may be greater or lesser than those shown.
FINANCIAL HIGHLIGHTS
The Financial Highlights presented below have been audited by KPMG
Peat Marwick LLP, independent auditors, whose report, together
with the financial statements of the Funds, appears in the Funds'
annual report. These tables should be read in conjunction with
the Funds' financial statements and related notes. Additional
information concerning the performance of the Funds' is contained
in their annual report, which can be obtained without charge by
calling 1-800-633-KENT (5368).
GROWTH AND INCOME FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995 1994 1993 1992(1) 1995 1994 1993
1992(2)
Net Asset Value, Beginning of period $10.46 $10.87 $10.29 $10.23
$10.50 $10.91 $10.31 $10.00
Income from Investment Operations:
Net investment income 0.30 0.32 0.27
*** 0.33 0.31 0.27 0.06
Net realized and unrealized gain (loss) 3.26 (0.27)
0.93 0.06 3.28 (0.26) 0.95
0.31
on investments
Total from Investment Operations: 3.56 0.05
1.20 0.06 3.61 0.05 1.22
0.37
Less Distributions from:
Net investment income (0.30) (0.31) (0.23)
- --- (0.33) (0.31) (0.27) (0.06)
In excess of net investment income --- ***
(0.05) --- --- *** (0.01)
***
Net realized gains (0.53) (0.15) (0.20) --
- - (0.53) (0.15) (0.34) ---
In excess of net realized gains
on investments --- --- (0.14) --
- - --- --- --- ---
Total Distributions: (0.83) (0.46) (0.62)
- --- (0.86) (0.46) (0.62) (0.06)
Net increase (decrease) in net asset value 2.73 (0.41)
0.58 0.06 2.75 (0.41) 0.60
0.31
Net Asset Value, End of period $13.19 $10.46 $10.87 $10.29
$13.25 $10.50 $10.91 $10.31
Total Return for period indicated (A) 34.61% 0.50%
11.81% 0.59% 34.91% 0.51% 11.98%
3.68%
Ratios/Supplemental Data
Net Assets, End of period (000's) $11,079 $8,005 $4,607
$102 $401,371 $308,825 $180,864 $76,449
Ratios to average net assets:
Net investment income 2.48% 3.03% 2.43%
(0.88)%* 2.73% 3.04% 2.61% 3.51%*
Operating expenses 1.18% 0.98% 1.22%
0.33%** 0.94% 0.98% 1.03% 0.19%**
Portfolio Turnover Rate 58% 28% 54%
0% 58% 28% 54% 0%
* Annualized.
** Not Annualized.
*** Amounts is less than $0.005.
(1) The Investment Class date of initial public investment was
December 1, 1992.
(2) The Institutional Class commenced operations on November 2, 1992.
(A) Calculation does not include sales charge for the Investment
Shares.
INTERNATIONAL GROWTH FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995 1994 1993 1992(1) 1995 1994 1993
1992(2)
Net Asset Value, Beginning of period $13.00 $12.81 $10.03 $10.00
$13.06 $12.84 $10.01 $10.00
Income from Investment Operations:
Net investment income 0.14 0.14 0.13
*** 0.13 0.12 0.09 ***
Net realized and unrealized gain (loss) 1.50 0.56
2.85 0.03 1.54 0.61 2.95
0.02
on investments, foreign currency
and futures contracts
Total from Investment Operations: 1.64 0.70
2.98 0.03 1.67 0.73 3.04
0.02
Less Distributions from:
Net investment income (0.09) (0.07) (0.02)
- --- (0.13) (0.07) (0.08) ---
In excess of net investment income (0.11) (0.03)
(0.09) --- (0.11) (0.03) (0.04)
(0.01)
Net realized gains (0.31) (0.41) (0.05) --
- - (0.31) (0.41) (0.08) ---
In excess of net realized gains --- ---
(0.04) --- --- --- (0.01) --
- -
Total Distributions: (0.51) (0.51) (0.20)
- --- (0.55) (0.51) (0.21) (0.01)
Net increase (decrease) in net asset value 1.13 0.19
2.78 0.03 1.12 0.22 2.83
0.01
Net Asset Value, End of period $14.13 $13.00 $12.81 $10.03
$14.18 $13.06 $12.84 $10.01
Total Return for period indicated (A) 12.86% 5.51%
29.67% 0.30% 13.00% 5.73% 30.32%
0.20%
Ratios/Supplemental Data
Net Assets, End of period (000's) $7,548 $6,539 $3,202 $15
$286,545 $178,186 $157,716 $81,105
Ratios to average net assets:
Net investment income 1.11% 0.81% 0.32%
(1.34)%* 1.35% 0.87% 0.86% (0.28)%*
Operating expenses 1.40% 1.25% 1.43%
0.20%** 1.17% 1.22% 1.33% 0.14%**
Portfolio Turnover Rate 6% 20% 5%
0% 6% 20% 5% 0%
* Annualized.
** Not Annualized.
*** Amounts is less than $0.005.
(1) The Investment Class date of initial public investment was
December 4, 1992.
(2) The Institutional Class commenced operations on December 4, 1992
(A) Calculation does not include sales charge for the Investment
Shares.
SMALL COMPANY GROWTH FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995 1994 1993 1992(1) 1995 1994 1993
1992(2)
Net Asset Value, Beginning of period $11.98 $12.49 $10.86 $10.65
$11.99 $12.50 $10.85 $10.00
Income from Investment Operations:
Net investment income 0.07 0.10 0.08
*** 0.10 0.10 0.08 0.02
Net realized and unrealized gain (loss) 2.64 (0.11)
1.74 0.21 2.64 (0.10) 1.76
0.86
on investments and futures contracts
Total from Investment Operations: 2.71 (0.01)
1.82 0.21 2.74 0.00 1.84
0.88
Less Distributions from:
Net investment income (0.07) (0.08) (0.06)
- --- (0.10) (0.09) (0.08) (0.02)
In excess of net investment income --- (0.01)
(0.03) --- --- (0.01) (0.01)
(0.01)
Net realized gains (0.81) (0.41) (0.10) --
- - (0.81) (0.41) (0.10) ---
Total Distributions: (0.88) (0.50) (0.19)
- --- (0.91) (0.51) (0.19) (0.03)
Net increase (decrease) in net asset value 1.83 (0.51)
1.63 0.21 1.83 (0.51) 1.65
0.85
Net Asset Value, End of period $13.81 $11.98 $12.49 $10.86
$13.82 $11.99 $12.50 $10.85
Total Return for period indicated (A) 23.47% (0.08)%
16.84% 1.97% 23.75% (0.06)% 17.04%
8.75%
Ratios/Supplemental Data
Net Assets, End of period (000's) $10,955 $8,433 $5,345
$84 $450,072 $304,179 $252,401 $95,999
Ratios to average net assets:
Net investment income 0.59% 0.79% 0.59%
(1.50)%* 0.83% 0.79% 0.74% 1.35%*
Operating expenses 1.20% 0.98% 1.25%
0.27%** 0.97% 0.98% 1.06% 0.18%**
Portfolio Turnover Rate 30% 20% 14%
1% 30% 20% 14% 1%
* Annualized.
** Not Annualized.
*** Amounts is less than $0.005.
(1) The Investment Class date of initial public investment was
December 4, 1992.
(2) The Institutional Class commenced operations on November 2, 1992.
(A) Calculation does not include sales charge for the Investment
Shares.
INDEX EQUITY FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995 1994 1993 1992(1) 1995 1994 1993
1992(2)
Net Asset Value, Beginning of period $10.70 $11.07 $10.44 $10.28
$10.68 $11.04 $10.41 $10.00
Income from Investment Operations:
Net investment income 0.23 0.26 0.22
*** 0.26 0.25 0.23 0.05
Net realized and unrealized gain (loss) 3.44 (0.17)
0.72 0.16 3.44 (0.15) 0.71
0.41
on investments and futures contracts
Total from Investment Operations: 3.67 0.09
0.94 0.16 3.70 0.10 0.94
0.46
Less Distributions from:
Net investment income (0.23) (0.26) (0.20)
- --- (0.25) (0.26) (0.23) (0.05)
In excess of net investment income --- ---
(0.03) --- --- --- ***
***
Net realized gains (1.57) (0.20) (0.06) --
- - (1.57) (0.20) (0.08) ---
In excess of net realized gains --- ---
(0.02) --- --- --- --- --
- -
Total Distributions: (1.80) (0.46) (0.31)
- --- (1.82) (0.46) (0.31) (0.05)
Net increase (decrease) in net asset value 1.87 (0.37)
0.63 0.16 1.88 (0.36) 0.63
0.41
Net Asset Value, End of period $12.57 $10.70 $11.07 $10.44
$12.56 $10.68 $11.04 $10.41
Total Return for period indicated (A) 35.81% 0.75%
9.09% 1.56% 36.23% 0.86% 9.11%
4.55%
Ratios/Supplemental Data:
Net Assets, End of period (000's) $6,612 $4,736 $3,776 $89
$183,877 $245,550 $233,451 $153,431
Ratios to average net assets:
Net investment income including
reimbursement/waiver 1.86% 2.30%
2.04% 1.03%* 2.14% 2.32% 2.18%
2.65%*
Net investment income excluding
reimbursement/waiver 1.85% 2.30%
2.04% 1.03%* 2.14% 2.32% 2.18%
2.65%*
Operating expenses including
reimbursement/waiver 0.80% 0.60%
0.86% 0.12%** 0.56% 0.58% 0.65% 0.13%**
Operating expenses excluding
reimbursement/waiver 0.81% 0.60%
0.86% 0.12%** 0.56% 0.58% 0.65% 0.13%**
Portfolio Turnover Rate 3% 50% 1%
0% 3% 50% 1% 0%
* Annualized.
** Not Annualized.
*** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was
November 25, 1992.
(2) The Institutional Class commenced operations on November 2, 1992.
(A) Calculation does not include sales charge for the Investment
Shares.
FUND CHOICES
What Funds are Offered?
The Trust currently offers the four stock funds described below.
The investment objectives described below are considered
"fundamental" and may not be changed by a Fund without the
approval of its shareholders.
GROWTH AND INCOME FUND
OBJECTIVE: The Fund's primary objective is long-term capital
growth with current income as a secondary goal.
PRINCIPAL INVESTMENTS: Under ordinary circumstances, the Fund
plans to invest at least 65% of its total assets in U.S. companies
with at least $100 million in net capitalization which are listed
on the NYSE or American Stock Exchange or are traded over-the-
counter. The Fund intends to invest in companies which Old Kent
believes have potential primarily for capital growth and
secondarily for income, and which may potentially provide a return
greater than the S&P 500. Up to 10% of the Fund's assets may also
be invested in foreign securities and American Depository Receipts
("ADRs"). A portion of the Fund's assets may be invested in
preferred stock or bonds convertible into common stock. The Fund
will purchase only convertible bonds having a rating in one of the
four highest rating categories by a nationally recognized
statistical rating organization or those which, if not rated, are
of comparable quality as determined by Old Kent. Bonds in the
fourth highest rating category may have speculative
characteristics. See Appendix A to the SAI for more information
regarding the quality and rating of convertible bonds acquired by
the Fund. The Fund expects current income mainly from stock
dividends and interest on convertible bonds.
SMALL COMPANY GROWTH FUND
OBJECTIVE: The Fund seeks long-term capital appreciation by
investing in equity securities of small companies.
PRINCIPAL INVESTMENTS: Under ordinary circumstances, the Fund
intends to invest at least 65% of its total assets in a diverse
group of small U.S. companies, which are companies whose market
capitalizations are less than $1 billion. The Fund intends to
purchase common stock issued by each NYSE company that meets the
above criteria. The amount of each NYSE company's common stock
purchased will be based on the company's capitalization relative
to all of the other eligible NYSE companies. Old Kent may elect
to exclude an eligible NYSE company from the Fund's portfolio if
it believes the company is in financial difficulty. Old Kent will
consider selling a stock if the issuer's market capitalization
increases to the point that it is ranked in the top half of all
NYSE companies. The Fund may also purchase stocks which are
listed on other U.S. securities exchanges or which are traded over
the counter.
INTERNATIONAL GROWTH FUND
OBJECTIVE: The Fund seeks long-term growth of capital and
additional diversification for U.S. investors by investing in a
varied portfolio of foreign equity securities.
PRINCIPAL INVESTMENTS: The Fund will invest mostly in common and
preferred stocks. Under ordinary circumstances, the Fund intends
to invest at least 65% of its total assets in at least 3 countries
other than the U.S., including (but not limited to) Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Italy, Japan, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. The
Fund uses the Morgan Stanley Europe, Australia and Far East Index
(the "EAFE Index") as its benchmark for performance. Old Kent
believes that the EAFE Index is generally representative of the
performance of the common stocks of large companies in
industrialized countries traded outside of the United States taken
as a whole. Stocks are included in the EAFE Index based on
national and industry representation and are weighted according to
their relative market values. In allocating the Fund's portfolio
between different countries, Old Kent will consider a country's
Gross Domestic Product compared with that of other industrialized
countries (other than the United States), as well as a country's
weighting in the EAFE Index, and will from time to time shift the
allocation of the Fund's assets from countries that it considers
overvalued to countries that it considers undervalued. The Fund
may also invest in ADRs and enter into currency and other futures
contracts and related options for hedging purposes.
INDEX EQUITY FUND
OBJECTIVE: The Fund seeks investment results which mirror the
capital performance and dividend income of the S&P 500.
PRINCIPAL INVESTMENTS: The Fund invests in common stock issued by
the companies comprising the S&P 500 in approximately the same
proportions as which such companies comprise the S&P 500.
Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in
the less heavily weighted S&P stocks, or may be invested in stocks
in different proportions than the S&P 500, especially when the
Fund has a low level of assets. Old Kent will generally try to
match the industry composition of the S&P 500 exactly. The Fund
also will try to achieve a correlation between the performance of
its portfolio and that of the S&P 500 of at least 0.95 (not
accounting for expenses). A correlation of 1.0 would mean that
the Fund's NAV (including the value of its dividends and capital
gains distributions) increases or decreases in exact proportion to
changes in the S&P 500. Several factors may affect the Fund's
ability to exactly track the S&P 500's performance, including the
timing of purchases and redemptions, changes in securities markets
and the level of the Fund's assets.
What Instruments Does Each Fund Invest In?
The Funds may also invest in the securities and use the investment
techniques described below. Each of these securities and
techniques is described in more detail under "Investment Policies"
in the SAI.
Each Fund will invest primarily in Common Stock. Many of the
common stocks the Funds (other than Growth and Income Fund) will
buy will not pay dividends; instead, the company's earnings will
be invested back in the company. The value of shares of common
stock will fluctuate due to many factors, including the past and
predicted earnings of the issuer, the quality of the issuer's
management, general market conditions, the forecasts for the
issuer's industry and the value of the issuer's assets. Common
stockholders only have rights to value in the company after all
debts have been paid and payments to preferred shareholders have
been made, and they could lose their entire investment in a
company that encounters financial difficulty.
Each Fund may invest in Money Market Instruments, which are high-
quality, short-term instruments including, among other things,
commercial paper, bankers' acceptances and negotiable certificates
of deposit of banks or savings and loan associations, short-term
corporate obligations which are rated A or better by Standard &
Poor's Rating Group or Moody's Investors Service, Inc.; and short-
term securities issued by, or guaranteed by, the U.S. Government
and its agencies or instrumentalities. When Old Kent determines
that market conditions are appropriate, each Fund may, for
temporary defensive purposes, invest up to 100% of its assets in
money market instruments. If a Fund is investing defensively, it
will not be pursuing its investment objective. It is not expected
that the Funds will invest to a significant extent, or on a
routine basis, in U.S. Government securities.
The Funds may enter into Repurchase Agreements. Under a
repurchase agreement, a Fund agrees to purchase securities from a
seller and the seller agrees to repurchase the securities at a
later time, typically within 7 days, at a set price. The seller
agrees to set aside collateral equal to the price it has to pay
during the term of the agreement. This ensures that the Fund will
receive the purchase price at the time it is due, unless the
seller defaults or declares bankruptcy, in which event the Fund
will bear the risk of possible loss due to adverse market action
or delays in liquidating the underlying obligation. The Funds
will not enter into repurchase agreements with Old Kent or its
affiliates.
Each Fund may also borrow money for temporary purposes by entering
into Reverse Repurchase Agreements. Under these agreements, a
Fund sells portfolio securities to financial institutions and
agrees to buy them back later at an agreed upon time and price.
The Funds may Lend Securities to broker-dealers and other
financially sound institutional investors who will pay the Funds
for the use of the securities. The borrower must set aside cash
or liquid high-grade debt securities equal to the value of the
securities borrowed at all times during the term of the loan.
Loans may not exceed one-third of the value of a Fund's total
assets. Risks involved with such transactions include possible
delay in recovering the loaned securities and possible loss of the
securities or the collateral if the borrower declares bankruptcy.
The Funds may purchase American Depository Receipts, which are
receipts, usually issued by a U.S. bank or trust company, which
represent ownership of underlying foreign securities held on
deposit. Many of the risks associated with foreign securities,
which are mentioned below, may also apply to ADRs.
Each Fund may agree to Purchase Securities for Future Delivery,
sometimes a month or more after the date of the agreement.
Although the price to be paid by the Fund is set at the time of
the agreement, the Fund usually does not pay for the securities
until they are received. The value of the securities may change
between the time the price is set and the time the price is paid.
When a Fund purchases securities for future delivery, the Trust's
custodian will maintain a segregated account containing cash, U.S.
Government securities or other liquid high-grade debt securities.
The Funds do not intend to purchase securities for future delivery
for speculative purposes.
The Funds may also purchase Warrants, which are rights to purchase
securities at a specific price over a specific period of time.
Each Fund may buy Options giving it the right to require a buyer
to buy securities held by the Fund (put options) or buy options
giving it the right to require a seller to sell securities to the
Fund (call options) during a set time period at a set price. A
Fund may also sell (write) options giving a buyer the right to
require the Fund to buy securities from the buyer (put options)
and options giving a buyer the right to require the Fund to sell
securities to the buyer (call options). These options will relate
to stock indices, individual securities and, with respect to the
Intentional Growth Fund, foreign currencies. These options will
be used only for hedging purposes; that is, to try to reduce
potential losses to the Fund due to currency or market value
fluctuations or other factors. A Fund will not purchase put or
call options where the aggregate premiums or outstanding options
exceed 5% of the Fund's net assets and will not write options on
more than 25% of its net assets.
The Funds may also purchase Futures Contracts, which are contracts
in which a Fund agrees, at maturity, to make delivery of certain
securities, the cash value of a specified stock index or, in the
case of the International Growth Fund, a stated quantity of
foreign currency. The Funds may also purchase and sell put and
call options on futures contracts traded on an exchange or board
of trade. Futures may be used for hedging purposes or to provide
liquid assets. A Fund will not enter into a futures contract if
the purchase will cause the aggregate amount of margin deposits on
existing futures positions plus premiums paid to establish such
positions to be more than 5% of the Fund's net assets.
Options and Futures are types of derivative instruments, which are
instruments that derive their value from a different underlying
security. Options and futures trading activities are very
specialized and may entail higher than ordinary investment risks.
Such risks include that the value of the securities to be bought
or sold under the option or futures contract or the currency
exchange rate being hedged against does not move in the direction
predicted by Old Kent, causing a potential loss to a Fund. The
risks of options and futures are described in more detail in the
SAI.
The Funds may buy shares of registered Money Market Investment
Companies. The Funds will bear a portion of the expenses of any
investment company whose shares they purchase, including operating
costs and investment advisory, distribution and administration
fees. These expenses would be in addition to the Fund's own
expenses.
The International Growth Fund may try to offset the impact of
changes in currency exchange rates by entering into Currency
Hedges such as forward currency exchange contracts and currency
swaps. A forward currency exchange contract is an obligation of
the Fund to purchase or sell a specific currency or currencies at
a future date at a set price. Such contracts may decrease the
loss to the Fund due to a drop in the value of a foreign currency,
but they also limit gains if the value of the foreign currency
increases. The Fund may engage in cross-hedging by using forward
contracts in one foreign currency to hedge against fluctuations in
the value of securities denominated in a different currency if Old
Kent believes there is a pattern of correlation between the two
currencies. The Fund may also enter into forward currency exchange
contracts relating to a "basket" consisting of specified amounts
of more than one currency. This particular type of contract will
be used to hedge against fluctuations in more than one currency
through the purchase of a single forward currency exchange
contract. It is possible that the composition of the "basket"
will not match exactly the Fund's exposure to each of the
currencies in the basket. In a currency swap, the International
Growth Fund will exchange with another party the right to make or
receive payments in certain foreign currencies.
The investment policies discussed above are not "fundamental"
policies and may be changed by the Board of Trustees without
shareholder approval. However, the Funds also have in place
certain fundamental investment limitations that cannot be changed
for a Fund without the approval of a majority of that Fund's
outstanding shares. Some of these limitations are summarized
below. A complete list of the fundamental investment limitations
for the Funds is contained in the SAI.
1. With respect to 75% of each Fund's total assets, the Funds
cannot invest more than 5% of their respective total assets in any
one issuer (other than the U.S. Government, its agencies and
instrumentalities). In addition, the Funds cannot invest more
than 25% of their respective total assets in a single industry nor
can they hold more than 10% of the voting securities of any
issuer. These restrictions require the Funds to be more
diversified in order to lower the risk to a Fund of an economic
setback for any one issuer or in any one industry.
2. Each Fund may only borrow money for temporary or emergency
purposes, and such borrowing is limited to an amount not greater
than one-third of the Fund's net assets, provided that when
borrowings from banks exceed 5% of a Fund's net assets, any such
borrowings will be repaid before additional investments are made.
The limits on the amount each Fund can borrow prevents the Fund
from significantly leveraging its assets.
3. Each Fund may not invest more than 15% of its net assets in
illiquid securities. Typically, there is no ready market for such
securities, which inhibits a Fund's ability to sell the securities
and to obtain values for the securities.
What Are the Risks of Investing in the Funds?
Investing in the Funds may be less risky than investing in
individual stocks due to the diversification of investing in a
portfolio of many different stocks; however, such diversification
does not eliminate all risks. Because the Funds invest mostly in
stocks, rises and falls in the stock market in general as well as
the particular stocks held by the Funds, can affect the Funds'
performance. Your investment in the Funds is not guaranteed. The
NAV of the Funds will change daily and you might not recoup the
amount you invest in the Funds. The Funds are not meant to
provide a vehicle for playing short-term swings in the stock
market. Consistent with a long-term investment approach,
investors in a Fund should be prepared and able to maintain their
investments during periods of adverse market conditions. By
itself, no Fund constitutes a balanced investment program and
there is no guarantee that any Fund will achieve its investment
objective since there is uncertainty in every investment.
Small Company Growth Fund
Old Kent believes that smaller companies can provide greater
growth potential and potentially higher returns than larger, older
firms. Investing in smaller companies, however, is riskier than
investing in larger companies. The stock of smaller companies may
trade infrequently and in lower volume, making it more difficult
for the Fund to sell the stocks of smaller companies when it
chooses. Smaller companies may have limited product lines,
markets, financial resources and distribution channels, which
makes them more sensitive to changing economic conditions. Stocks
of smaller companies historically have had larger fluctuations in
price than stocks of larger companies included in the S&P 500.
International Growth Fund
Investing in the International Growth Fund, with its
internationally varied portfolio, may involve more risk than
investing in a U.S. equity fund for the following reasons: (1)
there may be less public information available about foreign
companies than is available about U.S. companies; (2) foreign
companies are not generally subject to the uniform accounting,
auditing and financial reporting standards and practices
applicable to U.S. companies; (3) foreign stock markets have less
volume than the U.S. market, and the securities of some foreign
companies are less liquid and more volatile than the securities of
comparable U.S. companies; (4) there may be less government
regulation of stock exchanges, brokers, listed companies and banks
in foreign countries than in the U.S.; (5) the Fund may incur fees
on currency exchanges when it changes investments from one country
to another; (6) the Fund's foreign investments could be affected
by expropriation, confiscatory taxation, nationalization of bank
deposits, establishment of exchange controls, political or social
instability or diplomatic developments; (7) fluctuations in
foreign exchange rates will affect the value of the Fund's
portfolio securities, the value of dividends and interest earned,
gains and losses realized on the sale of securities, net
investment income and unrealized appreciation or depreciation of
investments; and (8) possible imposition of dividend or interest
withholding by a foreign country. The Fund may at times invest
more than 25% of its assets in a particular foreign country. A
concentration of investments in any one country will cause the
Fund's performance to be particularly vulnerable to the political
and economic climate of that country.
PERFORMANCE
How is the Funds' Performance Calculated?
There are various ways in which the Funds may calculate and report
their performance. Performance is calculated separately for the
Investment Shares and the Institutional Shares.
One method is to show a Fund's total return. Cumulative Total
Return is the percentage change in the value of $1,000 invested in
the Fund over a stated period of time and takes into account
reinvested dividends and the payment of the maximum sales charge
(4%) on Investment Shares. Although cumulative total return most
closely reflects the actual performance of a Fund, a shareholder
who opts to receive dividends in cash, or an Investment class
shareholder who paid a sales charge lower than 4%, will have a
different return than the reported performance. Average Annual
Total Return refers to the average annual compounded rates of
return over a specified period on an investment in shares of a
Fund, determined by comparing the initial amount invested to the
ending redeemable value of that amount, taking into account
reinvested dividends and the payment of the maximum sales charge
(4%) on Investment Shares.
Investment Shares may be purchased with a sales load and may have
higher fees and expenses than Institutional Shares, so the total
return of Investment Shares will be lower than that of
Institutional Shares. The Funds may sometimes publish total
returns that do not take into account sales charges and such
returns will be higher than returns which include sales charges.
You should be aware that (i) past performance does not indicate
how a Fund will perform in the future and (ii) each Fund's return
and NAV will fluctuate, so you cannot necessarily use a Fund's
performance data to compare it to investments in certificates of
deposit, savings accounts or other investments that provide a
fixed or guaranteed yield.
Each Fund may compare its performance to that of other mutual
funds, such as the performance of similar funds prepared by Lipper
Analytical Services, Inc. or information reported in national
financial publications (such as Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times) or in local or
regional publications. Each Fund may also compare its total
return to indices such as the S&P 500, the Russell 2000 Index and
the EAFE Index. These indices show the value of selected
portfolios of stocks (assuming reinvestment of dividends) which
are not managed by a portfolio manager. The Funds may report how
they are performing in comparison to the Consumer Price Index, an
indication of inflation reported by the U.S. government.
Where Can I Obtain Performance Data?
The Wall Street Journal and certain local newspapers report
information on the performance of mutual funds. In addition,
performance information is contained in the Funds' annual report
dated December 31 of each year (the Trust's fiscal year end) and
semi-annual report dated June 30 of each year, which will
automatically be mailed to shareholders. To obtain copies of
financial reports or performance information, call 1-800-633-KENT
(5368).
EXPENSE INFORMATION
What Are the Funds' Expenses?
A pro rata portion of certain expenses allocated to the Trust, to
the Fund you own and to the particular class of shares you own
will be reflected in the value of your shares. Such expenses are
not paid directly by shareholders.
TRUST EXPENSES. Expenses charged at the Trust level include fees
paid to Trustees, legal counsel and auditors and administration
fees. First Data is entitled to receive, for its administration
services, an annual fee equal to 0.20% of the aggregate net assets
of all funds in the Trust up to $5 billion; 0.18% of the Trust's
aggregate net assets between $5 and $7.5 billion; and 0.15% of the
Trust's aggregate net assets over $7.5 billion.
FUND EXPENSES. Most expenses will be charged at the Fund level,
including investment advisory fees, Securities and Exchange
Commission registration fees, transfer agency fees, custody fees,
brokerage commissions, interest charges and taxes. Old Kent is
entitled to receive from each Fund, and received from each Fund
during the fiscal year ended December 31, 1995, an annual advisory
fee at the following rates based on each Fund's average daily net
assets: Growth and Income Fund, 0.70%; Small Company Growth Fund,
0.70%; International Growth Fund, 0.75%; and Index Equity Fund,
0.30%. The advisory fee payable by the International Growth Fund
is higher than most mutual funds, but comparable to other global
and international funds. Old Kent may rebate advisory fees to
certain institutional customers in accordance with Federal and
state law.
CLASS EXPENSES. Expenses allocated at the class level include
printing and mailing expenses and expenses payable under the
Funds' Distribution Plans. The Distribution Plans provide that
each Fund may spend, in one year, up to 0.25% of the average daily
net assets of the Fund's Investment Shares to finance sales
activities of the Investment Shares, including marketing and
advertising shares, maintaining account records, issuing
confirmation statements and providing sub-accounting. Banks,
broker-dealers and other organizations may also receive payments
for providing support and/or distribution services to the Funds'
shareholders who are their customers. Federal banking law
currently limits the securities activities of banks. If a bank
was not allowed to provide support and/or distribution services,
the Fund would find another organization to provide such services
and no shareholder should suffer any financial loss. The Funds do
not reimburse 440 Distributors, the Funds' distributor, for any
distribution expenses in excess of the payments received by 440
Distributors under the Distribution Plan or for its overhead
expenses.
PURCHASES OF SHARES
Who May Want to Invest in the Funds?
Investment Shares may be purchased by individual investors and
Institutional Shares may be purchased only by financial and other
institutions for the benefit of fiduciary, agency or custodial
accounts. The Funds, which are equity funds, are designed for
investors who desire potentially high capital appreciation with
moderate to low income and who can accept short-term variations in
return for potentially greater returns over the long term.
Investors who have a short time horizon for their investments may
wish to invest in other Kent Funds designed for short-term
investors.
When Can I Purchase Shares?
Shares can be purchased on any day that both the NYSE and Bankers
Trust Company, the Funds' custodian, are open for business.
What is the Minimum Required Investment?
An investor must initially invest at least $1,000 ($100 for IRAs)
in Investment Shares and at least $100,000 in Institutional
Shares. Subsequent investments may be made in any amount. The
investment minimums may be waived for purchases by employees of
Old Kent, participants in tax-sheltered plans and certain
qualified retirement accounts.
How Can I Purchase Shares?
INVESTMENT SHARES
For your convenience, the Funds offer a wide variety of methods to
purchase Investment Shares.
* Through a Broker. Any broker authorized by 440
Distributors, the Funds' distributor, can sell you Investment
Shares of the Funds. Please note that such brokers may charge you
fees for their services.
* By Mail. You may open an account by mailing a completed
application and a check (payable to the applicable Fund) to: The
Kent Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer
Drive, Westborough, MA 01581-5107.
* By Telephone. You should call 1-800-633 KENT (5368) to open
an account and electronically transfer money to the account,
followed by a completed application.
* By Check. Subsequent purchases of Investment Shares can be
made by mailing a check to the address listed above.
* By Federal Funds Wire. Subsequent purchases of Investment
Shares can be made via a federal funds wire sent to Fleet Bank for
credit to a particular Fund. You should call 1-800-633-KENT
(5368) for complete wire instructions. You should be aware that
banks may charge fees for sending wires. 440 Distributors has the
right to charge fees for receiving wires, although it does not
currently do so.
* By Electronic Funds Transfer (For subsequent purchases
only). Call 1-800-633-KENT (5368) to request a purchase to be
made or for the forms to establish electronic funds transfers.
* Through an Automatic Investment Plan.
1. Call 1-800-633-KENT (5368) to establish an Automatic
Investment Plan.
2. Invest at least $1,000 in an Investment Share account.
3. On the 5th day of each month, your checking account will be
debited (minimum of $50) and Investment Shares will be purchased
and held in your account.
To change the amount invested each month in Investment
Shares, or to stop the Automatic Investment Plan, call 1-800-633-
KENT, or write to: The Kent Funds, c/o 440 Distributors, PO Box
5107, 4400 Computer Drive, Westborough, MA 01581-5107 at least
five days before a scheduled investment.
* Through Direct Deposit. You may authorize direct deposit of
your payroll, Social Security or Supplemental Security Income
checks.
* Through a Tax-Sheltered Plan. Investment Shares of the
Funds may be purchased through IRAs and Rollover IRAs, which are
available through 440 Distributors. For details and application
forms, call The Kent Funds at 1-800-633-KENT (5368) or write The
Kent Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer
Drive, Westborough, MA 01581-5107.
INSTITUTIONAL SHARES
You can purchase Institutional Shares by taking the following
steps:
1. To open an account, call 1-800-633-KENT (5368) to obtain an
account or wire identification number.
2. Place a purchase order for shares by telephoning the number
above.
3. Wire federal funds to Fleet Bank no later than the day after
the purchase order is placed.
You should note that (i) a purchase of Institutional Shares will
not be completed until Fleet Bank receives the purchase price and
(ii) banks may charge for wiring federal funds to Fleet Bank. You
may obtain information on how to wire funds from any national bank
and certain state banks.
EXCHANGE PRIVILEGE
You may acquire Investment or Institutional Shares of a Fund (the
new fund) by exchanging shares of another investment portfolio
offered by the Trust (the old fund) for shares of the new fund.
Shares of the new fund will be of the same class as the old fund.
In effect, you would be redeeming (reselling to the fund) shares
of the old fund and purchasing shares of the new fund. To
determine the price at which shares are redeemed, see "What Price
Do I Receive for Shares?" and to determine the price at which
shares are purchased, see "What Price Do I Pay for Shares?"
1. Call 1-800-633-KENT (5368) or write to: The Kent Funds, c/o
440 Distributors, PO Box 5107, 4400 Computer Drive, Westborough,
MA 01581-5107 to obtain a prospectus for the new fund prior to the
exchange.
2. Call or write as indicated in * above to place an order to
exchange shares. Purchases of new funds must meet the minimum
purchase requirement of that fund. If the order to exchange
shares is placed prior to or at 4:00 p.m. Eastern Standard Time on
any business day, the order will be executed on the day received,
and if the order is placed after 4:00 p.m. Eastern Standard Time,
the order will not be executed until the next business day.
3. If a shareholder does not have an account with the new fund,
a new account will be established with the same reinvestment
options for distributions as the account for the old fund, unless
the shareholder writes to the new fund to change the option.
IMPORTANT INFORMATION ABOUT EXCHANGES. If shares of a Fund
are purchased by check, such shares cannot be exchanged for 15
days. The Trust may disallow exchanges of shares if a shareholder
has made more than 5 exchanges between investment portfolios
offered by the Trust in a year, or more than 3 exchanges in a
calendar quarter. Although unlikely, the Trust may reject any
exchanges or the Funds may change or terminate rights to exchange
shares. The exchange privilege is available only in states where
shares of the new fund may be sold.
No sales charge is imposed when Investment Shares on which a
shareholder previously paid a sales charge are exchanged for
Investment Shares of another investment portfolio. However, a
sales charge will be imposed on exchanges of Investment Shares
purchased without a sales charge (i.e., money market portfolio
shares) for Investment Shares of a Fund which imposes a sales
charge. In order to make an exchange, shareholders will be
required to maintain the applicable minimum account balance in
each investment portfolio of the Trust in which shares are owned.
Institutional Shares of a Fund may be exchanged for Investment
Shares of the same Fund when the Institutional Shares are
distributed to the underlying beneficial owners of trust accounts,
401(k) plans and other fiduciary or agency accounts. No sales
charge is imposed in connection with such an exchange.
Investors should note that each Fund has the right to stop
offering its shares, to reject purchase orders and to suspend the
exchange privilege, although such actions are unlikely. 440
Distributors may require additional documents prior to accepting a
purchase, redemption or exchange.
SHAREHOLDER SERVICES. For further information on all shareholder
services, call The Kent Funds toll-free at 1-800-KENT (5368) or
write to: The Kent Funds, c/o 440 Distributors, PO Box 5107, 4400
Computer Drive, Westborough, MA 01581-5107.
What Price Do I Pay For Shares?
Investment Shares are sold at the "net asset value next
determined" by the Fund plus any "applicable sales charge" and
Institutional Shares are sold at the "net asset value next
determined" by the Fund. These terms are explained below. You
should be aware that broker-dealers (other than the Funds'
distributor) may charge investors additional fees if shares are
purchased through them.
NET ASSET VALUE. Except in certain limited circumstances, at 4:00
p.m. on each day the NYSE is open for trading each Fund determines
its NAV. NAV is calculated separately for the Investment Shares
and Institutional Shares of each Fund. The "net asset value next
determined" is the NAV calculated at 4:00 p.m. on the day a
purchase order for shares is received, if the purchase order is
received prior to or at 4:00 p.m., and is the net asset value
calculated at 4:00 p.m. on the next business day, if the purchase
order is received after 4:00 p.m. The NAV is calculated by
totaling the value of all of the assets of a Fund allocated to a
particular class of shares, subtracting the Fund's liabilities and
expenses allocated to that class, and dividing the result by the
number of shares of that class outstanding. When market
quotations are readily available, the Funds' assets are valued at
market value. Debt instruments with maturities of 60 days or less
are valued at amortized cost, unless the Board of Trustees
determines that this does not result in a fair value. All other
assets are valued at fair value as determined by or under the
direction of the Board of Trustees. The Funds may use pricing
services to help determine the fair value of securities.
APPLICABLE SALES CHARGE. Except in the circumstances described
below, a sales charge must be paid at the time of purchase of
Investment Shares. The more Investment Shares an investor
purchases, the lower the percentage of the sales charge will be,
as the table below indicates.
AMOUNT OF PURCHASE AS A % OF OFFERING PRICE* AS A % OF NET AMOUNT
INVESTED**
Under $100,000 4.00% 4.17%
$100,000 - $249,999 3.00% 3.09%
$250,000 - $499,999 2.00% 2.04%
$500,000 - $999,999 1.00% 1.01%
$1,000,000 and over 0.75% 0.76%
* Maximum reallowance to dealers.
** Rounded to the nearest one-hundredth percent.
For instance, if you wish to invest $275,000 in a Fund, you would
pay to the Fund $275,000 plus $5,610 (2.04% of $275,000).
Certain investors may reduce the percentage of sales charge they
pay for Investment Shares by purchasing shares of more than one
investment portfolio of the Trust ("Portfolio") at the same time,
by purchasing additional shares of Portfolios in the future or by
agreeing to invest a certain amount in Portfolios during a 13-
month period, as described below. Call the Trust at 1-800-633-
KENT (5368) to determine if you qualify for such reductions.
CONCURRENT PURCHASES. If you purchase Investment Shares of more
than one Portfolio that is subject to a sales load at the same
time, you may be able to total the amount being invested in all
Portfolios at that time to determine the sales charge payable.
For example, if you concurrently invested $100,000 in the Index
Equity Fund and $50,000 in the Growth and Income Fund, the sales
charge assessed would be 3% of $150,000, or $4,500.
RIGHTS OF ACCUMULATION. If you buy additional Investment Shares
of a Fund, then you may be able to total the amount of money
currently being invested and the current value of previously
purchased shares of a Portfolio (other than the Money Market Fund
or the Michigan Municipal Money Market Fund) still held to
determine the amount of sales charge payable. For example, if you
had previously purchased 10,000 shares of the Growth and Income
Fund and still held 5,000 shares of that Fund on a day when you
purchased an additional 20,000 shares of the Fund and the Fund's
NAV was $10 per share, you would pay a sales charge of 2% (the
applicable rate on a $250,000 purchase) on the $200,000 worth of
new shares being purchased, or $4,000. To take advantage of the
rights of accumulation, you must contact 440 Distributors at 1-
800-633-KENT (5368) at the time of purchase. The Trust may change
or terminate rights of accumulation at any time.
LETTER OF INTENT. If you intend to make several investments in
one or more Portfolios over time, you may wish to complete the
Letter of Intent section of your new account application. By
doing so, you agree to invest a certain amount in one or more
Portfolios over a 13-month period. Each investment in a Portfolio
during the 13 months would then be subject to the sales charge
applicable to the total amount to be invested under the Letter of
Intent in Portfolios that charge a sales load. For example, if
you stated in your application your intent to invest $275,000 in
one or more Portfolios that charge a sales load but you only
invested $75,000 at the time you completed your application, then
you would pay a sales charge of 2% of $75,000, or $1,500, which is
half of the 4% sales charge that you would otherwise have paid on
such investment. The Letter of Intent may be back-dated up to 90
days so that any investments made in any of the Portfolios (other
than in the Money Market Fund and the Michigan Money Market Fund)
during the preceding 90-day period can be applied toward
fulfillment of the Letter of Intent (although there will be no
refund of sales charges paid during the 90-day period). You
should inform 440 Distributors that you have a Letter of Intent
each time you make an investment.
You are not obligated to purchase the amount specified in the
Letter of Intent. If you purchase less than the amount specified,
however, you must pay the difference between the sales charge paid
and the sales charge applicable to the purchases actually made.
Shares representing 5% of the dollar amount specified in the
Letter of Intent will be held in escrow. Such shares will not be
available for redemption, transfer or pledge until the Letter of
Intent is completed or the higher sales charge paid. If the
intended investment is not completed and you do not pay the
difference between the sales charge paid and the sales charge
applicable to the purchases actually made within 20 days after
written request by 440 Distributors or its dealer, 440
Distributors will redeem an appropriate number of escrowed shares
and release the balance of escrowed shares to you. You are
entitled to all income and capital gains distributions paid with
respect to the escrowed shares.
OTHER. Sales charges may be waived entirely for investors who
transfer balances from mutual fund companies other than the Trust
during certain promotional periods announced by 440 Distributors.
In addition, sales charges will not be payable by (1) current
full-time and part-time employees, retired employees and Directors
of OKFC and its subsidiaries; (2) Trustees of the Trust; (3)
registered representatives of firms which have dealer or broker
agreements with 440 Distributors relating to Investment Shares;
(4) spouses and dependent children of the individuals listed in
(1) - (3) above; (5) OKFC or one of its subsidiaries, acting on
behalf of fiduciary customer accounts and any other account
maintained by a trust department; (6) employees of First Data and
440 Distributors; and (7) participants in certain qualified
retirement plans.
FOR FURTHER INFORMATION about sales charge reductions and waivers
and the programs described above, call toll-free at 1-800-633-KENT
(5368) or write to: The Kent Funds, c/o 440 Distributors, PO Box
5107, 4400 Computer Drive, Westborough, MA 01581-5107.
REDEMPTIONS (SALES) OF SHARES
When Can I Redeem Shares?
You can redeem shares on any day that the NYSE is open for
trading. Shares will not be redeemed by a Fund unless all
required documents have been received by 440 Distributors. A Fund
may temporarily stop redeeming shares when the NYSE is closed or
trading on the NYSE is restricted, when an emergency exists and
the Fund cannot sell its assets or accurately determine the value
of its assets or if the Securities and Exchange Commission orders
the Fund to stop redemptions. If you intend to redeem shares
worth more than $1,000,000, you should notify the Fund at least
one day in advance.
How Can I Redeem Shares?
INVESTMENT SHARES
* By Mail. You may mail your redemption notice to: The Kent
Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer Drive,
Westborough, MA 01581-5107.
The redemption notice should state the amount of money or number
of shares to be redeemed, and the account name and number. If a
stock certificate has been issued to you, you must endorse (sign
the back of) the stock certificate and return it to the Fund
together with the written redemption notice.
IMPORTANT INFORMATION REGARDING STOCK CERTIFICATES AND REDEMPTION NOTICES FOR
INVESTMENT SHARES. Signatures on all redemption notices and stock
certificates must be guaranteed by a U.S. stock exchange member, a
U.S. commercial bank or trust company and other entities approved
by 440 Distributors, unless the amount redeemed is less than
$50,000 and the account address has been the same for at least 90
days. The Funds can change the above requirements or require
additional documents at any time.
* By Telephone. You can redeem up to $50,000 worth of
Investment Shares by calling 1-800-633-KENT (5368). If the amount
redeemed is less than $2,500, then a check will be mailed to you
and if equal to or greater than $2,500, then the proceeds will be
mailed or sent by wire or electronic funds transfer to the bank
listed on your account.
* Through a Broker. Investment Shares can be redeemed through
a broker. The broker should send the redemption notice and any
other required documents to 440 Distributors, which will send the
proceeds to the broker or directly to you, at your option, within
3 days after receiving proper documents. 440 Distributors does
not charge a fee for this service, but the broker might.
* Through an Automatic Withdrawal Plan. Under the Plan, a
shareholder with an account worth at least $10,000 may redeem,
either monthly or quarterly, fixed dollar amounts of Investment
Shares. Each payment must be at least $100 and can be no more
than 1.5% per month, or 4.5% per quarter, of the value of the
shareholder's Investment Shares when the Automatic Withdrawal Plan
was opened. The proceeds can be mailed or sent by electronic
funds transfer to the bank listed on your account.
INSTITUTIONAL SHARES
You can redeem Institutional Shares by mail, by telephone or
through a broker by following the procedures described for
Investment Shares. Redemption proceeds will be wired in federal
funds only to the commercial bank and account number listed on
your account application. To change the bank account, you should
call the Funds at 1-800-633-KENT (5368) and request the
appropriate form.
GENERAL REDEMPTION INFORMATION. During periods of unusual
market activity it may be difficult to reach the Funds by
telephone. In such cases, shareholders should follow the
procedures for redeeming by mail or through a broker. Neither the
Trust nor any of its service providers will be liable for
following telephone instructions reasonably believed to be genuine
unless it acts with willful misfeasance, bad faith or gross
negligence. In this regard the Trust and its transfer agent
require personal identification before accepting a telephone
redemption. To the extent that the Trust fails to use reasonable
procedures as a basis for its belief that telephone instructions
are genuine, it and/or its service providers may be liable for
instructions that prove to be fraudulent and unauthorized.
Each Fund reserves the right to redeem an account if its value
falls below $1,000 ($100 for IRA accounts) for Investment Shares
and $100,000 for Institutional Shares as a result of redemptions
(but not as a result of a decline in net asset value). A
shareholder will be notified in writing and allowed 60 days to
increase the value of the account to the minimum investment level.
What Price Do I Receive for Shares?
You will receive the NAV next determined for each share you wish
to redeem. See "Purchases of Shares - What Price Do I Pay for
Shares?" for an explanation of how the NAV next determined is
calculated.
When Will I Receive Redemption Money?
Redemption proceeds are typically sent to shareholders within 3
business days after a request for redemption is made. You should
be sure that you submit all proper documents for redemption;
otherwise, the payment of redemption proceeds may be delayed. You
may call the Funds at 1-800-633-KENT (5368) to be sure that you
have proper documents for redemption. If you purchase shares with
a check and try to redeem shares a short time later, the Fund may
delay paying redemption proceeds until the check has been
collected, although the amount to be paid for the shares will be
calculated when the redemption notice is received. The delay
could take 15 days or more. To avoid a delay in receiving
redemption proceeds, you should purchase shares through a bank
wire or electronic funds transfer. Information on wires can be
obtained from all national and many state banks.
STRUCTURE AND MANAGEMENT OF THE FUNDS
How Are The Funds Structured?
The Trust is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is
open for business. The Trust was organized on May 9, 1986 as a
Massachusetts business trust. The Trust is governed by a Board of
Trustees. The Trustees are responsible for the overall management
of the Trust and retain and supervise the Funds' Adviser,
Administrator, Distributor, Transfer Agent and Custodian.
Currently, the Trust has thirteen portfolios, each of which offers
2 classes of shares.
Who Manages and Services the Funds?
INVESTMENT ADVISER. The Funds are advised by Old Kent, an
indirect wholly-owned subsidiary of OKFC, which is a financial
services company with total assets as of December 31, 1995 of
approximately $12 billion. Old Kent provides investment advice to
the Funds under a contract with the Funds.
Old Kent's Investment Department employs an experienced staff of
professional investment analysts, portfolio managers and traders,
and uses several proprietary computer-based systems in conjunction
with fundamental analysis to identify investment opportunities.
Old Kent has provided investment advisory services to individual
and corporate trust accounts for over 100 years. Old Kent is
located at One Vandenberg Center, Grand Rapids, MI 49503.
Through offices in Michigan, Florida and Illinois, OKFC and its
subsidiaries provide a broad range of financial services to
individuals and businesses. Old Kent currently has the right to
vote a majority of the Trust's outstanding shares on behalf of its
underlying customer accounts and therefore it is considered to be
a controlling person of the Trust.
Old Kent has committed several portfolio managers to the day-to-
day management of the Funds. Joseph T. Keating, a Senior Vice
President in the Investment Management Group, is responsible for
developing and implementing the Funds' investment policies. Mr.
Keating has over 20 years of investment experience and has served
in various management positions with Old Kent for the past 9
years. Michael A. Petersen, a Vice President in the Investment
Management Group, is responsible for investment strategy for the
Funds and is co-portfolio manager for each Fund. Mr. Petersen has
over 8 years of investment experience with Old Kent. Mr. Petersen
has managed all of the Funds since their inception. David C.
Eder, an Investment Officer in the Investment Management Group, is
responsible for investment strategy for the Funds and is co-
portfolio manager for each Fund. Mr. Eder has over 3 years of
investment experience with Old Kent and, prior to his current
position, worked as a Programmer Analyst for Old Kent. He has
been co-portfolio manager of each Fund since January, 1995.
Andrew H. Fabiano, an Investment Officer in the Investment
Management Group, is the co-portfolio manager for the Small
Company Growth Fund and the Growth and Income Fund. Mr. Fabiano
has over 3 years investment experience with Old Kent and, prior to
his current position, was a student receiving his master's degree
at Michigan State University and undergraduate degree at Grand
Valley University. He has been co-portfolio manager of each Fund
since January, 1995.
Old Kent selects broker-dealers to execute portfolio transactions
for the Funds based on best price and execution terms. Old Kent
may consider as a factor the number of shares of a Fund sold by
the broker-dealer. The broker-dealers may be affiliated with the
Trust or its service providers or their affiliates subject to any
limitations imposed by applicable securities laws and regulations.
ADMINISTRATOR. First Data provides management and administrative
services to the Funds, including providing office space, equipment
and clerical personnel to the Funds, supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing
services. First Data also acts as the transfer agent and dividend
paying agent of the Funds. First Data is located at One Exchange
Place, Boston, Massachusetts 02109.
DISTRIBUTOR. 440 Distributors is the distributor of the Funds'
shares and is paid a sales charge on the sale of Investment
Shares, described under "Purchases of Shares - What Price Do I Pay
For Shares?" 440 Distributors may reallow all or a portion of the
sales charge to a broker-dealer. The second column under the
table labeled "Applicable Sales Charge" shows the maximum amount
of the reallowance. 440 Distributors may, from time to time,
provide promotional incentives to certain dealers whose
representatives have sold or are expected to sell significant
amounts of Investment Shares. 440 Distributors may provide
written information to dealers with whom it has dealer agreements
that relate to sales incentive campaigns conducted by such dealers
for their representatives. In addition, 440 Distributors may
similarly provide financial assistance in connection with pre-
approved seminars, conferences and advertising. No such programs
or additional compensation will be offered to the extent that they
are prohibited by the laws of any state or any self-regulatory
agency, such as the NASD. Dealers to whom substantially the
entire sales charge is reallowed may be deemed to be underwriters
as that term is defined under the Securities Act of 1933.
What Are My Rights as a Fund Shareholder?
As a shareholder of a Fund, you have the right to vote on
certain matters affecting the Fund, such as elections of Trustees
and approval of advisory contracts and distribution arrangements.
The Trust will not have annual shareholder meetings, but special
meetings may be held at the request of investors holding 10% of
the shares for the purpose of removing a Trustee. You are
entitled to one vote for each share you hold and a fractional vote
for each fraction of a share you hold. You will be asked to vote
only on matters affecting the Trust as a whole and your particular
Fund and class of shares, and not on matters only affecting other
Funds or classes of shares. You should be aware that under
Massachusetts law it is possible that a shareholder may be
personally liable for the Trust's obligations. If a shareholder
were required to pay a debt of a Fund, however, the Trust has
committed to reimburse the shareholder in full from its
assets.
DIVIDENDS, DISTRIBUTIONS AND TAXES
When Will I Receive Distributions From the Funds?
A Fund's net income from dividends and interest and any net
realized short-term capital gains are paid to shareholders as
income dividends on a monthly basis (with the exception of the
International Growth Fund which pays such dividends annually).
Net realized long-term capital gains are paid to shareholders as
capital gain dividends.
Each Fund will distribute substantially all of its net investment
income and long-term capital gains to shareholders each year. You
should be aware that each time a distribution is made from a Fund,
the Fund's net asset value is reduced by the amount of the
distribution. Therefore, if you buy shares just before a
distribution is made, you will pay full price for the shares and
then receive a portion of the price back as a taxable
distribution.
How Will Distributions Be Made?
Dividend and capital gains distributions will be paid in
additional shares of the Funds. If you wish to receive
distributions in cash, notify the Fund at 1-800-633-KENT (5368)
and a check will be mailed to you each time a distribution is
made. Your distributions may also be sent by electronic funds
transfer directly to your designated bank account. Shareholders
in IRA accounts and participants in certain tax-qualified plans
cannot receive distributions in cash.
What Are the Tax Implications of My Investments in
the Funds?
Income dividends by each Fund will be taxable to you as ordinary
income, unless you are exempt from Federal income taxes. Capital
gains distributions will be taxed to you as long-term capital
gains (regardless of how long you have held the shares). Please
note that the above tax treatment applies regardless of whether
you receive your distributions in cash or in additional shares.
Federal income taxes for distributions to an IRA or to a qualified
retirement plan are deferred. Income dividends will qualify for
the dividends received deduction for corporations to the extent of
the total qualifying dividends received by the distributing Fund
from domestic corporations for the year. Any distribution that is
declared in October, November or December but not actually paid
until January of the following year will be taxable in the year
declared. When you redeem, transfer or exchange shares, you may
have a taxable gain or loss depending on whether the price you
receive for the shares has a value higher or lower than your tax
basis in the shares. If you hold shares for six months or less,
and during that time you received a capital gain dividend, any
loss you realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier distribution. You
will receive from each Fund in which you are a shareholder shortly
after the end of each year a statement of the amount and nature of
distributions made to you during the year. You will also receive
a confirmation statement shortly after disposing of shares showing
the amount and value of the disposition.
Dividends and certain interest income earned by the Growth and
Income Fund and International Growth Fund from foreign securities
may be subject to foreign withholding or other taxes. In certain
circumstances, International Growth Fund may choose to treat
certain foreign taxes paid by it as paid to its shareholders, in
which case you may either credit such taxes against your income
tax liabilities or deduct such taxes from your taxable income.
Because the Funds each intend to qualify as a "regulated
investment company" under the Internal Revenue Code, they
generally will not be required to pay Federal income taxes on
their income and capital gains.
You should note that in certain cases (i) the Funds will be
required to withhold 31% of dividends or sale proceeds otherwise
due to you and (ii) in addition to Federal taxes, state and local
taxes may apply to transactions in shares.
This section contains a brief summary of the tax implications of
ownership of the Funds' shares. A lengthier description of taxes
is contained in the SAI. You should consult your tax adviser
regarding the impact of owning the Funds' shares on your own
personal tax situation, including the applicability of any state
and local taxes.
ADDITIONAL INFORMATION
Where Do I Get Additional Information About My
Account and the Funds?
For more information, call the Funds at 1-800-633-KENT (5368)
or write to the Funds at: The Kent Funds, c/o 440 Distributors,
PO Box 5107, 4400 Computer Drive, Westborough, MA 01581-5107.
Except as otherwise stated in this prospectus or required by law,
the Trust reserves the right to change the terms of any offer
stated in this prospectus without shareholder approval, including
the right to charge certain fees for services provided. No person
has been authorized to give any information or to make any
representation not contained in this prospectus, or in the SAI, in
connection with the offering made by this prospectus and, if given
or made, such information or representations must not be relied
upon as having been authorized by the Funds or their Distributor.
This prospectus does not constitute an offering by the Funds or by
their Distributor in any jurisdiction in which such offering may
not lawfully be made.
THE KENT FUNDS
Prospectus
Dated May 1, 1996
This Prospectus relates to the following fixed income funds
("Funds"):
The Kent Short Term Bond Fund seeks current income, consistent
with the preservation of capital, through investments in a limited
range of investment quality fixed income securities.
The Kent Intermediate Bond Fund seeks current income, consistent
with the preservation of capital, through investments in a broad
range of investment quality fixed income securities.
The Kent Income Fund seeks a high level of current income,
consistent with the preservation of capital, through investments
in a broad range of investment quality debt securities.
This Prospectus contains information that a prospective investor
should know before investing. Investors should read and retain
this Prospectus for future reference. The Kent Funds has filed a
Statement of Additional Information ("SAI") dated May 1, 1996 with
the Securities and Exchange Commission, which is incorporated by
reference into this Prospectus. For a free copy of the SAI, or
for other information about the Funds, write to the address or
call the telephone number listed below.
Shares of the Funds are not bank deposits or obligations of, or
guaranteed or endorsed by, the Funds' investment adviser or any of
its affiliates, and are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in mutual fund
shares involves risk, including the possible loss of principal.
Old Kent Bank receives fees from the Funds for advisory and
certain other services.
The Kent Funds
PO Box 5107
4400 Computer Drive
Westborough, MA 01581-5107
Call Toll-Free For Shareholder Services:
1-800-633-KENT (5368)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Highlights
What are the key facts regarding the Funds? 3
Financial Information
What are the Funds' key financial highlights? 5
Fund Choices
What Funds are offered? 9
What instruments do the Funds invest in? 10
What are the risks of investing in the Funds? 12
Performance
How is the Funds' performance calculated? 13
Where can I obtain performance data? 13
Expense Information
What are the Funds' expenses? 14
Purchases of Shares
Who may want to invest in the Funds? 15
When can I purchase shares? 15
What is the minimum required investment? 15
How can I purchase shares? 15
What price do I pay for shares? 17
Redemptions (Sales) of Shares
When can I redeem shares? 20
How can I redeem shares? 20
What price do I receive for shares? 21
When will I receive redemption money? 21
Structure and Management of the Funds
How are the Funds structured? 22
Who manages and services the Funds? 22
What are my rights as a Fund shareholder? 23
Dividends, Distributions and Taxes
When will I receive distributions from the Funds? 24
How will distributions be made? 24
What are the tax implications of my investments in the Funds?
24
Additional Information
Where do I get additional information about my account and the
Funds? 25
HIGHLIGHTS
What Are the Key Facts Regarding the Funds?
Q: What are The Kent Funds?
A: The Kent Funds (the "Trust") is a family of open-end
management investment companies (commonly known as mutual funds)
that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives
and policies. This prospectus describes the Trust's Short Term
Bond Fund, Intermediate Bond Fund and Income Fund. See "Fund
Choices - What Funds are Offered?" The Trust also offers the
following investment portfolios by separate prospectuses: The
Kent Money Market Fund, The Kent Michigan Municipal Money Market
Fund, The Kent Growth and Income Fund, The Kent Small Company
Growth Fund, The Kent International Growth Fund, The Kent Index
Equity Fund, The Kent Limited Term Tax-Free Fund, The Kent
Intermediate Tax-Free Fund, The Kent Tax-Free Income Fund and The
Kent Michigan Municipal Bond Fund. To obtain a prospectus for any
Kent Fund, please call 1-800-633-KENT (5368).
Q: Who advises the Funds?
A: The Funds are managed by Old Kent Bank ("Old Kent"), an
indirect wholly-owned subsidiary of Old Kent Financial Corporation
("OKFC"). OKFC is a financial services company with total assets
as of December 31, 1995 of approximately $12 billion. See
"Structure and Management of the Funds - Who Manages and Services
the Funds?"
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a
variety of professionally managed diversified investment
portfolios without having to become involved with the detailed
accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the
economic advantages of block trading in portfolio securities and
the availability of a family of thirteen mutual funds should your
investment goals change.
Q: How does someone buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors,
Inc. ("440 Distributors") and are sold in two classes: Investment
Shares and Institutional Shares. Investment Shares can be
purchased from any broker-dealer or financial institution which
has entered into a dealer agreement with 440 Distributors, or by
completing an application and mailing it directly to 440
Distributors with a check, payable to the appropriate Fund, for
$1,000 or more, or $100 or more for Individual Retirement Accounts
("IRAs"). Institutional Shares are offered to financial and other
institutions for the benefit of fiduciary, agency or custodial
accounts. The minimum initial aggregate investment for
Institutional Shares is $100,000. The Trust may waive the minimum
purchase requirements in certain instances. Institutional Shares
purchasers should call First Data Investor Services Group, Inc.
("First Data"), the Trust's Transfer Agent and Administrator,
toll-free at 1-800-633-KENT (5368) for instructions on how to open
an account. See "Purchases of Shares." For information on how to
redeem your shares, see "Redemptions (Sales) of Shares."
Q: When are dividends paid?
A: Dividends of each Fund's net investment income are declared
and paid monthly. Net realized capital gains of the Funds are
distributed at least annually. See "Dividends, Distributions and
Taxes."
Q: What shareholder privileges are offered by the Trust?
A: Investors may exchange shares of a Fund having a value of at
least $100 for shares of the same class of any other investment
portfolio offered by the Trust in which the investor has an
existing account. The Trust offers IRAs, which can be established
by contacting the Trust's Distributor. The Trust also offers an
Automatic Investment Program which allows investors to
automatically invest in Investment Shares on a monthly basis. See
"Purchases of Shares - How Can I Purchase Shares?"
Q: What are the potential risks presented by the Funds'
investment practices?
A: Investing in the Funds involves the risks common to any
investment in securities. The net asset value ("NAV") of each
Fund's shares will fluctuate with changes in the market value of
its portfolio securities. The market value of fixed income
securities, which will constitute substantially all of each Fund's
investments, will generally vary inversely with changes in
prevailing interest rates. Longer term bond funds are generally
more sensitive to interest rate changes than shorter term bond
funds. The Funds will invest in investment grade securities or
unrated securities deemed to be of comparable quality by Old Kent.
Debt obligations rated in the lowest of the top four investment
grade categories are considered to have speculative
characteristics. The Funds may also invest up to 15% of their net
assets in illiquid securities. For a complete description of the
risks associated with each Fund, see "Fund Choices - What Funds
are Offered?" and " - What Are the Risks of Investing in the
Funds?"
FINANCIAL INFORMATION
What Are the Funds' Key Financial Highlights?
Fee Table
The purpose of the fee table is to assist you in understanding the
various costs and expenses that an investor in each Fund will bear
directly or indirectly. See "Expense Information" and "Purchases
of Shares" for more information regarding such costs and expenses.
SHORT TERM INTERMEDIATE INCOME
BOND FUND BOND FUND FUND
Investment Institutional Investment Institutional Investment
Instituitonal
Shares Shares Shares Shares Shares Shares
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge on Purchase1
(as a % of offering price)^ 4.00% None 4.00% None 4.00% None
ANNUAL FUND OPERATING EXPENSES2
(as a % of average net assets)
Management Fees 0.50% 0.50% 0.55% 0.55% 0.60% 0.60%
12b-1 Fees3 0.15% None 0.25% None 0.25% None
Other Expenses 0.26% 0.26% 0.21% 0.21% 0.24% 0.24%
TOTAL FUND OPERATING EXPENSES
0.91% 0.76% 1.01% 0.76% 1.09% 0.84%
1The sales charge applied to the purchase of a Fund's Investment Shares
declines as the amount
invested increases. See "Purchases of Shares - What Price Do I Pay For Shares?"
2Expense ratios for the Short Term Bond Fund and Intermediate Bond Fund
are based on
amounts incurred for the fiscal year ended December 31, 1995. Because the
Income Fund only
commenced operations on March 20, 1995, its expense ratios are based on
estimates for the
current fiscal year. Sweep, trustee, agency, custody and certain other fees
charged by Old Kent
and its affiliates to their customers who own shares of the Funds are not
reflected in the fee table.
3Investment Shares may pay 12b-1 fees of up to 0.25% (on an annualized basis).
As a result of
the payment of sales charges and 12b-1 and certain other related fees discusse
d below, long
term Investment Class shareholders may pay more than the economic equivalent
of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.
("NASD").
Example: You would pay the following expenses on a $1,000 investment,
assuming (i)
5% annual return and (ii) redemption at the end of each period:
SHORT TERMBOND FUND INTERMEDIATE
BOND FUND INCOME
FUND
Investment Institutional Investment Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares
One Year $ 49 $ 8 $ 50 $ 8 $ 51 $ 8
Three Years $ 68 $24 $ 71 $24 $ 73 $ 26
Five Years $ 88 $41 $ 93 $41 $ 97 $ 46
Ten Years $146 $92 $157 $92 $166 $102
Amounts shown in the example should not be considered a representation of past
or future investment return or expenses; actual investment return and expenses
may be greater or lesser than those shown.
FINANCIAL HIGHLIGHTS
The Financial Highlights presented below have been audited by KPMG
Peat Marwick LLP, independent auditors, whose report, together
with the financial statements of the Funds, appears in the Funds'
annual report. These tables should be read in conjunction with
the Funds' financial statements and the related notes. Additional
information concerning the performance of the Funds is contained
in their annual report, which can be obtained without charge by
calling 1-800-633-KENT (5368).
SHORT TERM BOND FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995 1994 1993 1992(1) 1995 1994 1993
1992(2)
Net Asset Value, Beginning of period $9.52 $9.91 $10.02 $9.99
$9.52 $9.91 $9.99 $10.00
Income from Investment Operations:
Net investment income 0.52 0.47 0.38
0.02 0.55 0.48 0.42 0.07
Net realized and unrealized gain (loss) 0.44 (0.37)
(0.08) 0.01 0.43 (0.38) (0.09)
(0.01)
on investments and futures contracts
Total from investment operations: 0.96 0.10
0.30 0.03 0.98 0.10 0.33
0.06
Less Distributions from:
Net investment income (0.53) (0.48) (0.41)
- --- (0.54) (0.49) (0.41) (0.07)
In excess of net investment income --- (0.01)
- --- --- --- *** ---
***
Total Distributions: (0.53) (0.49) (0.41)
- --- (0.54) (0.49) (0.41) (0.07)
Net increase (decrease) in net asset value 0.43 (0.39)
(0.11) 0.03 0.44 (0.39) (0.08) (0.01)
Net Asset Value, End of period $9.95 $9.52 $9.91 $10.02
$9.96 $9.52 $9.91 $9.99
Total Return for period indicated (A) 10.30% 1.01%
3.04% 0.30% 10.53% 1.03% 3.36%
0.53%
Ratios/Supplemental Data
Net Assets, End of period (000's) $1,634 $1,649 $1,427 $111
$310,680 $176,765 $255,892 $186,124
Ratios to average net assets:
Net investment income 5.40% 4.79% 3.91%
3.31%* 5.60% 4.75% 4.24% 4.05%*
Operating expenses 0.91% 0.74% 1.24%
0.12%** 0.77% 0.73% 0.81% 0.14%**
Portfolio Turnover Rate 75% 56% 50%
5% 75% 56% 50% 5%
* Annualized.
** Not Annualized
*** Amounts is less than $0.005.
(1) The Investment Class date of initial public investment was
December 4, 1992.
(2) The Institutional Class commenced operations on November 2, 1992.
(A) Calculation does not include sales charge for the Investment
Shares.
INTERMEDIATE BOND FUND
(For a share outstanding throughout each period)
__________________________________________________________________
_______________
Investment Shares
Institutional Shares
__________________________________________________________________
_______________
Period ended December 31,
Period Ended December 31,
1995 1994 1993 1992(1) 1995
1994 1993 1992(2)
__________________________________________________________________
________________
Net Asset Value, Beginning of period $9.32 $10.19 $10.03 $9.98
$9.29 $10.18 $10.00 $10.00
_______________________________________________________________________
______________________________________
Income from Investment Operations:
Net investment income 0.61 0.57 0.47 0.03 0.65 0.56
0.51 0.08
Net realized and unrealized gain (loss)
on investments 0.82 (0.87) 0.34 0.02 0.81 (0.88)
0.32 ***
_______________________________________________________________________
_____________________________________
Total from Investment Operations: 1.43 (0.30) 0.81 0.05
1.46 (0.32) 0.83 0.08
_______________________________________________________________________
_______________________________________
Less Distributions from:
Net investment income (0.61) (0.54) (0.46) --- (0.63) (0.54)
(0.51) (0.08)
In excess of net investment income --- (0.01) (0.05) ---
- --- (0.01) *** ***
Net realized gain on investments --- (0.02) (0.14) --- ---
(0.02) (0.14) ---
_______________________________________________________________________
_______________________________________
Total Distributions: (0.61) (0.57) (0.65) --- (0.63)
(0.57) (0.65) (0.08)
_______________________________________________________________________
_______________________________________
Net increase (decrease) in net asset value 0.82 (0.87) 0.16 0.05
0.83 (0.89) 0.18 ---
Net Asset Value, End of period $10.14 $9.32 $10.19 $10.03 $10.12 $9.29
$10.18 $10.00
_______________________________________________________________________
_______________________________________
Total Return for period indicated (A) 15.76% (3.01)% 8.19% 0.50%
16.18% (3.19)% 8.42% 0.83%
_______________________________________________________________________
_______________________________________
Ratios/Supplemental Data:
Net Assets, End of period (000's) $6,862 $9,196 $4,966 $174
$854,801 $977,865 $434,264 $203,129
Ratios to average net assets:
Net investment income 6.24% 5.94% 4.75% 4.94%* 6.50% 6.03%
5.03% 5.32%*
Operating expenses 1.01% 0.81% 1.13% 0.16%** 0.77% 0.80%
0.85% 0.15%**
Portfolio Turnover Rate 166% 124% 126% 1% 166% 124%
126% 1%
_______________________________________________________________________
_______________________________________
* Annualized.
** Not Annualized.
*** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was
November 25, 1992.
(2) The Institutional Class commenced operations on November 2, 1992.
(A) Calculation does not include sales charge for the Investment
Shares.
INCOME FUND
(For a share outstanding throughout the period)
__________________________________________________________________
_______________
Investment Shares
Institutional Shares
__________________________________________________________________
_______________
Period ended Period ended
December 31, 1995(1) December 31, 1995(2)
__________________________________________________________________
________________
Net Asset Value, Beginning of period $10.00 $10.00
_______________________________________________________________________
______________________________________
Income from Investment Operations:
Net investment income 0.52 0.55
Net realized and unrealized gain (loss) on investments 0.91
0.92
_______________________________________________________________________
_______________________________________
Total from Investment Operations: 1.43 1.47
_______________________________________________________________________
_______________________________________
Less Distributions from:
Net investment income (0.52) (0.54)
Net realized gain on investments (0.09) (0.09)
_______________________________________________________________________
_______________________________________
Total Distributions: (0.61) (0.63)
_______________________________________________________________________
_______________________________________
Net increase (decrease) in net asset value 0.82 0.84
Net Asset Value, End of period $10.82 $10.84
_______________________________________________________________________
_______________________________________
Total Return for period indicated (A) 14.63% 15.05%
_______________________________________________________________________
_______________________________________
Ratios/Supplemental Data:
Net assets, End of period (000's) $1,961 $126,056
Ratios to average net assets:
Net investment income 6.40%* 6.65%*
Operating expenses 1.14%* 0.91%*
Portfolio Turnover Rate 50% 50%
_______________________________________________________________________
_______________________________________
* Annualized.
(1) The Investment Class date of initial public investment was March
22, 1995.
(2) The Institutional Class commenced operations on March 20, 1995.
(A) Calculation does not include sales charge for the Investment
Shares.
FUND CHOICES
What Funds Are Offered?
The Trust currently offers the three fixed income funds
described below.
OBJECTIVES AND MATURITIES
The following investment objectives are considered "fundamental"
and may be changed by a Fund only with the approval of its
shareholders. Each Fund seeks preservation of capital as a
secondary goal.
Short Term Bond Fund
OBJECTIVE: Seeks current income by investing primarily in a
limited range of investment quality fixed income securities.
MATURITY: Expected to hold securities with remaining
maturities of five years or less. Will maintain a dollar-weighted
average portfolio maturity of between one and three years.
Intermediate Bond Fund
OBJECTIVE: Seeks current income by investing primarily in a broad
range of investment quality debt securities.
MATURITY: Will maintain a dollar-weighted average portfolio
maturity of between three and ten years.
Income Fund
OBJECTIVE: Seeks a high level of current income by investing in a
broad range of investment quality debt securities.
MATURITY: Will maintain a dollar-weighted average portfolio
maturity of between seven and twenty years.
INVESTMENT POLICIES
Under ordinary circumstances, each Fund intends to invest at least
65% of its total assets in Debt Securities. Debt securities are
issued in exchange for money borrowed. Debt securities, other
than securities known as zero coupon bonds, pay interest at set
times, at either a fixed (set) rate or a variable (changing) rate.
Debt securities purchased by the Funds may include corporate debt
obligations, U.S. Government securities, stripped securities,
variable and floating rate securities, mortgage-backed securities,
custodial receipts for Treasury certificates, zero-coupon bonds,
asset-backed securities, equipment trust certificates and so-
called "derivative securities." Each Fund may also invest a
portion of its assets in bonds convertible into common stock.
Debt securities in which the Funds may invest will be rated in one
of the four highest rating categories by a nationally recognized
statistical rating organization ("NRSRO") (for example, BBB or
higher by Standard & Poor's Ratings Group ("S&P"), or Baa or
higher by Moody's Investors Service, Inc. ("Moody's")) or, if
unrated, will be deemed to be of comparable quality by Old Kent.
Obligations rated in the fourth highest rating category are
considered to have speculative characteristics. See Appendix A to
the SAI for a description of applicable S&P, Moody's and other
NRSRO ratings.
When a Fund buys debt securities, Old Kent will consider the NRSRO
ratings assigned to such securities. In making its investment
decisions, Old Kent will also consider many factors other than
current yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity and yield
to maturity. Each Fund will adjust its investments in particular
securities or in types of securities in response to Old Kent's
appraisal of changing economic conditions and trends. A Fund may
sell one security and purchase another security of comparable
quality and maturity to take advantage of what Old Kent believes
to be short-term differentials in market values or yield
disparities. Subsequent to its purchase by a Fund, a security
rated in one of the top four rating categories may cease to be
rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. Old Kent will consider such an
event in determining whether the Fund should continue to hold the
security.
What Instruments Do the Funds Invest In?
The Funds may also invest in the securities and use the investment
techniques described below. Each of these securities and
techniques is described in more detail under "Investment Policies"
in the SAI.
Each Fund may purchase U.S. Government Obligations, which are
obligations issued by, or guaranteed by, the U.S. Government or
its agencies or instrumentalities. Such instruments include U.S.
Treasury notes, which have initial maturities of one to ten years,
U.S. Treasury bonds, which generally have initial maturities of
greater than ten years, and obligations of the Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association,
Government National Mortgage Association and many other U.S.
Government agencies and instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as
those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide
financial support to U.S. Government-sponsored instrumentalities
if it is not obligated to do so by law.
The Funds will purchase Corporate Debt Securities, which include
corporate bonds, debentures, notes and other similar corporate
debt instruments.
The Funds may purchase rated and unrated Variable and Floating
Rate Instruments. These instruments may include variable amount
master demand notes that permit the indebtedness to vary in
addition to providing for periodic adjustments in the interest
rate. A Fund may purchase variable and floating rate instruments
with stated maturities in excess of its maturity limitations
provided that the Fund may demand payment of the principal of the
instrument at least once within the applicable maturity limitation
on not more than thirty days' notice (unless the instrument is
issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof). Unrated instruments will be determined
by Old Kent to be of comparable quality at the time of purchase to
rated instruments eligible for purchase by the Funds. The absence
of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for a Fund
to dispose of the instruments if the issuer defaulted on its
payment obligation or during periods that the Fund is not entitled
to exercise demand rights, and a Fund could, for these or other
reasons, suffer a loss with respect to such instruments.
When Old Kent determines that market conditions are appropriate,
each Fund may, for temporary defensive purposes, invest up to 100%
of its assets in Money Market Instruments, which are high-quality,
short-term instruments including, among other things, commercial
paper, bankers' acceptances, negotiable certificates of deposit,
short-term corporate obligations which are rated A or better by
S&P or Moody's and short-term securities issued by, or guaranteed
by, the U.S. Government and its agencies or instrumentalities.
Each Fund may also shorten its dollar-weighted average maturity
below its normal range if such action is deemed appropriate by Old
Kent for temporary defensive purposes. If a Fund is investing
defensively, it will not be pursuing its investment objective.
The Funds may enter into Repurchase Agreements. Under a
repurchase agreement, a Fund agrees to purchase securities from a
seller and the seller agrees to repurchase the securities at a
later time, typically within seven days, at a set price. The
seller agrees to set aside collateral equal to the price it has to
pay during the term of the agreement. This ensures that the Fund
will receive the purchase price at the time it is due, unless the
seller defaults or declares bankruptcy, in which event the Fund
will bear the risk of possible loss due to adverse market action
or delays in liquidating the underlying obligation. The Funds
will not enter into repurchase agreements with Old Kent or its
affiliates. Each Fund may also borrow money for temporary
purposes by entering into Reverse Repurchase Agreements. Under
these agreements, a Fund sells portfolio securities to financial
institutions and agrees to buy them back later at an agreed upon
time and price.
The Funds may buy shares of registered Money Market Investment
Companies. The Funds will bear a portion of the expenses of any
investment company whose shares they purchase, including operating
costs and investment advisory, distribution and administration
fees. These expenses would be in addition to the Fund's own
expenses.
The Funds may Lend Securities to broker-dealers and other
financially sound institutional investors who will pay the Funds
for the use of the securities. The borrower must set aside cash
or liquid high-grade debt securities equal to the value of the
securities borrowed at all times during the term of the loan.
Loans may not exceed one-third of the value of a Fund's total
assets. Risks involved with such transactions include possible
delay in recovering the loaned securities and possible loss of the
securities or the collateral if the borrower declares bankruptcy.
The investment policies discussed above are not "fundamental"
policies and may be changed by the Board of Trustees without
shareholder approval. However, the Funds also have in place
certain fundamental investment limitations that cannot be changed
for a Fund without the approval of a majority of that Fund's
outstanding shares. Some of these limitations are summarized
below. A complete list of the fundamental investment limitations
for the Funds is contained in the SAI.
1. With respect to 75% of each Fund's total assets, the Funds
cannot invest more than 5% of their respective total assets in any
one issuer (other than the U.S. Government, its agencies and
instrumentalities). In addition, the Funds cannot invest more
than 25% of their respective total assets in a single industry.
These restrictions require the Funds to be more diversified in
order to lower the risk to a Fund of an economic setback for any
one issuer or in any one industry.
2. Each Fund may only borrow money for temporary or emergency
purposes, and such borrowing is limited to an amount not greater
than one-third of the Fund's net assets, provided that while
borrowings from banks exceed 5% of a Fund's net assets, any such
borrowings will be repaid before additional investments are made.
The limits on the amount each Fund can borrow prevents the Fund
from significantly leveraging its assets.
3. Each Fund may not invest more than 15% of its net assets in
illiquid securities. Typically, there is no ready market for such
securities, which inhibits a Fund's ability to sell the securities
and to obtain values for the securities.
What Are the Risks of Investing in the Funds?
The value of each Fund's shares, like the value of most
securities, will rise anf fall in response to changes in economic
conditions, interest rates and the market's perception of the
underlying securities held by the Fund. Investing in the Funds
may be less risky than investing in individual debt instruments
due to the diversification of investing in a portfolio containing
many different debt instruments; however, such diversification
does not eliminate all risks. The Funds invest mostly in debt
instruments, whose values typically rise when interest rates fall
and fall when interest rates rise. Bonds with shorter maturities
(time period until repayment) tend to be less affected by interest
rate changes, but generally offer lower yields than bonds with
longer maturities. Current yield levels should not be considered
representative of yields for any future time. Securities with
variable interest rates and derivative securities may exhibit
greater price variations than ordinary securities.
By itself, no Fund constitutes a balanced investment program.
There is no guarantee that any Fund will achieve its investment
objective since there is uncertainty in every investment. When
you sell your shares in the Funds, they may be worth more or less
than the amount you paid.
PERFORMANCE
How is the Funds' Performance Calculated?
There are various ways in which the Funds may calculate and report
their performance. Performance is calculated separately for the
Investment Shares and the Institutional Shares.
One method is to show a Fund's total return. Cumulative Total
Return is the percentage change in the value of $1,000 invested in
the Fund over a stated period of time and takes into account
reinvested dividends and the payment of the maximum sales charge
(4%) on Investment Shares. Although cumulative total return most
closely reflects the actual performance of a Fund, a shareholder
who opts to receive dividends in cash, or an Investment class
shareholder who paid a sales charge lower than 4%, will have a
different return than the reported performance. Average Annual
Total Return refers to the average annual compounded rates of
return over a specified period on an investment in shares of a
Fund determined by comparing the initial amount invested to the
ending redeemable value of that amount, taking into account
reinvested dividends and the payment of the maximum sales charge
(4%) on Investment Shares.
Each Fund may also publish its Current Yield, which is the net
investment income generated by a share of the Fund during a 30-day
period divided by the maximum offering price on the 30th day.
"Maximum offering price" includes the sales charge for Investment
Shares.
Investment Shares may be purchased with a sales load and may have
higher fees and expenses than Institutional Shares, so the yield
and total return of Investment Shares will be lower than that of
Institutional Shares. The Funds may sometimes publish total
returns that do not take into account sales charges and such
returns will be higher than returns which include sales charges.
You should be aware that (i) past performance does not indicate
how a Fund will perform in the future and (ii) each Fund's return
and NAV will fluctuate, so you cannot necessarily use a Fund's
performance data to compare it to investments in certificates of
deposit, savings accounts or other investments that provide a
fixed or guaranteed yield.
Each Fund may compare its performance to that of other mutual
funds, such as the performance of similar funds prepared by Lipper
Analytical Services, Inc. or information reported in national
financial publications (such as Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times) or in local or
regional publications. Each Fund may also compare its total
return to indices such as the S&P 500, the Merrill Lynch Bond
indices, and Lehman Brothers Bond indices. These indices show the
value of selected portfolios of securities (assuming reinvestment
of dividends) which are not managed by a portfolio manager. The
Funds may report how they are performing in comparison to the
Consumer Price Index, an indication of inflation reported by the
U.S. government.
Where Can I Obtain Performance Data?
The Wall Street Journal and certain local newspapers report
information on the performance of mutual funds. In addition,
performance information is contained in the Funds' annual report
dated December 31 of each year (the Trust's fiscal year end) and
semi-annual report dated June 30 of each year, which will
automatically be mailed to shareholders. To obtain copies of
financial reports or performance information, call 1-800-633-KENT
(5368).
EXPENSE INFORMATION
What Are the Funds' Expenses?
A pro rata portion of certain expenses of the Trust are
allocated to the Fund you own and to the particular class of
shares you own and will be reflected in the value of your shares.
Such expenses are not paid directly by shareholders.
TRUST EXPENSES. Expenses charged at the Trust level include fees
paid to Trustees, legal counsel and auditors and administration
fees. First Data is entitled to receive, for its administration
services, an annual fee equal to 0.20% of the aggregate net assets
of all funds in the Trust up to $5 billion; 0.18% of the Trust's
aggregate net assets between $5 and $7.5 billion; and 0.15% of the
Trust's aggregate net assets over $7.5 billion.
FUND EXPENSES. Most expenses will be charged at the Fund level,
including investment advisory fees, Securities and Exchange
Commission registration fees, transfer agency fees, custody fees,
brokerage commissions, interest charges and taxes. Old Kent is
entitled to receive from each Fund, and received from each Fund
during the fiscal year ended December 31, 1995, an annual advisory
fee at the following rates based on each Fund's average daily net
assets: Short Term Bond Fund, 0.50%; Intermediate Bond Fund,
0.55%; and Income Fund, 0.60%. Old Kent may rebate advisory fees
to certain institutional customers in accordance with Federal and
state law.
CLASS EXPENSES. Expenses allocated at the class level include
printing and mailing expenses and expenses payable under the
Funds' Distribution Plans. The Distribution Plans provide that
each Fund may spend, in one year, up to 0.25% of the average daily
net assets of the Fund's Investment Shares to finance sales
activities of the Investment Shares, including marketing and
advertising shares, maintaining account records, issuing
confirmation statements and providing sub-accounting. Banks,
broker-dealers and other organizations may also receive payments
for providing support and/or distribution services to the Funds'
shareholders who are their customers. Federal banking law
currently limits the securities activities of banks. If a bank was
not allowed to provide support and/or distribution services, the
Funds would find another organization to provide such services and
no shareholder should suffer any financial loss. The Funds do not
reimburse 440 Distributors, the Funds' distributor, for any
distribution expenses in excess of the payments received by 440
Distributors under the Distribution Plans or for its overhead
expenses.
PURCHASES OF SHARES
Who May Want to Invest in the Funds?
Investment Shares may be purchased by individual investors and
Institutional Shares may be purchased only by financial and other
institutions for the benefit of fiduciary, agency or custodial
accounts. The Funds, which are bond funds (also known as fixed
income funds), are designed for investors who desire potentially
higher returns than more conservative fixed rate investments or
money market funds and who seek current income. When you choose
among the Funds, you should consider both the expected yield of
the Funds and potential changes in each Fund's share price. The
yield and potential price changes of a Fund's shares depend on the
quality and maturity of the obligations in its portfolio, as well
as on other market conditions (see "Performance - How Is the
Funds' Performance Calculated?").
When Can I Purchase Shares?
Shares can be purchased on any day that both the New York Stock
Exchange, Inc. (the "NYSE") and Bankers Trust Company, the Funds'
custodian, are open for business.
What is the Minimum Required Investment?
An investor must initially invest at least $1,000 ($100 for
IRAs) in Investment Shares and at least $100,000 in Institutional
Shares. Subsequent investments may be made in any amount. The
investment minimums may be waived for purchases by employees of
Old Kent, participants in tax-sheltered plans and certain
qualified retirement accounts.
How Can I Purchase Shares?
INVESTMENT SHARES
For your convenience, the Funds offer a wide variety of methods to
purchase Investment Shares.
* Through a Broker. Any broker authorized by 440 Distributors
can sell you Investment Shares of the Funds. Please note that
such brokers may charge you fees for their services.
* By Mail. You may open an account by mailing a completed
application and a check (payable to the applicable Fund) to: The
Kent Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer
Drive, Westborough, MA 01581-5107.
* By Telephone. You may call 1-800-633 KENT (5368) to open an
account and electronically transfer money to the account, followed
by a completed application.
* By Check. Subsequent purchases of Investment Shares can be
made by mailing a check to the address listed above.
* By Federal Funds Wire. Subsequent purchases of Investment
Shares can be made via a federal funds wire sent to Fleet Bank for
credit to a particular Fund. You should call 1-800-633-KENT
(5368) for complete wire instructions. You should be aware that
banks may charge fees for sending wires. 440 Distributors has the
right to charge fees for receiving wires, although it does not
currently do so.
* By Electronic Funds Transfer (For subsequent purchases
only). Call 1-800-633-KENT (5368) to request a purchase to be
made or for the forms to establish Electronic Fund Transfer.
* Through an Automatic Investment Plan.
1. Call 1-800-633-KENT (5368) to establish an Automatic
Investment Plan.
2. Invest at least $1,000 in an Investment Share account.
3. On the 5th day of each month, your checking account will be
debited (minimum of $50) and Investment Shares will be purchased
and held in your account.
To change the amount invested each month in Investment
Shares, or to stop the Automatic Investment Plan, call 1-800-633-
KENT (5368), or write to: The Kent Funds, c/o 440 Distributors,
PO Box 5107, 4400 Computer Drive, Westborough, MA 01581-5107 at
least five days before a scheduled investment.
* Through Direct Deposit. You may authorize direct deposit of
your payroll, Social Security or Supplemental Security Income
checks.
* Through a Tax-Sheltered Plan. Investment Shares of the
Funds may be purchased through IRAs and Rollover IRAs, which are
available through 440 Distributors. For details and application
forms, call at 1-800-633-KENT (5368) or write to: The Kent Funds,
c/o 440 Distributors, PO Box 5107, 4400 Computer Drive,
Westborough, MA 01581-5107.
INSTITUTIONAL SHARES
You can purchase Institutional Shares by taking the following
steps:
1. To open an account, call 1-800-633-KENT (5368) to obtain an
account or wire identification number.
2. Place a purchase order for shares by telephoning the number
above.
3. Wire federal funds to Fleet Bank no later than the day after
the purchase order is placed.
You should note that (i) a purchase of Institutional Shares will
not be completed until Fleet Bank receives the purchase price and
(ii) banks may charge for wiring federal funds to Fleet Bank. You
may obtain information on how to wire funds from any national bank
and certain state banks.
EXCHANGE PRIVILEGE
You may acquire Investment or Institutional Shares of a Fund (the
"new fund") by exchanging shares of another investment portfolio
offered by the Trust (the "old fund") for shares of the new fund.
Shares of the new fund will be of the same class as the old fund.
In effect, you would be redeeming (reselling to the fund) shares
of the old fund and purchasing shares of the new fund. To
determine the price at which shares are redeemed, see "What Price
Do I Receive for Shares?" and to determine the price at which
shares are purchased, see "What Price Do I Pay for Shares?"
1. Call 1-800-633-KENT (5368) or write to: The Kent Funds, c/o
440 Distributors, PO Box 5107, 4400 Computer Drive, Westborough,
MA 01581-5107 to obtain a prospectus for the new fund prior to the
exchange.
2. Call or write as indicated in 1 above to place an order to
exchange shares. Purchases of shares of a new fund must meet the
minimum purchase requirement of that fund. If the order to
exchange shares is placed prior to or at 4:00 p.m. Eastern Time on
any business day, the order will be executed on the day received,
and if the order is placed after 4:00 p.m. Eastern Time, the order
will not be executed until the next business day.
3. If a shareholder does not have an account with the new fund,
a new account will be established with the same reinvestment
options for distributions as the account for the old fund, unless
the shareholder writes to the new fund to change the option.
IMPORTANT INFORMATION ABOUT EXCHANGES. If shares of a Fund are
purchased by check, such shares cannot be exchanged for 15 days.
The Trust may disallow exchanges of shares if a shareholder has
made more than five exchanges between investment portfolios
offered by the Trust in a year, or more than three exchanges in a
calendar quarter. Although unlikely, the Trust may reject any
exchanges or the Funds may change or terminate rights to exchange
shares. The exchange privilege is available only in states where
shares of the new fund may be sold.
No sales charge is imposed when Investment Shares on which a
shareholder previously paid a sales charge are exchanged for
Investment Shares of another investment portfolio. However, a
sales charge will be imposed on exchanges of Investment Shares
purchased without a sales charge (i.e., money market portfolio
shares) for Investment Shares of another portfolio which imposes a
sales charge. In order to make an exchange, shareholders will be
required to maintain the applicable minimum account balance in
each investment portfolio of the Trust in which shares are owned.
Institutional Shares of a Fund may be exchanged for Investment
Shares of the same Fund when the Institutional Shares are
distributed to the underlying beneficial owners of trust accounts,
401(k) plans and other fiduciary or agency accounts. No sales
charge is imposed in connection with such an exchange.
Investors should note that each Fund has the right to stop
offering its shares, to reject purchase orders and to suspend the
exchange privilege, although such actions are unlikely. 440
Distributors may require additional documents prior to accepting a
purchase, redemption or exchange.
SHAREHOLDER SERVICES. For further information on all
shareholder services, call 1-800-633-KENT (5368) or write to: The
Kent Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer
Drive, Westborough, MA 01581-5107
What Price Do I Pay For Shares?
Investment Shares are sold at the "net asset value next
determined" by the Funds plus any "applicable sales charge" and
Institutional Shares are sold at the "net asset value next
determined" by the Funds. These terms are explained below. You
should be aware that broker-dealers (other than the Funds'
distributor) may charge investors additional fees if shares are
purchased through them .
NET ASSET VALUE. Except in certain limited circumstances, at
4:00 p.m. on each day the NYSE is open for trading each Fund
determines its NAV. NAV is calculated separately for the
Investment Shares and Institutional Shares of each Fund. The "net
asset value next determined" is the NAV calculated at 4:00 p.m. on
the day a purchase order for shares is received, if the purchase
order is received prior to or at 4:00 p.m., and is the net asset
value calculated at 4:00 p.m. on the next business day, if the
purchase order is received after 4:00 p.m. NAV is calculated by
totaling the value of all of the assets of a Fund allocated to a
particular class of shares, subtracting the Fund's liabilities and
expenses allocated to that class, and dividing the result by the
number of shares of that class outstanding. When market
quotations are readily available, the Funds' assets are valued at
market value. Debt instruments with maturities of 60 days or less
are valued at amortized cost, unless the Board of Trustees
determines that this does not result in a fair value. All other
assets are valued at fair value as determined by or under the
direction of the Board of Trustees. The Funds may use pricing
services to help determine the fair value of securities.
APPLICABLE SALES CHARGE. Except in the circumstances described
below, a sales charge must be paid at the time of purchase of
Investment Shares. The more Investment Shares an investor
purchases, the lower the percentage of the sales charge will be,
as the table below indicates.
AS A %
AMOUNT OF PURCHASE OF OFFERING AS A %
PRICE* OF NET AMOUNT
INVESTED**
Under $100,000 4.00% 4.17%
$100,000 - $249,999 3.00% 3.10%
$250,000 - $499,999 2.00% 2.04%
$500,000 - $999,999 1.00% 1.01%
$1,000,000 and over 0.75% 0.76%
*Maximum reallowance to dealers.
**Rounded to the nearest one-hundredth percent.
For instance, if you wish to invest $275,000 in a Fund, you would
pay to the Fund $275,000 plus $5,610 (2.04% of $275,000).
Certain investors may reduce the percentage of sales charge
they pay for Investment Shares by purchasing shares of more than
one investment portfolio of the Trust ("Portfolio") at the same
time, by purchasing additional shares of Portfolios in the future
or by agreeing to invest a certain amount in the Portfolios during
a 13-month period, as described below. Call 1-800-633-KENT (5368)
to determine if you qualify for such reductions.
CONCURRENT PURCHASES. If you purchase Investment Shares of more
than one Portfolio that is subject to a sales load at the same
time, you may be able to total the amount being invested in all
Portfolios at that time to determine the sales charge payable.
For example, if you concurrently invested $100,000 in the
Intermediate Bond Fund and $50,000 in the Income Fund, the sales
charge assessed would be 3% of $150,000, or $4,500.
RIGHTS OF ACCUMULATION. If you buy additional Investment Shares
of a Fund, then you may be able to total the amount of money
currently being invested and the current value of previously
purchased shares of a Portfolio (other than the Money Market Fund
or the Michigan Municipal Money Market Fund) still held to
determine the amount of sales charge payable. For example, if you
had previously purchased 10,000 shares of the Income Fund and
still held 5,000 shares of that Fund on a day when you purchased
an additional 20,000 shares of the Fund and the Fund's NAV was $10
per share, you would pay a sales charge of 2% (the applicable rate
on a $250,000 purchase) on the $200,000 worth of new shares being
purchased, or $4,000. To take advantage of the rights of
accumulation, you must contact 440 Distributors at 1-800-633-KENT
(5368) at the time of purchase. The Trust may change or terminate
rights of accumulation at any time.
LETTER OF INTENT. If you intend to make several investments in
one or more Portfolios over time, you may wish to complete the
Letter of Intent section of your new account application. By
doing so, you agree to invest a certain amount in one or more of
the Portfolios over a 13-month period. Each investment in a
Portfolio during the 13 months would then be subject to the sales
charge applicable to the total amount to be invested under the
Letter of Intent in Portfolios that charge a sales load. For
example, if you stated in your application your intent to invest
$275,000 in one or more Portfolios that charge a sales load but
you only invested $75,000 at the time you completed your
application, then you would pay a sales charge of 2% of $75,000,
or $1,500, which is half of the 4% sales charge that you would
otherwise have paid on such investment. The Letter of Intent may
be back-dated up to 90 days so that any investments made in any of
the Portfolios (other than in the Money Market Fund and the
Michigan Municipal Money Market Fund) during the preceding 90-day
period can be applied toward fulfillment of the Letter of Intent
(although there will be no refund of sales charges paid during the
90-day period). You should inform 440 Distributors that you have
a Letter of Intent each time you make an investment.
You are not obligated to purchase the amount specified in the
Letter of Intent. If you purchase less than the amount specified,
however, you must pay the difference between the sales charge paid
and the sales charge applicable to the purchases actually made.
Shares representing 5% of the dollar amount specified in the
Letter of Intent will be held in escrow. Such shares will not be
available for redemption, transfer or pledge until the Letter of
Intent is completed or the higher sales charge paid. If the
intended investment is not completed and you do not pay the
difference between the sales charge paid and the sales charge
applicable to the purchases actually made within 20 days after
written request by 440 Distributors or its dealer, 440
Distributors will redeem an appropriate number of escrowed shares
and release the balance of escrowed shares to you. You are
entitled to all income and capital gains distributions paid with
respect to the escrowed shares.
OTHER. Sales charges may be waived entirely for investors who
transfer balances from mutual fund companies other than the Trust
during certain promotional periods announced by 440 Distributors.
In addition, sales charges will not be payable by (1) current
full-time and part-time employees, retired employees and Directors
of OKFC and its subsidiaries; (2) Trustees of the Trust; (3)
registered representatives of firms which have dealer or broker
agreements with 440 Distributors relating to Investment Shares;
(4) spouses and dependent children of the individuals listed in
(1) - (3) above; (5) OKFC or one of its subsidiaries, acting on
behalf of fiduciary customer accounts and any other account
maintained by a trust department; (6) employees of First Data and
440 Distributors; and (7) participants in certain qualified
retirement plans.
FOR FURTHER INFORMATION about sales charge reductions and
waivers and the programs described above, call 1-800-633-KENT
(5368) or write to: The Kent Funds, c/o 440 Distributors, PO Box
5107, 4400 Computer Drive, Westborough, MA 01581-5107
REDEMPTIONS (SALES) OF SHARES
When Can I Redeem Shares?
You can redeem shares on any day that the NYSE is open for
trading. Shares will not be redeemed by a Fund unless all
required documents have been received by 440 Distributors. A Fund
may temporarily stop redeeming shares when the NYSE is closed or
trading on the NYSE is restricted, when an emergency exists and
the Fund cannot sell its assets or accurately determine the value
of its assets or if the Securities and Exchange Commission orders
the Fund to stop redemptions. If you intend to redeem shares
worth more than $1,000,000, you should notify the Fund at least
one day in advance.
How Can I Redeem Shares?
INVESTMENT SHARES
Investment Shares may be redeemed in several ways.
* By Mail. You may mail your redemption notice to: The Kent
Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer Drive,
Westborough, MA 01581-5107. The redemption notice should state
the amount of money or number of shares to be redeemed, and
the account name and number. If a stock certificate has been
issued to you, you must endorse (sign the back of) the stock
certificate and return it to the Fund together with the
written redemption notice.
IMPORTANT INFORMATION REGARDING STOCK CERTIFICATES AND REDEMPTION
NOTICES FOR INVESTMENT SHARES. Signatures on all redemption
notices and stock certificates must be guaranteed by a U.S. stock
exchange member, a U.S. commercial bank or trust company and other
entities approved by 440 Distributors, unless the amount redeemed
is less than $50,000 and the account address has been the same for
at least 90 days. The Funds can change the above requirements or
require additional documents at any time.
* By Telephone. You can redeem up to $50,000 worth of
Investment Shares by calling 1-800-633-KENT (5368). If the amount
redeemed is less than $2,500, then a check will be mailed to you
and if equal to or greater than $2,500, then the proceeds will be
mailed or sent by wire or electronic funds transfer to the bank
listed on your account.
* Through a Broker. Investment Shares can be redeemed through
a broker. The broker should send the redemption notice and any
other required documents to 440 Distributors, which will send the
proceeds to the broker or directly to you, at your option, within
three days after receiving proper documents. 440 Distributors
does not charge a fee for this service, but the broker might.
* Through an Automatic Withdrawal Plan. Under the Plan, a
shareholder with an account worth at least $10,000 may redeem,
either monthly or quarterly, fixed dollar amounts of Investment
Shares. Each payment must be at least $100 and can be no more
than 1.5% per month, or 4.5% per quarter, of the value of the
shareholder's Investment Shares when the Automatic Withdrawal Plan
was opened. The proceeds can be mailed or sent by electronic
funds transfer to the bank listed on your account.
INSTITUTIONAL SHARES
You can redeem Institutional Shares by mail, by telephone or
through a broker by following the procedures described for
Investment Shares. Redemption proceeds will be wired in federal
funds only to the commercial bank and account number listed on
your account application. To change the bank account, you should
call the Funds at 1-800-633-KENT (5368) and request the
appropriate form.
GENERAL REDEMPTION INFORMATION
During periods of unusual market activity it may be difficult to
reach the Funds by telephone. In such cases, shareholders should
follow the procedures for redeeming by mail or through a broker.
Neither the Trust nor any of its service providers will be liable
for following telephone instructions reasonably believed to be
genuine unless it acts with willful misfeasance, bad faith or
gross negligence. In this regard the Trust and its transfer agent
require personal identification before accepting a telephone
redemption. To the extent that the Trust fails to use reasonable
procedures as a basis for its belief that telephone instructions
are genuine, it and/or its service providers may be liable for
instructions that prove to be fraudulent and unauthorized.
Each Fund reserves the right to redeem an account if its value
falls below $1,000 ($100 for IRA accounts) for Investment Shares
and $100,000 for Institutional Shares as a result of redemptions
(but not as a result of a decline in net asset value). A
shareholder will be notified in writing and allowed 60 days to
increase the value of the account to the minimum investment level.
What Price Do I Receive for Shares?
You will receive the NAV next determined for each share you wish
to redeem. See "Purchases of Shares - What Price Do I Pay for
Shares?" for an explanation of how the NAV next determined is
calculated.
When Will I Receive Redemption Money?
Redemption proceeds are typically sent to shareholders within
three business days after a request for redemption is made. You
should be sure that you submit all proper documents for
redemption; otherwise, the payment of redemption proceeds may be
delayed. You may call 1-800-633-KENT (5368) to be sure that you
have proper documents for redemption. If you purchase shares with
a check and try to redeem shares a short time later, the Fund may
delay paying redemption proceeds until the check has been
collected, although the amount to be paid for the shares will be
calculated when the redemption notice is received. The delay
could take 15 days or more. To avoid a delay in receiving
redemption proceeds, you should purchase shares through a bank
wire or electronic funds transfer. Information on wires can be
obtained from all national and many state banks.
STRUCTURE AND MANAGEMENT OF THE FUNDS
How Are the Funds Structured?
The Trust is an open-end management investment company, which
is a mutual fund that sells and redeems shares every day that it
is open for business. The Trust was organized on May 9, 1986 as a
Massachusetts business trust. The Trust is governed by a Board of
Trustees. The Trustees are responsible for the overall management
of the Trust and retain and supervise the Funds' Adviser,
Administrator, Distributor, Transfer Agent and Custodian.
Currently, the Trust has 13 portfolios, each of which offers two
classes of shares.
Who Manages and Services the Funds?
INVESTMENT ADVISER. The Funds are advised by Old Kent, an
indirect wholly-owned subsidiary of OKFC, which is a financial
services company with total assets as of December 31, 1995 of
approximately $12 billion. Old Kent provides investment advice to
the Funds under a contract with the Funds.
Old Kent's Investment Department employs an experienced staff of
professional investment analysts, portfolio managers and traders,
and uses several proprietary computer-based systems in conjunction
with fundamental analysis to identify investment opportunities.
Old Kent has provided investment advisory services to individual
and corporate trust accounts for over 100 years. Old Kent is
located at One Vandenberg Center, Grand Rapids, MI 49503.
Through offices in Michigan, Florida and Illinois, OKFC and its
subsidiaries provide a broad range of financial services to
individuals and businesses. Old Kent currently has the right to
vote a majority of the Trust's outstanding shares on behalf of its
underlying customer accounts and therefore it is considered to be
a controlling person of the Trust.
Old Kent has committed several portfolio managers to the day-
to-day management of the Funds. Joseph T. Keating, a Senior Vice
President in the Investment Management Group, is responsible for
developing and implementing the Funds' investment policies. Mr.
Keating has over 20 years of investment experience and has served
in various management positions with Old Kent for the past nine
years. Allan J. Meyers, a Vice President in the Investment
Management Group, is Director of fixed income funds and the
portfolio manager of the Short Term Bond Fund. He has managed the
Fund since its inception. Mr. Meyers has over 12 years of
investment experience with Old Kent. Mitchell L. Stapley, a Vice
President in the Investment Management Group, is responsible for
fixed income investments and the portfolio manager of the
Intermediate Bond and the Income Funds, which he has managed since
inception. Mr. Stapley has over nine years of investment
experience with Old Kent.
Old Kent selects broker-dealers to execute portfolio transactions
for the Funds based on best price and execution terms. Old Kent
may consider as a factor the number of shares of a Fund sold by
the broker-dealer. The broker-dealers may be affiliated with the
Trust or its service providers or their affiliates subject to any
limitations imposed by applicable securities laws and regulations.
ADMINISTRATOR. First Data provides management and administrative
services to the Funds, including providing office space, equipment
and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing
services. First Data also acts as the transfer agent and dividend
paying agent of the Funds. First Data is located at One Exchange
Place, Boston, Massachusetts 02109.
DISTRIBUTOR. 440 Distributors is the distributor of the Funds'
shares and is paid a sales charge on the sale of Investment
Shares, described under "Purchases of Shares - What Price Do I Pay
For Shares?" 440 Distributors may reallow all or a portion of the
sales charge to a broker-dealer. The second column under the
table labeled "Applicable Sales Charge" shows the maximum amount
of the reallowance. 440 Distributors may, from time to time,
provide promotional incentives to certain dealers whose
representatives have sold or are expected to sell significant
amounts of Investment Shares. 440 Distributors may provide
written information to dealers with whom it has dealer agreements
that relate to sales incentive campaigns conducted by such dealers
for their representatives. In addition, 440 Distributors may
similarly provide financial assistance in connection with pre-
approved seminars, conferences and advertising. No such programs
or additional compensation will be offered to the extent that they
are prohibited by the laws of any state or any self-regulatory
agency, such as the NASD. Dealers to whom substantially the
entire sales charge is reallowed may be deemed to be underwriters
as that term is defined under the Securities Act of 1933.
What Are My Rights as a Fund Shareholder?
As a shareholder of a Fund, you have the right to vote on
certain matters affecting the Fund, such as elections of Trustees
and approval of advisory contracts and distribution arrangements.
The Trust will not have annual shareholder meetings, but special
meetings may be held at the request of investors holding 10% of
the shares for the purpose of removing a Trustee. You are
entitled to one vote for each share you hold and a fractional vote
for each fraction of a share you hold. You will be asked to vote
only on matters affecting the Trust as a whole and your particular
Fund and class of shares, and not on matters only affecting other
Funds or classes of shares. You should be aware that under
Massachusetts law it is possible that a shareholder may be
personally liable for the Trust's obligations. If a shareholder
were required to pay a debt of a Fund, however, the Trust has
committed to reimburse the shareholder in full from its assets.
DIVIDENDS, DISTRIBUTIONS AND TAXES
When Will I Receive Distributions From the Funds?
Each Fund will distribute substantially all of its net investment
income and long-term capital gains to shareholders each year.
Each Fund will declare and pay dividends monthly. Each Fund will
distribute realized long-term capital gains, if any, once a year.
You should be aware that each time a distribution is made from a
Fund, the Fund's net asset value is reduced by the amount of the
distribution. Therefore, if you buy shares just before a
distribution is made, you will pay full price for the shares and
then receive a portion of the price back as a taxable
distribution.
How Will Distributions Be Made?
Dividend and capital gains distributions will be paid in
additional shares of the Funds. If you wish to receive
distributions in cash, notify the Fund at 1-800-633-KENT (5368)
and a check will be mailed to you each time a distribution is
made. Your distributions may also be sent by electronic funds
transfer directly to your designated bank account. Shareholders
in IRA accounts and participants in certain tax-qualified plans
cannot receive distributions in cash.
What Are the Tax Implications of My Investments in the Funds?
Because the Funds each intend to qualify as a "regulated
investment company" under the Internal Revenue Code, they
generally will not be required to pay Federal income taxes on
their income and capital gains. Dividends of investment company
income by each Fund will be taxable to you as ordinary income,
unless you are exempt from Federal income taxes. In general, a
Fund's investment company taxable income will be its taxable
income (including interest and short-term capital gains) subject
to certain adjustments and excluding the excess of any net long-
term capital gains for the taxable year over the net short-term
capital loss, if any, for such year. Capital gains distributions
will be taxed to you as long-term capital gains (regardless of how
long you have held the shares). Please note that the above tax
treatment applies regardless of whether you receive your
distributions in cash or in additional shares. Federal income
taxes for distributions to an IRA or to a qualified retirement
plan are deferred. Any distribution that is declared in October,
November or December but not actually paid until January of the
following year will be taxable in the year declared.
When you redeem, transfer or exchange shares, you may have a
taxable gain or loss depending on whether the price you receive
for the shares has a value higher or lower than your tax basis in
the shares. If you hold shares for six months or less, and during
that time you received a capital gain dividend, any loss you
realize on the sale of those shares will be treated as a long-term
loss to the extent of the earlier distribution.
You will receive from each Fund in which you are a shareholder
shortly after the end of each year a statement of the amount and
nature of distributions made to you during the year. You will
also receive a confirmation statement shortly after disposing of
shares showing the amount and value of the disposition.
You should note that in certain cases (i) the Funds will be
required to withhold 31% of dividends or sale proceeds otherwise
due to you and (ii) in addition to Federal taxes, state and local
taxes may apply to transactions in shares.
This section contains a brief summary of the tax implications of
ownership of the Funds' shares. A lengthier description of taxes
is contained in the SAI. You should consult your tax adviser
regarding the impact of owning the Funds' shares on your own
personal tax situation, including the applicability of any state
and local taxes.
ADDITIONAL INFORMATION
Where Do I Get Additional Information About My Account and the
Funds?
For more information, call 1-800-633-KENT (5368) or write to the
Funds at: The Kent Funds, c/o 440 Distributors, PO Box 5107, 4400
Computer Drive, Westborough, MA 01581-5107.
Except as otherwise stated in this prospectus or required by law,
the Trust reserves the right to change the terms of any offer
stated in this prospectus without shareholder approval, including
the right to charge certain fees for services provided. No person
has been authorized to give any information or to make any
representation not contained in this prospectus, or in the SAI, in
connection with the offering made by this prospectus and, if given
or made, such information or representations must not be relied
upon as having been authorized by the Funds or their Distributor.
This prospectus does not constitute an offering by the Funds or by
their Distributor in any jurisdiction in which such offering may
not lawfully be made.
THE KENT FUNDS
Prospectus
Dated May 1, 1996
This Prospectus relates to the following tax-advantaged funds
("Funds"):
The Kent Limited Term Tax-Free Fund seeks current income exempt
from Federal income tax, while preserving capital. The Fund
maintains a dollar-weighted average maturity of between one and
one-half and five years.
The Kent Intermediate Tax-Free Fund seeks current income exempt
from Federal income tax, while preserving capital. The Fund
maintains a dollar-weighted average maturity of between three and
ten years.
The Kent Tax-Free Income Fund seeks to provide as high a level
of current income exempt from Federal income tax as is consistent
with prudent investing, while seeking to preserve capital. The
Fund maintains a dollar-weighted average maturity of between ten
and 25 years.
The Kent Michigan Municipal Bond Fund seeks current income
exempt from Federal income and State of Michigan personal income
taxes, while preserving capital. The Fund maintains a dollar-
weighted average maturity of between one and five years.
This Prospectus contains information that a prospective investor
should know before investing. Investors should read and retain
this Prospectus for future reference. The Kent Funds has filed a
Statement of Additional Information ("SAI") dated May 1, 1996 with
the Securities and Exchange Commission, which is incorporated by
reference into this Prospectus. For a free copy of the SAI, or
for other information about the Funds, write to the address or
call the telephone number listed below.
Shares of the Funds are not bank deposits or obligations of, or
guaranteed or endorsed by, the Funds' investment adviser or any of
its affiliates, and are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in mutual fund
shares involves risk, including the possible loss of principal.
Old Kent Bank receives fees from the Funds for advisory and
certain other services.
The Kent Funds
PO Box 5107
4400 Computer Drive
Westborough, MA 01581-5107
Call Toll-Free For Shareholder Services:
1-800-633-KENT (5368)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
Highlights
What are the key facts regarding the Funds?
Financial Information
What are the Funds' key financial highlights?
Fund Choices
What Funds are offered?
What instruments do the Funds invest in?
What are the risks of investing in the Funds?
Performance
How is the Funds' performance calculated?
Where can I obtain performance data?
Expense Information
What are the Funds' expenses?
Purchases of Shares
Who may want to invest in the Funds?
When can I purchase shares?
What is the minimum required investment?
How can I purchase shares?
What price do I pay for shares?
Redemptions (Sales) of Shares
When can I redeem shares?
How can I redeem shares?
What price do I receive for shares?
When will I receive redemption money?
Structure and Management of the Funds
How are the Funds structured?
Who manages and services the Funds?
What are my rights as a Fund shareholder?
Dividends, Distributions and Taxes
When will I receive distributions from the Funds?
How will distributions be made?
What are the tax implications of my investments in the Funds?
Additional Information
Where do I get additional information about my account and the
Funds?
HIGHLIGHTS
What Are the Key Facts Regarding the Funds?
Q: What are The Kent Funds?
A: The Kent Funds (the "Trust") is a family of open-end
management investment companies (commonly known as mutual funds)
that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives
and policies. This prospectus describes the Trust's Limited Term
Tax-Free Fund, Intermediate Tax-Free Fund, Tax-Free Income Fund
and Michigan Municipal Bond Fund. See "Fund Choices - What Funds
are Offered?" The Trust also offers the following investment
portfolios by separate prospectuses: The Kent Money Market Fund,
The Kent Michigan Municipal Money Market Fund, The Kent Growth and
Income Fund, The Kent Small Company Growth Fund, The Kent
International Growth Fund, The Kent Index Equity Fund, The Kent
Short Term Bond Fund, The Kent Intermediate Bond Fund and The Kent
Income Fund. To obtain a prospectus for any Kent Fund, please call
1-800-633-KENT (5368).
Q: Who advises the Funds?
A: The Funds are managed by Old Kent Bank ("Old Kent"), an
indirect wholly-owned subsidiary of Old Kent Financial Corporation
("OKFC"). OKFC is a financial services company with total assets
as of December 31, 1995 of approximately $12 billion. See
"Structure and Management of the Funds - Who Manages and Services
the Funds?"
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a
variety of professionally managed diversified investment
portfolios without having to become involved with the detailed
accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the
economic advantages of block trading in portfolio securities and
the availability of a family of thirteen mutual funds should your
investment goals change.
Q: How does someone buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors,
Inc. ("440 Distributors") and are sold in two classes: Investment
Shares and Institutional Shares. Investment Shares can be
purchased from any broker-dealer or financial institution which
has entered into a dealer agreement with 440 Distributors, or by
completing an application and mailing it directly to 440
Distributors with a check, payable to the appropriate Fund, for
$1,000 or more. Institutional Shares are offered to financial and
other institutions for the benefit of fiduciary, agency or
custodial accounts. The minimum initial aggregate investment for
Institutional Shares is $100,000. The Trust may waive the minimum
purchase requirements in certain instances. Institutional Shares
purchasers should call First Data Investor Services Group, Inc.
("First Data"), the Trust's Transfer Agent and Administrator,
toll-free at 1-800-633-KENT (5368) for instructions on how to open
an account. See "Purchases of Shares." For information on how to
redeem your shares, see "Redemptions (Sales) of Shares."
Q: When are dividends paid?
A: Dividends of each Fund's net investment income are declared
and paid monthly. Net realized capital gains of the Funds are
distributed at least annually. See "Dividends, Distributions and
Taxes."
Q: What shareholder privileges are offered by the Trust?
A: Investors may exchange shares of a Fund having a value of at
least $100 for shares of the same class of any other investment
portfolio offered by the Trust in which the investor has an
existing account. The Trust offers IRAs, which can be established
by contacting the Trust's Distributor. The Trust also offers an
Automatic Investment Program which allows investors to
automatically invest in Investment Shares on a monthly basis. See
"Purchases of Shares - How Can I Purchase Shares?"
Q: What are the potential risks presented by the Funds'
investment practices?
A: Investing in the Funds involves the risks common to any
investment in securities. The net asset value ("NAV") of each
Fund's shares will fluctuate with changes in the market value of
its portfolio securities. The market value of fixed income
securities, which will constitute substantially all of each Fund's
investments, will generally vary inversely with changes in
prevailing interest rates. Longer term bond funds are generally
more sensitive to interest rate changes than shorter term bond
funds. The Funds will invest in investment grade securities or
unrated securities deemed to be of comparable quality by Old Kent.
Debt obligations rated in the lowest of the top four investment
grade categories are considered to have speculative
characteristics. The Michigan Municipal Bond Fund's performance
is closely tied to the economic and political conditions in the
State of Michigan. The Funds may also invest up to 15% of their
net assets in illiquid securities. For a complete description of
the risks associated with each Fund, see "Fund Choices - What
Funds are Offered?" and " - What Are the Risks of Investing in the
Funds?"
FINANCIAL INFORMATION
What Are the Funds' Key Financial Highlights?
FEE TABLE
The purpose of the fee table is to assist you in understanding the
various costs and expenses that an investor in each Fund will bear
directly or indirectly. See "Expense Information" and "Purchases
of Shares" for more information regarding such costs and expenses.
LIMITED TERM INTERMEDIATE TAX-FREE MICHIGAN
TAX-FREE TAX-FREE INCOME MUNICIPAL
FUND FUND FUND BOND FUND
Investment Institutional Investment Institutional Investment
Institutional Investment
Institutional
Shares Shares Shares Shares Shares Shares Shares Shares
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchase1 4.00% None 4.00% None 4.00% None
4.00% None
(as a % of offering price)
ANNUAL FUND OPERATING EXPENSES2
(as a % of average net assets)
Management Fees 0.45% 0.45% 0.50% 0.50% 0.55% 0.55% 0.45% 0.45%
12b-1 Fees3 0.15% None 0.25% None 0.25% None 0.15% None
Other Expenses 0.28% 0.28% 0.22% 0.22% 0.24% 0.24% 0.26% 0.26%
TOTAL FUND OPERATING EXPENSES 0.88% 0.73% 0.97% 0.72% 1.04% 0.79% 0.86%
0.71%
___________________________________________________________________
1The sales charge applied to the purchase of a Fund's Investment Shares
declines as the amount
invested increases. See "Purchases of Shares - What Price Do I Pay For Shares?"
2Expense ratios for each Fund other than the Tax-Free Income Fund are based
on amounts
incurred for the fiscal year ended December 31, 1995. Because the Tax-Free
Income Fund only
commenced operations on March 20, 1995, its expense ratios are based on
estimates for the
current fiscal year. Sweep, trustee, agency, custody and certain other
fees charged by Old Kent
and its affiliates to their customers who own shares of the Funds are not
reflected in the fee table.
3Investment Shares may pay 12b-1 fees of up to 0.25% (on an annualized
basis). As a result of
the payment of sales charges and 12b-1 and certain other related fees
discussed below, long
term Investment Class shareholders may pay more than the economic equivalent
of the
maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc.
("NASD").
Example: You would pay the following expenses on a $1,000 investment,
assuming (i)
5% annual return and (ii) redemption at the end of each period:
TAX-FREE MICHIGAN
LIMITED TERM INTERMEDIATE INCOME MUNICIPAL
TAX-FREE FUND TAX-FREE FUND FUND BOND FUND
Investment Institutional Investment Institutional Investment
Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares Shares Shares
One Year $ 49 $ 7 $ 50 $ 7 $ 50 $ 8 $ 49 $ 7
Three Years $ 67 $23 $ 69 $23 $ 72 $25 $ 66 $22
Five Years $ 86 $40 $ 91 $39 $ 95 $43 $ 85 $39
Ten Years $143 $89 $153 $88 $160 $96 $140 $86
Amounts shown in the example should not be considered a representation of past
or future investment return or expenses; actual investment return and expenses
may be greater or lesser than those shown.
FINANCIAL HIGHLIGHTS
The Financial Highlights presented below have been audited by KPMG
Peat Marwick LLP, independent auditors, whose report, together
with the financial statements of the Funds, appears in the Funds'
annual report. These tables should be read in conjunction with
the Funds' financial statements and the related notes. Additional
information concerning the performance of the Funds is contained
in their annual report, which can be obtained without charge by
calling 1-800-633-KENT (5368).
LIMITED TERM TAX-FREE FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31, Period ended December 31,
1995 1994(1) 1995 1994(2)
_______________________________________________________________________
___________
Net Asset Value, Beginning of period $9.81 $9.87 $9.80 $10.00
Income from Investment Operations:
Net investment income 0.37 0.06 0.39 0.13
Net realized and unrealized gain (loss) on investments 0.44 (0.06)
0.42 (0.21)
Total from Investment Operations: 0.81 --- 0.81 (0.08)
Less Distributions from:
Net investment income (0.38) (0.06) (0.39) (0.12)
In excess of net investment income --- --- --- ---
Net realized gain on investments --- --- ---
---
Total Distributions: (0.38) (0.06) (0.39) (0.12)
Net increase (decrease) in net asset value 0.43 (0.06) 0.42 (0.20)
Net Asset Value, End of period $10.24 $9.81 $10.22 $9.80
Total Return for period indicated (A) 8.40% 0.03% 8.43% (0.77)%
Ratios/Supplemental Data:
Net Assets, End of period (000's) $54 $7 $55,347
$43,497
Ratios to average net assets:
Net investment income
including reimbursement/waiver 3.69% 3.86%* 3.87% 3.81%*
Net investment income
excluding reimbursement/waiver 3.69% 3.75%* 3.82% 3.64%*
Operating expenses
including reimbursement/waiver 0.84% 0.87%* 0.69% 0.79%*
Operating expense
excluding reimbursement/waiver 0.85% 0.98%* 0.74% 0.96%*
Portfolio Turnover Rate 51% 10% 51% 10%
* Annualized.
(1) The Investment Class date of initial public investment was
November 1, 1994.
(2) The Institutional Class commenced operations on September 1,
1994.
(A) Calculation does not include sales charge for the Investment
Shares.
INTERMEDIATE TAX-FREE FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995 1994 1993 1992(1) 1995 1994 1993
1992(2)
Net Asset Value, Beginning of period $9.74 $10.45 $10.04 $10.00
$9.74 $10.45 $10.02 $10.00
Income from Investment Operations:
Net investment income 0.42 0.40 0.36
*** 0.45 0.40 0.37 0.01
Net realized and unrealized gain (loss) 0.79 (0.71)
0.46 0.04 0.79 (0.71) 0.47
0.03
on investments
Total from investment operations: 1.21 (0.31)
0.82 0.04 1.24 (0.31) 0.84
0.04
Less Distributions from:
Net investment income (0.42) (0.39) (0.33)
- --- (0.45) (0.39) (0.36) (0.01)
In excess of net investment income (0.01) (0.01)
(0.03) --- (0.01) (0.01) ---
(0.01)
Net realized gains on investments --- ---
(0.05) --- --- --- (0.05) --
- -
Total Distributions: (0.43) (0.40) (0.41)
- --- (0.46) (0.40) (0.41) (0.02)
Net increase (decrease) in net asset value 0.78 (0.71)
0.41 0.04 0.78 (0.71) 0.43
0.02
Net Asset Value, End of period $10.52 $9.74 $10.45 $10.04
$10.52 $9.74 $10.45 $10.02
Total Return for period indicated(A) 12.66% (3.03)%
8.29% 0.40% 12.90% (3.00)% 8.51%
0.40%
Ratios/Supplemental Data
Net Assets, End of period (000's) $3,807 $4,505 $3,307 $92
$283,733 $380,715 $135,862 $36,938
Ratios to average net assets:
Net investment income including
reimbursement/waiver 4.13% 3.99%
3.44% 1.37%* 4.39% 4.07% 3.62%
1.77%*
Net investment income excluding
reimbursement/waiver 4.13% 3.99%
3.44% 1.37%* 4.39% 4.07% 3.62%
1.77%*
Operating expenses including
reimbursement/waiver 0.97% 0.79%
1.08% 0.10%** 0.72% 0.78% 0.84% 0.11%**
Operating expenses excluding
reimbursement/waiver 0.97% 0.79%
1.08% 0.10%** 0.72% 0.78% 0.84% 0.11%**
Portfolio Turnover Rate 6% 36% 14%
0% 6% 36% 14% 0%
* Annualized.
** Not Annualized.
*** Amounts is less than $0.005.
(1) The Investment Class date of initial public investment was
December 18, 1992.
(2) The Institutional Class commenced operations on December 16,
1992.
(A) Calculation does not include sales charge for the Investment
Shares.
TAX-FREE INCOME FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995(1) 1995(2)
Net Asset Value, Beginning of period $10.00
$10.00
Income from Investment Operations:
Net investment income 0.31
0.36
Net realized and unrealized gain (loss) on investments 0.51
0.49
Total from investment operations: 0.82
0.85
Less Distributions from:
Net investment income (0.30)
(0.36)
Net realized gain on investments ---
---
Total Distributions: (0.30)
(0.36)
Net increase (decrease) in net asset value 0.52
0.49
Net Asset Value, End of period $10.52
$10.49
Total Return for period indicated(A) 8.34%
8.64%
Ratios/Supplemental Data
Net Assets, End of period (000's) $529
$121,855
Ratios to average net assets:
Net investment income including reimbursement/waiver 4.25%*
4.44%*
Net investment income excluding reimbursement/waiver 4.03%*
4.26%*
Operating expenses including reimbursement/waiver 0.95%*
0.73%*
Operating expenses excluding reimbursement/waiver 1.17%*
0.91%*
Portfolio Turnover Rate 10% 10%
* Annualized.
(1) The Investment Class date of initial public investment was March
31, 1995.
(2) The Institutional Class commenced operations on March 20, 1995.
(A) Calculation does not include sales charge for the Investment
Shares.
MICHIGAN MUNICIPAL BOND FUND
(For a share outstanding throughout each period)
Investment Shares
Institutional Shares
Period ended December 31,
Period ended December 31,
1995 1994 19931 1995 1994 19932
Net Asset Value, Beginning of period $9.72 $10.08 $10.02
$9.72 $10.06 $10.00
Income from Investment Operations:
Net investment income 0.37 0.35 0.21
0.39 0.37 0.23
Net realized and unrealized gain (loss) 0.40 (0.34)
0.07 0.39 (0.34) 0.07
on investments
Total from investment operations: 0.77 0.01
0.28 0.78 0.03 0.30
Less Distributions from:
Net investment income (0.37) (0.34) (0.21)
(0.37) (0.36) (0.22)
In excess of net investment income (0.01) (0.03)
*** (0.01) (0.01) (0.01)
Net realized gain on investments --- ---
(0.01) --- --- (0.01)
In excess of net realized gain on investments --- ---
- --- --- --- ***
Total Distributions: (0.38) (0.37) (0.22)
(0.38) (0.37) (0.24)
Net increase (decrease) in net asset value 0.39 (0.36)
0.06 0.40 (0.34) 0.06
Net Asset Value, End of period $10.11 $9.72 $10.08
$10.12 $9.72 $10.06
Total Return for period indicated(A) 8.01% 0.16%
2.85% 8.20% 0.36% 3.06%
Ratios/Supplemental Data
Net Assets, End of period (000's) $1,900 $1,980 $283
$185,466 $118,485 $74,647
Ratios to average net assets:
Net investment income including
reimbursement/waiver 3.68% 3.80%
3.43%* 3.81% 3.74% 3.34%*
Net investment income excluding
reimbursement/waiver 3.67% 3.61%
2.60%* 3.80% 3.50% 3.61%*
Operating expenses including
reimbursement/waiver 0.83% 0.49%
0.25%* 0.69% 0.49% 0.24%*
Operating expenses excluding
reimbursement/waiver 0.85% 0.84%
1.08%* 0.70% 0.74% 0.68%
Portfolio Turnover Rate 42% 27% 10%
42% 27% 10%
* Annualized
*** Amounts is less than $0.005.
(1) The Investment Class date of initial public investment was on May
11, 1993.
(2) The Institutional Class commenced operations on May 3, 1993.
(A) Calculation does not include sales charge for the Investment
Shares.
FUND CHOICES
What Funds Are Offered?
The Trust currently offers the four tax-free funds described
below.
OBJECTIVES AND MATURITIES
The following investment objectives are considered "fundamental"
and may be changed by a Fund only with the approval of its
shareholders.
Limited TermTax-Free Fund
OBJECTIVE: Seeks current income, exempt from Federal income tax,
while preserving capital.
MATURITY: Will maintain a dollar-weighted average portfolio
maturity of between one and a half and five years. No obligation
will have a remaining maturity of more than ten years.
IntermediateTax-Free Fund
OBJECTIVE: Seeks current income, exempt from Federal income tax,
while preserving capital.
MATURITY: Will maintain a dollar-weighted average portfolio
maturity of between three and ten years. There is no limit on the
maturity of any individual security in the portfolio.
Tax-Free Income Fund
OBJECTIVE: Seeks to provide as high a level of interest income
exempt from Federal income taxes as is consistent with prudent
investing, while preserving capital.
MATURITY: Will maintain a dollar-weighted average portfolio
maturity of between ten and twenty five years. There is no limit
on the maturity of any individual security in the portfolio.
Michigan Municipal Bond Fund
OBJECTIVE: Seeks current income, exempt from Federal income and
State of Michigan personal income taxes, while preserving capital.
MATURITY: Will maintain a dollar-weighted average portfolio
maturity of between one and five years. No obligation will have a
remaining maturity of more than ten years.
INVESTMENT POLICIES
Each Fund intends to invest at least 80% of its net assets in
federally Tax-Exempt Obligations, except during periods of unusual
market conditions. This policy is a fundamental policy which
can't be changed by a Fund without the approval of its
shareholders. In calculating the 80% limitation for all Funds
other than Michigan Municipal Bond Fund, a security whose interest
is treated as a specific tax preference item under the Federal
alternative minimum tax is considered taxable. Tax-exempt
obligations consist of municipal bonds, notes and commercial paper
issued by states, territories or possessions of the United States,
the District of Columbia and their political subdivisions,
agencies and instrumentalities, the interest on which is, in the
opinion of counsel to the issuer of such obligations, exempt from
Federal income taxes. Under normal circumstances, at least 65% of
the Michigan Municipal Bond Fund's total assets will be invested
in municipal obligations issued by the State of Michigan or its
political subdivisions, authorities or corporations.
The Funds will principally invest in Municipal Bonds, which are
issued by state or local governments typically for general funding
or to finance specific projects. "General Obligation" securities
are backed by the full faith, credit and taxing power of the
municipality. "Revenue" securities are backed only by the
revenues from a particular facility or facilities or other
specific revenue sources. "Private Activity Bonds," which are
revenue securities issued by industrial development authorities,
are issued to finance privately-owned facilities and are backed by
private entities. The credit quality of Private Activity Bonds is
usually related to the creditworthiness of the private entity
using the facility involved. A municipal obligation's credit may
be enhanced by a letter of credit issued by a bank and the payment
of principal and interest may be insured by an insurance company.
Municipal obligations in which the Funds may invest will be rated
in one of the four highest rating categories by a nationally
recognized statistical rating organization ("NRSRO") or, if
unrated, will be deemed to be of comparable quality by Old Kent.
Obligations rated in the fourth highest rating category are
considered to have speculative characteristics. See Appendix A to
the SAI for a description of NRSRO ratings.
When a Fund buys municipal obligations, Old Kent will consider the
NRSRO ratings assigned to such securities. In making its
investment decisions, Old Kent will also consider many factors
other than current yield, including the preservation of capital,
the potential for realizing capital appreciation, maturity and
yield to maturity. Each Fund will adjust its investments in
particular securities or in types of securities in response to Old
Kent's appraisal of changing economic conditions and trends. A
Fund may sell one security and purchase another security of
comparable quality and maturity to take advantage of what Old Kent
believes to be short-term differentials in market values or yield
disparities. Subsequent to its purchase by a Fund, a security
rated in one of the top four rating categories may cease to be
rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. Old Kent will consider such an
event in determining whether the Fund should continue to hold the
security.
What Instruments Do the Funds Invest In?
The Funds may also invest in the securities and use the investment
techniques described below. Each of these securities and
techniques is described in more detail under "Investment Policies"
in the SAI.
Each Fund may buy Variable and Floating Rate Instruments. These
instruments provide for adjustment from time to time in interest
rates. Some of these instruments are not traded and there is no
market in which to sell them to third parties; therefore, the Fund
may not be able to sell the instruments when it wishes to sell.
When Old Kent determines that market conditions are appropriate,
each Fund may, for temporary defensive purposes, invest up to 100%
of its assets in Money Market Instruments, which are high-quality,
short-term instruments including, among other things, commercial
paper, bankers' acceptances, negotiable certificates of deposit,
short-term corporate obligations which are rated A or better by
Standard & Poor's Rating Group or Moody's Investors Service, Inc.,
and short-term securities issued by, or guaranteed by, the U.S.
Government and its agencies or instrumentalities. Each Fund may
also shorten its dollar-weighted average maturity below its normal
range if such action is deemed appropriate by Old Kent for
temporary defensive purposes. If a Fund is investing defensively,
it will not be pursuing its investment objectives.
The Funds may buy shares of registered Money Market Investment
Companies. The Funds will bear a portion of the expenses of any
investment company whose shares they purchase, including operating
costs and investment advisory, distribution and administration
fees. These expenses would be in addition to the Fund's own
expenses.
The Funds may Lend Securities to broker-dealers and other
financially sound institutional investors who will pay the Funds
for the use of the securities. The borrower must set aside cash
or liquid high-grade debt securities equal to the value of the
securities borrowed at all times during the term of the loan.
Loans may not exceed one-third of the value of a Fund's total
assets. Risks involved in such transactions include possible
delay in recovering the loaned securities and possible loss of the
securities or the collateral if the borrower declares bankruptcy.
The Funds may also purchase Futures Contracts, which are contracts
in which a Fund agrees, at maturity, to make delivery of certain
securities, financial instruments or the cash value of a specified
bond index. Futures may be used by the Funds for hedging purposes
or to provide liquid assets. A Fund will not enter into a futures
contract if the purchase will cause the aggregate amount of margin
deposits on existing futures positions plus premiums paid to
establish such positions to be more than 5% of the Fund's net
assets. Futures are a type of derivative instrument, which are
instruments that derive their value from a different underlying
security. Futures trading activity is very specialized and may
entail higher than ordinary investment risks. Such risks include
that the value of the securities to be bought or sold under the
futures contract or the interest rate being hedged against does
not move in the direction predicted by Old Kent, causing a
potential loss to a Fund. The risks of futures are described in
more detail in the SAI.
Each Fund may agree to Purchase Securities for Future Delivery,
sometimes a month or more after the date of the agreement.
Although the price to be paid by the Fund is set at the time of
the agreement, the Fund usually does not pay for the securities
until they are received. The value of the securities may change
between the time the price is set and the time the price is paid.
When a Fund purchases securities for future delivery, the Trust's
custodian will maintain a segregated account containing cash, U.S.
Government securities or other liquid high-grade debt securities.
The Funds do not intend to purchase securities for future delivery
for speculative purposes.
Each Fund may purchase other types of tax-exempt instruments which
may become available in the future provided Old Kent believes that
their quality is equivalent to the Fund's quality standards. Each
Fund's ability to achieve its investment objective depends to a
great extent on the ability of the various issuers of the
obligations purchased by the Funds to meet their scheduled
payments of principal and interest.
The Michigan Municipal Bond Fund may invest up to 35% of its total
assets under ordinary circumstances, and up to 100% for temporary
defensive purposes, in Municipal Bonds, whose income is exempt
from Federal income tax but not exempt from Michigan personal
income taxes.
Except for each Fund's policy to invest at least 80% of its net
assets in federally tax-exempt obligations, the investment
policies discussed above are not "fundamental" policies and may be
changed by the Board of Trustees without shareholder approval.
However, the Funds also have in place certain fundamental
investment limitations that cannot be changed for a Fund without
the approval of a majority of that Fund's outstanding shares.
Some of these limitations are summarized below. A complete list
of the fundamental investment limitations for the Funds is
contained in the SAI.
1 With respect to 75% of each Fund's total assets, the Funds
cannot invest more than 5% of their respective total assets in any
one issuer (other than the U.S. Government, its agencies and
instrumentalities). In addition, the Funds cannot invest more
than 25% of their respective total assets in a single industry.
These restrictions require the Funds to be more diversified in
order to lower the risk to a Fund of an economic setback for any
one issuer or in any one industry.
2 Each Fund may only borrow money for temporary or emergency
purposes, and such borrowing is limited to an amount not exceeding
one-third of the Fund's net assets, provided that while borrowings
from banks exceed 5% of a Fund's net assets, any such borrowings
will be repaid before additional investments are made. The limits
on the amount each Fund can borrow prevents the Fund from
significantly leveraging its assets.
3 Each Fund may not invest more than 15% of its net assets in
illiquid securities. Typically, there is no ready market for such
securities, which inhibits a Fund's ability to sell the securities
and to obtain values for the securities.
What Are the Risks of Investing in the Funds?
The value of each Fund's shares, like the value of most
securities, will rise and fall in response to changes in economic
conditions, interest rates and the market's perception of the
underlying securities held by the Fund. The Funds invest mostly
in tax-free bonds, whose values typically rise when interest rates
fall and fall when interest rates rise. Bonds with shorter
maturities (time period until repayment) tend to be less affected
by interest rate changes, but generally offer lower yields than
bonds with longer maturities. Current yield levels should not be
considered representative of yields at any future time.
Securities with variable interest rates and derivative securities,
such as futures, may exhibit greater price variations than
ordinary securities.
By itself, no Fund constitutes a balanced investment program and
none is designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in
principal or marketability. There is no guarantee that any Fund
will achieve its investment objective since there is uncertainty
in every investment. When you sell your shares in the Funds, they
may be worth more or less than the amount you paid.
The performance of Michigan Municipal Bond Fund is closely tied to
conditions within the State of Michigan. The economy of Michigan
is principally dependent on three sectors -- manufacturing
(particularly durable goods, automotive products and office
equipment), tourism and agriculture. Michigan encountered
financial difficulties during the late 1980s, largely as a result
of poor conditions in the automotive industry, but recovered from
the prolonged downturn in production levels in this sector in the
early 1990s. Structural changes in the automotive industry have
given the Michigan economy greater financial stability. The
state's finances continue to be in excellent condition, and a
Budget Stabilization Fund that exceeds $1 billion should help the
state weather any potential economic recession. At the end of
1995, however, after several years of rapid growth, the Michigan
economy was evidencing a slight downturn. Personal income and
employment levels were not growing as rapidly as they had for the
past several years.
The market value and the marketability of bonds issued by local
units of government in the State may be affected adversely by the
same factors that affect Michigan's economy generally. The
ability of the State and its local units of government to pay the
principal of and interest on their bonds may also be affected by
such factors and by certain constitutional, statutory and charter
limitations. For additional information on the specific risks
associated with the Michigan Municipal Bond Fund, see Appendix B
to the SAI.
PERFORMANCE
How is the Funds' Performance Calculated?
There are various ways in which the Funds may calculate and report
their performance. Performance is calculated separately for the
Investment Shares and the Institutional Shares.
One method is to show a Fund's total return. Cumulative Total
Return is the percentage change in the value of $1,000 invested in
the Fund over a stated period of time and takes into account
reinvested dividends and the payment of the maximum sales charge
(4%) on Investment Shares. Although cumulative total return most
closely reflects the actual performance of a Fund, a shareholder
who opts to receive dividends in cash, or an Investment class
shareholder who paid a sales charge lower than 4%, will have a
different return than the reported performance. Average Annual
Total Return refers to the average annual compounded rates of
return over a specified period on an investment in shares of a
Fund determined by comparing the initial amount invested to the
ending redeemable value of that amount, taking into account
reinvested dividends and the payment of the maximum sales charge
(4%) on Investment Shares.
Each Fund may also publish its Current Yield, which is the net
investment income generated by a share of the Fund during a 30-day
period divided by the maximum offering price on the 30th day.
"Maximum offering price" includes the sales charge for Investment
Shares.
In addition, each Fund may advertise its "tax equivalent
yield." Tax equivalent yield is, in general, the yield divided by
a factor equal to one minus a stated income tax rate and reflects
the yield a taxable investment would have to achieve in order to
equal on an after-tax basis a tax-exempt yield.
Investment Shares may be purchased with a sales load and may have
higher fees and expenses than Institutional Shares, so the yield
and total return of Investment Shares will be lower than that of
Institutional Shares. The Funds may sometimes publish total
returns that do not take into account sales charges and such
returns will be higher than returns which include sales charges.
You should be aware that (i) past performance does not indicate
how a Fund will perform in the future and (ii) each Fund's return
and NAV will fluctuate, so you cannot necessarily use a Fund's
performance data to compare it to investments in certificates of
deposit, savings accounts or other investments that provide a
fixed or guaranteed yield.
Each Fund may compare its performance to that of other mutual
funds, such as the performance of similar funds prepared by Lipper
Analytical Services, Inc. or information reported in national
financial publications (such as Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times) or in local or
regional publications. Each Fund may also compare its total
return to indices such as the S&P 500, the Merrill Lynch Bond
indices and Lehman Brothers Bond indices. These indices show the
value of selected portfolios of securities (assuming reinvestment
of dividends) which are not managed by a portfolio manager. The
Funds may report how they are performing in comparison to the
Consumer Price Index, an indication of inflation reported by the
U.S. government.
Where Can I Obtain Performance Data?
The Wall Street Journal and certain local newspapers report
information on the performance of mutual funds. In addition,
performance information is contained in the Funds' annual report
dated December 31 of each year (the Trust's fiscal year end) and
semi-annual report dated June 30 of each year, which will
automatically be mailed to shareholders. To obtain copies of
financial reports or performance information, call 1-800-633-KENT
(5368).
EXPENSE INFORMATION
What Are the Funds' Expenses?
A pro rata portion of certain expenses of the Trust are allocated
to the Fund you own and to the particular class of shares you own
and will be reflected in the value of your shares. Such expenses
are not paid directly by shareholders.
TRUST EXPENSES. Expenses charged at the Trust level include fees
paid to Trustees, legal counsel and auditors and administration
fees. First Data is entitled to receive, for its administration
services, an annual fee equal to 0.20% of the aggregate net assets
of all funds in the Trust up to $5 billion; 0.18% of the Trust's
aggregate net assets between $5 and $7.5 billion; and 0.15% of the
Trust's aggregate net assets over $7.5 billion.
FUND EXPENSES. Most expenses will be charged at the Fund level,
including investment advisory fees, Securities and Exchange
Commission registration fees, transfer agency fees, custody fees,
brokerage commissions, interest charges and taxes. Old Kent is
entitled to receive from each Fund an annual advisory fee at the
following rates based on each Fund's average daily net assets:
Limited Term Tax-Free Fund, 0.45%; Intermediate Tax-Free Fund,
0.50%; Tax-Free Income Fund, 0.55%; and Michigan Municipal Bond
Fund, 0.45%. For the fiscal year ended December 31, 1995, the
Limited Term Tax-Free Bond, Intermediate Tax-Free Fund, Tax-Free
Income Fund and Michigan Municipal Bond Fund paid or accrued to
Old Kent an advisory fee, calculated daily and payable monthly, at
an annual rate of 0.41%, 0.50%, 0.37% and 0.44%, respectively, of
the average daily net assets of the Funds. Old Kent may rebate
advisory fees to certain institutional customers in accordance
with Federal and state law.
CLASS EXPENSES. Expenses allocated at the class level include
printing and mailing expenses and expenses payable under the
Funds' Distribution Plans. The Distribution Plans provide that
each Fund may spend, in one year, up to 0.25% of the average daily
net assets of the Fund's Investment Shares to finance sales
activities of the Investment Shares, including marketing and
advertising shares, maintaining account records, issuing
confirmation statements and providing sub-accounting. Banks,
broker-dealers and other organizations may also receive payments
for providing support and/or distribution services to the Funds'
shareholders who are their customers. Federal banking law
currently limits the securities activities of banks. If a bank was
not allowed to provide support and/or distribution services, the
Funds would find another organization to provide such services and
no shareholder should suffer any financial loss. The Funds do not
reimburse 440 Distributors, the Funds' distributor, for any
distribution expenses in excess of the payments received by 440
Distributors under the Distribution Plan or for its overhead
expenses.
PURCHASES OF SHARES
Who May Want to Invest in the Funds?
Investment Shares may be purchased by individual investors and
Institutional Shares may be purchased only by financial and other
institutions for the benefit of fiduciary, agency or custodial
accounts. The Funds, which are tax-free bond funds (also known as
fixed income funds), are designed for investors who desire
potentially higher returns than more conservative fixed rate
investments or money market funds and who seek current income.
Investors who have a long time horizon for their investments may
wish to invest in other Kent Funds designed for long-term
investors. When you choose among the Funds, you should consider
both the expected yield of the Fund and potential changes in the
Fund's share price. The yield and potential price changes of a
Fund's shares depend on the quality and maturity of the
obligations in its portfolio, as well as on other market
conditions (see "Performance - How Is the Funds' Performance
Calculated?").
Shares of the Limited Term Tax-Free Fund, the Intermediate Tax-
Free Fund, the Tax-Free Income Fund and the Michigan Municipal
Bond Fund would not be suitable for tax-exempt institutions and
may not be suitable for certain retirement plans which are unable
to benefit from each Fund's federally tax-exempt dividends. In
addition, the Funds may not be an appropriate investment for
entities which are "substantial users" of facilities financed by
industrial development bonds or related persons thereof.
When Can I Purchase Shares?
Shares can be purchased on any day that both the NYSE and Bankers
Trust Company, the Funds' custodian, are open for business.
What is the Minimum Required Investment?
An investor must initially invest at least $1,000 in Investment
Shares and at least $100,000 in Institutional Shares. Subsequent
investments may be made in any amount. The investment minimums
may be waived for purchases by employees of Old Kent, participants
in tax-sheltered plans and certain qualified retirement accounts.
How Can I Purchase Shares?
INVESTMENT SHARES
For your convenience, the Funds offer a wide variety of methods to
purchase Investment Shares.
* Through a Broker. Any broker authorized by 440
Distributors, the Funds' distributor, can sell you Investment
Shares of the Funds. Please note that such brokers may charge you
fees for their services.
* By Mail. You may open an account by mailing a completed
application and a check (payable to the applicable Fund) to:
The Kent Funds, c/o 440 Distributors, PO Box 5107, 4400
Computer Drive, Westborough, MA 01581-5107.
* By Telephone. You should call 1-800-633 KENT (5368) to open
an account and electronically transfer money to the account,
followed by a completed application.
* By Check. Subsequent purchases of Investment Shares can be
made by mailing a check to the address listed above.
* By Federal Funds Wire. Subsequent purchases of Investment
Shares can be made via a federal funds wire sent to Fleet Bank for
credit to a particular Fund. You should call 1-800-633-KENT
(5368) for complete wire instructions. You should be aware that
banks may charge fees for sending wires. 440 Distributors has the
right to charge fees for receiving wires, although it does not
currently do so.
* By Electronic Funds Transfer (For subsequent purchases
only). Call 1-800-633-KENT (5368) to request a purchase to be
made or to obtain the forms to establish electronic funds
transfer.
* Through an Automatic Investment Plan
1. Call 1-800-633-KENT (5368) to establish an Automatic
Investment Plan.
2. Invest at least $1,000 in an Investment Share account.
3. On the 5th day of each month, your checking account will be
debited (minimum of $50) and Investment Shares will be purchased
and held in your account.
To change the amount invested each month in Investment
Shares, or to stop the Automatic Investment Plan, call 1-800-633-
KENT (5368) or write to: The Kent Funds, c/o 440 Distributors, PO
Box 5107, 4400 Computer Drive, Westborough, MA 01581-5107 at least
5 days before a scheduled investment.
* Through Direct Deposit. You may authorize direct deposit of
your payroll, Social Security or Supplemental Security Income
checks.
INSTITUTIONAL SHARES
You can purchase Institutional Shares by taking the following
steps:
1. To open an account, call 1-800-633-KENT (5368) to obtain an
account or wire identification number.
2. Place a purchase order for shares by telephoning the number
above.
3. Wire federal funds to Fleet Bank no later than the day after
the purchase order is placed.
You should note that (i) a purchase of Institutional Shares will
not be completed until Fleet Bank receives the purchase price and
(ii) banks may charge for wiring federal funds to Fleet Bank. You
may obtain information on how to wire funds from any national bank
and certain state banks.
EXCHANGE PRIVILEGE
You may acquire Investment or Institutional Shares of a Fund (the
"new fund") by exchanging shares of another investment portfolio
offered by the Trust (the "old fund") for shares of the new fund.
Shares of the new fund will be of the same class as the old fund.
In effect, you would be redeeming (reselling to the fund) shares
of the old fund and purchasing shares of the new fund. To
determine the price at which shares are redeemed, see "What Price
Do I Receive for Shares?" and to determine the price at which
shares are purchased, see "What Price Do I Pay for Shares?"
1. Call 1-800-633-KENT (5368) or write to: The Kent Funds, c/o
440 Distributors, PO Box 5107, 4400 Computer Drive, Westborough,
MA 01581-5107 to obtain a prospectus for the new fund prior to the
exchange.
2. Call or write as indicated in * above to place an order to
exchange shares. Purchases of new funds must meet the minimum
purchase requirement of that fund. If the order to exchange
shares is placed prior to or at 4:00 p.m. Eastern Standard Time on
any business day, the order will be executed on the day received,
and if the order is placed after 4:00 p.m. Eastern Standard Time,
the order will not be executed until the next business day.
3. If a shareholder does not have an account with the new fund,
a new account will be established with the same reinvestment
options for distributions as the account for the old fund, unless
the shareholder writes to the new fund to change the option.
IMPORTANT INFORMATION ABOUT EXCHANGES. If shares of a Fund are purchased
by check, such shares cannot be exchanged for 15 days.The Trust may disallow
exchanges of shares if a shareholder has made more than 5 exchanges between
investment portfolios offered by the Trust in a year, or more than 3
exchanges in a
calendar quarter. Although unlikely, the Trust may reject any exchanges or
the Funds
may change or terminate rights to exchange shares. The exchange privilege
is available
only in states where shares of the new fund may be sold.
No sales charge is imposed when Investment Shares on which a
shareholder previously paid a sales charge are exchanged for
Investment Shares of another investment portfolio. However, a
sales charge will be imposed on exchanges of Investment Shares
purchased without a sales charge (i.e., money market portfolio
shares) for Investment Shares of a Fund which imposes a sales
charge. In order to make an exchange, shareholders will be
required to maintain the applicable minimum account balance in
each investment portfolio of the Trust in which shares are owned.
Institutional Shares of a Fund may be exchanged for Investment
Shares of the same Fund when the Institutional Shares are
distributed to the underlying beneficial owners of trust accounts,
401(k) plans and other fiduciary or agency accounts. No sales
charge is imposed in connection with such an exchange.
Investors should note that each Fund has the right to stop
offering its shares, to reject purchase orders and to suspend the
exchange privilege, although such actions are unlikely. 440
Distributors may require additional documents prior to accepting a
purchase, redemption or exchange.
Shareholder Services
For further information on all shareholder services, call The Kent
Funds toll-free at 1-800-633-KENT (5368)or write to The Kent
Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer Drive,
Westborough, MA 01581-5107
What Price Do I Pay For Shares?
Investment Shares are sold at the "net asset value next
determined" by the Fund plus any "applicable sales charge" and
Institutional Shares are sold at the "net asset value next
determined" by the Fund. These terms are explained below. You
should be aware that broker-dealers (other than the Funds'
distributor) may charge investors additional fees if shares are
purchased through them.
NET ASSET VALUE. Except in certain limited circumstances, at 4:00
p.m. on each day the NYSE is open for trading each Fund determines
its NAV. The NAV is calculated separately for the Investment
Shares and Institutional Shares of each Fund. The "net asset
value next determined" is the NAV calculated at 4:00 p.m. on the
day a purchase order for shares is received, if the purchase order
is received prior to or at 4:00 p.m., and is the net asset value
calculated at 4:00 p.m. on the next business day, if the purchase
order is received after 4:00 p.m. The NAV is calculated by
totaling the value of all of the assets of a Fund allocated to a
particular class of shares, subtracting the Fund's liabilities and
expenses allocated to that class, and dividing the result by the
number of shares of that class outstanding. When market
quotations are readily available, the Funds' assets are valued at
market value. Debt instruments with maturities of 60 days or less
are valued at amortized cost, unless the Board of Trustees
determines that this does not result in a fair value. All other
assets are valued at fair value as determined by or under the
direction of the Board of Trustees. The Funds may use pricing
services to help determine the fair value of securities.
APPLICABLE SALES CHARGE. Except in the circumstances described
below, a sales charge must be paid at the time of purchase of
Investment Shares. The more Investment Shares an investor
purchases, the lower the percentage of the sales charge will be,
as the table below indicates.
AS A % OF NET
AS A % OF OFFERING AMOUNT
AMOUNT OF PURCHASE PRICE INVESTED**
Under $100,000 4.00% 4.17%
$100,000 - $249,999 3.00% 3.09%
$250,000 - $499,999 2.00% 2.04%
$500,000 - $999,999 1.00% 1.01%
$1,000,000 and over 0.75% 0.76%
*Maximum reallowance to dealers.
**Rounded to the nearest one-hundredth percent.
For instance, if you wish to invest $275,000 in a Fund, you would
pay to the Fund $275,000 plus $5,610 (2.04% of $275,000).
Certain investors may reduce the percentage of sales charge they
pay for Investment Shares by purchasing shares of more than one
investment portfolio of the Trust ("Portfolio") at the same time,
by purchasing additional shares of Portfolios in the future or by
agreeing to invest a certain amount in the Portfolios during a 13-
month period, as described below. Call the Trust at 1-800-633-
KENT (5368) to determine if you qualify for such reductions.
Concurrent Purchases. If you purchase Investment Shares of more
than one Portfolio that is subject to a sale load at the same
time, you may be able to total the amount being invested in all
Portfolios at that time to determine the sales charge payable.
For example, if you concurrently invested $100,000 in the
Intermediate Tax-Free Fund and $50,000 in the Tax-Free Income
Fund, the sales charge assessed would be 3% of $150,000, or
$4,500.
Rights of Accumulation. If you buy additional Investment Shares
of a Fund, then you may be able to total the amount of money
currently being invested and the current value of previously
purchased shares of a Portfolio (other than the Money Market Fund
or the Michigan Municipal Money Market Fund) still held to
determine the amount of sales charge payable. For example, if you
had previously purchased 10,000 shares of the Tax-Free Income Fund
and still held 5,000 shares of that Fund on a day when you
purchased an additional 20,000 shares of the Fund and the Fund's
NAV was $10 per share, you would pay a sales charge of 2% (the
applicable rate on a $250,000 purchase) on the $200,000 worth of
new shares being purchased, or $4,000. To take advantage of the
rights of accumulation, you must contact 440 Distributors at 1-
800-633-KENT (5368) at the time of purchase. The Trust may change
or terminate rights of accumulation at any time.
Letter of Intent. If you intend to make several investments in
one or more Portfolios over time, you may wish to complete the
Letter of Intent section of your new account application. By
doing so, you agree to invest a certain amount in one or more of
the Portfolios over a 13-month period. Each investment in a
Portfolio during the 13 months would then be subject to the sales
charge applicable to the total amount to be invested under the
Letter of Intent in Portfolios that charge a sales load. For
example, if you stated in your application your intent to invest
$275,000 in one or more Portfolios that charge a sales load but
you only invested $75,000 at the time you completed your
application, then you would pay a sales charge of 2% of $75,000,
or $1,500, which is half of the 4% sales charge that you would
otherwise have paid on such investment. The Letter of Intent may
be back-dated up to 90 days so that any investments made in any of
the Portfolios (other than in the Money Market Fund and the
Michigan Municipal Money Market Fund) during the preceding 90-day
period can be applied toward fulfillment of the Letter of Intent
(although there will be no refund of sales charges paid during the
90-day period). You should inform 440 Distributors that you have
a Letter of Intent each time you make an investment.
You are not obligated to purchase the amount specified in the
Letter of Intent. If you purchase less than the amount specified,
however, you must pay the difference between the sales charge paid
and the sales charge applicable to the purchases actually made.
Shares representing 5% of the dollar amount specified in the
Letter of Intent will be held in escrow. Such shares will not be
available for redemption, transfer or pledge until the Letter of
Intent is completed or the higher sales charge paid. If the
intended investment is not completed and you do not pay the
difference between the sales charge paid and the sales charge
applicable to the purchases actually made within 20 days after
written request by 440 Distributors or its dealer, 440
Distributors will redeem an appropriate number of escrowed shares
and release the balance of escrowed shares to you. You are
entitled to all income and capital gains distributions paid with
respect to the escrowed shares.
Other. Sales charges may be waived entirely for investors who
transfer balances from mutual fund companies other than the Trust
during certain promotional periods announced by 440 Distributors.
In addition, sales charges will not be payable by (1) current
full-time and part-time employees, retired employees and Directors
of OKFC and its subsidiaries; (2) Trustees of the Trust; (3)
registered representatives of firms which have dealer or broker
agreements with 440 Distributors relating to Investment Shares;
and (4) spouses and dependent children of the individuals listed
in (1) - (3) above; (5) OKFC or one of its subsidiaries, acting on
behalf of fiduciary customer accounts and any other account
maintained by a trust department; (6) employees of First Data and
440 Distributors; and (7) participants in certain qualified
retirement plans.
For further information about sales charge reductions and
waivers and the program described above, call toll-free at1-800-
633-KENT (5368) or write to The Kent Funds, c/o 440 Distributors,
PO Box 5107, 4400 Computer Drive,, Westborough, MA 01581-5107
REDEMPTIONS (SALES) OF SHARES
When Can I Redeem Shares?
You can redeem shares on any day that the NYSE is open for
trading. Shares will not be redeemed by a Fund unless all
required documents have been received by 440 Distributors. A Fund
may temporarily stop redeeming shares when the NYSE is closed or
trading on the NYSE is restricted, when an emergency exists and
the Fund cannot sell its assets or accurately determine the value
of its assets or if the Securities and Exchange Commission orders
the Fund to stop redemptions. If you intend to redeem shares
worth more than $1,000,000, you should notify the Fund at least
one day in advance.
How Can I Redeem Shares?
INVESTMENT SHARES
* By Mail. You may mail your redemption notice to: The Kent
Funds, c/o 440 Distributors, PO Box 5107, 4400 Computer Drive,
Westborough, MA 01581-5107
The redemption notice should state the amount of money or number
of shares to be redeemed, and the account name and number. If a
stock certificate has been issued to you, you must endorse (sign
the back of) the stock certificate and return it to the Fund
together with the written redemption notice.
IMPORTANT INFORMATION REGARDING STOCK CERTIFICATES AND REDEMPTION
NOTICES FOR INVESTMENT SHARES
Signatures on all redemption notices and stock certificates must
be guaranteed by a U.S. stock exchange member, a U.S. commercial
bank or trust company and other entities approved by 440
Distributors, unless the amount redeemed is less than $50,000 and
the account address has been the same for at least 90 days. The
Funds can change the above requirements or require additional
documents at any time.
* By Telephone. You can redeem up to $50,000 worth of
Investment Shares by calling 1-800-633-KENT (5368). If the
amount redeemed is less than $2,500, then a check will be mailed
to you and if equal to or greater than $2,500, then the proceeds
will be mailed or sent by wire or electronic funds transfer to the
bank listed on your account.
* Through a Broker. Investment Shares can be redeemed through
a broker. The broker should send the redemption notice and any
other required documents to 440 Distributors, which will send the
proceeds to the broker or directly to you, at your option, within
3 days after receiving proper documents. 440 Distributors does
not charge a fee for this service, but the broker might.
* Through an Automatic Withdrawal Plan. Under the Plan, a
shareholder with an account worth at least $10,000 may redeem,
either monthly or quarterly, fixed dollar amounts of Investment
Shares. Each payment must be at least $100 and can be no more
than 1.5% per month, or 4.5% per quarter, of the value of the
shareholder's Investment Shares when the Automatic Withdrawal Plan
was opened. The proceeds can be mailed or sent by electronic
funds transfer to the bank listed on your account.
INSTITUTIONAL SHARES
You can redeem Institutional Shares by mail, by telephone or
through a broker by following the procedures described for
Investment Shares. Redemption proceeds will be wired in federal
funds only to the commercial bank and account number listed on
your account application. To change the bank account, you should
call the Funds at 1-800-633-KENT (5368) and request the proper
form.
GENERAL REDEMPTION INFORMATION. During periods of unusual market
activity it may be difficult to reach the Funds by telephone. In
such cases, shareholders should follow the procedures for
redeeming by mail or through a broker. Neither the Trust nor any
of its service providers will be liable for following telephone
instructions reasonably believed to be genuine unless it acts with
willful misfeasance, bad faith or gross negligence. In this
regard the Trust and its transfer agent require personal
identification before accepting a telephone redemption. To the
extent that the Trust fails to use reasonable procedures as a
basis for its belief that telephone instructions are genuine, it
and/or its service providers may be liable for instructions that
prove to be fraudulent and unauthorized.
Each Fund reserves the right to redeem an account if its value
falls below $1,000 for Investment Shares and $100,000 for
Institutional Shares as a result of redemptions (but not as a
result of a decline in net asset value). A shareholder will be
notified in writing and allowed 60 days to increase the value of
the account to the minimum investment level.
What Price Do I Receive for Shares?
You will receive the NAV next determined for each share you wish
to redeem. See "Purchases of Shares - What Price Do I Pay for
Shares?" for an explanation of how the NAV next determined is
calculated.
When Will I Receive Redemption Money?
Redemption proceeds are typically sent to shareholders within 3
business days after a request for redemption is made. You should
be sure that you submit all proper documents for redemption;
otherwise, the payment of redemption proceeds may be delayed. You
may call the Funds at 1-800-633-KENT (5368) to be sure that you
have proper documents for redemption. If you purchase shares with
a check and try to redeem shares a short time later, the Fund may
delay paying redemption proceeds until the check has been
collected, although the amount to be paid for the shares will be
calculated when the redemption notice is received. The delay
could take 15 days or more. To avoid a delay in receiving
redemption proceeds, you should purchase shares through a bank
wire or electronic funds transfer. Information on wires can be
obtained from all national and many state banks.
STRUCTURE AND MANAGEMENT OF THE FUNDS
How Are the Funds Structured?
The Trust is an open-end management investment company, which
is a mutual fund that sells and redeems shares every day that it
is open for business. The Trust was organized on May 9, 1986 as a
Massachusetts business trust. The Trust is governed by a Board of
Trustees. The Trustees are responsible for the overall management
of the Trust and retain and supervise the Funds' Adviser,
Administrator, Distributor, Transfer Agent and Custodian.
Currently, the Trust has 13 portfolios, each of which offers two
classes of shares.
Who Manages and Services the Funds?
INVESTMENT ADVISER. The Funds are advised by Old Kent, an
indirect wholly-owned subsidiary of OKFC, which is a financial
services company with total assets as of Dec. 31, 1995 of
approximately $12 billion. Old Kent provides investment advice to
the Funds under a contract with the Funds.
Old Kent's Investment Department employs an experienced staff of
professional investment analysts, portfolio managers and traders,
and uses several proprietary computer-based systems in conjunction
with fundamental analysis to identify investment opportunities.
Old Kent has provided investment advisory services to individual
and corporate trust accounts for over 100 years. Old Kent is
located at One Vandenberg Center, Grand Rapids, MI 49503.
Through offices in Michigan, Florida and Illinois, OKFC and its
subsidiaries provide a broad range of financial services to
individuals and businesses. Old Kent currently has the right to
vote a majority of the Trust's outstanding shares on behalf of its
underlying customer accounts and therefore it is considered to be
a controlling person of the Trust.
Old Kent has committed several portfolio managers to the day-
to-day management of the Funds. Joseph T. Keating, a Senior Vice
President in the Investment Management Group, is responsible for
developing and implementing the Funds' investment policies. Mr.
Keating has over 20 years of investment experience and has served
in various management positions with Old Kent for the past nine
years. Allan J. Meyers, a Vice President in the Investment
Management Group, is Director of fixed income funds and the
portfolio manager of the Intermediate Tax-Free Fund and the Tax-
Free Income Fund. He has managed the Funds since their inception.
Mr. Meyers has over 12 years of investment experience with Old
Kent. Michael J. Martin, an Assistant Vice President in the
Investment Management Group, is responsible for security analysis
of short-term tax-free obligations and is a co-portfolio manager
of the Limited Term Tax-Free Fund and the Michigan Municipal Bond
Fund, which he has managed since January 1995. Mr. Martin has
over six years of experience with Old Kent.
Old Kent selects broker-dealers to execute portfolio transactions
for the Funds based on best price and execution terms. Old Kent
may consider as a factor the number of shares of a Fund sold by
the broker-dealer. The broker-dealers may be affiliated with the
Trust or its service providers or their affiliates subject to any
limitations imposed by applicable securities laws and regulations.
ADMINISTRATOR. First Data provides management and administrative
services to the Funds, including providing office space, equipment
and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend dispersing
services. First Data also acts as the transfer agent and dividend
paying agent of the Funds. First Data is located at One Exchange
Place, Boston, Massachusetts 02109.
DISTRIBUTOR. 440 Distributors is the distributor of the Funds'
shares and is paid a sales charge on the sale of Investment
Shares, described under "Purchases of Shares - What Price Do I Pay
For Shares?" The Distributor may reallow all or a portion of the
sales charge to a broker-dealer. The second column under the
table labeled "Applicable Sales Charge" shows the maximum amount
of the reallowance. The Distributor may, from time to time,
provide promotional incentives to certain dealers whose
representatives have sold or are expected to sell significant
amounts of Investment Shares. The Distributor may provide written
information to dealers with whom it has dealer agreements that
relate to sales incentive campaigns conducted by such dealers for
their representatives. In addition, the Distributor may similarly
provide financial assistance in connection with pre-approved
seminars, conferences and advertising. No such programs or
additional compensation will be offered to the extent that they
are prohibited by the laws of any state or any self-regulatory
agency, such as the NASD. Dealers to whom substantially the
entire sales charge is reallowed may be deemed to be underwriters
as that term is defined under the Securities Act of 1933.
What Are My Rights as a Fund Shareholder?
As a shareholder of a Fund, you have the right to vote on certain
matters affecting the Fund, such as elections of Trustees and
approval of advisory contracts and distribution arrangements. The
Funds will not have annual shareholder meetings, but special
meetings may be held at the request of investors holding 10% of
the shares for the purpose of removing a Trustee. You are
entitled to one vote for each share you hold and a fractional vote
for each fraction of a share you hold. You will be asked to vote
only on matters affecting the Trust as a whole and your particular
Fund and class of shares, and not on matters only affecting other
Funds or classes of shares. You should be aware that under
Massachusetts law it is possible that a shareholder may be
personally liable for the Fund's obligations. If a shareholder
were required to pay a debt of a Fund, however, the Fund has
committed to reimburse the shareholder in full from its assets.
DIVIDENDS, DISTRIBUTIONS AND TAXES
When Will I Receive Distributions From the Funds?
Each Fund will distribute substantially all of its net investment
income and long-term capital gains to shareholders each year.
Each Fund will declare and pay dividends monthly. Each Fund will
distribute realized long-term capital gains, if any, once a year.
You should be aware that each time a distribution is made from a
Fund, the Fund's net asset value is reduced by the amount of the
distribution. Therefore, if you buy shares just before a
distribution is made, you will pay full price for the shares and
then receive a portion of the price back as a taxable
distribution.
How Will Distributions Be Made?
Dividend and capital gains distributions will be paid in
additional shares of the Funds. If you wish to receive
distributions in cash, notify the Fund at 1-800-633-KENT (5368)
and a check will be mailed to you each time a distribution is
made. Your distributions may also be sent by electronic funds
transfer directly to your designated bank account. Shareholders
in IRA accounts and participants in certain tax-qualified plans
cannot receive distributions in cash.
What Are the Tax Implications of My Investments in the Funds?
Because the Funds each intend to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code"),
they generally will not be required to pay Federal income taxes on
their income and capital gains. Income dividends by each Fund
will be taxable to you as ordinary income, unless you are exempt
from Federal income taxes. Capital gains distributions will be
taxed to you as long-term capital gains (regardless of how long
you have held the shares). Each Fund intends to distribute
monthly its net tax-exempt income (such distributions are known as
"exempt-interest dividends") and any investment company taxable
income. Exempt-interest dividends may be treated by you as items
of interest excludable from your gross income under Section 103(a)
of the Code unless under the circumstances applicable to you the
exclusion would be disallowed. See the SAI under "Dividends and
Taxes." Shareholders receiving Social Security benefits should
note that all exempt-interest dividends will be taken into account
in determining the taxability of such benefits. In general, a
Fund's investment company taxable income will be its taxable
income (including interest and short-term capital gains) subject
to certain adjustments and excluding the excess of any net long-
term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. To the extent, if any,
dividends paid to you are derived from taxable income or from net
long-term capital gains, such dividends will not be exempt from
Federal income tax, whether they are paid in cash or reinvested in
additional shares, and may also be subject to state and local
taxes.
A percentage of the interest on indebtedness incurred by you to
purchase or carry shares of a Fund will not be deductible for
Federal income tax purposes to the extent of the portion of the
interest expense relating to exempt-interest dividends.
Please note that the above tax treatment applies regardless of
whether you receive your distributions in cash or in additional
shares. Federal income taxes for distributions to an IRA or to a
qualified retirement plan are deferred. Income dividends will
qualify for the dividends received deduction for corporations to
the extent of the total qualifying dividends received by the
distributing Fund from domestic corporations for the year.
Any distribution that is declared in October, November or December
but not actually paid until January of the following year will be
taxable in the year declared. When you redeem, transfer or
exchange shares, you may have a taxable gain or loss depending on
whether the price you receive for the shares has a value higher or
lower than your tax basis in the shares. If you hold shares for
six months or less, and during that time you received a capital
gain dividend, any loss you realize on the sale of those shares
will be treated as a long-term loss to the extent of the earlier
distribution. You will receive from each Fund in which you are a
shareholder shortly after the end of each year a statement of the
amount and nature of distributions made to you during the year.
You will also receive a confirmation statement shortly after
disposing of shares showing the amount and value of the
disposition.
You should note that in certain cases (i) the Funds will be
required to withhold 31% of dividends or sale proceeds otherwise
due to you and (ii) in addition to Federal taxes, state and local
taxes may apply to transactions in shares.
The exemption of interest on municipal bonds for Federal income
tax purposes does not necessarily result in exemption under the
income, corporate or personal property tax laws of any state or
city. Generally, you are afforded tax-exempt treatment at the
state and local levels for distributions derived from interest on
municipal securities of your state of residency.
Dividends paid by the Michigan Municipal Bond Fund that are
derived from interest attributable to tax-exempt Michigan
Municipal Obligations will be exempt from Michigan state and local
taxes, even though the dividends may not be exempt for Federal
income tax purposes. The Fund is unable to predict in advance the
portion of its dividends that will be derived from interest on
Michigan Municipal Obligations, but will notify shareholders each
year as to the interest derived from Michigan Municipal
Obligations.
Distributions of taxable income and taxable capital gains by the
Michigan Municipal Bond Fund are taxable for Michigan taxation
purposes when received by a shareholder, except that distributions
which are reinvested by a shareholder in shares of the Fund are
exempt from the Michigan intangibles tax. Except as noted above
with respect to Michigan income taxation, distributions of net
income may be taxable to investors as dividend income under other
state or local laws even though a substantial portion of such
distributions may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt from such
income taxes.
This section contains a brief summary of the tax implications of
ownership of the Funds' shares. A lengthier description of taxes
is contained in the SAI. You should consult your tax adviser
regarding the impact of owning the Funds' shares on your own
personal tax situation, including the applicability of any state
and local taxes.
ADDITIONAL INFORMATION
Where Do I Get Additional Information About My Account and the
Funds?
For more information, call the Funds at 1-800-633-KENT
(5368) or write to the Funds at The Kent Funds, c/o 440
Distributors, PO Box 5107, 4400 Computer Drive, Westborough, MA
01581-5107
Except as otherwise stated in this prospectus or required by law,
the Trust reserves the right to change the terms of any offer
stated in this prospectus without shareholder approval, including
the right to charge certain fees for services provided. No person
has been authorized to give any information or to make any
representation not contained in this prospectus, or in the SAI, in
connection with the offering made by this prospectus and, if given
or made, such information or representations must not be relied
upon as having been authorized by the Funds or their Distributor.
This prospectus does not constitute an offering by the Funds or by
their Distributor in any jurisdiction in which such offering may
not lawfully be made.
THE KENT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
for
Investment and Institutional Shares
of
The Kent Money Market Fund
The Kent Michigan Municipal Money Market Fund
The Kent Growth and Income Fund
The Kent Small Company Growth Fund
The Kent International Growth Fund
The Kent Index Equity Fund
The Kent Short Term Bond Fund
The Kent Intermediate Bond Fund
The Kent Income Fund
The Kent Limited Term Tax-Free Fund
The Kent Intermediate Tax-Free Fund
The Kent Tax-Free Income Fund
The Kent Michigan Municipal Bond Fund
May 1, 1996
This Statement of Additional Information ("SAI") is not a
prospectus but relates to, and should be read in conjunction with,
the prospectuses for the Investment Shares and the Institutional
Shares of the foregoing Funds dated May 1, 1996, as amended or
supplemented from time to time. A copy of the prospectuses may be
obtained by writing to 440 Financial Distributors, Inc., 4400
Computer Drive, P.O. Box 5107, Westborough, Massachusetts 01581-
5107 or by calling 1-800-633-KENT (5368). Capitalized terms not
otherwise defined herein have the same meaning as in the
prospectuses.
Shares of the Funds are not bank deposits or obligations of, or
guaranteed or endorsed by, Old Kent Bank or any of its affiliates,
and are not federally insured by, guaranteed by, obligations of or
otherwise supported by the U.S. Government, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other
governmental agency. An investment in mutual fund shares involves
investment risk, including possible loss of principal. Each Money
Market Fund seeks to maintain a net asset value of $1.00 per
share, although there can be no assurance that it will be able to
do so.
TABLE OF CONTENTS
The Trust 3
Investment Policies 3
Investment Restrictions 22
Securities Transactions 25
Valuation of Securities 27
Trustees and Officers 29
Expenses 31
Investment Adviser 31
Administrator 34
Distributor 35
Transfer Agent 35
Custodian, Auditors and Counsel 36
Distribution Plans 36
Additional Purchase and Redemption Information 37
Dividends and Taxes 39
Declaration of Trust 44
Standardized Total Return and Yield Quotations 45
Advertising Information 48
Financial Statements 49
Additional Information 49
Appendix A A-1
Appendix B B-1
Appendix C C-1
No person has been authorized to give any information or to make
any representation not contained in this SAI, or in the
prospectuses related hereto, in connection with the offering made
by the prospectuses and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Trust or its Distributor. This SAI and the prospectuses do
not constitute an offering by the Trust or by the Distributor in
any jurisdiction in which such offering may not lawfully be made.
THE TRUST
The Kent Funds (the "Trust") is an open-end management investment
company, commonly known as a mutual fund, which was organized on
May 9, 1986 as a Massachusetts business trust. The original name
of the Trust was "Master Municipal Trust." The Trust changed its
name to "The Kent Funds" on May 1, 1990. The Trust consists of
thirteen separate investment portfolios, each of which is
diversified and has a distinct investment objective and distinct
investment policies (individually, a "Fund," and collectively, the
"Funds"). Each of the Funds has established two classes of
shares, Investment Shares and Institutional Shares. This SAI
relates to the Investment and Institutional Shares of The Kent
Money Market Fund, The Kent Michigan Municipal Money Market Fund
(collectively, the "Money Market Funds"), The Kent Growth and
Income Fund, The Kent Small Company Growth Fund, The Kent
International Growth Fund, The Kent Index Equity Fund
(collectively, the "Equity Funds"), The Kent Short Term Bond Fund,
The Kent Intermediate Bond Fund, The Kent Income Fund
(collectively, the "Income Funds"), The Kent Limited Term Tax-Free
Fund, The Kent Intermediate Tax-Free Fund, The Kent Tax-Free
Income Fund and The Kent Michigan Municipal Bond Fund
(collectively, the "Municipal Bond Funds"). The Equity Funds,
Income Funds and Municipal Bond Funds are sometimes collectively
referred to as the "Non-Money Market Funds." The Municipal Bond
Funds and The Kent Michigan Municipal Money Market Fund are
sometimes collectively referred to as the "Tax-Free Funds." Each
Fund is advised by Old Kent Bank ("Old Kent" or the "Investment
Adviser").
Important information about the Trust and the Investment and
Institutional Shares of the Funds is contained in the Funds'
prospectuses. This SAI provides additional information about the
Trust and the Investment and Institutional Shares of the Funds
that may be of interest to some investors.
INVESTMENT POLICIES
The following information supplements the description of each
Fund's investment objective and policies as set forth in its
respective prospectus. The investment policies discussed below
are applicable to all the Funds unless otherwise noted.
Money Market Instruments
The Funds may invest from time to time in "money market
instruments," a term that includes, among other things, bank
obligations, commercial paper, variable amount master demand notes
and corporate bonds with remaining maturities of thirteen months
or less. Variable amount master demand notes are unsecured
instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although
such notes are not normally traded and there may be no secondary
market in the notes, the Funds may demand payment of the principal
of the instrument at any time. If an issuer of a variable amount
master demand note defaulted on its payment obligation, the Funds
might be unable to dispose of the note because of the absence of a
secondary market and might, for this or other reasons, suffer a
loss to the extent of the default.
Commercial paper represents short-term unsecured promissory
notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. Investments by the Funds in
taxable commercial paper will consist of issues that are rated A-1
by Standard & Poor's Ratings Group ("S&P") or Prime-1 by Moody's
Investors Service, Inc. ("Moody's"). In addition, the Funds may
acquire unrated commercial paper and corporate bonds that are
determined by Old Kent at the time of purchase to be of comparable
quality to rated instruments that may be acquired by the Funds.
Commercial paper may include variable and floating rate
instruments.
Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period
of time and earning a specified return. Bankers' acceptances are
negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on
maturity. Fixed time deposits are bank obligations payable at a
stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may
be subject to early withdrawal penalties that vary depending upon
market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed time deposit to a third party,
although there is no market for such deposits. Bank notes and
bankers' acceptances rank junior to deposit liabilities of the
bank and pari passu with other senior, unsecured obligations of
the bank. Bank notes are classified as "other borrowings" on a
bank's balance sheet, while deposit notes and certificates of
deposit are classified as deposits. Bank notes are not insured by
the Federal Deposit Insurance Corporation or any other insurer.
Deposit notes are insured by the Federal Deposit Insurance
Corporation only to the extent of $100,000 per depositor per bank.
The Funds may invest a portion of their assets in the obligations
of foreign banks and foreign branches of domestic banks. Such
obligations include Eurodollar Certificates of Deposit ("ECDs")
which are U.S. dollar-denominated certificates of deposit issued
by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or
a foreign bank; Canadian Time Deposits ("CTDs") which are
essentially the same as ETDs except they are issued by Canadian
offices of major Canadian banks; Schedule Bs, which are
obligations issued by Canadian branches of foreign or domestic
banks; Yankee Certificates of Deposit ("Yankee CDs") which are
U.S. dollar-denominated certificates of deposit issued by a U.S.
branch of a foreign bank and held in the United States; and Yankee
Bankers' Acceptances ("Yankee BAs") which are U.S.
dollar-denominated bankers' acceptances issued by a U.S. branch of
a foreign bank and held in the United States.
Although the Funds will invest in obligations of foreign
banks or foreign branches of U.S. banks only when Old Kent deems
the instrument to present minimal credit risk, such investments
nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. These
additional risks include future political and economic
developments, the possible imposition of withholding taxes on
interest income, possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S. banks and U.S.
branches of foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches
of U.S. banks. All investments in bank obligations are limited to
the obligations of financial institutions having more than $1
billion in total assets at the time of purchase.
Guaranteed Investment Contracts (The Income Funds, Municipal Bond
Funds and Money Market Fund only)
The above-referenced Funds may make limited investments in
guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. A GIC is normally a general obligation
of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes part of the general assets
of the insurance company, and the contract is paid from the
company's general assets. The Income Funds, Municipal Bond Funds
and Money Market Fund will only purchase GICs from insurance
companies which, at the time of purchase, have total assets of $1
billion or more and meet quality and credit standards established
by Old Kent pursuant to guidelines approved by the Board of
Trustees. Generally, GICs are not assignable or transferable
without the permission of the issuing insurance companies, and an
active secondary market in GICs does not currently exist.
Therefore, GICs will normally be considered illiquid investments,
and will be subject to a Fund's limitation on illiquid
investments.
Repurchase Agreements
Each Fund may agree to purchase portfolio securities from
financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed upon date and price
("repurchase agreements"). The Funds will enter into such
repurchase agreements only with financial institutions that are
deemed to be creditworthy by Old Kent, pursuant to guidelines
established by the Trust's Board of Trustees. During the term of
any repurchase agreement, Old Kent will continue to monitor the
creditworthiness of the seller. The Funds will not enter into
repurchase agreements with Old Kent or its affiliates. Although
the securities subject to a repurchase agreement may bear
maturities exceeding one year, settlement for the repurchase
agreement will never be more than one year after a Fund's
acquisition of the securities and normally will be within a
shorter period of time. Repurchase agreements with deemed
maturities in excess of seven days are considered illiquid
investments, and will be subject to a Fund's limitation on
illiquid investments. Securities subject to repurchase agreements
are held either by the Trust's custodian or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase
agreement will be required to maintain the value of the securities
subject to the agreement in an amount exceeding the repurchase
price (including accrued interest) and securities subject to
repurchase agreements are maintained by the Trust's custodian in
segregated accounts in accordance with the Investment Company Act
of 1940, as amended (the "1940 Act"). Default by the seller
would, however, expose a Fund to possible loss because of adverse
market action or delay in connection with the disposition of the
underlying collateral obligations. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements
A Fund may borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements").
Reverse repurchase agreements involve the risk that the market
value of the securities sold by a Fund may decline below the
repurchase price. A Fund will pay interest on amounts obtained
pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, a Fund will maintain in a
segregated account cash, U.S. Government securities or other
liquid high-grade debt securities of an amount at least equal to
the market value of the securities, plus accrued interest, subject
to the agreement. Reverse repurchase agreements are considered to
be borrowings by a Fund under the 1940 Act.
Variable and Floating Rate Instruments (The Income Funds,
Municipal Bond Funds and Money Market Funds only)
The above-referenced Funds may purchase rated and unrated
variable and floating rate instruments. When purchasing such
instruments for the Funds, Old Kent will consider the earning
power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instruments are subject
to demand features, will monitor their financial status to meet
payment on demand. In determining weighted average portfolio
maturity, an instrument will usually be deemed to have a maturity
equal to the longer of the period remaining until the next
interest rate adjustment or the time a Fund can recover payment of
principal as specified in the instrument. Variable rate U.S.
Government obligations held by the Funds, however, will be deemed
to have maturities equal to the period remaining until the next
interest rate adjustment. Where necessary to ensure that a
variable or floating rate instrument is of the minimum required
credit quality for a Fund, the issuer's obligation to pay the
principal of the instrument will be backed by an unconditional
bank letter or line of credit, guarantee or commitment to lend.
Unrated instruments will be determined by Old Kent to be of
comparable quality at the time of purchase to rated instruments
eligible for purchase by the Funds.
The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it
difficult for a Fund to dispose of the instruments if the issuer
defaulted on its payment obligation or during periods that the
Fund is not entitled to exercise demand rights, and a Fund could,
for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments (including
inverse floaters) will be subject to a Fund's limitation on
illiquid investments when the Fund may not demand payment of the
principal amount within seven days and a reliable trading market
is absent.
Loan Participation Notes
A loan participation note represents participation in a
corporate loan of a commercial bank with a remaining maturity of
one year or less. Such loans must be to corporations in whose
obligations the Funds may invest. Any participation purchased by
a Fund must be issued by a bank in the United States with total
assets exceeding $1 billion. Because the issuing bank does not
guarantee the participations in any way, they are subject to the
credit risks generally associated with the underlying corporate
borrower. In addition, because it may be necessary under the
terms of the loan participation for a Fund to assert through the
issuing bank such rights as may exist against the corporate
borrower if the underlying corporate borrower fails to pay
principal and interest when due, a Fund may be subject to delays,
expenses and risks that are greater than those that would have
been involved if the Fund had purchased a direct obligation of
such borrower. Moreover, under the terms of the loan
participation a Fund may be regarded as a creditor of the issuing
bank (rather than the underlying corporate borrower), so that the
Fund may also be subject to the risk that the issuing bank may
become insolvent. The secondary market, if any, for loan
participations is extremely limited and any such participations
purchased by a Fund may be regarded as illiquid.
Forward Commitments, When-Issued Securities and Delayed-Delivery
Transactions
Each Fund may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment (sometimes
called delayed delivery) basis. These transactions involve a
commitment by the Fund to purchase or sell securities at a future
date. The price of the underlying securities (usually expressed
in terms of yield) and the date when the securities will be
delivered and paid for (the settlement date) are fixed at the time
the transaction is negotiated. When-issued purchases and forward
commitment transactions are normally negotiated directly with the
other party.
A Fund will purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or
selling the securities. If deemed advisable as a matter of
investment strategy, however, a Fund may dispose of or negotiate a
commitment after entering into it. A Fund also may sell
securities it has committed to purchase before those securities
are delivered to the Fund on the settlement date.
Securities purchased or sold on a when-issued, delayed delivery or
forward commitment basis involve a risk of loss if the value of
the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. When a
Fund engages in when-issued, delayed-delivery and forward com-
mitment transactions, it relies on the other party to consummate
the trade. Failure of such party to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
When a Fund purchases securities on a when-issued, delayed-
delivery or forward commitment basis, the Trust's custodian will
maintain in a segregated account cash, U.S. Government securities
or other liquid high-grade debt securities having a value
(determined daily) at least equal to the amount of the Fund's
purchase commitments. In the case of a forward commitment to sell
portfolio securities, the custodian will hold the portfolio
securities themselves in a segregated account while the commitment
is outstanding. These procedures are designed to ensure that the
Fund will maintain sufficient assets at all times to cover its
obligations under when-issued, forward commitment and delayed-
delivery transactions. Because a Fund sets aside liquid assets to
satisfy its purchase commitments in the manner described, its
liquidity and ability to manage its portfolio might be affected in
the event its purchase commitments exceed 25% of the value of its
assets. For purposes of determining a Fund's average
dollar-weighted maturity, the maturity of when-issued, delayed-
delivery or forward commitment securities will be calculated from
the commitment date.
United States Government Obligations
Examples of the types of U.S. Government obligations that may be
acquired by the Funds include U.S. Treasury Bills, Treasury Notes
and Treasury Bonds and the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of
the United States, Small Business Administration, Federal National
Mortgage Association ("FNMA"), Government National Mortgage
Association ("GNMA"), General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal
Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate
Credit Banks, and Maritime Administration. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as
those of the GNMA, are supported by the full faith and credit of
the U.S. Treasury; others, such as those of the Export-Import Bank
of the United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are
supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to
do so by law.
Zero Coupon Obligations (The Income Funds and Money Market Funds
only)
The Income Funds and Money Market Funds may acquire zero
coupon obligations, which have greater price volatility than
coupon obligations and which will not result in the payment of
interest until maturity, provided that the greater price
volatility of any such zero coupon obligation is not inconsistent
with the Fund's investment objective. The Funds will accrue
income on such investments for tax and accounting purposes, as
required, and such income must be distributed to shareholders.
Because no cash is received at the time of such accruals, a Fund
may be required to liquidate other portfolio securities to satisfy
its distribution obligations.
Stripped Obligations (The Income Funds and Money Market Funds
only)
The Income Funds and Money Market Funds may purchase
Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future
principal payments on U.S. Government and other obligations.
These participations, which may be issued by the U.S. Government
(or a U.S. Government agency or instrumentality) or by private
issuers such as banks and other institutions, are issued at a
discount to their "face value," and may, with respect to the
Income Funds, include stripped mortgage-backed securities
("SMBS"). Stripped securities, particularly SMBS, may exhibit
greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to
investors. The Funds also may purchase U.S. dollar-denominated
"stripped" securities that evidence ownership in the future
interest payments or principal payments on obligations of foreign
governments.
SMBS are usually structured with two or more classes that
receive different proportions of the interest and principal
distributions from a pool of mortgage-backed obligations. A
common type of SMBS will have one class receiving all of the
interest, while the other class receives all of the principal.
However, in some cases, one class will receive some of the
interest and most of the principal while the other class will
receive most of the interest and the remainder of the principal.
If the underlying obligations experience greater than anticipated
prepayments of principal, a Fund may fail to fully recoup its
initial investment. The market value of the class consisting
entirely of principal payments can be extremely volatile in
response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest are generally
higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and
there is a greater risk that the initial investment will not be
fully recouped.
SMBS which are not issued by the U.S. Government (or a U.S.
Government agency or instrumentality) are considered illiquid.
SMBS issued by the U.S. Government (or a U.S. Government agency or
instrumentality) may be considered liquid under guidelines
established by the Trust's Board of Trustees if they can be
disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per
share net asset value.
Within the past several years, the Treasury Department has
facilitated transfers of ownership of stripped securities by
accounting separately for the beneficial ownership of particular
interest coupon and principal payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The
Federal Reserve program as established by the Treasury Department
is known as "STRIPS" or "Separate Trading of Registered Interest
and Principal of Securities." The Income Funds and Money Market
Funds may purchase securities registered in the STRIPS program.
Under the STRIPS program, the Funds will be able to have their
beneficial ownership of stripped securities recorded directly in
the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
In addition, the Income Funds and Money Market Funds may acquire
other U.S. Government obligations and their unmatured interest
coupons that have been separated ("stripped") by their holder,
typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of
the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts"
("TIGRs") and "Certificate of Accrual on Treasury Securities"
("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount
because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to
periodic interest (cash) payments. The underlying U.S. Treasury
bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are ostensibly owned by the bearer
or holder), in trust on behalf of the owners. Counsel to the
underwriters of these certificates or other evidences of ownership
of U.S. Treasury securities have stated that, in their opinion,
purchasers of the stripped securities most likely will be deemed
the beneficial holders of the underlying U.S. Government
obligations for federal tax purposes. The Trust is unaware of any
binding legislative, judicial or administrative authority on this
issue. The staff of the Securities and Exchange Commission
believes that participations in TIGRs, CATs and other similar
trusts are not U.S. Government securities.
Mortgage-Backed Securities (The Income Funds and Money Market
Funds only)
The Income Funds and Money Market Funds may invest in mortgage-
backed securities, including those representing an undivided
ownership interest in a pool of mortgages, such as certificates of
the GNMA and the FHLMC. These certificates are in most cases
pass-through instruments, through which the holder receives a
share of all interest and principal payments from the mortgages
underlying the certificate, net of certain fees. The average life
of a mortgage-backed security varies with the underlying mortgage
instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the
result of prepayments, mortgage refinancings or foreclosure.
Mortgage prepayment rates are affected by factors including the
level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic
conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest
and have the effect of reducing future payments.
In periods of falling interest rates, the rate of mortgage
prepayments tends to increase. During such periods, the
reinvestment of prepayment proceeds by a Fund will generally be at
lower rates than the rates that were carried by the obligations
that have been prepaid. As a result, the relationship between
mortgage prepayments and interest rates may give some high-
yielding mortgage-related securities less potential for growth in
value than conventional bonds with comparable maturities. In
calculating the average weighted maturity of each Fund, the
maturity of mortgage-backed and asset-backed securities will be
based on estimates of average life.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-
related securities and among the securities that they issue.
Mortgage-related securities guaranteed by GNMA include GNMA
Mortgage Pass-Through Certificates (also known as "Ginnie Maes"),
which are guaranteed as to the timely payment of principal and
interest by GNMA and backed by the full faith and credit of the
United States. GNMA is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. GNMA
certificates also are supported by the authority of GNMA to borrow
funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-backed securities issued by FNMA include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes"),
which are solely the obligations of FNMA and are not backed by or
entitled to the full faith and credit of the United States, but
are supported by the right of the issuer to borrow from the
Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as
to timely payment of the principal and interest by FNMA.
Mortgage-related securities issued by FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or
"Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is
guaranteed by FHLMC. FHLMC guarantees either ultimate collection
or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one
year after it becomes payable.
The Income Funds also may acquire collateralized mortgage
obligations ("CMOs"), which provide the holder with a specified
interest in the cash flow of a pool of underlying mortgages or
other mortgage-backed securities. Issuers of CMOs ordinarily
elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in
multiple classes, each with a specified fixed or floating interest
rate and a final distribution date. The relative payment rights
of the various CMO classes may be structured in a variety of ways.
There are risks inherent in the purchase of mortgage-backed
securities. For example, these securities are subject to a risk
that default in payment will occur on the underlying mortgages.
In addition to default risk, these securities are subject to the
risk that prepayment on the underlying mortgages will occur
earlier or later or at a lessor or greater rate than expected. To
the extent that Old Kent's assumptions about prepayments are
inaccurate, these securities may expose the Funds to significantly
greater market risks than expected.
Asset-Backed Securities (The Income Funds and Money Market Funds
only)
The Income Funds and Money Market Funds may purchase asset-backed
securities, which are securities backed by installment contracts,
credit card receivables or other assets. Asset-backed securities
represent interests in "pools" of assets in which payments of both
interest and principal on the securities are made monthly, thus in
effect "passing through" monthly payments made by the individual
borrowers on the assets that underlie the securities, net of any
fees paid to the issuer or guarantor of the securities. The
average life of asset-backed securities varies with the maturities
of the underlying instruments, and is likely to be substantially
less than the original maturity of the assets underlying the
securities as a result of prepayments. For this and other
reasons, an asset-backed security's stated maturity may be
shortened, and the security's total return may be difficult to
predict precisely.
Non-mortgage asset-backed securities invoke certain risks
that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of a security interest in
the underlying collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on
the credit cards, thereby reducing the balance due.
Certain Derivative Securities (The Income Funds, Municipal Bond
Funds and Money Market Funds only)
The above-referenced Funds may invest in structured notes,
bonds or other instruments with interest rates that are determined
by reference to changes in the value of other interest rates,
indices or financial indicators ("References") or the relative
change in two or more References. The Funds also may hold
derivative instruments that have interest rates that re-set
inversely to changing current market rates and/or have embedded
interest rate floors and caps that require the issuer to pay an
adjusted interest rate if market rates fall below or rise above a
specified rate. These instruments represent relatively recent
innovations in the bond markets, and the trading market for these
instruments is less developed than the markets for traditional
types of debt instruments. It is uncertain how these instruments
will perform under different economic and interest-rate scenarios.
Because certain of these instruments are leveraged, their market
values may be more volatile than other types of bonds and may
present greater potential for capital gain or loss. On the other
hand, the embedded option features of other derivative instruments
could limit the amount of appreciation a Fund can realize on its
investment, could cause a Fund to hold a security it might
otherwise sell or could force the sale of a security at
inopportune times or for prices that do not reflect current market
value. The possibility of default by the issuer or the issuer's
credit provider may be greater for these structured and derivative
instruments than for other types of instruments. In some cases it
may be difficult to determine the fair value of a structured or
derivative instrument because of a lack of reliable objective
information and an established secondary market for some
instruments may not exist. With respect to purportedly tax-exempt
derivative securities, in many cases the Internal Revenue Service
has not ruled on whether the interest received on such securities
is in fact free from Federal income taxes. Purchases of such
securities by the Tax-Free Funds are therefore based on the
opinion of counsel to the sponsors of the security. The Money
Market Funds will only purchase derivative securities that qualify
as "Eligible Securities" under Rule 2a-7 of the 1940 Act.
Municipal Obligations (The Income Funds, Municipal Bond Funds and
Money Market Funds only)
The two principal classifications of Municipal Obligations which
may be held by the above-referenced Funds are "general obligation"
securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith,
credit and taking power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed.
Private activity bonds (e.g., bonds issued by industrial
development authorities) that are issued by or on behalf of public
authorities to finance various privately-operated facilities are
included within the term "Municipal Obligations" if the interest
paid thereon is exempt from regular Federal income tax and not
treated as a specific tax preference item under the Federal
alternative minimum tax. Private activity bonds are in most cases
revenue securities and are not payable from the unrestricted
revenues of the issuer. The credit quality of private activity
bonds is usually directly related to the credit standing of the
corporate user of the facility involved. The Funds may also
purchase "moral obligation" securities, which are normally issued
by special purpose public authorities. If the issuer of moral
obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer.
Opinions relating to the validity of Municipal Obligations
(including Michigan Municipal Obligations) and to the exemption of
interest thereon from regular Federal income tax and, in the case
of Michigan Municipal Obligations, Michigan state personal income
tax, are rendered by counsel to the respective issuing authorities
at the time of issuance. Such opinions may contain various
assumptions, qualifications or exceptions that are reasonably
acceptable to Old Kent. Neither the Trust nor Old Kent will
review the proceedings relating to the issuance of Municipal
Obligations or the bases for such opinions.
An issuer's obligations under its Municipal Obligations are
subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Code, and laws, if any, which may be enacted by
federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer
to meet its obligations for the payment of interest on and
principal of its Municipal Obligations may be materially adversely
affected by litigation or other conditions.
From time to time proposals have been introduced before Congress
for the purpose of restricting or eliminating the Federal income
tax exemption for interest on Municipal Obligations. For example,
under the Tax Reform Act of 1986 interest on certain private
activity bonds must be included in an investor's Federal
alternative minimum taxable income, and corporate investors must
include all tax-exempt interest in their Federal alternative
minimum taxable income. The Trust cannot predict what
legislation, if any, may be proposed in the future in Congress as
regards the Federal income tax status of interest on Municipal
Obligations or which proposals, if any, might be enacted. Such
proposals, if enacted, might materially adversely affect the
availability of Municipal Obligations and a Fund's liquidity and
value. In such an event the Board of Trustees would reevaluate
the Funds' investment objectives and policies and consider changes
in their structure or possible dissolution.
Certain of the Municipal Obligations held by a Fund may be insured
as to the timely payment of principal and interest. The insurance
policies will usually be obtained by the issuer of the Municipal
Obligations at the time of its original issuance. In the event
that the issuer defaults on an interest or principal payment, the
insurer will be notified and will be required to make payment to
the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance will not
protect against market fluctuations caused by changes in interest
rates and other factors. The Tax-Free Funds may, from time to
time, invest more than 25% of their assets in Municipal
Obligations covered by insurance policies.
Information about the financial condition of issuers of Municipal
Obligations may be less available than information about
corporations that have class of securities registered under the
Securities Exchange Act of 1934.
The Income Funds and Municipal Bond Funds also may purchase
Municipal Obligations known as "certificates of participation"
which represent undivided proportional interests in lease payments
by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments
on the certificates. Lease obligations may be limited by
applicable municipal charter provisions or the nature of the
appropriation for the lease. In particular, lease obligations may
be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may or may
not provide that the certificate trustee can accelerate lease
obligations upon default. If the trustee could not accelerate
lease obligations upon default, the trustee would only be able to
enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of
payment. Certificates of participation are generally subject to
redemption by the issuing municipal entity under specified
circumstances. If a specified event occurs, a certificate is
callable at par either at any interest payment date or, in some
cases, at any time. As a result, certificates of participation
are not as liquid or marketable as other types of Municipal
Obligations and are generally valued at par or less than par in
the open market. Municipal leases may be considered liquid,
however, under guidelines established by the Trust's Board of
Trustees. The guidelines will provide for determination of the
liquidity and proper valuation of a municipal lease obligation
based on factors including the following: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers
willing to purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to undertake to
make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers and the mechanics of
transfer. Old Kent, under the supervision of the Trust's Board of
Trustees, will also consider the continued marketability of a
municipal lease obligation based upon an analysis of the general
credit quality of the municipality issuing the obligation and the
essentiality to the municipality of the property covered by the
lease.
Standby Commitments (The Income Funds, Municipal Bond Funds and
Money Market Funds only)
The above-referenced Funds may enter into standby commitments with
respect to Municipal Obligations held by them. Under a standby
commitment, a dealer agrees to purchase at a Fund's option a
specified Municipal Obligation at its amortized cost value to the
Fund plus accrued interest, if any. Standby commitments may be
exercisable by a Fund at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or
assigned only with the instruments involved.
The Funds expect that standby commitments will generally be
available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Funds may
pay for a standby commitment either separately in cash or by
paying a higher price for Municipal Obligations which are acquired
subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities).
The Funds intend to enter into standby commitments only with
dealers, banks and broker-dealers which, in Old Kent's opinion,
present minimal credit risks. The Funds will acquire standby
commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes.
The acquisition of a standby commitment will not affect the
valuation of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost
method. The actual standby commitment will be valued at zero in
determining net asset value. Accordingly, where a Fund pays
directly or indirectly for a standby commitment, its cost will be
reflected as an unrealized loss for the period during which the
commitment is held by the Fund and will be reflected in realized
gain or loss when the commitment is exercised or expires.
Warrants (The Equity Funds only)
The Equity Funds may purchase warrants and similar rights, which
are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of
time. The purchase of warrants involves the risk that a Fund
could lose the purchase value of a warrant if the right to
subscribe to additional shares is not exercised prior to the
warrant's expiration. Also, the purchase of warrants involves the
risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no
movement in the level of the underlying security. A Fund will not
invest more than 5% of its total assets, taken at market value, in
warrants, or more than 2% of its total assets, taken at market
value, in warrants not listed on the New York Stock Exchange
("NYSE"), American Stock Exchange or a major foreign exchange.
Warrants acquired by a Fund in shares or attached to other
securities are not subject to this restriction.
Foreign Securities (The Growth and Income Fund, International
Growth Fund and Income Funds only)
The International Growth Fund intends to invest primarily in
the securities of foreign issuers. In addition, the Growth and
Income Fund may invest a portion of its assets in such securities.
The Income Funds may invest a portion of their assets in U.S.
dollar-denominated securities of foreign issuers. The Income
Funds may also invest in U.S. dollar-denominated obligations
issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities.
These obligations may be issued by supranational entities,
including internal organizations (such as the European Coal and
Steel Community) designated or supported by governmental entities
to promote economic reconstruction or development and internal
banking institutions and related government agencies.
Investment in foreign securities involves special risks.
The performance of investments in securities denominated in a
foreign currency will depend on the strength of the foreign
currency against the U.S. dollar and the interest rate environment
in the country issuing the currency. Absent other events which
could otherwise affect the value of a foreign security (such as a
change in the political climate or an issuer's credit quality),
appreciation in the value of the foreign currency increases the
value of a foreign currency-denominated security in terms of U.S.
dollars. A rise in foreign interest rates or decline in the value
of the foreign currency relative to the U.S. dollar generally can
be expected to depress the value of a foreign currency-denominated
security.
There are other risks and costs involved in investing in
foreign securities which are in addition to the usual risks
inherent in domestic investments. Investment in foreign
securities involves higher costs than investment in U.S.
securities, including higher transaction and custody costs as well
as the imposition of additional taxes by foreign governments.
Foreign investments also involve risks associated with the level
of currency exchange rates, less complete financial information
about the issuers, less market liquidity, more market volatility
and political instability. Future political and economic
developments, the possible imposition of withholding taxes on
dividend income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls,
or the adoption of other governmental restrictions might adversely
affect an investment in foreign securities. With respect to
securities issued by foreign governments, such governments may
default on their obligations, may not respect the integrity of
such debt, may attempt to renegotiate the debt at a lower rate,
and may not honor investments by United States entities or
citizens.
Although the Growth and Income Fund and International Growth
Fund may invest in securities denominated in foreign currencies,
their portfolio securities and other assets are valued in U.S.
dollars. Currency exchange rates may fluctuate significantly over
short periods of time causing, together with other factors, a
Fund's net asset value to fluctuate as well. Currency exchange
rates generally are determined by the forces of supply and demand
in the foreign exchange markets and the relative merits of
investments in different countries, actual or anticipated changes
in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be
affected unpredictably by the intervention or the failure to
intervene by U.S. or foreign governments or central banks, or by
currency controls or political developments in the U.S. or abroad.
The Funds are also subject to the possible imposition of exchange
control regulations or freezes on convertibility of currencies.
Dividends and interest payable on a Fund's foreign portfolio
securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed
to investors under U.S. Federal income tax law, they may reduce
the net return to the shareholders.
American Depository Receipts (The Equity Funds only)
The Equity Funds can invest in American Depository Receipts
("ADRs"). ADRs are receipts typically issued by a United States
bank or trust company evidencing ownership of underlying foreign
securities and are denominated in U.S. dollars. Some institutions
issuing ADRs may not be sponsored by the issuer. A non-sponsored
depository may not provide the same shareholder information that a
sponsored depository is required to provide under its contractual
arrangement with the issuer.
Exchange Rate-Related Securities (The International Growth Fund
only)
The International Growth Fund may invest in securities for
which the principal repayment at maturity, while paid in U.S.
dollars, is determined by reference to the exchange rate between
the U.S. dollar and the currency of one or more foreign countries
("Exchange Rate-Related Securities"). The interest payable on
these securities is denominated in U.S. dollars and is not subject
to foreign currency risk and, in most cases, is paid at rates
higher than most other similarly rated securities in recognition
of the foreign currency risk component of Exchange Rate-Related
Securities.
Investments in Exchange Rate-Related Securities entail
certain risks. There is the possibility of significant changes in
rates of exchange between the U.S. dollar and any foreign currency
to which an Exchange Rate-Related Security is linked. In
addition, there is no assurance that sufficient trading interest
to create a liquid secondary market will exist for a particular
Exchange Rate-Related Security due to conditions in the debt and
foreign currency markets. Illiquidity in the forward foreign
exchange market and the high volatility of the foreign exchange
market may, from time to time, combine to make it difficult to
sell an Exchange Rate-Related Security prior to maturity without
incurring a significant price loss.
Foreign Currency Transactions (The International Growth Fund only)
In order to protect against a possible loss on investments
resulting from a decline or appreciation in the value of a
particular foreign currency against the U.S. dollar or another
foreign currency or for other reasons, the International Growth
Fund is authorized to enter into forward currency exchange
contracts. A forward currency exchange contract is an obligation
to purchase or sell a specific currency, or a "basket" of
currencies, at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at
a price set at the time of contract. Although the contracts may
be used to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such
currency increase. The Fund may also engage in cross-hedging by
using forward currency exchange contracts in one currency to hedge
against fluctuations in the value of securities denominated in a
difference currency if Old Kent believes that there is a pattern
of correlation between the two currencies.
The Fund may enter into forward currency exchange contracts in
several circumstances. When entering into a contract for the
purchase or sale of a security, the Fund may enter into a forward
currency exchange contract for the amount of the purchase or sale
price to protect against variations, between the date the security
is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the
U.S. dollar or other foreign currency.
When Old Kent anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a
forward contract to sell, for a fixed amount, the amount of
foreign currency approximating the value of some or all of the
Fund's securities denominated in such foreign currency.
Similarly, when the securities held by the Fund create a short
position in a foreign currency, the Fund may enter into a forward
contract to buy, for a fixed amount, an amount of foreign currency
approximating the short position. With respect to any forward
foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value
of the securities involved due to the changes in the values of
such securities resulting from market movements between the date
the forward contract is entered into and the date it matures.
While forward contracts may offer protection from losses resulting
from declines or appreciation in the value of a particular foreign
currency, they also limit potential gains which might result from
changes in the value of such currency. The Fund will also incur
costs in connection with forward foreign currency exchange
contracts and conversions of foreign currencies and U.S. dollars.
A separate account consisting of cash, U.S. Government securities
or other liquid high-grade debt securities, equal to the amount of
the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's custodian except to
the extent the contracts are otherwise "covered." For the purpose
of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If
the market or fair value of such securities declines, additional
cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by
the Fund. A forward contract to sell a foreign currency is
"covered" if the Fund owns the currency (or securities denominated
in the currency) underlying the contract, or holds a forward
contract (or call option) permitting the Fund to buy the same
currency at a price no higher than the Fund's price to sell the
currency. A forward contract to buy a foreign currency is
"covered" if a Fund holds a forward contract (or put option)
permitting the Fund to sell the same currency at a price as high
as or higher than the Fund's price to buy the currency.
Currency Swaps (The International Growth Fund only)
The International Growth Fund may also enter into currency swaps,
which involve the exchange of the rights of the Fund and another
party to make or receive payments in specific currencies. The net
amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each currency swap will be accrued on
a daily basis and an amount of liquid assets, such as cash, U.S.
Government securities or other liquid high-grade debt securities,
having an aggregate net asset value at least equal to such accrued
excess will be maintained in segregated accounts by the Trust's
custodian. Inasmuch as these transactions are entered into for
good faith hedging purposes, the Funds and Old Kent believe that
such obligations do not constitute senior securities as defined in
the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions.
The Fund will not enter into a currency swap unless the unsecured
commercial paper, senior debt or the claims-paying ability of the
other party thereto is rated either A or A-1 or better by S&P or
Moody's. If there is a default by the other party to such
transaction, the Fund will have contractual remedies pursuant to
the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid in comparison with
markets for other similar instruments which are traded in the
Interbank market.
Options (The Non-Money Market Funds only)
The Non-Money Market Funds may buy put and call options and write
covered call and secured put options. Such options may relate to
particular securities, indices, financial instruments or foreign
currencies, and may or may not be listed on a domestic or foreign
securities exchange and may or may not be issued by the Options
Clearing Corporation. The prospectuses specifically set forth the
types of options used by each Fund. Options trading is a highly
specialized activity which entails greater than ordinary
investment risk. Options may be more volatile than the underlying
instruments, and therefore, on a percentage basis, an investment
in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves.
A call option for a particular security gives the purchaser of the
option the right to buy, and a writer the obligation to sell, the
underlying security at the stated exercise price at any time prior
to the expiration of the option, regardless of the market price of
the security. The premium paid to the writer is in consideration
for undertaking the obligation under the option contract. A put
option for a particular security gives the purchaser the right to
sell the security at the stated exercise price at any time prior
to the expiration date of the option, regardless of the market
price of the security. Options on indices provide the holder with
the right to make or receive a cash settlement upon exercise of
the option. With respect to options on indices, the amount of the
settlement will equal the difference between the closing price of
the index at the time of exercise and the exercise price of the
option expressed in dollars, times a specified multiple.
The Funds will write call options only if they are "covered." In
the case of a call option on a security or currency, the option is
"covered" if a Fund owns the instrument underlying the call or has
an absolute and immediate right to acquire that instrument without
additional cash consideration (or, if additional cash
consideration is required, cash, U.S. Government securities or
other liquid high-grade debt securities, in such amount are held
in a segregated account by the Fund's custodian) upon conversion
or exchange of other securities held by it. For a call option on
an index, the option is covered if a Fund maintains with its
custodian a diversified portfolio of securities comprising the
index or liquid assets equal to the contract value. A call option
is also covered if a Fund holds a call on the same instrument or
index as the call written where the exercise price of the call
held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call
written provided the difference is maintained by the Fund in
liquid assets in a segregated account with its custodian. The
Funds will write put options only if they are "secured" by liquid
assets maintained in a segregated account by the Funds' custodian
in an amount not less than the exercise price of the option at all
times during the option period.
A Fund's obligation to sell an instrument subject to a covered
call option written by it, or to purchase an instrument subject to
a secured put option written by it, may be terminated prior to the
expiration date of the option by the Fund's execution of a closing
purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the
ownership of an option. A closing purchase transaction will
ordinarily be effected to realize a profit on an outstanding
option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the
writing of a new option containing different terms on such
underlying instrument. The cost of such a liquidation purchase
plus transaction costs may be greater than the premium received
upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a
liquid secondary market will exist for any particular option. An
option writer, unable to effect a closing purchase transaction,
will not be able to sell the underlying instrument (in the case of
a covered call option) or liquidate the segregated account (in the
case of a secured put option) until the option expires or the
optioned instrument or currency is delivered upon exercise with
the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the instrument
during such period.
When a Fund purchases an option, the premium paid by it is
recorded as an asset of the Fund. When a Fund writes an option,
an amount equal to the net premium (the premium less the
commission) received by a Fund is included in the liability
section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will
be subsequently marked-to-market to reflect the current value of
the option purchased or written. The current value of the traded
option is the last sale price or, in the absence of a sale, the
current bid price. If an option purchased by a Fund expires
unexercised the Fund realizes a loss equal to the premium paid.
If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund will realize a gain if the premium
received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If
an option written by a Fund expires on the stipulated expiration
date or if a Fund enters into a closing purchase transaction, it
will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be
eliminated. If an option written by a Fund is exercised, the
proceeds of the sale will be increased by the net premium
originally received and the Fund will realize a gain or loss.
There are several risks associated with transactions in options.
For example, there are significant differences between the
securities, currency and options markets that could result in an
imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid
secondary market for particular options, whether traded over-the-
counter or on an exchange may be absent for reasons which include
the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying
securities or currencies; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an
exchange or the Options Clearing Corporation may not at all times
be adequate to handle current trading value; or one or more
exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which
event the secondary market on that exchange (or in that class or
series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation
as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Futures Contracts and Related Options (The Non-Money Market Funds
only)
The Non-Money Market Funds may purchase and sell futures contracts
and may purchase and sell call and put options on futures
contracts. For a detailed description of futures contracts and
related options, see Appendix C to this SAI.
Illiquid and Restricted Securities
The Funds will not invest more than 15% (10% in the case of
the Money Market Funds) of the value of their net assets in
securities that are illiquid because of restrictions on
transferability or other reasons. Repurchase agreements with
deemed maturities in excess of seven days, time deposits maturing
in more than seven days, currency swaps, SMBSs issued by private
issuers, unlisted over-the-counter options, GICs and securities
that are not registered under the Securities Act of 1933 but that
may be purchased by institutional buyers under Rule 144A are
subject to this limit (unless such securities are variable amount
master demand notes with maturities of nine months or less or
unless the Board determines that a liquid trading market exists).
Rule 144A allows for a broader institutional trading market
for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act of 1933 for
resales of certain securities to qualified institutional buyers.
Old Kent believes that the market for certain restricted
securities such as institutional commercial paper may expand
further as a result of this regulation and the development of
automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
Old Kent monitors the liquidity of restricted securities in
the Funds' portfolios under the supervision of the Board of
Trustees. In reaching liquidity decisions, Old Kent will consider
such factors as: (a) the frequency of trades and quotes for the
security; (b) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (c)
dealer undertakings to make a market in the security; and (d) the
nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer). The use of
Rule 144A transactions could have the effect of increasing the
level of illiquidity in the Funds during any period that qualified
institutional buyers become uninterested in purchasing these
restricted securities.
Securities Lending (The Income Funds, Equity Funds and Money
Market Funds only)
To increase return the above-referenced Funds may lend their
portfolio securities to broker-dealers and other institutional
investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to
at least the market value of the securities loaned. Such loans
will not be made by a Fund if, as a result, the aggregate of all
outstanding loans of the Fund exceeds one-third of the value of
its total assets. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or
even a loss of rights in the collateral should the borrower of the
securities fail financially. However, loans are made only to
borrowers deemed by Old Kent to be of good standing and when, in
Old Kent's judgment, the income to be earned from the loan
justifies the attendant risks.
Collateral for loans of portfolio securities made by a Fund may
consist of cash, securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable bank
letters of credit or any other liquid high-grade short-term
instrument approved for use as collateral by the Securities and
Exchange Commission (or any combination thereof). The borrower of
securities will be required to maintain the market value of the
collateral at not less than the market value of the loaned
securities, and such value will be monitored on a daily basis.
When a Fund lends its securities, it continues to receive
dividends and interest on the securities loaned and may
simultaneously earn interest on the investment of the cash
collateral. Although voting rights, or rights to consent,
attendant to securities on loan pass to the borrower, such loans
will be called so that the securities may be voted by a Fund if a
material event affecting the investment is to occur.
Convertible Securities (The Growth and Income Fund and the Income
Funds only)
Convertible securities entitle the holder to receive interest paid
or accrued on debt or the dividend paid on preferred stock until
the convertible securities mature or are redeemed, converted or
exchanged. Prior to conversion, convertible securities have
characteristics similar to ordinary debt securities in that they
normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers.
Convertible securities rank senior to common stock in a
corporation's capital structure and therefore generally entail
less risk than the corporation's common stock, although the extent
to which such risk is reduced depends in large measure upon the
degree to which the convertible security sells above its value as
a fixed income security.
In selecting convertible securities for the above-referenced
Funds, Old Kent will consider, among other factors, its evaluation
of the creditworthiness of the issuers of the securities; the
interest or dividend income generated by the securities; the
potential for capital appreciation of the securities and the
underlying common stocks; the prices of the securities relative to
other comparable securities and to the underlying common stocks;
whether the securities are entitled to the benefits of sinking
funds or other protective conditions; diversification of the
Funds' portfolios as to issuers; and whether the securities are
rated by a rating agency and, if so, the ratings assigned.
The value of convertible securities is a function of their
investment value (determined by yield in comparison with the
yields of other securities of comparable maturity and quality that
do not have a conversion privilege) and their conversion value
(their worth, at market value, if converted into the underlying
common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest
rates decline, and by the credit standing of the issuer and other
factors. The conversion value of convertible securities is
determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the
price of the convertible securities is governed principally by
their investment value. To the extent the market price of the
underlying common stock approaches or exceeds the conversion
price, the price of the convertible securities will be
increasingly influenced by their conversion value. In addition,
convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place
value on the right to acquire the underlying common stock while
holding fixed income securities.
Capital appreciation for the Funds may result from an improvement
in the credit standing of an issuer whose securities are held in
the Funds or from a general lowering of interest rates, or a
combination of both. Conversely, a reduction in the credit
standing of an issuer whose securities are held by the Funds or a
general increase in interest rates may be expected to result in
capital depreciation to the Funds.
Investment Companies
The Funds may invest in securities issued by other investment
companies within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Fund would bear,
along with other shareholders, its pro rata portion of the
expenses of such other investment company, including advisory
fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its
own operations, and may represent a duplication of fees to
shareholders of a Fund. Each Fund currently intends to limit its
investments in securities issued by other investment companies so
that immediately after a purchase of such securities: (a) not more
than 5% of the value of the Fund's total assets will be invested
in the securities of any one investment company; (b) not more than
10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and
(c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by all the Funds
as a whole.
Yields and Ratings
The yields on certain obligations, including the money market
instruments in which the Funds invest, are dependent on a variety
of factors, including general economic conditions, conditions in
the particular market for the obligation, financial condition of
the issuer, size of the offering, maturity of the obligation and
ratings of the issue. The ratings of a nationally recognized
statistical rating organization (an "NRSRO") represent its opinion
as to the quality of the obligations it undertakes to rate.
Ratings, however, are general and are not absolute standards of
quality. Consequently, obligations with the same rating, maturity
and interest rate may have different market prices.
Calculation of Portfolio Turnover Rate (The Non-Money Market Funds
only)
The Funds will not normally engage in the trading of securities
for short-term profits, but a Fund may sell a portfolio investment
soon after it is purchased if Old Kent believes that such a sale
is consistent with the Fund's investment objective. A high rate
of portfolio turnover involves correspondingly greater brokerage
commission expenses and other transaction costs, which must be
borne directly by a Fund and ultimately by its shareholders. High
portfolio turnover may result in the realization of substantial
net capital gains to a Fund. The portfolio turnover rate for the
Funds is calculated by dividing the lesser of purchases or sales
of portfolio investments for the reporting period by the monthly
average value of the portfolio investments owned during the
reporting period. The calculation excludes all securities,
including options, whose maturities or expiration dates at the
time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular
year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive
favorable tax treatment.
Miscellaneous
The Funds are not restricted by policy with regard to portfolio
turnover and will make changes in their investment portfolio from
time to time as business and economic conditions as well as market
prices may dictate. Securities may be purchased on margin by the
Funds only to obtain such short-term credits as are necessary for
the clearance of purchases and sales of securities. The Funds
will not engage in selling securities short. The Non-Money Market
Funds may, however, make short sales against the box. "Selling
short against the box" involves selling a security that a Fund
owns for delivery at a specified date in the future.
After its purchase by a Fund, a rated security may cease to
be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. Old Kent will consider such an
event in determining whether the Fund should continue to hold the
security. For a description of applicable securities ratings, see
Appendix A.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and may not
be changed with respect to a Fund without the vote of a majority
of the Fund's outstanding voting shares. Except with respect to
Investment Restriction (7), a percentage limitation is satisfied
at the time of investment, a later increase in such percentage
resulting from a change in the value of a Fund's assets will not
constitute a violation of the limitation. Unless otherwise
stated, each restriction applies to all Funds:
A Fund may not:
(1) Purchase any security (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentali-
ties) of any issuer if as a result more than 5% of its total
assets would be invested in securities of the issuer, except that
up to 25% of its total assets may be invested without regard to
this limit;
(2) Purchase securities on margin, except that it may obtain
such short-term credit as may be necessary for the clearance of
purchases and sales of securities;
(3) Borrow money, which includes entering into reverse repur-
chase agreements, except that a Fund may enter into reverse repur-
chase agreements or borrow money from banks for temporary or emer-
gency purposes in aggregate amounts up to one-third of the value
of the Fund's net assets; provided that while borrowings from
banks exceed 5% of a Fund's net assets, any such borrowings and
reverse repurchase agreements will be repaid before additional
investments are made;
(4) Pledge more than 15% of its net assets to secure indebted-
ness; the purchase or sale of securities on a "when issued" basis,
or collateral arrangements with respect to the writing of options
on securities, are not deemed to be a pledge of assets;
(5) Issue senior securities; the purchase or sale of securities
on a "when issued" basis, or collateral arrangements with respect
to the writing of options on securities, are not deemed to be the
issuance of a senior security;
(6) Make loans, except that a Fund may purchase or hold debt
securities consistent with its investment objective, lend Fund
securities valued at not more than 33 1/3% of its total assets to
brokers, dealers and financial institutions, and enter into
repurchase agreements;
(7) Invest more than 15% of its total assets (10% of total
assets for the Money Market Fund and Michigan Municipal Money
Market Fund) in (i) securities with legal or contractual
restrictions on resale; (ii) securities for which market
quotations are not readily available; and (iii) repurchase
agreements maturing in more than seven days;
(8) Invest more than 5% of its total assets in securities
of any company having a record, together with its predecessors, of
less than three years of continuous operation except that the
Small Company Growth Fund may invest up to 10% of its total assets
in such companies;
(9) Make short sales of securities or maintain a short position
unless at all times when a short position is open it owns an equal
amount of such securities or of securities which, without payment
of any further consideration, are convertible into or exchangeable
for securities of the same issue as, and equal in amount to, the
securities sold short;
(10) With respect to each Fund, other than the Tax-Free Funds,
purchase any security of any issuer if as a result more than 25%
of its total assets would be invested in a single industry; except
that there is no restriction with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities;
(11) With respect to the Tax-Free Funds, purchase any
security (other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) of any issuer if as
a result more than 25% of its total assets would be invested in a
single industry, including industrial development bonds from the
same facility or similar types of facilities if backed solely by
non-governmental users; governmental issuers of municipal bonds
are not regarded as members of an industry, and the Michigan
Municipal Bond Fund and the Michigan Municipal Money Market Fund
may invest more than 25% of its assets in industrial development
bonds;
(12) With respect to the Non-Money Market Funds, purchase more
than 3% of the total outstanding voting securities of any one
investment company, invest more than 5% of a Fund's total assets
in any one investment company, or invest more than 10% of a Fund's
total assets in the securities of other investment companies in
general, except as part of a merger, consolidation,
reorganization, purchase of assets or similar transaction;
(13) With respect to the Money Market Funds, purchase more than
3% of the total outstanding voting securities of any one
investment company or invest more than 10% of its total assets in
the securities of other investment companies;
(14) Purchase or sell commodities or commodity contracts or real
estate, except a Fund may purchase and sell securities secured by
real estate and securities of companies which deal in real estate
and may engage in currency or other financial futures contracts
and related options transactions;
(15) Underwrite securities of other issuers, except that a Fund
may purchase securities from the issuer or others and dispose of
such securities in a manner consistent with its investment
objective; or
(16) With respect to the Equity Funds, purchase any security
(other than U.S. Government securities) of any issuer if as a
result the Fund would hold more than 10% of the voting securities
of the issuer.
With respect to Investment Restriction (7), the Funds currently
intend to limit investments in illiquid securities to no more than
15% (10% for the Money Market Funds) of each Fund's respective net
assets. With respect to Investment Restriction (11), examples of
types of facilities using industrial development bonds purchased
by the Tax-Free Funds include water treatment plants, educational
and hospital facilities.
In order to comply with Securities and Exchange Commission
regulations relating to money market funds, the Money Market Funds
will limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase
agreements collateralized by such securities) to not more than 5%
of the value of their total assets at the time of purchase, except
for 25% of the value of their total assets which, in the case of
the Michigan Municipal Money Market Fund, may be invested without
regard to the 5% limit, and, in the case of the Money Market Fund,
may be invested in any one issuer for a period of up to three
business days. In addition, neither Money Market Fund will engage
in options or futures as provided in Investment Restrictions (4),
(5) and (14), nor will the Money Market Funds borrow money,
pursuant to Investment Restriction (3), in excess of 10% of their
total assets. With respect to Investment Restrictions (10) and
(11), the Money Market Funds are permitted to invest in excess of
25% of their total assets in obligations of U.S. banks and
domestic branches of foreign banks that are subject to the same
regulation as U.S. banks.
In order to permit the sale of a Fund's shares in certain states,
the Trust may make commitments more restrictive than the
investment restrictions described above. For example, in order to
permit the sale of the Funds' share in Ohio, the Trust has agreed
that the Funds may not purchase or retain securities of an issuer
if Trustees, Directors or officers of the Trust, Old Kent or
First Data Investor Services Group, Inc. ("First Data"), each
owning beneficially more than 1/2 of 1% of the securities of such
issuer, own in the aggregate more than 5% of the securities of
such issuer, or if such persons or management personnel of the
Trust, Old Kent or First Data have a substantial beneficial
interest in the securities of such issuer. In addition, portfolio
securities of a Fund may not be purchased from or sold or loaned
to Old Kent, First Data or any affiliate thereof or any of their
Trustees, Directors, officers or employees except pursuant to an
applicable regulatory exemption or exemptive order. Also to
permit the sale of shares in Ohio, the Trust has agreed that the
Funds which are eligible to purchase Rule 144A securities will
treat such securities as "restricted" securities regardless of any
determination by the Board of Trustees or Old Kent that such
securities are liquid. Should the Trust determine that a
commitment to a particular state is no longer in the best
interests of a Fund, it will revoke the commitment by terminating
sales of such Fund's shares in the state involved.
SECURITIES TRANSACTIONS
Old Kent, under policies established by the Board of Trustees,
selects broker-dealers to execute transactions for the Funds. It
is the policy of the Trust, in effecting transactions in portfolio
securities, to seek best price and execution of orders. The
determination of what may constitute best price and execution in
the execution of a transaction by a broker involves a number of
considerations, including, without limitation, the overall direct
net economic result to a Fund, involving both price paid or re-
ceived and any commissions and other costs paid, the breadth of
the market where the transaction is executed, the efficiency with
which the transaction is effected, the ability to effect the
transaction at all where a large block is involved, the
availability of the broker to stand ready to execute potentially
difficult transactions in the future and the financial strength
and stability of the broker. Such considerations are judgmental
and are weighed by Old Kent in determining the overall
reasonableness of brokerage commissions paid. In determining best
price and execution and selecting brokers to execute transactions,
Old Kent may consider brokerage and research services, such as
analyses and reports concerning issuers, industries, securities,
economic factors and trends, and other statistical and factual
information provided to a Fund or to any other account over which
Old Kent or its affiliates exercise investment discretion. Old
Kent is authorized to pay a broker-dealer who provides such bro-
kerage and research services a commission for executing a Fund's
transactions which is in excess of the amount of commission
another broker-dealer would have charged for effecting that trans-
action if, but only if, Old Kent determines in good faith that
such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer
viewed in terms of that particular transaction or in terms of all
of the accounts over which Old Kent exercises investment
discretion. Any such research and other statistical and factual
information provided by brokers to a Fund or Old Kent is
considered to be in addition to and not in lieu of services
required to be performed by Old Kent under its Investment Advisory
Agreement with the Trust. The cost, value and specific
application of such information are indeterminable and hence are
not practicably allocable among the Trust and other clients of Old
Kent who may indirectly benefit from the availability of such
information. Similarly, the Trust may indirectly benefit from
information made available as a result of transactions effected
for such other clients.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of a transaction may vary
among different brokers. Transactions on foreign stock exchanges
involve payment for brokerage commissions which are generally
fixed. Over-the-counter issues, including corporate debt and
government securities, are normally traded on a "net" basis (i.e.,
without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. With
respect to over-the-counter transactions, Old Kent will normally
deal directly with dealers who make a market in the instruments
involved except in those circumstances where more favorable prices
and execution are available elsewhere. The cost of securities
purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from
and sold to dealers include a dealer's mark-up or mark-down.
Each Fund may participate, if and when practicable, in group
bidding for the purchase directly from an issuer of certain
securities for each Fund's portfolio in order to take advantage of
the lower purchase price available to members of such a group.
Neither Old Kent, First Data nor the Funds intend to place
securities transactions with any particular broker-dealer or group
thereof. However, the Trust's Board of Trustees has determined
that each Fund may follow a policy of considering sales of the
Funds' shares as a factor in the selection of broker-dealers to
execute portfolio transactions, subject to the requirements of
best price and execution described above. The policy of each Fund
with respect to brokerage is and will be reviewed by the Trust's
Board of Trustees from time to time. Because of the possibility
of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing
practices may be changed, modified or eliminated.
Old Kent expects that purchases and sales of securities for the
Equity Funds usually will be effected through brokerage
transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or
concession, and purchases from dealers serving as market makers
will include a dealer's mark up or reflect a dealer's mark down.
Old Kent expects that purchases and sales of municipal bonds and
other debt instruments for the Income Funds, Municipal Bond Funds
and Money Market Funds usually will be principal transactions.
Municipal bonds and other debt instruments are normally purchased
directly from the issuer or from an underwriter or market maker
for the securities. There usually will be no brokerage
commissions paid by the Funds for such purchases. Purchases from
underwriters will include the underwriting commission or
concession and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.
For the fiscal years ended December 31, 1993, 1994 and 1995, the
following Funds paid commission in the amounts indicated:
$350,152, $328,237 and $557,711, respectively, for the Growth and
Income Fund; $514,051, $674,963 and $1,001,650, respectively, for
the Small Company Growth Fund; $233,083, $125,856 and $192,985,
respectively, for the International Growth Fund; $73,543, $296,953
and $139,571, respectively, for the Index Equity Fund; and $0,
$9,075 and $0, respectively, for the Intermediate Tax-Free Fund.
No other Fund paid brokerage commissions during the last three
fiscal years. No Fund paid any brokerage commissions to an
affiliated broker of the Trust.
Investment decisions for each Fund are made independently by Old
Kent from those of the other Funds and investment accounts advised
by Old Kent. It may frequently develop that the same investment
decision is made for more than one Fund or account. Simultaneous
transactions are inevitable when the same security is suitable for
the investment objective of more than one Fund or account. When
two or more Funds or accounts are engaged in the purchase or sale
of the same security, the transaction is allocated as to amount in
accordance with a formula which Old Kent believes is equitable to
each Fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of
the security as far as a particular Fund is concerned. To the
extent permitted by law, Old Kent may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased
for another Fund or account.
In no instances will securities held by a Fund be purchased from
or sold to Old Kent, 440 Financial Distributors, Inc. ("440
Distributors" or the "Distributor") or any of their affiliated
persons, as defined in the 1940 Act, except as may be permitted by
any applicable regulatory exemption or exemptive order.
VALUATION OF SECURITIES
Money Market Funds
As stated in their prospectus, the Money Market Funds seek to
maintain a net asset value of $1.00 per share and, in this
connection, value their instruments on the basis of amortized cost
pursuant to Rule 2a-7 under the 1940 Act. This method values a
security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than
the price a Fund would receive if the Fund sold the instrument.
During such periods the yield to investors in the Fund may differ
somewhat from that obtained in a similar entity which uses
available indications as to market value to value its portfolio
instruments. For example, if the use of amortized cost resulted
in a lower (higher) aggregate Fund value on a particular day, a
prospective investor in the Fund would be able to obtain a
somewhat higher (lower) yield and ownership interest than would
result from investment in such similar entity and existing
investors would receive less (more) investment income and
ownership interest. However, the Trust expects that the
procedures and limitations referred to in the following paragraphs
of this section will tend to minimize the differences referred to
above.
Under Rule 2a-7, the Trust's Board of Trustees, in supervising the
Money Market Funds' operations and delegating special
responsibilities involving portfolio management to Old Kent, has
established procedures that are intended, taking into account
current market conditions and the Funds' investment objectives, to
stabilize the net asset value of each Money Market Fund, as
computed for the purposes of purchases and redemptions, at $1.00
per share. The Trustees' procedures include periodic monitoring
of the difference between the amortized cost value per share and
the net asset value per share based upon available indications of
market value (the "Market Value Difference"). Available
indications of market value consist of actual market quotations or
appropriate substitutes which reflect current market conditions
and include (a) quotations or estimates of market value for
individual portfolio instruments and/or (b) values for individual
portfolio instruments derived from market quotations relating to
varying maturities of a class of money market instruments.
In the event the Market Value Difference exceeds 1/2 of 1%, the
Trustees' procedures provide that the Trustees will take such
steps as they consider appropriate (e.g., selling portfolio
instruments to shorten average portfolio maturity or to realize
capital gains or losses, reducing or suspending shareholder income
accruals, redeeming shares in kind, or utilizing a net asset value
per share based upon available indications of market value which
under such circumstances would vary from $1.00) to eliminate or
reduce to the extent reasonably practicable any material dilution
or other unfair results to investors or existing shareholders
which might arise from Market Value Differences. In particular,
if losses were sustained by a Fund, the number of outstanding
shares might be reduced in order to maintain a net asset value per
share of $1.00. Such reduction would be effected by having each
shareholder proportionately contribute to the Fund's capital the
necessary shares to restore such net asset value per share. Each
shareholder will be deemed to have agreed to such contribution in
these circumstances by investing in the Fund.
The Funds limit their investments to instruments which Old Kent
has determined present minimal credit risk (pursuant to guidelines
established by the Board of Trustees) and which are "Eligible
Securities" as defined by Rule 2a-7. The Funds are also required
to maintain a dollar weighted average portfolio maturity (not more
than 90 days) appropriate to its objective of maintaining a stable
net asset value of $1.00 per share, and this precludes the pur-
chase of any security with a remaining maturity of more than 397
days. Should the disposition of a security result in a dollar
weighted average portfolio maturity of more than 90 days, a Fund
will invest its available cash in such a manner as to reduce such
maturity to 90 days or less as soon as practicable. For the pur-
pose of determining the dollar weighted average, any instrument
with a stated maturity of six months or less which has a coupon
(or yield) which is subject to renegotiation at designated periods
of time (e.g., every 30 days), or any instrument having a coupon
(or yield) which fluctuates with the change in a predetermined
standard (e.g., the so-called "Prime Rate"), shall be deemed to
have a maturity equivalent to the time remaining to the next date
of renegotiation or the next date on which the predetermined
standard may change.
It is the normal practice of the Funds to hold securities to
maturity and realize par therefor, unless a sale or other disposi-
tion is mandated by redemption requirements or other extraordinary
circumstances. Under the amortized cost method of valuation
traditionally employed by institutions for valuation of money
market instruments, neither the amount of daily income nor the net
asset value is affected by any unrealized appreciation or
depreciation of the Funds. In periods of declining interest
rates, the indicated daily yield on shares of the Funds, computed
by dividing its annualized daily income by the net asset value
computed as above, may tend to be lower than similar computations
made by utilizing a method of valuation based upon market prices
and estimates. In periods of rising interest rates, the daily
yield of shares at the value computed as described above may tend
to be higher than a similar computation made by utilizing a method
of calculation based upon market prices and estimates.
Non-Money Market Funds
Current values for the Non-Money Market Funds' portfolio
securities are determined as follows:
(1) Common stock, preferred stock and other equity securities
listed on the NYSE are valued on the basis of the last sale price
on the exchange. In the absence of any sales, such securities are
valued at the last bid price;
(2) Common stock, preferred stock and other equity securities
listed on other U.S. or foreign exchanges will be valued as
described in (1) above using quotations on the exchange on which
the security is primarily traded;
(3) Common stock, preferred stock and other equity securities
which are unlisted and quoted on the National Market System (NMS)
are valued at the last sale price, provided a sale has occurred.
In the absence of any sales, such securities are valued at the
high or "inside" bid, which is the bid supplied by the National
Association of Securities Dealers on its NASDAQ system for
securities traded in the over-the-counter market;
(4) Common stock, preferred stock and other equity securities
which are quoted on the NASDAQ system but not listed on NMS are
valued at the high or "inside" bid;
(5) Common stock, preferred stock and other equity securities
which are not listed and not quoted on the NASDAQ System and for
which over-the-counter market quotations are readily available are
valued at the mean between the current bid and asked prices for
such securities;
(6) Non-U.S. common stock, preferred stock and other equity
securities which are not listed or are listed and subject to
restrictions on sale are valued at prices supplied by a dealer
selected by Old Kent or First Data;
(7) Bonds, debentures and other debt securities, whether or not
listed on any national securities exchange, are valued at a price
supplied by a pricing service or a bond dealer selected by Old
Kent;
(8) Short-term debt securities which when purchased have
maturities of sixty days or less are valued at amortized cost
(original purchase cost as adjusted for amortization of premium or
accretion of discount) which, when combined with accrued interest,
approximates market value and which reflects fair value as
determined by the Board of Trustees;
(9) Short-term money market instruments having maturities of
more than sixty days when purchased which are held on the sixtieth
day prior to maturity are thereafter valued at amortized cost
(market value on the sixtieth day adjusted for amortization of
premium or accretion of discount) which when with accrued interest
approximates market and which reflects fair value as determined by
the Board of Trustees; and
(10) The following are valued at prices deemed in good faith to
be fair under procedures established by the Board of Trustees: (a)
securities, including restricted securities, for which market
quotations are not readily available, and (b) any other security
for which the application of the above methods is deemed by First
Data not to be representative of the market value of such
security.
In valuing each Fund's assets, First Data will "mark-to-market"
the current value of a Fund's open futures contracts and options.
For valuation purposes, quotations of securities denominated in
foreign currencies are converted to into U.S. dollars at the
prevailing currency exchange rate on the day of the conversion.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust are listed below.
The address of all the Trustees and officers is 4400 Computer
Drive, Westborough, Massachusetts 01581.
Anne T. Coughlan, Trustee, 39; she is Associate Professor of
Marketing; Kellogg Graduate School of Management, Northwestern
University.
Joseph F. Damore, Trustee, 43; he is President and Chief Executive
Officer of Sparrow Hospital and Health System; formerly, Chairman
of the Board of Trustees of Americare Home Health Resources;
Director of Mercy Alternative; and former Director and Executive
Vice President, Sisters of Mercy Health Corporation.
James F. Rainey, Trustee, 56; he is Associate Dean for Academic
Affairs at Michigan State University.
*Ronald F. VanSteeland, Trustee and President, 55; he is Vice
President for Finance and Administration and Treasurer of Grand
Valley State University, Allendale, Michigan; and Treasurer of
Grand Valley State University Foundation.
Christopher S. Borden, Vice President, 34; he is a Client
Service Officer of First Data and was formerly employed by
Fidelity Investments.
Kevin morrissey, Treasurer, ___; he is a ___________ of
First Data.
W. Bruce McConnel, III, Secretary, 56; he is a partner in the law
firm of Drinker Biddle & Reath.
Patricia L. Bickimer, Assistant Secretary, 42; she is a Vice
President and Associate General Counsel of First Data and is a
former Vice President and Associate General Counsel of The Boston
Company Advisors, Inc. ("TBCA").
Julie A. Tedesco, Assistant Secretary, 38; she is a Counsel at
First Data and is a former Assistant Vice President and Counsel of
TBCA and former associate at Hutchins, Wheeler & Dittmar.
* This Trustee is an interested person of the Trust as defined
under the 1940 Act.
During the fiscal year ended December 31, 1995, no officer,
director or employee of the Trust's service contractors, or any of
their parents or subsidiaries, received any direct remuneration
from the Trust for serving as a Trustee or officer of the Trust,
although First Data, of which Messrs. Borden and Morrissey and
Mses. Bickimer and Tedesco are also employees, receives fees from
the Trust for administrative services. Drinker Biddle & Reath, of
which Mr. McConnel is a partner, receives legal fees as counsel to
the Trust. Each Trustee earns an annual fee of $8,000 and an
additional fee of $750 for each meeting attended, plus
reimbursement of expenses incurred as a Trustee.
Listed below is the compensation paid to each Trustee by the Trust
for the fiscal year ended December 31, 1995. Mr. Small has since
resigned from the Board of Trustees. The Fund did not provide any
pension or retirement benefits for its Trustees or officers during
1995.
Total Compensation
from the Trust and
Name of Person Aggregate Compensation Fund Complex Paid
and Position from the Trustt to Trustees
Anne T. Coughlan, Trustee $8,200 $8,200
Joseph F. Damore, Trustee $8,200 $8,200
James F. Rainey, Trustee $8,200 $8,200
William E. Small, Trustee $0 $0
Ronald F. VanSteeland, Trustee $8,200 $8,200
As of February 6, 1996, the Trustees and officers of
the Trust as a group beneficially owned less than 1% of the
Trust's outstanding shares.
EXPENSES
Operating expenses borne by the Funds include taxes, interest,
fees and expenses of Trustees and officers, Securities and
Exchange Commission fees, state securities qualification fees,
advisory fees, administration fees, charges of the Funds'
custodians and shareholder services agent, certain insurance
premiums, outside auditing and legal expenses, costs of preparing
and printing prospectuses for regulatory purposes and for
distribution to existing shareholders, costs of shareholder
reports and meetings and any extraordinary expenses. The Funds
also pay for brokerage fees, commissions and other transaction
charges (if any) in connection with the purchase and sale of
portfolio securities.
INVESTMENT ADVISER
Old Kent Bank
Old Kent Bank is the investment adviser to the Funds. Old
Kent's services as investment adviser are provided through its
Trust Management Services Department. As of December 31, 1995,
Old Kent's Trust Management Services Department managed assets of
approximately $6 billion. The Trust is the first registered
investment company for which Old Kent has provided investment
advisory services. Old Kent is located at One Vandenberg Center,
Grand Rapids, MI 49503.
Old Kent is a Michigan banking corporation which, with its affil-
iates, provided commercial and retail banking and trust services
through 220 banking offices in Michigan and Illinois as of
December 31, 1995. Old Kent offers a broad range of financial
services, including commercial and consumer loans, corporate and
personal trust services, demand and time deposit accounts, letters
of credit and international financial services.
Old Kent is a subsidiary of Old Kent Financial Corporation, a bank
holding company headquartered in Grand Rapids, Michigan, with
approximately $12 billion in total consolidated assets as of
December 31, 1995. Through offices in Michigan and Illinois, Old
Kent Financial Corporation and its subsidiaries provide a broad
range of financial services to individuals and businesses.
Old Kent's Trust Management Services Department employs an
experienced staff of professional investment analysts, portfolio
managers and traders and uses several proprietary computer-based
systems in conjunction with fundamental analysis to identify
investment opportunities.
Investment Advisory Agreement
The overall supervision and management of the Funds rests with the
Trust's Board of Trustees. Pursuant to a written Investment
Advisory Agreement with the Trust, dated October 12, 1990, as
amended, Old Kent furnishes to the Trust investment advice with
respect to the Funds, makes all investment decisions for the
Funds, and places purchase and sale orders for the Funds'
securities. Old Kent is responsible for all expenses incurred by
it in connection with its advisory activities, other than the cost
of securities and other investments purchased or sold for the
Funds, and any brokerage commissions or other transaction charges
that may be associated with such purchases and sales.
For its services to each Fund, Old Kent is entitled to an annual
fee based on the average daily net asset value of each Fund,
payable monthly, at the following rates: the Growth and Income
Fund, 0.70%; the Small Company Growth Fund, 0.70%; the
International Growth Fund, 0.75%; the Index Equity Fund, 0.30%;
the Short Term Bond Fund, 0.50%; the Intermediate Bond Fund,
0.55%; the Income Fund, 0.60%; the Limited Term Tax-Free Fund,
0.45%; the Intermediate Tax-Free Fund, 0.50%; the Tax-Free Income
Fund, 0.55%; the Michigan Municipal Bond Fund, 0.45%; the Money
Market Fund, 0.40%; and the Michigan Municipal Money Market Fund,
0.40%. Old Kent may rebate its advisory fees to certain of its
institutional customers.
For the fiscal years ended December 31, 1993, 1994 and 1995, Old
Kent earned the following advisory fees for each Fund: $865,487,
$1,855,551 and $2,427,434, respectively, for the Growth and Income
Fund; $1,035,875, $2,025,868 and $2,210,891, respectively, for the
Small Company Growth Fund; $925,252, $1,427,820 and $1,483,705,
respectively, for the International Growth Fund; $584,959,
$906,077 and $634,175, respectively, for the Index Equity Fund;
$1,105,332, $1,013,799 and $1,454,445, respectively, for the Short
Term Bond Fund; $1,746,712, $3,870,183 and $4,765,284,
respectively, for the Intermediate Bond Fund; $414,650, $1,436,354
and $1,582,089, respectively, for the Intermediate Tax-Free Fund;
$1,159,733, $1,370,798 and $2,056,213, respectively, for the Money
Market Fund; and $386,605, $551,177 and $590,771, respectively,
for the Michigan Municipal Money Market Fund. For the fiscal
period ended December 31, 1993 and the fiscal years ended December
31, 1994 and December 31, 1995, Old Kent earned $102,162, $501,175
and $738,023, respectively, in advisory fees for the Michigan
Municipal Bond Fund. For the fiscal period ended December 31,
1994 and the fiscal year ended December 31, 1995, Old Kent earned
$72,787 and $219,989, respectively, in advisory fees for the
Limited Term Tax-Free Fund. For the fiscal period ended December
31, 1995, Old Kent earned $442,275 and $632,086 in advisory fees
for the Tax-Free Income Fund and Income Fund, respectively.
For the fiscal years ended December 31, 1993, 1994 and 1995, Old
Kent waived a portion of its advisory fees for the Money Market
Fund and Michigan Municipal Money Market Fund. Net of such
waivers, Old Kent received $908,749, $1,166,047 and $1,903,848,
respectively, for the Money Market Fund; and $291,466, $410,048
and $535,921, respectively, for the Michigan Municipal Money
Market Fund. For the fiscal period ended December 31, 1993 and
the fiscal years ended December 31, 1994 and December 31, 1995,
Old Kent waived a portion of its advisory fees for the Michigan
Municipal Bond Fund. Net of such waivers, Old Kent received $0,
$226,335 and $717,968, respectively. For the fiscal period ended
December 31, 1994 and the fiscal year ended December 31, 1995, Old
Kent waived a portion of its advisory fees for the Limited Term
Tax-Free Fund. Net of such waivers, Old Kent received $44,959 and
$199,200, respectively. For the fiscal period ended December 31,
1995, Old Kent waived a portion of its advisory fees for the Tax-
Free Income Fund. Net of such waivers, Old Kent received $293,807.
Under the Investment Advisory Agreement, Old Kent's liability in
connection with rendering services thereunder is limited to
situations involving a breach of its fiduciary duty, its willful
misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.
The Trustees of the Trust, including a majority of those
Trustees who are not parties to the Investment Advisory Agreement
or interested persons of any such party, most recently approved
the agreement, as amended, on April 30, 1996. The Agreement
continues in effect from year to year with respect to each Fund
only if such continuance is specifically approved at least
annually by the Trustees of the Trust, including the "non-
interested" Trustees, or by vote of a majority of the outstanding
voting shares of such Fund. The Investment Advisory Agreement
will terminate automatically upon its assignment and may be
terminated with respect to any Fund or Funds without penalty on
60-days' written notice at the option of either party or by a vote
of the shareholders of such Fund or Funds.
The Glass-Steagall Act and Other Applicable Laws
The Glass-Steagall Act prohibits all entities which receive de-
posits (such as Old Kent) from engaging in the business of
issuing, underwriting, selling or distributing securities. In
1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Glass-Steagall Act prohibits a national
bank from operating a fund for the collective investment of
managed agency accounts. Subsequently, the Board of Governors of
the Federal Reserve System (the "Board") issued a regulation and
interpretation authorizing bank holding companies and their non-
bank affiliates to serve as investment advisers to both open-end
and closed-end investment companies. The Board's interpretation,
however, provides that the Glass-Steagall Act forbids a bank
holding company or any non-bank affiliate of a bank holding
company from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance
of its shares. In 1981, the United States Supreme Court held in
Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority
under the Bank Holding Company Act when it adopted its regulation
and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered
closed-end investment companies. It is believed that it would be
consistent with these decisions to interpret the Glass-Steagall
Act as not prohibiting banks from serving as investment advisers
to open-end investment companies. However, neither case addressed
this specific issue.
Old Kent has been advised by the Financial Institutions Bureau of
the Department of Commerce of the State of Michigan, which is the
bureau that regulates Michigan state chartered banks, that it is
the position of that Bureau that a bank (such as Old Kent) which
has been authorized to exercise full trust powers is authorized
under Michigan banking laws to provide investment advice to an
entity such as a mutual fund.
Old Kent has been advised by its legal counsel that in the opinion
of such counsel, Old Kent may lawfully serve as investment adviser
to the Trust and perform the services for the Trust required by
the Investment Advisory Agreement described in the prospectus and
this SAI. Such counsel has, however, cautioned that Old Kent's
authority to serve in this capacity has not been definitively
established by any state or federal law or regulation or any
judicial decision or regulatory interpretation that constitutes
binding authority with respect to the activities of Old Kent. In
addition, such counsel has cautioned that state and federal laws
and regulations relating to the permissible activities of banks
and bank holding companies may change and may be subject to
further judicial or administrative interpretation, the result of
which may be to cause Old Kent to conclude that it would be
unlawful or inadvisable to continue its relationship with the
Trust. If Old Kent discontinues its services as investment
adviser to the Trust, it is expected that the Board of Trustees of
the Trust would select a new investment adviser and recommend that
the Trust's shareholders approve the new investment adviser so
recommended.
It is anticipated that Old Kent will effect purchases of Trust
shares from time to time upon the order of and as agent for
certain customers. State and federal law limit the ability of a
depository institution, such as Old Kent, to underwrite, sell or
distribute securities. However, these laws permit, or are
generally interpreted to permit, the execution of purchase and
sale transactions without recourse upon the order and for the
account of customers.
It is possible that future state or federal legislative or
administrative action or judicial or administrative decisions or
interpretations could prohibit or restrict the proposed activities
of Old Kent to such a degree that Old Kent or the Trust might con-
clude that it would be necessary or advisable to discontinue or
materially alter the services provided by Old Kent. Any such dis-
continuation or alteration could cause the Trust's Board of
Trustees to change the Trust's method of operations or the market
for the Trust's shares or to merge or liquidate the Funds. It is
not anticipated, however, that any such change would materially
affect the net asset values per share of the Funds or result in
financial loss to any shareholder.
Directors and Principal Executive Officers
The Directors of Old Kent are Richard L. Antonini, William P.
Crawford, Robert L. Ellis, William Gonzales, Erina Hanka, Robert
L. Hooker, Fred P. Keller, Hendrik G. Meijer, Patrick M. Quinn,
Margaret Sellers Walker, Richard E. Tierney, David J. Wagner (also
Chairman of the Board and Chief Executive Officer) and Robert L.
Sadler (also President).
The principal executive officers of Old Kent are: David J. Wagner,
Chairman; Robert L. Sadler, President and Chief Executive Officer;
David Dams, Edward P. Farley and David Kerstein, Executive Vice
Presidents; Martin J. Allen, Jr., Senior Vice President and
Secretary; and Philip M. Allen, Richard L. Arasmith, Thomas M.
Bobrowski, Paul Colombe, James Habertein, Larry Hull, John
Erikson, Joseph T. Keating, Janet Nisbett, R. Joy Palmer, Dennis
W. Piskor, Thomas E. Powell and Daniel Terpsma, Senior Vice
Presidents.
ADMINISTRATOR
First Data, 4400 Computer Drive, Westborough, Massachusetts 01581,
a wholly-owned subsidiary of First Data Corp., is the
Administrator of the Trust under an Administration and Fund
Accounting Agreement (the "Administration Agreement") dated March
31, 1995. First Data provides management and administrative
services and, in general, supervises the operation of each Fund
(other than investment advisory operations).
By the terms of the Administration Agreement, First Data is
required to provide to the Funds management and administrative
services, as well as all necessary office space, equipment and
clerical personnel for managing and administering the affairs of
the Funds. First Data is required to supervise the provision of
custodial, auditing, valuation, bookkeeping, legal, stock transfer
and dividend disbursing services and provide other management and
administrative services. The Administration Agreement continues
in effect from year to year with respect to each Fund only if
continuance is specifically approved at least annually by the
Board of Trustees and by the vote of a majority of the "non-
interested" Trustees, as that term is defined in the 1940 Act.
As compensation for the services and facilities provided to the
Funds pursuant to the Administration Agreement, First Data is
entitled to receive an annual fee, payable monthly as one twelfth
of the annual fee, based on the Trust's aggregate average daily
net assets as follows: up to $5.0 billion - 20.0 basis points;
between $5.0 and $7.5 billion - 18.0 basis points; and over $7.5
billion-15.0 basis points. All expenses (other than those speci-
fically referred to as being borne by First Data in the
Administration Agreement) incurred by First Data in connection
with the operation of the Trust are borne by the Funds. To the
extent that First Data incurs any such expenses or provides
certain additional services to the Trust, the Funds promptly will
reimburse First Data therefore.
For the fiscal periods ended December 31, 1993, 1994 and 1995, the
Trust paid the following administrative fees to First Data and the
Trust's former administrators: $247,281, $530,158 and $693,553,
respectively, for the Growth and Income Fund; $295,948, $578,819
and $631,683, respectively, for the Small Company Growth Fund;
$246,587, $380,752 and $395,655, respectively, for the
International Growth Fund; $389,973, $604,052 and $422,784,
respectively, for the Index Equity Fund; $442,133, $395,519 and
$581,778, respectively, for the Short Term Bond Fund; $635,228,
$1,407,339 and $1,732,831, respectively, for the Intermediate Bond
Fund; $165,860, $574,541 and $632,836, respectively, for the
Intermediate Tax-Free Fund; $579,865, $685,398 and $772,894,
respectively, for the Money Market Fund; and $193,330, $275,108
and $220,170, respectively, for the Michigan Municipal Money
Market Fund. For the fiscal period ended December 31, 1993 and
the fiscal years ended December 31, 1994 and December 31, 1995,
the Michigan Municipal Bond Fund paid $51,081, $222,744 and
$328,010, respectively, in administrative fees. For the fiscal
period ended December 31, 1994 and the fiscal year ended December
31, 1995, the Limited Term Tax-Free Fund paid $32,350 and $97,773,
respectively, in administrative fees. For the fiscal period ended
December 31, 1995, the Tax-Free Income Fund and Income Fund paid
$160,827 and $210,695, respectively, in administrative fees.
DISTRIBUTOR
The Trust has entered into a Distribution Agreement dated March
31, 1995 with 440 Distributors, 4400 Computer Drive, Westborough,
Massachusetts 01581. Unless otherwise terminated, the
Distribution Agreement will continue in effect until April 1, 1996
and will continue from year to year thereafter, if approved at
least annually at a meeting called for that purpose by a majority
of the Trustees and a majority of the "non-interested" Trustees,
as that term is defined in the 1940 Act. 440 Distributors was
organized in January, 1993 and is a wholly-owned subsidiary of
First Data. Shares of the Funds are sold on a continuous basis by
440 Distributors as agent for the Trust, and 440 Distributors has
agreed to use the efforts it deems appropriate to solicit orders
for the sale of shares of the Funds.
For the fiscal years ended 1993, 1994 and 1995, the Trust paid 440
Distributors and the Trust's former distributor total underwriting
commissions of $601,000, $662,081 and $457,249, respectively.
This entire amount was re-allocated to broker-dealers which had
selling agreements with the distributor.
TRANSFER AGENT
First Data serves the Trust's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency Agreement. Under
the Transfer Agency Agreement, First Data has agreed to: (i) issue
and redeem shares of each Fund; (ii) transmit all communications
by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy
materials for meetings of shareholders; (iii) respond to
correspondence by security brokers and others relating to its
duties; (iv) maintain shareholder accounts; and (v) make periodic
reports to the Board of Trustees concerning the Trust's
operations.
CUSTODIAN, AUDITORS AND COUNSEL
Bankers Trust Company, New York, NY, is custodian of all
securities and cash of the Trust.
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, Certified
Public Accountants, are the independent auditors for the Trust.
Drinker Biddle & Reath, 1345 Chestnut Street, Philadelphia, PA
19107, serves as counsel to the Trust.
DISTRIBUTION PLANS
This section relates only to the Investment Shares of the Funds.
The Institutional Shares have not adopted Distribution Plans.
As described in the prospectuses, each of the Funds has adopted
with respect to its Investment Shares a Distribution Plan
(individually, a "Plan," and collectively, the "Plans") pursuant
to Rule 12b-1 under the 1940 Act which regulates circumstances
under which an investment company may bear expenses associated
with the distribution of its shares. Each Plan provides that the
Investment Shares of a Fund may incur certain expenses which may
not exceed a maximum amount equal to 0.25% (on an annualized
basis) of the average daily net asset value of the Investment
Shares.
All persons authorized to direct the disposition of monies paid or
payable by a Fund pursuant to a Plan or any related agreement must
provide to the Trust's Board of Trustees at least quarterly a
written report of the amounts so expended and the purposes for
which such expenditures were made. Representatives, brokers,
dealers or others receiving payments from 440 Distributors
pursuant to a Plan must determine that such payments and the
services provided in connection with such payments are appropriate
for such persons and are not in violation of regulatory
limitations applicable to such persons.
The services under the Plans may include assistance in advertising
and marketing of Investment Shares, aggregating and processing
purchase, exchange and redemption requests for Investment Shares,
maintaining account records, issuing confirmations of transactions
and providing sub-accounting with respect to Investment Shares.
As required by Rule 12b-1, the Plans and the related Distribution
and Servicing Agreements have been approved, and are subject to
annual approval, by a majority of the Trust's Board of Trustees,
and by a majority of the Trustees who are not "interested" persons
of the Trust (as defined by the 1940 Act) and who have no direct
or indirect interest in the operation of the Plans and the
agreements related thereto ("Independent Trustees"), by a vote
cast in person at a meeting called for the purpose of voting on
the Plan and related agreements. The Plans were most recently
approved by the Board of Trustees as a whole and by the
Independent Trustees on November 3, 1995. In compliance with Rule
12b-1, the Trustees requested and evaluated information they
thought necessary to an informed determination of whether the
Plans and related agreements should be implemented, and concluded,
in the exercise of reasonable business judgment and in light of
their fiduciary duties, that there was a reasonable likelihood
that the Plan and the related agreements would benefit the Funds
and their shareholders. A Plan may not be amended in order to
increase materially the amount of distribution expenses permitted
under the Plan without such amendment being approved by a majority
vote of the outstanding Investment Shares of the affected Fund. A
Plan may be terminated at any time by a majority vote of the
Independent Trustees or by a majority vote of the outstanding
Investment Shares of the affected Fund.
While the Plans are in effect, the selection and nomination of
Trustees who are not "interested persons" has been committed to
the discretion of the "non-interested" Trustees then in office.
For the fiscal year ended December 31, 1995 the following payments
were made under the Plans: Growth and Income Fund, $52,276; Small
Company Growth Fund, $54,928; International Growth Fund, $38,731;
Index Equity Fund, $31,192; Intermediate Bond Fund, $40,289;
Intermediate Tax-Free Fund, $23,935; Income Fund, $4,092; Tax-Free
Income Fund, $1,391; Michigan Municipal Bond Fund, $6,879; Limited
Term Tax-Free Fund, $126; and Short Term Bond Fund, $6,104. All
of such payments were made to broker dealers and other selling
and/or servicing institutions. For the current fiscal year,
Investment Shares of the Growth and Income Fund, Small Company
Growth Fund, International Growth Fund, Index Equity Fund,
Intermediate Bond Fund, Intermediate Tax-Free Fund, Income Fund
and Tax-Free Income Fund will be charged a fee pursuant to the
Plans at an annual rate of 0.25% of their average Investment class
net assets. For the current fiscal year, Investment Shares of the
Short Term Bond Fund, Limited Term Tax-Free Fund and Michigan
Municipal Bond Fund will be charged a fee pursuant to the Plans at
an annual rate of 0.15% of their average Investment class net
assets. The Trust does not currently intend to charge a fee under
the Plans for the Money Market Fund or the Michigan Municipal
Money Market Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The prospectuses for the Funds describe those investors who are
eligible to purchase Investment Shares and those who are eligible
to purchase Institutional Shares.
An illustration of the computation of the offering price per
Investment Share of each Non-Money Market Fund is provided below.
The computations are based on the value of each such Fund's
Investment class net assets and number of outstanding Investment
Shares at the close of business on December 31, 1995 (the end of
the Trust's last fiscal year).
Growth and Small Company International
Income Fund Growth Fund Growth Fund
Net Assets $11,079,424 $10,954,966 $7,548,199
Outstanding Shares 840,180 793,547 534,190
Net Asset Value
Per Share $13.19 $13.81 $14.13
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $0.55 $0.58 $0.59
Offering price to public $13.74 $14.39 $14.72
Index Equity Short Term Intermediate
Fund Bond Fund Bond Fund
Net Assets $6,611,727 $1,633,577 $6,861,848
Outstanding Shares 525,856 164,130 676,709
Net Asset Value
Per Share $12.57 $9.95 $10.14
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $0.52 $0.41 $0.42
Offering price to public $13.09 $10.36 $10.56
Limited Term Intermediate Michigan Municipal
Tax-Free Fund Tax-Free Fund Bond Fund
Net Assets $53,855 $3,806,724 $1,899,197
Outstanding Shares 5,258 361,926 187,833
Net Asset Value
Per Share $10.24 $10.52 $10.11
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $0.43 $0.44 $0.42
Offering price to public $10.67 $10.96 $10.53
Tax-Free
Income Fund Income Fund
Net Assets $1,961,023 $528,756
Outstanding Shares 181,277 50,253
Net Asset Value
Per Share $10.82 $10.52
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $0.45 $0.44
Offering price to public $11.27 $10.96
A sales load will not be applicable to certain purchases of
Investment Shares as set forth in the prospectuses. These
exemptions to the imposition of a sales load are due to the nature
of the investors and/or the reduced sales effort that will be
needed in obtaining such investments.
In an exchange, shares in the Fund from which an investor is
withdrawing will be redeemed at the net asset value per share next
determined after the exchange request is received. Shares of the
Fund in which the investor is investing will also normally be
purchased at the net asset value per share (plus any applicable
sales load) next determined after acceptance of the purchase order
by the Trust in accordance with its customary policies for
accepting investments.
Under the 1940 Act, the Trust may suspend the right of redemption
or postpone the date of payment for shares during any period when
(a) trading on the NYSE is restricted by applicable rules and
regulations of the Securities and Exchange Commission; (b) the
NYSE is closed for other than customary weekend and holiday
closings; (c) the Securities and Exchange Commission has by order
permitted such suspension; or (d) an emergency exists as
determined by the Securities and Exchange Commission. (The Trust
may also suspend or postpone the recordation of the transfer of
its shares upon the occurrence of any of the foregoing condi-
tions.)
In addition to the situation described in the prospectuses under
"How Can I Redeem Shares," the Trust may redeem shares
involuntarily if it appears appropriate to do so in light of the
Trust's responsibilities under the 1940 Act, to reimburse the
Funds for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the
shareholder, or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the prospectuses from time to time.
A Fund may make payment for redemption in securities or other
property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. In the event shares are
redeemed for securities or other property, shareholders may incur
additional costs in connection with the conversion thereof to
cash. Redemption in kind is not as liquid as a cash redemption.
Shareholders who receive a redemption in kind may receive less
than the redemption value of their shares upon sale of the
securities or property received, particularly where such
securities are sold prior to maturity.
The Trust has filed an election pursuant to Rule 18f-1 under the
1940 Act which provides that each portfolio of the Trust is
obligated to redeem shares solely in cash up to $250,000 or 1% of
such portfolio's net asset value, whichever is less, for any one
shareholder within a 90-day period. Any redemption beyond this
amount may be made in proceeds other than cash.
DIVIDENDS AND TAXES
The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not
described in the prospectuses. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their
shareholders, and the discussion here and in the prospectuses is
not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific
reference to their own tax situations.
The discussion of Federal income tax consequences in the
prospectuses and this SAI is based on the Internal Revenue Code of
1986, as amended (the "Code") and the laws and regulations issued
thereunder as in effect on the date of this SAI. Future
legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Federal - General Information
Each Fund will be treated as a separate corporate entity under the
Code and intends to elect to qualify as a regulated investment
company. In order to qualify as a regulated investment company,
each Fund must comply with certain requirements in the Code. Each
Fund is required to distribute annually an amount equal to at
least the sum of 90% of its investment company income and 90% of
its net tax-exempt interest income (the "Distribution
Requirement"). Each Fund must derive with respect to a taxable
year at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign
currencies, or from other income derived with respect to its
business of investing in such stock, securities, or currencies
(the "Income Requirement"), and derive less than 30% of its gross
income from the sale or other disposition of securities and
certain other investments held for less than three months (the
"Short-Short Test"). Interest (including original issue discount
and "accrued market discount") received by a Fund at maturity or
on disposition of a security held for less than three months will
not be treated as gross income derived from the sale or other
disposition of securities for this purpose.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each
Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies,
and securities of other issuers (as to which a Fund has not
invested more than 5% of the value of its total assets in
securities of any one issuer and as to which a Fund does not hold
more than 10% of the outstanding voting securities of any one
issuer), and no more than 25% of the value of each Fund's total
assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which such Fund
controls and which are engaged in the same or similar trades or
businesses.
Each Fund intends to distribute to shareholders any excess of net
long-term capital gain over net short-term capital loss ("net
capital gain") for each taxable year. Such gain is distributed as
a capital gain dividend and is taxable to shareholders as long-
term capital gain, regardless of the length of time the
shareholder has held the shares, whether such gain was recognized
by the Fund prior to the date on which a shareholder acquired
shares of the Fund, or whether the distribution was paid in cash
or reinvested in shares. In addition, investors should be aware
that any loss realized upon the sale, exchange or redemption of
shares held for six months or less will be treated as a long-term
capital loss to the extent any capital gain dividends have been
paid with respect to such shares.
In the case of corporate shareholders, distributions of a Fund for
any taxable year generally qualify for the dividends received
deduction to the extent of the gross amount of "qualifying
dividends" from domestic corporations received by the Fund for the
year. A dividend usually will be treated as a "qualifying
dividend" if it has been received from a domestic corporation. A
portion of the dividends paid by the Growth and Income Fund, Small
Company Growth Fund and Index Equity Fund may constitute
"qualifying dividends." The other Funds, however, are not
expected to pay qualifying dividends.
Ordinary income of individuals is taxable at a maximum nominal
rate of 39.6%, but because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the
maximum effective marginal rate of tax for some taxpayers may be
higher. An individual's long-term capital gains will be taxable
at a maximum nominal rate of 28%. For corporations, long-term
capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (an effective marginal rate of 39% applies in
the case of corporations with taxable incomes between $100,000 and
$335,000, and an effective marginal rate of 38% applies in the
case of corporations with taxable incomes between $15 million and
$18,333,333).
If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to
tax at regular corporate rates without any deduction for
distributions to shareholders. In such event, all distributions
(whether or not derived from exempt-interest income) would be
taxable as ordinary income to the extent of such Fund's current
and accumulated earnings and profits and would be eligible for the
dividends received deduction in the case of corporate
shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that fail to currently distribute an amount
equal to specified percentages of their ordinary taxable income
and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this
excise tax.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in
states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, each Fund
may be subject to the tax laws of such states or localities.
Federal - Tax-Exempt Information
As described in the prospectuses relating to the Tax-Free Funds,
such Funds are designed to provide investors with tax-exempt
interest income. The Tax-Free Funds are not intended to
constitute a balanced investment program and are not designed for
investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal. Shares of the
Tax-Free Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement
accounts because such plans and accounts are generally tax-exempt
and, therefore, would not gain any additional benefit from the
Funds' dividends being tax-exempt. In addition, the Tax-Free
Funds may not be an appropriate investment for persons or entities
that are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user"
is defined under U.S. Treasury Regulations to include a non-exempt
person which regularly uses a part of such facilities in its trade
or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, which
occupies more than 5% of the usable area of such facilities or for
which such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include
certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its
shareholders.
In order for the Tax-Free Funds to pay Federal exempt-interest
dividends with respect to any taxable year, at the close of each
taxable quarter at least 50% of the aggregate value of the Fund
must consist of tax-exempt obligations. An exempt-interest
dividend is any dividend or part thereof (other than a capital
gain dividend) paid by a Tax-Free Fund and designated as an
exempt-interest dividend in a written notice mailed to
shareholders not later than 60 days after the close of the Fund's
taxable year. However, the aggregate amount of dividends so
designated by a Tax-Free Fund cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code
received by the Fund during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the
Code. The percentage of total dividends paid by a Tax-Free Fund
with respect to any taxable year which qualifies as Federal
exempt-interest dividends will be the same for all shareholders
receiving dividends from the Fund with respect to such year.
If a Tax-Free Fund holds certain so-called "private activity
bonds," shareholders will be required to include as an item of tax
preference for purposes of the Federal alternative minimum tax
that portion of the dividends paid by the Fund derived from
interest received on such bonds. In addition, corporate
shareholders will have to take into account all exempt-interest
dividedns paid by the Tax-Freee Funds in determining certain
adjustments for the Federal alternative minimum tax and the
environmental tax.
Taxation of Certain Financial Instruments
Special rules govern the Federal income tax treatment of certain
financial instruments that may be held by the Funds. These rules
may have a particular impact on the amount of income or gain that
the Funds must distribute to their respective shareholders to
comply with the Distribution Requirement, on the income or gain
qualifying under the Income Requirement, and on their ability to
comply with the Short-Short Test described above.
Generally, futures contracts, options on futures contracts and
certain foreign currency contracts held by a Fund (collectively,
the "Instruments") at the close of its taxable year are treated
for Federal income tax purposes as sold for their fair market
value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting
from such constructive sales is treated as short-term capital gain
or loss and 60% of such gain or loss is treated as long-term
capital gain or loss without regard to the period the Fund holds
the Instruments ("the 40%-60% rule"). The amount of any capital
gain or loss actually realized by the Fund in a subsequent sale or
other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the Instruments.
Losses with respect to Instruments that are regarded as parts of a
"mixed straddle" because their values fluctuate inversely to the
values of specific securities held by the Fund are subject to
certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount
thereof which exceeds the unrecognized gain (if any) with respect
to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which are also applicable,
the holding period of the securities forming part of the straddle
will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With
respect to certain Instruments, deductions for interest and
carrying charges may not be allowed. Notwithstanding the rules
described above, with respect to Instruments that are part of a
"mixed straddle" and are properly identified as such, a Fund may
make an election which will exempt (in whole or in part) those
identified Instruments from the rules of Section 1256 of the Code,
including "the 40%-60% rule" and the mark-to-market on gains and
losses being treated for Federal income tax purposes as sold on
the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales and loss
deferral rules and the requirement to capitalize interest and
carrying charges. Under Temporary Regulations, a Fund would be
allowed (in lieu of the foregoing) to elect either (a) to offset
gains or losses from portions which are part of a mixed straddle
by separately identifying each mixed straddle to which such
treatment applies, or (b) to establish a mixed straddle account
for which gains and losses would be recognized and offset on a
periodic basis during the taxable year. Under either election,
"the 40%-60% rule" will apply to the net gain or loss attributable
to the Instruments, but in the case of a mixed straddle account
election, not more than 50% of any net gain may be treated as
long-term and no more than 40% of any net loss may be treated as
short-term.
A foreign currency contract must meet the following conditions in
order to be subject to the mark-to-market rules described above:
(1) the contract must require delivery of a foreign currency of a
type in which regulated futures contracts are traded or upon which
the settlement value of the contract depends; (2) the contract
must be entered into at arms' length at a price determined by
reference to the price in the Interbank market; and (3) the
contract must be traded in the Interbank market. The Treasury
Department has broad authority to issue regulations under the
provisions respecting foreign currency contracts. As of the date
of this SAI, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by a
Fund may result in the creation of one or more straddles for
Federal income tax purposes, in which case certain loss deferral,
short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
Some of the non-U.S. dollar-denominated investments that the
Growth and Income Fund and International Growth Fund may make,
such as foreign debt securities and foreign currency contracts,
may be subject to the provisions of Subpart J of the Code, which
govern the Federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies
other than the U.S dollar. The types of transactions covered by
these provisions include the following: (1) the acquisition of, or
becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations,
preferred stock); (2) the accruing of certain trade receivables
and payables; and (3) the entering into or acquisition of any
forward contract, futures contract, option and similar financial
instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject
to the special currency rules. However, regulated futures
contracts and nonequity options are generally not subject to the
special currency rules if they are or would be treated as sold for
their fair market value at year-end under the mark-to-market
rules, unless an election is made to have such currency rules
apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable
as ordinary gain or loss. A taxpayer may elect to treat as
capital gain or loss foreign currency gain or loss arising from
certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury
regulations, certain transactions that are part of a "Section 988
hedging transaction" (as defined in the Code and Treasury
regulations) may be integrated and treated as a single transaction
or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the mark-to-
market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions
engaged in by the Fund which are not subject to the special
currency rules (such as foreign equity investments other than
certain preferred stocks) is treated as capital gain or loss and
is not segregated from the gain or loss on the underlying
transaction.
Certain of the Funds may be subject to U.S. Federal income tax on
a portion of any "excess distribution" from or a gain from the
disposition of shares of a passive foreign investment company.
DECLARATION OF TRUST
Description of Shares
The Trust's Restatement of Declaration of Trust authorizes the
issuance of an unlimited number of shares of beneficial interest
in one or more separate series, and the creation of one or more
classes of shares within each series. Each share of a series
represents an equal proportionate interest in the Trust with each
other share of that series. Each series represents interests in a
different investment portfolio. The Trust currently offers
thirteen series of shares with two separate classes in each series
- -- Investment Shares and Institutional Shares. Each share of the
Trust has no par value and is entitled to such dividends and
distributions of the income earned on its respective series'
assets as are declared at the discretion of the Trustees. Each
class or series is entitled upon liquidation of such class or
series to a pro rata share in the net assets of that class or
series. Shareholders have no preemptive rights. When issued for
payment as described in the prospectuses, shares will be legally
issued, fully paid and non-assessable.
The proceeds received by each Fund for each issue or sale of its
shares, and all net investment income, realized and unrealized
gain and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to and constitute the
underlying assets of that Fund. The underlying assets of each
Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to that Fund and with a
share of the general liabilities of the Trust. Expenses with
respect to the portfolios of the Trust are normally allocated in
proportion to the net asset value of the respective portfolios
except where allocations of direct expenses can otherwise be
fairly made.
Shareholder Liability
The Trust is an entity of the type commonly known as a "Massachu-
setts Business Trust." Pursuant to certain decisions of the Su-
preme Judicial Court of Massachusetts, there is a possibility that
shareholders of such a trust may, under certain circumstances, be
held personally liable as partners for the obligations of the
trust. However, even if the Trust were held to be a partnership,
the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Restatement of
Declaration of Trust contains an express disclaimer of shareholder
liability for obligations of the Trust and requires that notice of
such disclaimer be given in every note, bond, contract or other
undertaking entered into or executed by the Trust or the Trustees.
In addition, the Restatement of Declaration of Trust provides for
indemnification out of the Trust property for any shareholder held
personally liable for the obligations of the Trust.
Voting Rights
Rule 18f-2 under the 1940 Act provides that any matter required by
the provisions of the 1940 Act or applicable state law, or
otherwise, to be submitted to the holders of the outstanding
voting securities of an investment company such as the Trust shall
not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each
investment portfolio affected by such matter. Rule 18f-2 further
provides that an investment portfolio shall be deemed to be
affected by a matter unless the interests of each investment
portfolio in the matter are substantially identical or the matter
does not affect any interest of the investment portfolio. Under
the Rule, the approval of an investment advisory agreement, a
distribution plan subject to Rule 12b-1, or any change in a
fundamental investment policy would be effectively acted upon with
respect to an investment portfolio only if approved by a majority
of the outstanding shares of that investment portfolio. However,
the Rule also provides that the ratification of the appointment of
independent accountants, the approval of principal underwriting
contracts and the election of Trustees may be effectively acted
upon by shareholders of the Trust voting together in the aggregate
without regard to a particular investment portfolio.
Shares of the Trust have non-cumulative voting rights, which means
that the holders of more than 50% of the shares of the Trust
voting for the election of Trustees can elect 100% of the Trustees
to be elected at a meeting and, in such event, the holders of the
remaining less than 50% of the shares of the Trust voting will not
be able to elect any Trustees.
As a general matter, the Trust does not hold annual or other
meetings of shareholders. At such time, however, as less than a
majority of the Trustees holding office have been elected by
shareholders, the Trustees then in office will call a shareholders
meeting for the election of Trustees. The Trustees shall continue
to hold office indefinitely, unless otherwise required by law, and
may appoint successor Trustees. A Trustee may be removed from
office: (1) at any time by two-thirds vote of the Trustees; or (2)
at a special meeting of shareholders by a two-thirds vote of the
outstanding shares. Trustees may also voluntarily resign from
office.
Limitation of Trustees' Liability
The Restatement of Declaration of Trust provides that the Trustees
shall not be responsible or liable for any neglect or wrongdoing
of any officer, agent, employee or adviser of the Trust, provided
that they have exercised reasonable care in the selection of such
individuals. The Restatement of Declaration of Trust also
provides that a Trustee shall be indemnified against all
liabilities and expenses reasonably incurred in connection with
the defense or disposition of any action, suit or other proceeding
in which said Trustee is involved by reason of being or having
been a Trustee of the Trust, except with respect to any matter as
to which such Trustee has been finally adjudicated not to have
acted in good faith in the reasonable belief that his or her
actions were in the best interest of the Trust. Nothing in the
Restatement of Declaration of Trust shall protect a Trustee
against any liability for his or her willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office as Trustee.
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
Money Market Funds
The yields for the Investment Shares and the Institutional Shares
of the Money Market Funds as they may appear from time to time in
advertisements will be calculated by determining the net change
exclusive of capital changes (all realized and unrealized gains
and losses) in the value of a hypothetical pre-existing account
having a balance of one share at the beginning of the period,
dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base
period return, multiplying the base period return by (365/7) and
carrying the resulting yield figure to the nearest hundredth of
one percent. The determination of net change in account value
will reflect the value of additional shares purchased with
dividends from the original share and dividends declared on both
the original share and any such additional shares and all fees
charged to all shareholder accounts for each class of shares in
proportion to the length of the base period and the average
account size for each class. The 30-day yield for each Fund is
determined similarly. Based on the foregoing formula, for the 7-
day period ended December 31, 1995, the yields of the
Institutional Shares of the Money Market Fund and the Michigan
Municipal Money Market Fund were 5.36% and 4.22%, respectively.
For the same period, the 7-day yields of the Investment Shares of
the Money Market Fund and the Michigan Municipal Money Market Fund
were 5.36% and 4.22%, respectively. The yield figures reflect
waivers of certain expenses.
If realized and unrealized gains and losses were included in the
yield calculation, the yield of a Fund might vary materially from
that reported in advertisements.
In addition to the yields for each class of shares of the Money
Market Funds, the effective yields for each class may appear from
time to time in advertisements. The effective yield will be
calculated by compounding the unannualized base period return by
adding 1 to the quotient, raising the sum to a power equal to 365
divided by 7, subtracting 1 from the result and carrying the
resulting effective yield figure to the nearest hundredth of one
percent. Based on the foregoing formula, for the period ended
December 31, 1995, the effective yields of the Institutional
Shares of the Money Market Fund and the Michigan Municipal Money
Market Fund were 5.50% and 4.31%, respectively. For the same
period, the effective yields of the Investment Shares of the Money
Market Fund and the Michigan Municipal Money Market Fund were
5.50% and 4.31%, respectively. These yield figures reflect
waivers of certain expenses.
Non-Money Market Funds
A Non-Money Market Fund calculates its "average annual total
return" by determining the average annual compounded rate of
return during specified periods that equates the initial amount
invested to the ending redeemable value of such investment
according to the following formula:
ERV 1/n
T = [(-------) - 1]
P
Where:
T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the
1, 5 or 10 year (or other) periods at the end of the
applicable period (or a fractional portion
thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
A Non-Money Market Fund calculates its "aggregate total return" by
determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested
to the ending redeemable value of such investment. The formula
for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-------) - 1]
P
The calculations are made assuming that (a) all dividends and
capital gain distributions are reinvested on the reinvestment
dates at the price per share existing on the reinvestment date,
and (b) all recurring fees charged to all shareholder accounts are
included. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring
charges at the end of the measuring period.
For the one-year period and the period from each Fund's respective
inception through December 31, 1995, respectively, the average
annual total returns, giving effect to applicable sales loads, on
the Investment Shares of each Non-Money Market Fund were as
follows: the Growth and Income Fund, 29.18% and 13.08%; the Small
Company Growth Fund, 18.53% and 11.86%; the International Growth
Fund, 8.36% and 13.77%; the Index Equity Fund, 30.33% and 12.98%;
the Short Term Bond Fund, 5.85% and 3.31%; the Intermediate Bond
Fund, 11.11% and 5.11%; the Intermediate Tax-Free Fund, 8.11% and
4.42%; the Michigan Municipal Bond Fund, 3.64% and 2.53%; and the
Limited Term Tax-Free Fund, 4.05% and 3.51%. For the same
periods, the average annual total returns for the one-year period
and the period from each Fund's inception through December 31,
1995 on the Non-Money Market Funds' Institutional Shares were as
follows: the Growth and Income Fund, 34.91% and 15.44%; the Small
Company Growth Fund, 23.75% and 15.43%; the International Growth
Fund, 13.00% and 15.57%; the Index Equity Fund, 36.23% and 15.23;
the Short Term Bond Fund, 10.53% and 4.83%; the Intermediate Bond
Fund, 16.18% and 6.76%; the Intermediate Tax-Free Fund, 13.00% and
6.01%; the Michigan Municipal Bond Fund, 8.20% and 4.31%; and the
Limited Term Tax-Free Fund, 8.43% and 5.65%. From inception to
December 31, 1995, the cumulative total returns for the Investment
Shares and the Institutional Shares of the Tax-Free Income Fund
were 3.97% and 8.64%, respectively. From inception1 to December
31, 1995, the cumulative total returns for the Investment Shares
and the Institutional Shares of the Income Fund were 10.01% and
15.05%, respectively.
A Non-Money Market Fund calculates its 30-day (or one month)
standard yield in accordance with the method prescribed by the SEC
for mutual funds:
a - b
Yield = 2 [ (------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = net asset value per share on the last day of the period.
Based on the foregoing calculations, for the 30-day period ended
December 31, 1995, the yields for the Investment Shares of the
Income Funds and Tax-Free Funds were as follows: Short Term Bond
Fund, 4.53%; Intermediate Bond Fund, 4.52%; Income Fund, 4.93%;
Limited Term Tax-Free Fund, 3.21%; Intermediate Tax-Free Fund,
3.57%; Tax-Free Income Fund, 4.14%; and Michigan Municipal Bond
Fund, 3.28%. For the same period, the yields on the Institutional
Shares of the Income Funds and Tax-Free Funds were as follows:
Short Term Bond Fund, 4.88%; Intermediate Bond Fund, 4.96%; Income
Fund, 5.40%; Limited Term Tax-Free Fund, 3.49%; Intermediate Tax-
Free Fund, 3.97%; Tax-Free Income Fund, 4.57%; and Michigan
Municipal Bond Fund, 3.57%.
The Tax-Free Funds
The Investment Shares and the Institutional Shares of the Tax-Free
Funds may also advertise "tax equivalent yield." Tax equivalent
yield is, in general, the yield divided by a factor equal to one
minus a stated income tax rate and reflects the yield a taxable
investment would have to achieve in order to equal on an after-tax
basis a tax-exempt yield. For the 30-day period ended December
31, 1995, the yields for the Investment Shares of the Tax-Free
Funds were as follows: Limited Term Tax-Free Fund, 5.31%;
Intermediate Tax-Free Fund, 5.91%; Tax-Free Income Fund, 6.85%;
Michigan Municipal Bond Fund, 5.43%; and Michigan Municipal Money
Market Fund, ____%. For the same period, the yields on the
Institutional Shares of the Tax-Free Funds were as follows:
Limited Term Tax-Free Fund, 5.78%; Intermediate Tax-Free Fund,
6.57%; Tax-Free Income Fund, 7.57%; Michigan Municipal Bond Fund,
5.91%; and Michigan Municipal Money Market Fund, ___%.
ADVERTISING INFORMATION
The Funds may from time to time include in advertisements, sales
literature, communications to shareholders and other materials
(collectively, "Materials") a total return figure that more
accurately compares a Fund's performance with other measures of
investment return than the total return calculated as described
above. For example, in comparing a Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. or Weisenberger Investment Company Service, or
with the performance of an index, a Fund may calculate its
aggregate total return for the period of time specified in the
Materials by assuming the investment of $10,000 in shares of a
Fund and assuming the reinvestment of all dividends and
distributions. Percentage increases are determined by subtracting
the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. The Funds may not,
for these purposes, deduct from the initial value invested any
amount representing sales charges. A Fund will, however, disclose
the maximum sales charge and will also disclose that the
performance data does not reflect sales charges and that inclusion
of sale charges would reduce the performance quoted.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in Materials.
"Compounding" refers to the fact that, if dividends or other
distributions on an investment in a Fund are paid in the form of
additional shares of the Fund, any future income or capital
appreciation of the Fund would increase the value, not only of the
original investment, but also of the additional shares received
through reinvestment. As a result, the value of the investment in
the Fund would increase more quickly than if dividends or other
distributions had been paid in cash.
In addition, the Funds may also include in Materials discussions
and/or illustrations of the potential investment goals of a
prospective investor, investment management strategies,
techniques, policies or investment suitability of a Fund (such as
value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-
deferred and taxable investments), economic conditions, the
relationship between sectors of the economy and the economy as a
whole, various securities markets, the effects of inflation and
historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury securities. From time to
time, Materials may summarize the substance of information
contained in shareholder reports (including the investment
composition of a Fund), as well as the views of the adviser as to
current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a
Fund. The Funds may also include in Materials charts, graphs or
drawings which compare the investment objective, return potential,
relative stability and/or growth possibilities of the Funds and/or
other mutual funds, or illustrate the potential risks and rewards
of investment in various investment vehicles, including but not
limited to, stocks, bonds, Treasury securities and shares of a
Fund and/or other mutual funds. Materials may include a
discussion of certain attributes or benefits to be derived by an
investment in a Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information
on financial management, tax and retirement planning and
investment alternatives to certificates of deposit and other
financial instruments. Such Materials may include symbols,
headlines or other material which highlight or summarize the
information discussed in more detail therein.
FINANCIAL STATEMENTS
The Financial Statements included in the Funds' December 31, 1995 Annual
Reports to
Shareholders are incorporated by reference into this SAI. No other part
of the Annual Reports
are incorporated herein. Copies of the Financial Statements may be obtained
without charge by
contacting 440 Distributors at the address and telephone number on the
front page of this SAI.
ADDITIONAL INFORMATION
Set forth below are the record owners or, to the Trust's
knowledge, the beneficial owners of 5% or more of the outstanding
Investment and Institutional Shares of the Funds as of February 2,
1996.
Name and Address
Fund
Class
Percentage of Ownership
Trent & Co. (C) The Kent Growth and Institutional 59%
Cash Account Income Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent Growth and Institutional 38%
Reinvestment Account Income Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Small Company Institutional 50%
Cash Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent Small Company Institutional 48%
Reinvestment Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent Index Institutional 56%
Reinvestment Account Equity Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Index Institutional 36%
Cash Account Equity Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Old Kent Bank Smartmove The Kent Index Institutional 8%
c/o 440 Financial Equity Fund
As Agent
Barbara Kane C36
440 Lincoln Street
Worcester, MA 01653
Trent & Co. (C) The Kent International Institutional 52%
Cash Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent International Institutional 47%
Reinvestment Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - Brokerage The Kent Index Investment 6%
Reinvestment Account Equity Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. Brokerage The Kent International Investment
5%
Reinvestment Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent Short Institutional 62%
Cash Account Term Bond Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Short Institutional 37%
Cash Account Term Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent Intermediate Institutional 49%
Cash Account Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co (C) The Kent Intermediate Institutional
50%
Cash Account Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Intermediate Institutional 100%
Cash Account Tax-Free Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Limited Institutional 100%
Cash Account Term Tax-Free Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Michigan Institutional 99%
Cash Account Municipal Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - (R) The Kent Tax-Free Institutional
100%
Cash Account Income Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - (R) The Kent Income Fund Institutional
84%
Cash Account
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - (R) The Kent Income Fund Institutional
16%
Reinvestment Account
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - Brokerage The Kent Short Investment 12%
Cash Account Term Bond Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Harold J. Buchmahl The Kent Short Investment 8%
604 S. 6th Ave. Term Bond Fund
Saint Charles, IL
Old Kent Bank & Trust The Kent Short Term Investment
6%
Cust. for the IRA Plan Bond Fund
John B. Hogan
371 Gull Lake Dr. South
Richland, MI 49083-9610
Trent & Co. - Brokerage The Kent Intermediate Investment 6%
Cash Account Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Arametta L. Mitchell The Kent Intermediate Investment
13%
William F. Mitchell Co TTEES Tax-Free Fund
U/A DTD 04/24/72
Arametta L. Mitchell Liv Trust
900 W. Oliver Street
Owosso, MI 48867
The Northern Trust Co. The Kent Intermediate Investment 10%
FBO Christopher U. Light Tax-Free Fund
Rev. Tr. DTD 01/09/76
PO Box 92956
Chicago, IL 60675
The Northern Trust Co. The Kent Intermediate Investment 7%
FBO Richard U. Light Tax-Free Fund
Irrev. S. Tr.
U/AD 06/21/40
PO Box 92956
Chicago, IL 60675
Old Kent Bank South East The Kent Intermediate Investment 6%
FBO Edward E. Vollenweider Tax-Free Fund
U/A DTD 11/10/89
9936 Hawthorn Glen Drive
Grosse Ile, MI 48183
John M. Crouse TTEE The Kent Intermediate Investment
5%
U/A DTD 6/27/85 Tax-Free Fund
222 Harbour Drive
Commodore Club #510
Naples, FL 33940
William F. Mitchell TTEE The Kent Intermediate Investment
5%
U/A DTD 07/24/77 Tax-Free Fund
William F. Mitchell Liv. Trust
123 N. Chipman Street
Owosso, MI 48867
Rose M. Black Trust The Kent Tax-Free Investment
9%
Rose M. Black Trustee Income Fund
Dtd 6/14/95
1208 Baker Street
Kalamazoo, MI 49001
The Northern Trust Co. The Kent Michigan Investment 33%
FBO Christopher U. Light Municipal Bond Fund
Rev. Tr.
DTD 01/09/76
PO Box 92956
Chicago, IL 60675
The Northern Trust Co. The Kent Michigan Investment 22%
FBO Richard U. Light Municipal Bond Fund
Irrev. S. Tr.
U/A D 06/21/40
PO Box 92956
Chicago, IL 60675
Trent & Co - Brokerage The Kent Michigan Investment 9%
Reinvestment Account Municipal Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - Brokerage The Kent Michigan Investment 10%
Cash Account Municipal Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Old Kent Bank South East The Kent Michigan Investment 6%
FBO Edward E. Vollenweider Municipal Bond Fund
U/A DTD 11/10/89
9936 Hawthorn Glen Drive
Grosse Ile, MI 48183
Pershing The Kent Michigan Investment 5%
FBO Leonard Krawczyk Municipal Bond Fund
A/C 4AV-051503
One Pershing Plaza
Jersey City, NJ 07399
Mark Dellar The Kent Tax- Investment
99%
151 East Poplar Free Income Fund
Glendale Heights, IL 60139
Old Kent Bank Central The Kent Tax-Free Investment
10%
FBO Jerry S. Voight Income Fund
U/A Dtd 01/28/91
Jerry S. Voight Trust
Attn: Russ Thomas
123 N. Washington
Owosso, MI 48867
E. Condit Newcommer Trust The Kent Tax- Investment
9%
E. Condit Newcommer TTEE 4/7/94 Free Income Fund
2089 Corunna Ave.
Owosso, MI 48867
Doris Anderson The Kent Tax-Free Investment 18%
Glen F. Anderson Income Fund
POA Dtd 12/3/93
815 W. Indiana St.
St. Charles, IL 60174
Rose M. Black Trust The Kent Tax-Free Investment
9%
Rose M. Black Trustee Income Fund
Dtd 06/14/95
1208 Baker Street
Kalamazoo, MI 49001
Pershing The Kent Tax-Free Investment 12%
FBO Leonard Krawczyk Income Fund
A/C 4AV-051503
One Pershing Plaza
Jersey City, NJ 07399
Lisa A. Boehm The Kent Tax-Free I Investment
10%
668 Hill Ave. Income Fund
Elgin, IL 60120
Old Kent Bank & Trust The Kent Income Fund Investment
31%
Cust. for IRA
FBO Barbara J. Patterson
1416 Bjornson
Big Rapids, MI 49307
Evelyn D. Camburn The Kent Income Fund Investment
28%
37254 Heather Courtsooth
Westland, MI 48185
Old Kent Bank & Trust The Kent Income Fund Investment
11%
Cust. for IRA
FBO Richard J. Kassal
1115 So. Grace
Lombard, IL 60198
Old Kent Bank & Trust The Kent Income Fund Investment
7%
Cust. for IRA
FBO Mary J. Hall
22021 Leota Drive
Sand Lake, MI 49343
Trent & Co. (C) The Kent Money Institutional 97%
Cash Account Market Fund
Attn: Billie Blair
1 Vandenberg Center
Grand Rapids, MI 49503
Old Kent Bank & Trust Co. The Kent Michigan Municipal Institutional
100%
Attn: Billie Blair Money Market Fund
1 Vandenberg Center
Grand Rapids, MI 49503
Judith A. Kernell and The Kent Michigan Municipal Investment
12%
Sara E. Kontz JTWROS Money Market Fund
5185 Pine Hill Circle
Howell, MI 48843
Stanley J. Kasiewicz The Kent Michigan Municipal Investment
34%
1807 Harvest Lane Money Market Fund
Bloomfield Hills, MI 48302
Julie A. St. Amorr The Kent Michigan Municipal Investment
16%
Raymond S. Stowers Money Market Fund
David A. Stowers JTWROS
1746 Lee Ave.
Muskegon, MI 49444
Lyle T. Cerda The Kent Michigan Municipal Investment
6%
Ida Cerda JTWROS Money Market Fund
1129 Buckingham SW
Wyoming, MI 49509
Philip M. Allen The Kent Michigan Municipal Investment
10%
Mary S. Allen JT WROS Money Market Fund
2092 Northridge N.E.
Grand Rapids, MI 49505
Larry M. Bebryune The Kent Money Investment
6%
Joy E. Bebryune JTWROS Market Fund
4270 Redbush Dr. SW
Grandville, MI 49418
Floyd F. Williams The Kent Money Investment
14%
Diane Williams JTWROS Market Fund
4535 Forest Lake CT SE
Kentwood, MI 49546
Except as otherwise stated in its prospectuses, statements of
additional information, or required by law, the Trust reserves the
right to change the terms of the offers stated in its prospectuses
or statement of additional information without shareholder approv-
al, including the right to impose or change certain fees for
services provided.
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the rating categories
used by S&P for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong
safety characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of
changes and circumstances than an obligation carrying a higher
designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an
original maturity in excess of 9 months. The following summarizes
the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally
be evidenced by the following characteristics: leading market
positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high
internal cash generation; and well established access to a range
of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory
obligations. The effects of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps Credit Rating Co.
("Duff & Phelps") for investment grade commercial paper and short-
term debt are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps
employs three designations, "Duff 1+," "Duff 1" and "Duff 1-,"
within the highest rating category. The following summarizes the
rating categories used by Duff & Phelps for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety
is just below risk-free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk
factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
"Duff 4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt
service. Operating factors and market access may be subject to a
high degree of variation.
"Duff 5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch Investors Service, Inc. ("Fitch") short-term ratings apply
to debt obligations that are payable on demand or have original
maturities of up to three years. The following summarizes the
rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned
this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+"
and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned
this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term
adverse changes could cause these securities to be rated below
investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned
this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term
adverse changes in financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued
by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of
unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is
strong, the relative degree of safety is not as high as for issues
rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to
adverse developments (both internal and external) than obligations
with higher ratings, capacity to service principal and interest in
a timely fashion is considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA, Inc. ("IBCA") assesses the investment quality of unsecured
debt with an original maturity of less than one year which is
issued by bank holding companies and their principal bank
subsidiaries. The following summarizes the rating categories used
by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong
credit feature, a rating of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for
timely repayment.
"B" - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by S&P for corporate and
municipal debt:
"AAA" - This designation represents the highest rating assigned by
S&P to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in
small degree.
"A" - Debt is considered to have a strong capacity to pay interest
and repay principal although such issues are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and
"C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest
and principal payments. The "BB" rating category is also used for
debt subordinated to senior debt that is assigned an actual or
implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions
will likely impair capacity or willingness to pay interest and
repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt
rating. The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless
S&P believes such payments will be made during such grace period.
"D" rating is also used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate
and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal
("Ba" indicates some speculative elements; "B" indicates a general
lack of characteristics of desirable investment; "Caa" represents
a poor standing; "Ca" represents obligations which are speculative
in a high degree; and "C" represents the lowest rated class of
bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned
in operation experience, (c) rentals which begin when facilities
are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of
condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The
modifier 1 indicates that the issuer ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issuer ranks at the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in
periods of economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present during
economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade.
Although below investment grade, debt rated "BB" is deemed likely
to meet obligations when due. Debt rated "B" possesses the risk
that obligations will not be met when due. Debt rated "CCC" is
well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating
"DP" represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within
these major categories.
The following summarizes the highest four ratings used by Fitch
for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated "AAA." Because bonds rated in the "AAA" and "AA" categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
"F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances, however,
are more likely to have an adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be
speculative investments. The ratings "BB" to "C" represent
Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation
for bond issues not in default. For defaulted bonds, the rating
"DDD" to "D" is an assessment of the ultimate recovery value
through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing
within these major rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank
holding companies and their principal bank subsidiaries. The
following summarizes the rating categories used by IBCA for long-
term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business,
economic or financial conditions are unlikely to increase
investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic
or financial conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal
and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher
categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative
characteristics are present. "BB" represents the lowest degree of
speculation and indicates a possibility of investment risk
developing. "C" represents the highest degree of speculation and
indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term
debt and preferred stock which are issued by United States
commercial banks, thrifts and non-bank banks; non-United States
banks; and broker-dealers. The following summarizes the rating
categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned
by Thomson BankWatch to long-term debt and indicates that the
ability to repay principal and interest on a timely basis is very
high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external)
than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such
issues are regarded as having speculative characteristics
regarding the likelihood of timely payment of principal and
interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where
within the respective category the issue is placed.
Municipal Note Ratings
An S&P rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following
summarizes the ratings used by S&P for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very strong
or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment
Grade ("VMIG"). Such ratings recognize the differences between
short-term credit risk and long-term risk. The following
summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to
the market for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as
in the preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing is
likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly
or predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality
and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
APPENDIX B
THE KENT MICHIGAN MUNICIPAL BOND FUND
THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND
Special Investment Considerations Relating
To Investing in Michigan Municipal Obligations
The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on
information drawn from a Summary and Analysis of the Governor's
Executive Budget for fiscal year 1996-97 issued February 15, 1996,
by the Senate Fiscal Agency of the Michigan Legislature, and from
official statements relating to securities offerings of the State
available as of the date of this SAI. While the Trust has not
independently verified such information, it has no reason to
believe that such information is not correct in all material
respects.
1995 Economic Review and 1996 Economic Outlook
The State's economy has been undergoing certain basic changes in
its underlying structure and these changes continued in 1995.
These changes reflect a diversifying economy which is less reliant
on the automobile industry. As a result, the State anticipates
that its economy in the future will be less susceptible to
cyclical swings and more resilient when national downturns occur.
In 1995, the major employment gains occurred in the motor
vehicle, construction, transportation, communication, utilities
and service industries. Total wage and salary employment is
estimated to have grown by 2.6% in 1995. The rate of unemployment
is estimated to have been 5.4% in 1995, below the national
average. Personal income grew at an estimated 7.1% annual rate in
1995, above the national rate of growth but slightly down from the
strong 8.0% growth reported for 1994. Michigan employment is
expected to grow by a moderate 1.4% in 1996. This job growth is
expected to help lower the unemployment rate to 5.2% and result in
income growth of 4.2% in 1996. The inflation rate, as measured by
the Detroit Consumer Price Index, will decrease to 2.4% in 1996.
As a result, inflation adjusted purchasing power is expected to
grow 1.8% in 1996.
1995-96 Budget and Projected Results
The Governor's Executive Budget was submitted to the Legislature
in February 1995. As of February 1996, the Governor had vetoed
approximately $45.7 million of appropriations passed by the
Legislature. Two supplemental appropriations, totaling $22.5
million, were passed by the Legislature for fiscal year 1995-96.
During the past four years, improvements in the Michigan economy
have resulted in increased revenue collections which, together
with restraints on the expenditure side of the budget, have
resulted in General Fund budget surpluses of $280.1 million,
$398.7 million and $84.5 million, in fiscal 1992-93, 1993-94 and
1994-95, respectively, and are expected to result in a General
Fund budget surplus of $55.1 million in fiscal 1995-1996. Among
the budget uncertainties facing the State during the next several
years are whether the recently-enacted school finance reform
package will provide adequate revenues to fund K-12 education in
the future, whether declining motor fuel tax revenues resulting
from more fuel-efficient vehicles will continue to provide
adequate funding to maintain the State's transportation
infrastructure, whether there will be adequate funds available to
address the State's need for more correctional facilities, and the
uncertainties presented by proposed changes in Federal aid
policies for state and local governments.
Projected Revenues for Fiscal 1995-96
General Fund - General Purpose consensus revenue is
estimated at $8,396.7 million, a 5.2% increase over fiscal year
1994-95, reflecting increased tax revenues in substantially all
areas due to the improving economy of the state. Overall General
Purpose resources are estimated at $8,464.6 million.
Personal Income Tax - Net income tax collections are estimated at
$4,084.4 million, a 8.2% increase over fiscal year 1994-95.
Single Business and Insurance Taxes - Gross single business tax
collections are projected to amount to $2,243.2 million, a slight
increase over fiscal year 1994-95. The General Fund - General
Purpose shares of single business tax revenue is estimated to be
$1,888.3 million. The difference between gross single business
tax collections and General Fund - General Purpose revenue
represents payments to local units of government.
Sales Tax - Gross sales tax collections, including the 2% in the
State's general sales tax, are forecasted to total $5,120.0
million. The General Fund - General Purpose portion of the sales
tax is estimated at $806.2 million, a 12.6% increase over fiscal
year 1994-95.
Use Tax - Gross use tax collections, including the 2% increase,
are forecast to be $1,003.0 million. The General Fund - General
Purpose portion of use tax collections are forecasted to increase
to $666.0 million, a 8.5% increase over fiscal year 1994-95.
Projected Appropriations for Fiscal 1995-96
General Fund - General Purpose appropriations were $8,409.5
million, 3.3% above the level of 1994-95 expenditures.
Education and School Aid - General Purpose appropriations for
public elementary and secondary school aid, community colleges,
state universities and the State Department of Education are
$2,306.3 million, a decrease of 0.5% from fiscal year 1994-95
expenditures.
Social Services - General Purpose appropriations for public
assistance, Medicaid and other Social Services programs are
$2,382.5 million, 6.6% above fiscal year 1994-95 expenditures.
Public and Mental Health - General Purpose appropriations for
public and mental health programs were $1,204.4 million, 2.0%
above fiscal year 1994-95 expenditures.
State Constitutional Provisions Affecting Revenues and
Expenditures
The State Constitution provides that proposed expenditures and
revenues of any operating fund must be in balance and that any
prior year's surplus or deficit must be included in the succeeding
year's budget for that fund.
The State Constitution limits the amount of total State revenues
that can be raised from taxes and certain other sources. State
revenues (excluding federal aid and revenues for payment of
principal and interest on general obligation bonds) in any fiscal
year are limited to a fixed percentage of State personal income in
the prior calendar year or average of the prior three calendar
years, whichever is greater, and this fixed percentage equals the
percentage of the 1978-79 fiscal year state government revenues to
total calendar 1977 State personal income (which was 9.49%).
If in any fiscal year revenues exceed the revenue limitation by 1%
or more, the entire amount of such excess must be rebated in the
following fiscal year's personal income tax or single business
tax. Any excess of less than 1% may be transferred to the State's
Budget Stabilization Fund, a cash reserve intended to mitigate the
adverse effects on the State budget of downturns in the business
cycle and to reserve funds that can be available during periods of
high unemployment for State projects that will increase job
opportunities. The State may raise taxes in excess of the limit
for emergencies when deemed necessary by the Governor and two-
thirds of the members of each house of the Legislature.
The State Constitution also provides that the proportion of
State spending paid to all units of local government to total
State spending may not be reduced below the proportion in effect
in the 1978-79 fiscal year. The State originally determined that
portion to be 41.6%. If such spending does not meet the required
level in a given year, an additional appropriation for local
governmental units is required by the following fiscal year; which
means the year following the determinations of the shortfall,
according to an opinion issued by the State's Attorney General.
Spending for local units met this requirement for fiscal years
1986-87 through 1991-92. As the result of litigation, the State
agreed to reclassify certain expenditures, beginning with fiscal
year 1992-93, and has recalculated the required percentage of
spending paid to local government units to be 48.97%. For fiscal
1993-94, a shortfall resulted, which will be appropriated to the
State's local government payment fund in the next budget
submission. The fiscal 1993-94 spending paid to local
governmental units exceeded the required proportion.
The State Constitution also requires the State to finance any new
or expanded activity of local governments mandated by State law.
Any expenditures required by this provision would be counted as
State spending for local units of government for the purpose of
determining compliance with the provision cited above.
State and State-Related Indebtedness
The State Constitution limits State general obligation debt to (i)
short-term debt for State operating purposes, (ii) short- and
long-term debt for the purpose of making loans to school
districts, and (iii) long-term debt for voter-approved purposes.
Short-term debt for operating purposes is limited to an amount not
in excess of 15% of undedicated revenues received during the
preceding fiscal year and must be issued only to meet obligations
incurred pursuant to appropriation and repaid during the fiscal
year in which incurred. Such debt does not require voter
approval.
The amount of debt incurred by the State for the purpose of making
loans to school districts is recommended by the Superintendent of
Public Instruction, who certifies the amounts necessary for loans
to school districts for the ensuing two calendar years. The bonds
may be issued in whatever amount required without voter approval.
All other general obligation bonds issued by the State must be
approved as to amount, purpose and method of repayment by a two-
thirds vote of each house of the Legislature and by a majority
vote of the public at a general election. There is no limitation
as to number or size of such general obligation issues.
There are also various State authorities and special purpose
agencies created by the State which issue bonds secured by
specific revenues. Such debt is not a general obligation of the
State.
General Obligation Bonds and Notes and School Bond Loan Fund
The State has issued and outstanding general obligation full faith
and credit bonds for Water Resources, Environmental Protection
Program, Recreation Program and School Loan purposes. As of
September 30, 1995, the State had approximately $706 million of
general obligations bonds outstanding.
The State may issue notes or bonds without voter approval for the
purposes of making loans to school districts. The proceeds of
such notes or bonds are deposited in the School Bond Loan Fund
maintained by the State Treasurer and used to make loans to school
districts for payment of debt on qualified general obligations
bonds issued by local school districts. As of December 31, 1995,
approximately $5,001 million in principal amount of "qualified"
bonds of local school districts was outstanding.
As of February 1996, the ratings on State of Michigan general
obligation bonds were "A" by Moody's and "AA" by S&P, while the
ratings on the State's general obligation notes (due September 30,
1996) were "MIG-1" by Moody's, "SP-1+" by S&P and "F-1+" by Fitch.
There is no assurance that such ratings will continue for any
period of time or that such ratings will not be revised or
withdrawn. Because all or most of the Michigan Municipal
Obligations are revenue or general obligations of local
governments or authorities, rather than general obligations of the
State of Michigan itself, ratings on such Michigan Municipal
Obligations may be different from those given to the State of
Michigan.
APPENDIX C
As stated in the Prospectus, the Non-Money Market Funds may enter
into certain futures transactions. Such transactions are
described in this Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In
the cash market, bonds are purchased and sold with payment for the
full purchase price of the bond being made in cash, generally
within five business days after the trade. In the futures market,
only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for
bonds established in the futures markets have tended to move
generally in the aggregate in concert with the cash market prices
and have maintained fairly predictable relationships.
Accordingly, a Fund may use interest rate futures contracts as a
defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the
use of futures contract sales to protect against expected
increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which
it hopes to achieve through the use of futures contracts by
selling bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to increase, or
conversely, selling short-term bonds and investing in long-term
bonds when interest rates are expected to decline. However,
because of the liquidity that is often available in the futures
market, the protection is more likely to be achieved, perhaps at a
lower cost and without changing the rate of interest being earned
by the Fund, by using futures contracts.
Only the Income Funds and Municipal Bond Funds will utilize
interest rate futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as
seller, to deliver the specific type of financial instrument
called for in the contract at a specific future time for a
specified price. A futures contract purchase would create an
obligation by a Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at
a specific price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until at
or near that date. The determination would be in accordance with
the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without the
making or taking of delivery of securities. Closing out a futures
contract sale is effected by the Fund entering into a futures
contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the
price of the sale exceeds the price of the offsetting purchase,
the Fund is immediately paid the difference and thus realizes a
gain. If the offsetting purchase price exceeds the sale price,
the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund
entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the Fund realizes a gain, and if
the purchase price exceeds the offsetting sale price, the Fund
realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges --principally, the
Chicago Board of Trade, the Chicago Mercantile Exchange and the
New York Futures Exchange. The Funds would deal only in
standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the
exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term U.S. Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified
pass-through mortgage backed securities; three-month U.S. Treasury
Bills; and ninety-day commercial paper. The Funds may trade in
any interest rate futures contracts for which there exists a
public market, including, without limitation, the foregoing
instruments.
II. Index Futures Contracts
General. A stock or bond index assigns relative values to the
stocks or bonds included in the index, which fluctuates with
changes in the market values of the stocks or bonds included.
A Fund may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might
otherwise result from a market decline. A Fund may do so either
to hedge the value of its portfolio as a whole, or to protect
against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, a Fund will
purchase index futures contracts in anticipation of purchases of
securities. A long futures position may be terminated without a
corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in
anticipation of changes in the composition of its portfolio
holdings. For example, in the event that a Fund expects to narrow
the range of industry groups represented in its holdings it may,
prior to making purchases of the actual securities, establish a
long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A
Fund may also sell futures contracts in connection with this
strategy, in order to protect against the possibility that the
value of the securities to be sold as part of the restructuring of
the portfolio will decline prior to the time of sale.
The Income Funds and Municipal Bond Funds will only utilize bond
index futures contracts and the Equity Funds will only utilize
equity index futures contracts.
III. Futures Contracts on Foreign Currencies
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation
on another party to accept delivery of, a stated quantity of
foreign currency, for an amount fixed in U.S. dollars. Foreign
currency futures may be used by a Fund to hedge against exposure
to fluctuations in exchange rates between the U.S. dollar and
other currencies arising from multinational transactions.
Only the International Growth Fund will utilize futures contracts
on foreign currencies.
IV. Margin Payments
Unlike purchase or sales of portfolio securities, no price is paid
or received by a Fund upon the purchase or sale of a futures
contract. Initially, a Fund will be required to deposit with the
broker or in a segregated account with the Custodian an amount of
cash or cash equivalents, known as initial margin, based on the
value of the contract. The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments,
called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates
making the long and short positions in the futures contract more
or less valuable, a process known as marking-to-the-market. For
example, when a particular Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in
the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a
variation margin payment equal to that increase in value.
Conversely, where the Fund has purchased a futures contract and
the price of the future contract has declined in response to a
decrease in the underlying instruments, the position would be less
valuable and the Fund would be required to make a variation margin
payment to the broker. At any time prior to expiration of the
futures contract, Old Kent may elect to close the position by
taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be
paid by or released to the Fund, and the Fund realizes a loss or
gain.
V. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a
Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the
futures and movements in the price of the instruments which are
the subject of the hedge. The price of the future may move more
than or less than the price of the instruments being hedged. If
the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not
be fully effective but, if the price of the instruments being
hedged has moved in an unfavorable direction, the Fund would be in
a better position than if it had not hedged at all. If the price
of the instruments being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on
the futures. If the price of the futures moves more than the
price of the hedged instruments, the Fund involved will experience
either a loss or gain on the futures which will not be completely
offset by movements in the price of the instruments which are the
subject of the hedge. To compensate for the imperfect correlation
of movements in the price of instruments being hedged and
movements in the price of futures contracts, a Fund may buy or
sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a
particular time period of the prices of such instruments has been
greater than the volatility over such time period of the futures,
or if otherwise deemed to be appropriate by Old Kent. Conversely,
a Fund may buy or sell fewer futures contracts if the volatility
over a particular time period of the prices of the instruments
being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be
appropriate by Old Kent. It is also possible that, where a Fund
has sold futures to hedge its portfolio against a decline in the
market, the market may advance and the value of instruments held
in the Fund may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in its
portfolio securities.
When futures are purchased to hedge against a possible increase in
the price of securities or a currency before a Fund is able to
invest its cash (or cash equivalents) in an orderly fashion, it is
possible that the market may decline instead; if the Fund then
concludes not to invest its cash at that time because of concern
as to possible further market decline or for other reasons, the
Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to
be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
futures and the instruments being hedged, the price of futures may
not correlate perfectly with movement in the cash market due to
certain market distortions. Rather than meeting additional margin
deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with
respect to financial futures contracts, the liquidity of the
futures market depends on participants entering into off-setting
transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the
futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect
correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market
trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time
frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures.
Although the Funds intend to purchase or sell futures only on
exchanges or boards of trade where there appear to be active
secondary markets, there is no assurance that a liquid secondary
market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it
may not be possible to close a futures investment position, and in
the event of adverse price movements, a Fund would continue to be
required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or
completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the
futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily
price fluctuation limits" established by commodity exchanges which
limit the amount of fluctuation in a futures contract price during
a single trading day. Once the daily limit has been reached in
the contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures positions.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm
or clearing house or other disruptions of normal activity, which
could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
Successful use of futures by a Fund is also subject to Old Kent's
ability to predict correctly movements in the direction of the
market. For example, if a particular Fund has hedged against the
possibility of a decline in the market adversely affecting
securities held by it and securities prices increase instead, the
Fund will lose part or all of the benefit to the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. A Fund may have
to sell securities at a time when it may be disadvantageous to do
so.
VI. Options on Futures Contracts
A Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for
the premium paid, the right to buy (call) from or sell (put) to
the writer of the option a futures contract at a specified price
at any time during the period of the option. Upon exercise, the
writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price.
Like the buyer or seller of a futures contract, the holder, or
writer, of an option has the right to terminate its position prior
to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
A Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those
described above. Net option premiums received will be included as
initial margin deposits. In anticipation of a decline in interest
rates, a Fund may purchase call options on futures contracts as a
substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Fund
intends to purchase. Similarly, if the value of the securities
held by a Fund is expected to decline as a result of an increase
in interest rates, the Fund might purchase put options or sell
call options on futures contracts rather than sell futures
contracts.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in
futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase or sale of an option
also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of
the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or
upon the price of the securities being hedged, an option may or
may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on
futures contracts may frequently involve less potential risk to
the Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks
relating to the sale of futures contracts.
VII. Other Matters
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
THE KENT FUNDS
PART C
Other Information
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
Condensed Financial Highlights
Incorporated by Reference into Part B:
The following financial statements for the fiscal year ended
December 31, 1995 and the Report of Independent Auditors dated
February 9,1996 are incorporated by reference to the Registrant's
Annual Report for the fiscal year ended December 31, 1995:
Portfolio of Investments
Statements of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Independent Auditors' Report
Item 24(b) Exhibits:
(1) The form of Restated Declaration of Trust was filed with the
Registrant's Post-Effective Amendment No. 4 as Exhibit 24(b)(1)
and is incorporated by reference herein.
(2) A copy of the By-Laws was filed with Registrant's
Registration Statement as Exhibit 24(b)(2) and is incorporated by
reference herein. An amendment to the By-Laws was filed with
Registrant's Pre-Effective Amendment No. 1 as Exhibit 24 (b)(2)
and is incorporated by reference herein. A subsequent amendment
to the By-Laws was filed with Post-Effective Amendment No. 4 as
Exhibit 24(b)(2) and is incorporated by reference herein. An
additional amendment to the By-Laws was filed with Registrant's
Post-Effective Amendment No. 9 as Exhibit 24(b)(2) and is
incorporated by reference herein.
(3) Not applicable.
(4) Not applicable.
(5) A copy of the Investment Advisory Agreement between
Registrant and Old Kent Bank and Trust Company (now known as Old
Kent Bank) was filed with Registrant's Post-Effective Amendment
No. 4 as Exhibit 24(b)(5)(a) and is incorporated by reference
herein. A copy of the First Amendment to the Investment Advisory
Agreement between Registrant and Old Kent Bank and Trust Company
was filed with Registrant's Post-Effective Amendment No. 6 as
Exhibit 24(b)(5)(a)(i) and is incorporated by reference herein. A
copy of the form of amended Schedule A to the First Amendment to
the Investment Advisory Agreement between Registrant and Old Kent
Bank and Trust Company relating to The Kent Income Fund and The
Kent Tax-Free Income Fund was filed with Registrant's Post-
Effective Amendment No. 14 as Exhibit 24(b)(5)(ii) and is
incorporated by reference herein.
(6) A copy of the Distribution Agreement between Registrant and
440 Financial Distributors, Inc., dated March 31, 1995, was filed
with Registrant's Post-Effective Amendment No. 16 as Exhibit
24(b)(6) and is incorporated by reference herein.
(7) Not applicable.
(8) A copy of the Custody Agreement between Registrant and
Bankers Trust Company was filed with Registrant's Post-Effective
Amendment No. 18 as Exhibit 24(b)(8) and is incorporated by
reference herein.
(9)(a) A copy of the Administration and Fund Accounting
Agreement between Registrant and The Shareholder Services Group,
Inc., d/b/a/ 440 Financial dated March 31, 1995, was filed with
Registrant's Post-Effective Amendment No. 16 as Exhibit
24(b)(9)(a) and is incorporated by reference herein.
(9)(b) A copy of the Transfer Agency Agreement between
Registrant and The Shareholder Services Group, Inc., d/b/a/ 440
Financial dated March 31, 1995, was filed with Registrant's Post-
Effective Amendment No. 16 as Exhibit 24(b)(9)(b) and is
incorporated by reference herein.
(10) Opinion and Consent of Counsel as to the legality of the
securities being registered, indicating whether they were legally
issued, fully paid and nonassessable was filed on or about
February 29, 1996 under Rule 24f-2 as part of Registrant's Rule
24f-2 Notice and is incorporated by reference herein.
(11)(a) Powers of Attorney were filed with Registrant's Post-
Effective Amendment No. 17 as Exhibit 24(b) (11)(a) and are
incorporated by reference herein.
(11)(b) Opinion and Consent of Registrant's Independent
Auditors was filed with Registrant's Post-Effective Amendment No.
18 as Exhibit 2411(b) and is incorporated by reference herein.
(12) Not applicable.
(13) A copy of the subscription agreement was filed with the
Registrant's Registration Statement as Exhibit 24(b)(13) and is
incorporated by reference herein.
(14) Not applicable.
(15) The forms of Registrant's Distribution Plans for The Kent
Money Market Fund and The Kent Michigan Municipal Money Market
Fund were filed with Post-Effective Amendment No. 4 as Exhibit
24(b)(15) and are incorporated by reference herein. The forms of
Registrant's Distribution Plans for The Kent ValuePlus Equity Fund
(now The Kent Growth and Income Fund); The Kent International
Equity Fund (now The Kent International Growth Fund); The Kent
Expanded Market Equity Fund (now The Kent Small Company Growth
Fund); The Kent Index Equity Fund; The Kent Michigan Municipal
Limited Maturity Bond Fund (now The Kent Michigan Municipal Bond
Fund); The Kent Fixed Income Fund (now The Kent Intermediate Bond
Fund); The Kent Limited Maturity Fund (now The Kent Short Term
Bond Fund); and The Kent Medium Term Tax Exempt Bond Fund (now The
Kent Intermediate Tax-Free Fund) were filed with Post-Effective
Amendment No. 6 as Exhibit 24(b)(15) and are incorporated by
reference herein. The Distribution Plan for The Kent Limited
Maturity Tax Exempt Bond Fund (now The Kent Limited Term Tax-Free
Fund) was filed with Post-Effective Amendment No. 10 as Exhibit
24(b)(15) and is incorporated by reference herein. The
Distribution Plans for The Kent Income Fund and The Kent Tax-Free
Income Fund were filed with Post-Effective Amendment No. 13 as
Exhibit 24(b)(15) and are incorporated by reference herein. A
form of agreement with respect to Investment Shares relating to
each of the Distribution Plans listed above was filed with Post-
Effective Amendment No. 13 as Exhibit 24(b)(15)(i) and is
incorporated by reference herein.
(16) Schedules showing performance computations for The Kent
Money Market Fund, The Kent Michigan Municipal Money Market Fund,
The Kent Short Term Bond Fund (formerly The Kent Limited Maturity
Fund), The Kent Intermediate Bond Fund (formerly The Kent Fixed
Income Fund), The Kent Income Fund, The Kent Limited Term Tax-Free
Fund, The Kent Intermediate Tax-Free Fund (formerly The Kent
Medium Term Tax Exempt Bond Fund), The Kent Tax-Free Income Fund,
The Kent Michigan Municipal Bond Fund (formerly The Kent Michigan
Municipal Limited Maturity Bond Fund), The Kent Growth and Income
Fund (formerly The Kent ValuePlus Equity Fund), The Kent Small
Company Growth Fund (formerly The Kent Expanded Market Equity
Fund), The Kent International Growth Fund (formerly The Kent
International Equity Fund) and The Kent Index Equity Fund were
filed with Registrant's Post-Effective Amendment No. 17 as Exhibit
24(b) (16) and are incorporated by reference herein.
(17) Financial Data Schedules for each series were filed with the
Registrant's Post-Effective Amendment No. 18 as Exhibit 24(b)(17)
and are incorporated by reference herein.
(18) Rule 18f-3 Plan was filed with Registrant's Post-Effective
Amendment No. 17 as Exhibit 24(b)(18)(a) and is incorporated by
reference herein.
(19)(a) The Registrants Annual Report for The Kent Growth and
Income Fund, The Kent Small Company Growth Fund, The Kent
International Growth Fund and The Kent Index Equity Fund are
incorporated by reference to the Definitive N-30D filed via EDGAR
on February 26, 1996, Accession Number 0000950109-96-001056.
(19)(b) The Registrants Annual Report for The Kent Money
Market Fund and The Kent Michigan Municipal Money Market Fund are
incorporated by reference to the Definitive N-30D filed via EDGAR
on February 23, 1996, Accession Number 0000950109-96-001039.
(19)(c) The Registrants Annual Report for The Kent Short Term
Bond Fund, The Kent Intermediate Bond Fund and The Kent Income
Fund are incorporated by reference to the Definitive N-30D filed
via EDGAR on February 23, 1996, Accession Number 0000950109-96-
001049.
(19)(d) The Registrants Annual Report for The Kent Limited
Term Tax-Free Fund, The Kent Intermediate Tax-Free Fund, The Kent
Tax-Free Income Fund and The Kent Michigan Municipal Bond Fund are
incorporated by reference to the Definitive N-30D filed via EDGAR
on February 23, 1996, Accession Number 0000950109-96-001047.
Item 25. Persons Controlled by or Under Common Control with
Registrant
The Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
Title of Series Number of
Record
Holders as of February 2, 1996
The Kent Money Market Fund
Shares of Beneficial Interest, 119
without par value
The Kent Michigan Municipal Money
Market Fund
Share of Beneficial Interest, 30
without par value
The Kent Limited Term Tax-Free Fund
Shares of Beneficial Interest, 6
without par value
The Kent Short Term Bond Fund
Shares of Beneficial Interest, 275
without par value
The Kent Intermediate Bond Fund
Shares of Beneficial Interest, 781
without par value
The Kent Intermediate Tax-Free Fund
Shares of Beneficial Interest 99
without par value
The Kent Michigan Municipal Bond Fund
Shares of Beneficial Interest, 31
without par value
The Kent Growth and Income Fund
Shares of Beneficial Interest, 1,978
without par value
The Kent Small Company Growth Fund
Shares of Beneficial Interest, without par value 2,372
The Kent International Growth Fund
Shares of Beneficial Interest, 1,868
without par value
The Kent Index Equity Fund
Shares of Beneficial Interest, 1,259
without par value
The Kent Income Fund
Shares of Beneficial Interest, 207
without par value
The Kent Tax-Free Income Fund
Shares of Beneficial Interest,
without par value 28
Item 27. Indemnification
See Article VIII of Section 3 of the Registrant's Restated
Declaration of Trust which was filed with Post-Effective Amendment
No. 4 as Exhibit 24(b)(1) and is incorporated by reference herein.
Item 28. Business and Other Connections of Investment Adviser
Directors and Principal Executive Officers
The Directors of Old Kent are Richard L. Antonini, William
P. Crawford, Robert L. Ellis, William Gonzales, Erina Hanka,
Robert L. Hooker, Fred P. Keller, Hendrik G. Meijer, Patrick M.
Quinn, Margaret Sellers Walker, Richard E. Tierney, David J.
Wagner (also Chairman of the Board and Chief Executive Officer)
and Robert L. Sadler (also President).
The principal executive officers of Old Kent are: David J.
Wagner, Chairman; Robert L. Sadler, President and Chief Executive
Officer; David Dams, Edward P. Farley and David Kerstein,
Executive Vice Presidents; Martin J. Allen Jr., Senior Vice
President and Secretary; and Philip M. Allen, Richard L. Arasmith,
Thomas M. Bobrowski, Paul Colombe, James Habertein, Larry Hull,
John Erikson, Joseph T. Keating, Janet Nisbett, R. Joy Palmer,
Dennis W. Piskor, Thomas E. Powell and Daniel Terpsma, Senior Vice
Presidents.
NAME POSITION WITH OTHER BUSINESS
OLD KENT BANK
Richard L. Antonini Director Chairman,
President and Chief
Executive Officer
of Foremost
Corporation of
America
William P. Crawford Director President
and Chief Executive
Officer of Steelcase
Design
Partnership; formerly,
President of Stow & Davis
Robert L. Ellis Director Retired
Robert L. Hooker Director President of Great
Lakes
Property Inc., and
Interwheel,
Inc.
William G. Gonzales Director President
and Chief Executive
Officer of
Butterworth Hospital
Margaret Sellers Walker Director Professor at
Grand Valley
Public Administration State University
John C. Canepa Director Consultant
at Crowe Chizek
Fred P. Keller Director President of
Cascade Engineering,
Inc., and StarCade,
Inc.; Board
Member of Cascade
Associates
Hendrik G. Meijer Director Partner of Morgan-
Meijer
Communications; Vice
President
and Treasurer of Flashes
Publishers,
Inc., and Valley Media,
Inc.;
Co-Chairman of Meijer,
Inc.;
Treasurer of
Talking Directories, Inc.
Patrick M. Quinn Director President and
Chief Executive
Officer of Spartan
Stores, Inc.
Richard E. Tierney Director Formerly,
President of Smiths
Industries
David J. Wagner Chairman Trustee of
Blodgett Memorial
Medical Center, Grand
Valley
Foundation, Grand Rapids
Foundation, and Grand
Rapids
Chamber of
Commerce, Autocam
Robert L. Sadler President, Director
and Chief Executive
Officer None
Marilyn J. Schlack Director President of
Kalamazoo Valley
Community Hospital
David Dams Executive Vice
President None
Edward P. Farley Executive Vice
President Director of BHC
Securities, Inc.;
Trustee of St. Mary's
Hospital,
Ronald McDonald House
and
University Club Opera of Grand
Rapids
David Kerstein Executive Vice
President None
Martin J. Allen, Jr. Senior Vice President
and Secretary Director of Grand Rapids
Label Co.
Philip M. Allen Senior Vice President
Trustee of West Michigan Shores
Council of Boy Scouts of
America
Richard Arasmith Senior Vice President
and Branch Administrator None
Thomas Bobrowski Senior Vice President None
Larry Hull Senior Vice President None
Joseph T. Keating Senior Vice President and
Chief Investment Officer Trustee of
Grace
Episcopal Church
Endowment Committee
James Haberlein Senior Vice President None
R. Jay Palmer Senior Vice President None
Daniel Terpsma Senior Vice President None
John Erickson Senior Vice President None
Janet Nisbett Senior Vice President None
Dennis W. Piskor Senior Vice President None
Paul Colombe Senior Vice President None
Thomas E. Powell Senior Vice President None
Allan J. Meyers Vice President and Director
of Fixed Income Member of Western
Michigan Society
of Financial
Analysts;
formerly, Director
of
Western Michigan Society
of Financial Analysts
Michael A. Petersen Vice President
Member of Western
Michigan Society
of Financial Analysts
Mitchell L. Stapley Vice President
Member of The Treasury
Management
Association of Chicago
William A. Walker Vice President
Trustee of Trinity United
Methodist Church
Item 29. Principal Underwriters
(a) In addition to The Kent Funds, 440 Financial Distributors,
Inc. (the "Distributor") currently acts as distributor for The
Galaxy Fund, The Galaxy VIP Fund, Galaxy Fund II, BT Insurance
Funds Trust and Armada Funds (formerly known as NCC Funds). The
Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. The Distributor is an
indirect wholly-owned subsidiary of First Data Corporation, 53
State Street, Mail Stop BOS 425, Boston, MA 02109.
(b) The information required by this Item 29(b) with respect to
each director, officer or partner of 440 Financial Distributors,
Inc. is incorporated by reference to Schedule A of Form BD filed
by 440 Financial Distributors, Inc. with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (File
No. 8-45467).
(c) Not Applicable.
Item 30. Location of Accounts and Records
Each account, book or other document required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder
are maintained by Registrant at 4400 Computer Drive, Westborough,
Massachusetts 01581, except for Registrant's minute books, which
are maintained by Drinker Biddle & Reath, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not Applicable
(b) Registrant undertakes to furnish to each person to
whom a Prospectus is delivered with a copy of the Registrant's
latest Annual Report to shareholders, upon request and without
charge.
(c) Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question of
removal of a Trustee or Trustees of Registrant when requested to
do so by the holders of at least 10% of Registrant's outstanding
shares. Registrant undertakes further, in connection with any
such meeting, to comply with the provisions of Section 16(c) of
the Investment Company Act of 1940, as amended, relating to
communications with the shareholders of certain common-law trusts.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Post-Effective Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston and
Commonwealth of Massachusetts, on the 30th day of April, 1996.
THE KENT FUNDS
By: /s/Ronald F. VanSteeland
Ronald F. VanSteeland
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURES TITLE DATE
* President and Trustee
April 30, 1996
Ronald F. VanSteeland
/s/Kevin Morrissey Treasurer (Principal
Accounting April 30, 1996
Kevin Morrissey and Financial Officer)
* Trustee
April 30, 1996
Anne T. Coughlan
* Trustee
April 30, 1996
Joseph F. Damore
*
James F. Rainey Trustee
April 30, 1996
*By: /s/Elizabeth Russell
Elizabeth Russell
Attorney-in-Fact
*Elizabeth Russell, by signing her name hereto, does hereby sign
this document on behalf of each of the above-named Trustees of the
Trust pursuant to powers of attorney duly executed by such
persons.
The Investment Shares and the Institutional Shares of the Tax-Free Income Fund
commenced operations on March 31, 1995 and March 20, 1995, respectively.
The Investment
Shares and the Institutional Shares of the Income Fund commenced operations
on March 22,
1995 and March 20, 1995, respectively.
