<PAGE> 1
ANNUAL REPORT
DECEMBER 31, 1996
YOUR FOUNDATION FOR INVESTMENT STRENGTH
THE
KENT
FUNDS(R)
THE KENT SHORT TERM BOND FUND
THE KENT INTERMEDIATE BOND FUND
THE KENT INCOME FUND
<PAGE> 2
MESSAGE TO SHAREHOLDERS
Dear Kent Fund Shareholder:
Enclosed is the annual report for The Kent Taxable Bond Funds for the
twelve months ended December 31, 1996. Inside, you'll find an Economic Outlook
which characterizes the U.S. economy as being in the best fundamental shape in
25 years. There are also Portfolio Reviews for each Fund that explain how the
Fund managers adjusted their portfolios in the prevailing investment environment
and what the managers expect in the months to come.
During the period, The Kent Funds concentrated on providing shareholders
with good value and attractive potential for growth while managing risk. If you
have any questions about your investments after reading this report, please see
your investment representative or call 1-800-633-KENT (1-800-633-5368) to speak
to a Shareholder Services Representative. We remain committed to providing you
with useful information that can help you make the most of your investments.
Sincerely,
The Kent Funds
1
<PAGE> 3
INVESTMENT ADVISER
Old Kent Bank
One Vandenberg Center
Grand Rapids, MI 49503
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
This report is submitted for the general information of shareholders of The Kent
Short Term Bond Fund, The Kent Intermediate Bond Fund and The Kent Income Fund.
It is not authorized for distribution to prospective investors unless preceded
or accompanied by an effective prospectus for the funds, which contains more
information concerning the funds' investment policies as well as fees and
expenses and other pertinent information. Please read the prospectus carefully
before investing.
The performance indices used for comparison in this report, including the Lehman
Brothers Intermediate Government/Corporate Bond Index, the Lehman Brothers 1-3
Year Government Bond Index, the Lehman Brothers Government/Corporate Bond Index,
the Lehman Brothers Long Government/Corporate Bond Index, the 91-Day Treasury
Bill and the Consumer Price Index, are unmanaged indices. Unlike actual fund
performance, the performance of an index does not reflect any management fees,
other expenses or sales charges. A direct investment in an unmanaged index is
not possible.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Old Kent Bank or any of its
affiliates. Shares of the funds are not federally insured by
the U.S. Government, the Federal Deposit Insurance
[GRAPHIC] Corporation, the Federal Reserve Board or any other agency.
Investment return and principal value will vary as a result
of market conditions or other factors, so that shares of the
funds, when redeemed, may be worth more or less than their
original cost. An investment in the funds involves
investment risks, including the possible loss of principal.
2
<PAGE> 4
ECONOMIC OUTLOOK
REAL ECONOMIC ACTIVITY
Economy in Best Fundamental Shape in 25 Years.
As 1997 begins, the economy appears to be in the best fundamental shape in
25 years:
- - Despite a sharp rebound in the fourth quarter, economic growth for this
business expansion at 2.6 percent remains below the economy's long-run
growth rate of 3.2 percent, which has helped prolong the longevity of the
current expansion.
- - Inflation remains in check, although worries surface from time-to-time.
- - Even though the economy is running near full employment levels, the labor
markets appear to be "comfortably tight" with few signs of accelerating
wage pressures.
- - The level of interest rates and bond yields is moderate, ranging from 5.0
to 7.0 percent in the Treasury market.
- - Corporate earnings are still rising, albeit at a slower rate in some
industries than earlier in the expansion.
- - The international competitiveness of U.S. companies has increased markedly
in recent years and cost-cutting and restructuring efforts seem likely to
continue.
- - The Federal budget deficit shrunk from $290 billion in FY1992 to $107
billion in FY1996.
- - And finally, U.S. companies continue to lead the world in the development
and proliferation of new information and telecommunications technologies.
<TABLE>
<CAPTION>
REAL GROSS DOMESTIC PRODUCT
ANNUALIZED GROWTH RATE
----------------------
<S> <C> <C> <C> <C> <C> <C>
2Q 1991 1Q 1992 1Q 1993 1Q 1994 1Q 1995 1Q 1996 4Q 1996
1.7 4.7 -0.1 2.5 0.4 2 4.7
1 2.5 1.9 4.9 0.7 4.7
1 3 2.3 3.5 3.8 2.1
4.3 4.8 3 0.3
</TABLE>
Long-Run Growth Rate = 3.2%
2Q91 to 4Q96
Growth Rate = 2.6%
[GRAPHIC]
This business expansion will be six years old next quarter and is now the
third longest expansion since World War II. In fact, the previous business
expansion, which ended in 1990, is the second longest, with the expansion in the
1960s that was fueled by the military buildup associated with the Vietnam War
being the longest. So, the last two expansions are two of the three longest on
record, with the current expansion still rolling along. Most likely this is a
reflection of the vastly improved inventory-control technologies that have been
developed in recent years and the proclivity of the Federal Reserve under the
guidance of Alan Greenspan to engage in pre-emptive strikes against any signs of
the economy overheating and/or inflationary pressures building.
Exports Boost Fourth-Quarter Growth.
The economy's "stop/go" pattern of growth, as depicted in the previous
graph, continued in the fourth quarter. Real Gross Domestic Product (GDP)
sprinted ahead at a 4.7 percent pace compared to the 2.1 percent gain recorded
in the third quarter. Exports surged at a 25.5 percent rate, causing a
significant improvement in net exports that accounted for almost half of the
rise in real GDP. Capital goods, particularly aircraft, were primarily
responsible for the extraordinary gain in exports. Domestic private final sales,
which excludes net exports, government spending and inventory swings, rose at
the more moderate pace of 3.2 percent. This measure probably gives a more
realistic picture of the economy's underlying strength as 1996 drew to a close.
REAL ECONOMIC ACTIVITY
----------------------
<TABLE>
<CAPTION>
4Q1996* 4Q95 to 4Q96
------ ------------
<S> <C> <C>
Gross Domestic Product 4.7% 3.4%
Domestic Private Final Sales 3.2% 3.6%
Personal Consumption Expenditures 3.4% 2.7%
</TABLE>
* Annualized.
Despite reports of only a moderately successful holiday season for the
nation's retailers and the sharp rise in consumer indebtedness, delinquencies
and bankruptcies, consumer spending rebounded at a 3.4 percent rate last quarter
from the paltry 0.5 percent pace of the third quarter. Durable goods
3
<PAGE> 5
ECONOMIC OUTLOOK
spending was the strongest component, with furniture outlays leading the
way. At first blush, the rise in spending on furniture doesn't seem to be
consistent with the decline in residential construction outlays over the past
two quarters, which resulted from the rise in mortgage rates last year. The
housing market proved to be very resilient during 1996, however, as aggressive
switching to adjustable-rate mortgages and some purchases in anticipation of
even higher mortgage rates actually led to an 8.8 percent gain in housing starts
last year. The strong job market and high levels of consumer confidence also
contributed to a record sales year for existing homes as 4.09 million homes
exchanged hands, eclipsing the previous high of 3.99 million reached in 1978.
Aside from exports, business capital spending was again the strongest
sector of the economy during the fourth quarter. The contribution from the
various components was somewhat different than over the previous 23 quarters,
however. Capital outlays on structures grew at a 22.5 percent rate as the high
level of capacity utilization, falling commercial and industrial vacancy rates,
and ongoing retail expansion spurred additional construction. In a somewhat
unexpected turn, producers' durable equipment outlays fell for the first time in
over four years. Equipment outlays have been the strongest sector of the economy
during the business expansion, as demand for computers, telecommunications
equipment and other forms of information technology has surged.
Looking at the components of equipment spending shows that all of the
decline last quarter was contained in the industrial machinery and volatile
transportation equipment sectors and that outlays for high-technology equipment,
particularly computers, remained strong. The main motivation behind the surge in
equipment purchases over the past five and a half years is the desire of
businesses to improve their competitiveness by increasing productivity,
restraining costs and boosting quality. The fact that the price of capital goods
has been declining relative to labor compensation is an added incentive to
invest in equipment.
Companies have responded aggressively during this expansion to the
heightened competitive pressures coming at them from both domestic and
international competitors. The table below depicts how large the representative
share of the nation's total output equipment spending has become over the course
of this expansion. In the second quarter of 1991 when the economy turned from
recession to expansion, equipment outlays accounted for 6 percent of total
output; the high technology portion was less than 2 percent; and business
computers were half of one percent.
Five and a half years later, equipment production, and particularly
high-technology equipment, has become a much more significant portion of the
economy and has grown at rates far in excess of the 2.6 percent growth rate for
the entire economy. Equipment outlays now account for the highest proportion of
real GDP since World War II, when
<TABLE>
<CAPTION>
PERCENT OF REAL GDP ANNUALIZED GROWTH RATE
------------------- ----------------------
2Q91 4Q96 2Q91 to 4Q96
---- ---- ------------
<S> <C> <C> <C>
Producers' Durable Equipment 6.0% 8.5% 9.3%
High Technology Equipment 1.9% 3.7% 15.6%
Computers 0.5% 2.1% 32.9%
Real GDP 2.6%
</TABLE>
BUSINESS CAPITAL SPENDING*
4Q1996
[GRAPHIC]
<TABLE>
<CAPTION>
<S> <C>
Structures 22.5%
Producers' Durable
Equipment -1.7%
High-Technology
Equipment 11.5%
Computers 26.8%
Industrial
Machinery -6%
Transportation
Equipment -15.7%
<FN>
* Annualized
</TABLE>
4
<PAGE> 6
ECONOMIC OUTLOOK
wartime manufacturing sharply boosted equipment production and consumer spending
was severely curtailed. When students of the business cycle look back on this
expansion, what occurred in the business equipment sector will likely be the
most remarkable feature of this economic expansion.
Another Year of Moderate Growth for 1997.
As the business expansion is about to enter its seventh year, the economy
appears to be on the path toward another year of moderate growth. No serious
imbalances are evident in the economy, which lowers the odds of the economy
falling into recession during 1997. The rapid rise in consumer indebtedness over
the past three years and the attendant burden of servicing that debt buildup
points to, at best, further moderate gains in consumer spending. The housing
sector should be flat to modestly lower due to the late point in the economic
cycle and the higher level of mortgage rates. Business capital spending for
equipment should be the strongest sector of the economy as the continued
advancement of electronic technology permits sharp declines in equipment prices,
which provides incentives to substitute high-technology equipment, for labor
and/or other types of capital goods. We do anticipate that it will be tough for
spending on high-technology equipment to match the heady pace reached earlier in
the expansion, however. Exports had such a blockbuster quarter that a slower
growth rate is likely, particularly given the U.S. dollar's recent strength. We
expect the economy to grow at a rate near two percent during 1997.
INFLATION
<GRAPHIC>
<TABLE>
<CAPTION>
INFLATION MEASURES
1996
------------------
<S> <C>
Consumer Price Index (CPI) 3.3%
CPI less Food & Energy 2.6%
Producer Price Index (PPI) 2.8%
PPI less Food & Energy 0.1%
GDP Fixed-Weight Price Index 2.2%
</TABLE>
Negligible Inflation.
The inflation data for 1996 was excellent, particularly considering the
advanced age of the current business expansion. Except for a sharp run-up in
energy costs last year, overall inflation remained very well behaved, in part
because increased competition is restraining the ability of many businesses to
raise their prices. Consumers are little influenced in their buying decisions by
expectations of price increases in the future. Pricing leverage remains the
exception and not the rule in the domestic economy.
The Federal Reserve remains concerned that a slow but steady increase in
labor costs could translate into higher consumer prices. The low unemployment
rate, however, has not yet empowered labor to exact higher wage increases. The
employment cost index rose only 2.9 percent last year, the lowest annual figure
on record. Companies' emphasis on cutting labor costs, which represent about 70
percent of production expenses, has made them more resistant to higher wage
demands. At the same time, wage earners have placed more emphasis on job
security rather than wage increases as the tidal wave of substituting equipment
for labor continues to wash over Corporate America. The battle for market share
from both domestic and foreign producers remains intense, exerting additional
restraint on prices. We expect inflation to remain in the two to three percent
range for 1997.
JOSEPH T. KEATING
Chief Investment Officer
The information discussed herein is based on Commerce Department data released
January 31, 1997.
5
<PAGE> 7
PORTFOLIO REVIEWS
THE KENT SHORT TERM BOND FUND
BY MITCHELL L. STAPLEY,
PORTFOLIO MANAGER
The Kent Short Term Bond Fund operated in an environment of rising yields
during the 12 months ended December 31, 1996. For example, two-year Treasury
note yields rose from 5.15% to 5.87% during the period, with most of the
increase coming during the first five months of the year, making it a difficult
time for most fixed-income investors. Rates declined somewhat during the autumn
months, helping the prices of fixed-income securities to rebound. But rates rose
again in December, and securities' prices suffered as a result.
The upshot: The Fund's Institutional and Investment Shares during the
12-month period posted total returns of 4.22% and 4.06%, respectively, before
the deduction of sales charges. That compared to a 5.08% total return for the
Lehman Brothers 1-3 Year Government Bond Index.
A LONG-TERM APPROACH
Our strategy in this environment was to gradually increase the Fund's
average maturity as interest rates rose and the prices of fixed-income
securities declined. That approach allowed us to increase our exposure to the
fixed-income market during periods when prices were relatively low -- an
approach that may not pay off in the short term but generally provides a sound
long-term policy.
Moreover, the rise in interest rates that occurred early in the year took
place in the context of a relatively benign outlook for inflation. In fact, as
rates rose and inflation stayed relatively constant at around 3%, the real,
after-inflation yields on fixed-income securities became increasingly
attractive. That provided additional incentive to extend the average maturity of
the Fund's investments -- although not dramatically, given the Fund's role as a
short-term vehicle that always maintains a relatively short average maturity of
one to three years.
Thus, as interest rates climbed, the Fund's average maturity rose from
around 2.3 years early in 1996 to 2.5 years in August 1996. The average maturity
then declined to around 2.3 years as interest rates subsided and securities'
prices rose in the autumn, making them relatively less attractive.
The Fund maintained a high-quality portfolio divided roughly equally
between investment grade corporate issues and government securities. The very
modest additional yield paid by corporate securities in the recent environment
did not justify a larger stake in those instruments.
THE OUTLOOK
We expect that the economy will grow at a 2.0% to 2.5% annual pace in the
months ahead, while inflation will remain moderate. Such an environment, we
believe, would expose shareholders in this Fund to only modest volatility, with
the potential to achieve attractive real returns. We will continue to maintain a
high-quality portfolio of short-term issues, taking advantage of attractive
opportunities that arise among securities of different maturities at the short
end of the yield curve.
THE KENT SHORT TERM BOND FUND
DISTRIBUTION OF NET ASSETS
AS OF DECEMBER 31, 1996
- -----------------------
[GRAPHIC]
<TABLE>
<S> <C>
U.S. Government & Agency Obligations 51.9%
Corporate Notes & Bonds 46.6%
Cash Equivalents & Net Other Assets &
Liabilities 1.5%
Portfolio composition is subject to change.
</TABLE>
THE KENT SHORT TERM BOND FUND+
SEC 30-DAY YIELDS AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
INSTITUTIONAL CLASS INVESTMENT CLASS
- ------------------------------------------------------------------------------
5.28% 4.92%
SEC 30-day yield is computed based on net income during the 30-day period ended
December 31, 1996. Yield calculations represent past performance and will
fluctuate.
6
<PAGE> 8
PORTFOLIO REVIEWS
<TABLE>
<CAPTION>
THE KENT SHORT TERM BOND FUND+
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(inception: 12/4/92) (inception: 11/2/92)
- ------------------------------------------------------------------------------
<S> <C> <C>
One Year -0.06% 4.22%
Three Years 3.64% 5.19%
Life of Fund 3.48% 4.68%
</TABLE>
* Reflects 4.00% sales charge.
<TABLE>
<CAPTION>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS 1 - 3 YEAR GOVERNMENT BOND INDEX, CONSUMER PRICE INDEX
AND 91-DAY TREASURY BILL
11/2/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Kent Short Term Bond Fund
Institutional Class Shares $10,000 $10,088 $10,396 $10,503 $11,609 $12,098
The Lehman Brothers 1-3 Year
Government Bond Index $10,000 $10,078 $10,621 $10,675 $11,832 $12,433
Consumer Price Index $10,000 $10,007 $10,282 $10,557 $10,825 $11,213
91-Day Treasury Bill $10,000 $10,053 $10,356 $10,798 $11,393 $11,965
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
12/4/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Kent Short Term Bond Fund
Investment Class Shares $ 9,597 $ 9,625 $ 9,918 $10,018 $11,050 $11,499
The Lehman Brothers 1-3 Year
Government Bond Index $10,000 $10,093 $10,637 $10,691 $11,850 $12,452
Consumer Price Index $10,000 $ 9,992 $10,267 $10,542 $10,809 $11,197
91-Day Treasury Bill $10,000 $10,027 $10,329 $10,770 $11,364 $11,935
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate, so that shares, when redeemed, may be worth
more or less than the original cost. Performance for each class will differ
based on differences in sales charges and expenses for each class of shares.
Return figures and investment values are quoted after deducting class expenses
and sales charges (if applicable). Investment class shares are sold with a
maximum front-end sales charge of 4.00%. The Lehman Brothers 1-3 Year Government
Bond Index is an unmanaged index of U.S. Treasury issues and publicly issued
debt of U.S. Government agencies with maturities of one to three years. The
91-day Treasury Bill return tracks the investment returns paid on U.S. Treasury
bills maturing in 91 days. The Consumer Price Index is an unmanaged index
measuring price increases in a standardized "market basket" of consumer
products. Total return is based on changes in net asset value assuming
reinvestment of all dividends and capital gains distributions.
+ Certain fees were being waived. Had these waivers not been in effect, total
return would have been lower, and the 30-day SEC yields would have been
5.26% for Institutional Shares and 4.80% for Investment Shares.
7
<PAGE> 9
PORTFOLIO REVIEWS
THE KENT INTERMEDIATE BOND FUND
BY MITCHELL L. STAPLEY,
PORTFOLIO MANAGER
The average maturity of the Kent Intermediate Bond Fund rose from 4.8 years
to 5.4 years during the 12 months ended December 31, 1996. The increase in the
Fund's average maturity reflected the fact that yields rose sharply in the
intermediate sector of the bond market during the first eight months of the
year, providing opportunities for the Fund to lock in relatively attractive
yields among such issues. For example, yields on ten-year Treasuries climbed
from 5.57% to 6.94% during the period.
That rise in yields caused prices of intermediate bonds to decline during
the first eight months of the year, although prices recovered somewhat during
the last three months of 1996. The Fund's Institutional and Investment Shares
before deduction of sales charges had total returns of 3.01% and 2.76% during
the 12-month period, respectively. That compared to a total return of 4.06% for
the Lehman Brothers Intermediate Government/Corporate Bond Index.
ATTRACTIVE YIELDS AFTER INFLATION
The increase in the Fund's average maturity in part reflected our view that
rising bond yields provided very attractive opportunities in an environment of
modest inflation.
In fact, inflation remained steady at around 3% even as yields on
intermediate issues climbed more than eight-tenths of a percentage point. For
example, 30-year Treasury bonds recently yielded 6.65% -- providing a 4.40%
yield after accounting for a 2.25% trend rate of inflation. It's unusual to have
such high "real yields," so we took advantage of the situation by purchasing
issues with seven- to ten-year maturities, to lengthen the Fund's average
maturity. Those issues performed very well during the bond-market rally that
took place in the fall of 1996.
Most of the Fund's new investments were Treasury securities. Corporate
bonds offered yields that were slightly higher on issues of comparable
maturities, although from a historical perspective current yield spread levels
are tight, and the additional yields did not compensate for the extra credit
risk that even high-quality corporate issues carry compared to government
issues.
LOOKING AHEAD
It's not our policy to try to predict short-term moves in interest rates or
bond prices. Instead, we will continue to take advantage of opportunities to
extend the Fund's average maturity when rates rise and real yields appear more
attractive, and reduce that average maturity during bond-market rallies that
drive bond yields lower. At the same time, we'll continue to purchase mostly
government issues as long as the difference between their yields and corporate
bond yields remains so small. But we will take advantage of opportunities to buy
corporate issues when our credit research uncovers overlooked bargains in that
sector.
THE KENT INTERMEDIATE BOND FUND
DISTRIBUTION OF NET ASSETS
AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Cash Equivalent & Net Other Assets & Liabilities 1.1%
Corporate Notes & Bonds 18.9%
U.S. Government & Agency Obligations 80.0%
Portfolio composition is subject to change.
THE KENT INTERMEDIATE BOND FUND+
SEC 30-DAY YIELDS AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
INSTITUTIONAL CLASS INVESTMENT CLASS
- ------------------------------------------------------------------------------
5.52% 5.05%
SEC 30-day yield is computed based on net income during the 30-day period ended
December 31, 1996. Yield calculations represent past performance and will
fluctuate.
8
<PAGE> 10
PORTFOLIO REVIEWS
<TABLE>
THE KENT INTERMEDIATE BOND FUND+
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1996
<CAPTION>
- ------------------------------------------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(inception: 11/25/92) (inception: 11/2/92)
- ------------------------------------------------------------------------------
<S> <C> <C>
One Year -1.33% 3.01%
Three Years 3.48% 5.03%
Life of Fund 4.62% 5.84%
</TABLE>
* Reflects 4.00% sales charge.
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
11/2/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Kent Intermediate Bond Fund
Institutional Class Shares $10,000 $10,125 $10,934 $10,585 $12,298 $12,668
The Lehman Brothers
Intermediate Government/
Corporate Bond Index $10,000 $10,095 $10,976 $10,762 $12,410 $12,913
</TABLE>
<TABLE>
<CAPTION>
11/25/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Kent Intermediate Bond Fund
Investment Class Shares $ 9,596 $ 9,644 $10,434 $10,119 $11,714 $12,038
The Lehman Brothers
Intermediate Government/
Corporate Bond Index $10,000 $10,134 $11,018 $10,803 $12,457 $12,962
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate, so that shares, when redeemed, may be worth
more or less than the original cost. Performance for each class will differ
based on differences in sales charges and expenses for each class of shares.
Return figures and investment values are quoted after deducting class expenses
and sales charges (if applicable). Investment class shares are sold with a
maximum front-end sales charge of 4.00%. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged index comprised of U.S. Treasury
issues, publicly issued debt of U.S. Government agencies, corporate debt
guaranteed by the U.S. Government and all publicly issued, fixed rate,
nonconvertible investment-grade dollar-denominated, SEC-registered corporate
debt. Total return is based on changes in net asset value, assuming reinvestment
of all dividends and capital gains distributions.
+ Certain fees were being waived. Had these waivers not been in effect, total
return would have been lower, and the 30-day SEC yields would have been 5.50%
for Institutional Shares and 5.03% for Investment Shares.
9
<PAGE> 11
PORTFOLIO REVIEWS
THE KENT INCOME FUND
BY MITCHELL L. STAPLEY,
PORTFOLIO MANAGER
The average maturity of the Fund's portfolio climbed sharply during the 12
months ended December 31, 1996, rising from 9.8 years to 13.5 years. The
increase in the Fund's average maturity reflected our efforts to take advantage
of sharply rising yields during the year, which we believe provided excellent
long-term opportunity for our shareholders. For example, yields on 30-year
Treasury bonds rose from 5.95% to a high of 7.08% in early September, before
falling to 6.65% by year-end.
FINDING BARGAINS
The Fund suffered losses along with other long-term funds during the first
part of 1996, as rising bond yields caused prices of long-term bonds to fall.
But the Fund took advantage of those price declines to buy issues at attractive
prices, and their prices rebounded sharply during the bond-market rally that
occurred in the fall. The Fund's Institutional and Investment Shares posted
total returns before the sales charge of 1.19% and 1.16%, respectively, compared
to a 2.91% total return for the Lehman Brothers Government/Corporate Bond Index
and 0.14% for the Lehman Brothers Long Government/Corporate Bond Index.
The Fund increased its average maturity during the first three months of
the year, in part by selling issues with ten-year maturities and replacing them
with issues that mature in approximately 15 to 20 years. That decision also
helped support the Fund's returns during the remainder of the year as ten-year
issues saw their yields rise roughly 35 basis points during the remainder of the
year, while yields on 15-year issues climbed only 15 basis points by year-end.
STICKING WITH QUALITY
The Fund continued to invest in issues with high credit ratings. Government
and agency obligations grew from 55% of the total portfolio to around 66% at the
end of 1996. Yields on corporate bonds offered little advantage over yields on
safer government issues. If the economy slows down, it seems likely that
investors will demand a higher yield premium from corporate issues -- and that
could provide better opportunities in the corporate sector in the coming months.
LOOKING AHEAD
The Fund's investment in longer-term issues during the recent period has
locked in a high level of current income for shareholders. Thus, there is the
potential for significant capital appreciation if bond yields decline. A number
of factors point to the prospect for slower economic growth and lower bond
yields. Among them: the high level of consumer debt burden; a slower housing
market; the record number of personal bankruptcies and the strong dollar, which
will discourage export growth.
At the same time, such an environment poses risk for lower-rated
securities. Thus, we will maintain a portfolio of government and investment
grade corporate issues that can help reduce that risk for shareholders.
THE KENT INCOME FUND
DISTRIBUTION OF NET ASSETS
AS OF DECEMBER 31, 1996
- --------------------------
U.S. Government & Agency Obligations 65.8%
Notes & Bonds 32.4%
Cash Equivalents & Net Other
Assets & Liabilities 1.8%
Portfolio composition is subject to change.
THE KENT INCOME FUND
SEC 30-DAY YIELDS AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
INSTITUTIONAL CLASS INVESTMENT CLASS
- ------------------------------------------------------------------------------
6.06% 5.56%
SEC 30-day yield is computed based on net income during the 30-day period ended
December 31, 1996. Yield calculations represent past performance and will
fluctuate.
10
<PAGE> 12
PORTFOLIO REVIEWS
<TABLE>
THE KENT INCOME FUND+
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1996
<CAPTION>
- ------------------------------------------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(inception: 3/22/95) (inception: 3/20/95)
- ------------------------------------------------------------------------------
<S> <C> <C>
One Year -2.87% 1.19%
Life of Fund 6.14% 8.83%
</TABLE>
* Reflects 4.00% sales charge.
<TABLE>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
AND THE LEHMAN BROTHERS LONG GOVERNMENT/CORPORATE BOND INDEX
- ------------------------------------------------------------------------------
<CAPTION>
3/20/95 12/31/95 12/31/96
------- -------- --------
<S> <C> <C> <C>
The Kent Income Fund
Institutional Class Shares $ 9,960 $11,506 $11,643
The Lehman Brothers
Government/Corporate
Bond Index $10,000 $11,358 $11,688
The Lehman Brothers Long
Government/Corporate
Bond Index $10,000 $12,190 $12,207
</TABLE>
<TABLE>
<CAPTION>
3/22/95 12/31/95 12/31/96
------- -------- --------
<S> <C> <C> <C>
The Kent Income Fund
Investment Class Shares $ 9,556 $11,002 $11,130
The Lehman Brothers
Government/Corporate
Bond Index $10,000 $11,358 $11,688
The Lehman Brothers Long
Government/Corporate
Bond Index $10,000 $12,190 $12,207
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate, so that shares, when redeemed, may be worth
more or less than the original cost. Performance for each class will differ
based on differences in sales charges and expenses for each class of shares.
Return figures and investment values are quoted after deducting class expenses
and sales charges (if applicable). Investment class shares are sold with a
maximum front-end sales charge of 4.00%. The Lehman Brothers
Government/Corporate Bond Index and The Lehman Brothers Long
Government/Corporate Bond Index are unmanaged indices comprised of U.S. Treasury
issues, debt of U.S. government agencies, corporate debt guaranteed by the U.S.
government and all publicly issued, fixed rate, nonconvertible investment-grade
dollar-denominated, SEC-registered corporate debt. Total return is based on net
changes in net asset value, assuming the reinvestment of dividends and capital
gains distributions.
+ Certain fees were bing waived. Had these waivers not been in effect, total
return would have been lower, and the 30-day SEC yields would have been 6.04%
for Institutional Shares and 5.54% for Investment Shares.
11
<PAGE> 13
This page left blank intentionally.
<PAGE> 14
The Kent SHORT TERM BOND FUND
Funds PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ -------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 49.8%
U.S. TREASURY NOTES -- 49.8%
$ 5,000,000 5.13%, 4/30/98................. $ 4,961,700
16,200,000 7.13%, 10/15/98................ 16,544,250
25,000,000 8.88%, 11/15/98................ 26,304,750
43,000,000 7.50%, 10/31/99................ 44,599,170
12,500,000 5.63%, 2/28/01................. 12,252,000
5,000,000 6.63%, 7/31/01................. 5,079,700
8,000,000 7.50%, 11/15/01................ 8,421,280
-------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS.................... 118,162,850
-------------
(cost $118,540,527)
U.S. GOVERNMENT AGENCY OBLIGATION -- 2.1%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 2.1%
5,000,000 4.65%*, 3/11/97................ 4,951,900
-------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATION..................... 4,951,900
-------------
(cost $5,000,000)
CORPORATE NOTES AND BONDS -- 46.2%
BANKING -- 4.3%
5,000,000 Chase Manhattan Corp.,
7.50%, 12/1/97................. 5,062,200
5,000,000 National Bank of Detroit,
Medium Term Note,
6.45%, 7/10/97................. 5,022,800
-------------
10,085,000
-------------
BROKERS -- 4.7%
6,000,000 Morgan Stanley Group, Inc.,
Medium Term Note,
6.50%, 3/30/01................. 5,978,040
5,000,000 Salomon, Inc., Medium Term
Note,
8.71%, 2/17/98................. 5,141,250
-------------
11,119,290
-------------
COMPUTER HARDWARE MANUFACTURING -- 2.1%
5,000,000 International Business Machines
Corp.,
6.38%, 11/1/97................. 5,018,050
-------------
ENTERTAINMENT -- 2.1%
5,000,000 Walt Disney Co., Series A,
Global Bond,
6.38%, 3/30/01................. 4,978,000
-------------
FINANCE -- 19.6%
5,329,000 Associates Corp. N.A.,
5.25%, 3/30/00................. 5,144,990
6,000,000 AT&T Capital Corp.,
7.39%, 4/15/97................. 6,028,260
5,000,000 Ford Motor Credit Corp.,
7.13%, 12/1/97................. 5,050,350
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ -------------
<S> <C> <C>
CORPORATE NOTES AND BONDS (CONTINUED)
FINANCE (CONTINUED)
$ 5,000,000 General Motors Acceptance
Corp., Medium Term Note,
6.75%, 4/29/97................. $ 5,016,750
5,000,000 General Motors Acceptance
Corp., Medium Term Note,
8.25%, 1/23/98................. 5,120,900
5,000,000 Goldman Sachs Group, L.P.,
6.10%, 4/15/98 (b)............. 4,973,700
5,000,000 Household Finance Corp., Medium
Term Note,
6.85%, 7/21/97................. 5,026,700
5,000,000 New England Education Loan
Marketing Corp., Medium Term
Note,
6.13%, 7/17/98................. 4,987,500
5,000,000 Norwest Corp., Medium Term
Note,
7.13%, 9/9/99.................. 5,103,600
-------------
46,452,750
-------------
INSURANCE -- 2.1%
5,000,000 Travelers Group, Inc.,
5.75%, 4/15/98................. 4,973,700
-------------
PHARMACEUTICALS -- 2.2%
5,000,000 American Home Products Corp.,
7.70%, 2/15/00................. 5,184,650
-------------
RETAIL -- 2.4%
5,500,000 Sears Roebuck & Co.,
8.45%, 11/1/98................. 5,708,835
-------------
TELECOMMUNICATIONS -- 2.5%
6,000,000 Southwestern Bell Telephone
Co., Medium Term Note,
6.13%, 3/12/01................. 5,910,720
-------------
TRANSPORTATION -- 2.1%
5,000,000 Ryder System, Inc., Medium Term
Note,
7.88%, 11/24/97................ 5,077,400
-------------
UTILITIES -- 2.1%
5,000,000 Georgia Power Co., First
Mortgage,
6.13%, 9/1/99.................. 4,971,900
-------------
TOTAL CORPORATE NOTES AND
BONDS.......................... 109,480,295
-------------
(cost $109,906,325)
COMMERCIAL PAPER -- 0.4%
FINANCE -- 0.4%
967,762 Ford Motor Credit Corp.,
6.00%, 1/2/97.................. 967,762
-------------
TOTAL COMMERCIAL PAPER......... 967,762
-------------
(cost $967,762)
</TABLE>
Continued
13
<PAGE> 15
The Kent SHORT TERM BOND FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
(NOTE 2)
-------------
<S> <C>
TOTAL INVESTMENTS -- 98.5%................... $ 233,562,807
(cost $234,414,614)(a)
OTHER ASSETS IN EXCESS OF LIABILITIES --
1.5%....................................... 3,534,103
-------------
NET ASSETS -- 100.0%......................... $ 237,096,910
=============
<FN>
- ---------------------------------------
Percentages indicated are based on net assets of
$237,096,910.
(a) Represents cost for federal income tax purposes and
differs from value by net unrealized depreciation of
securities as follows:
Unrealized appreciation............ $ 1,270,773
Unrealized depreciation............ (2,122,580)
-----------
Net unrealized depreciation........ $ (851,807)
============
(b) 144a security which is restricted as to resale to
institutional investors.
* Variable rate security. Rate presented represents
rate in effect at December 31, 1996. Maturity date
reflects next rate change date.
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 16
The Kent INTERMEDIATE BOND FUND
Funds PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 75.7%
U.S. TREASURY NOTES -- 69.8%
$ 34,000,000 5.25%, 7/31/98................. $ 33,718,480
20,000,000 8.88%, 11/15/98................ 21,043,800
35,000,000 6.38%, 5/15/99................. 35,300,650
38,000,000 7.50%, 10/31/99................ 39,413,220
76,250,000 7.75%, 1/31/00................. 79,788,762
30,000,000 6.88%, 3/31/00................. 30,675,000
24,000,000 8.75%, 8/15/00................. 26,010,000
33,500,000 6.25%, 8/31/00................. 33,625,625
47,000,000 6.38%, 3/31/01................. 47,315,840
40,000,000 7.50%, 11/15/01................ 42,106,400
65,000,000 6.25%, 2/15/03................. 64,918,750
32,000,000 7.88%, 11/15/04................ 34,920,000
6,465,000 6.50%, 5/15/05................. 6,508,445
26,210,000 7.00%, 7/15/06................. 27,229,831
19,710,000 6.50%, 10/15/06................ 19,817,814
------------
542,392,617
------------
U.S TREASURY BONDS -- 5.9%
30,000,000 9.13%, 5/15/09................. 34,551,600
10,000,000 7.50%, 11/15/16................ 10,825,000
------------
45,376,600
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS.................... 587,769,217
------------
(cost $594,399,216)
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.3%
FEDERAL HOME LOAN BANK -- 0.6%
5,000,000 6.49%, 1/8/04.................. 4,983,250
------------
FEDERAL HOME LOAN MORTGAGE
CORP. -- 2.5%
5,000,000 4.65%*, 3/11/97................ 4,951,900
10,410,000 8.12%, 1/31/05................. 11,330,660
3,000,000 7.22%, 6/14/06................. 3,100,320
------------
19,382,880
------------
FEDERAL NATIONAL MORTGAGE ASSOC. -- 1.2%
9,100,000 6.15%, 7/25/16................. 9,045,946
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS.................... 33,412,076
------------
(cost $33,754,514)
COMMERCIAL PAPER -- 0.1%
FINANCE -- 0.1%
804,948 Ford Motor Credit Corp., 6.00%,
1/2/97......................... 804,948
------------
TOTAL COMMERCIAL PAPER......... 804,948
------------
(cost $804,948)
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<S> <C> <C>
CORPORATE NOTES AND BONDS -- 18.8%
BANKING -- 6.6%
$ 6,000,000 Bank of Montreal-Chicago,
7.80%, 4/1/07.................. $ 6,246,840
7,000,000 Chemical Bank, 7.00%, 6/1/05... 6,985,300
8,000,000 Midland Bank PLC, 6.95%,
3/15/11........................ 7,718,320
5,000,000 NCNB Corp., 9.38%, 9/15/09..... 5,856,300
8,000,000 Royal Bank of Scotland, 6.38%,
2/1/11......................... 7,347,440
7,000,000 Societe Generale New York,
9.88%, 7/15/03................. 8,076,390
9,350,000 Societe Generale New York,
7.40%, 6/1/06.................. 9,512,130
------------
51,742,720
------------
BROKERS -- 3.6%
5,000,000 Morgan Stanley Group, Inc.,
Medium Term Note, Series C,
6.70%, 5/1/01.................. 5,015,850
5,000,000 Salomon, Inc., Medium Term
Note, 6.22%*, 2/15/99.......... 5,010,250
5,000,000 Salomon, Inc., 7.25%, 5/1/01... 5,047,300
5,000,000 Smith Barney Holdings, Inc.,
6.63%, 11/15/03................ 4,923,450
8,000,000 Smith Barney Holdings, Inc.,
7.13%, 10/1/06................. 7,990,000
------------
27,986,850
------------
FINANCIAL SERVICES -- 7.1%
10,000,000 CIT Group Holdings, Medium Term
Note, 6.25%, 10/25/99.......... 9,980,300
10,000,000 Ford Capital, Guaranteed Notes,
9.88%, 5/15/02................. 11,374,000
8,400,000 Ford Motor Credit Corp., Medium
Term Note, 9.03%, 12/30/09,
Callable 12/30/04 @ 100........ 9,370,704
5,000,000 General Electric Capital Corp.,
6.66%*, 5/1/18, Callable 5/1/00
@ 100.......................... 5,031,300
4,000,000 Household Finance Corp., 6.88%,
3/1/03......................... 4,020,360
10,000,000 New England Education, Loan
Marketing Corp., Medium Term
Note, 6.13%, 7/17/98........... 9,975,000
5,000,000 Sears Roebuck Acceptance Corp.,
Medium Term Note, 6.86%,
8/6/01......................... 5,040,200
------------
54,791,864
------------
</TABLE>
Continued
15
<PAGE> 17
The Kent INTERMEDIATE BOND FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ ------------
<S> <C> <C>
CORPORATE NOTES AND BONDS (CONTINUED)
HUMAN RESOURCES -- 0.7%
$ 5,500,000 Olsten Corp., 7.00%, 3/15/06... $ 5,461,775
------------
TELECOMMUNICATIONS -- 0.8%
6,000,000 Bell Canada, 7.75%, 4/1/06..... 6,292,140
------------
TOTAL CORPORATE NOTES AND BONDS
(cost $144,750,685)............ 146,275,349
------------
TOTAL INVESTMENTS -- 98.9%................... 768,261,590
(cost $773,709,363)(a)
OTHER ASSETS IN EXCESS OF LIABILITIES --
1.1%....................................... 8,461,248
------------
NET ASSETS -- 100.0%......................... $776,722,838
============
<FN>
- ---------------------------------------
Percentages indicated are based on net assets of $776,722,838.
(a) Represents cost for financial reporting purposes and
differs from cost basis for federal income tax
purposes by the amount of losses recognized for
financial reporting in excess of federal income tax
reporting of approximately $687,000. Cost for federal
income tax purposes differs from value by net
unrealized depreciation of securities as follows:
Unrealized appreciation.......... $ 4,518,491
Unrealized depreciation.......... (10,653,264)
------------
Net unrealized depreciation...... $ (6,134,773)
============
* Variable rate security. Rate presented represents rate
in effect at December 31, 1996. Maturity date reflects
next rate change date.
PLC Public Limited Company
</TABLE>
See Notes to Financial Statements.
16
<PAGE> 18
The Kent INCOME FUND
Funds PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ -------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 62.6%
U.S. TREASURY BONDS -- 62.6%
$30,000,000 11.88%, 11/15/03............... $ 39,135,900
25,000,000 10.38%, 11/15/12............... 32,195,250
41,800,000 9.25%, 2/15/16................. 53,066,354
10,350,000 7.25%, 5/15/16................. 10,928,979
7,500,000 8.75%, 8/15/20................. 9,234,375
7,000,000 7.13%, 2/15/23................. 7,308,420
-------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS.................... 151,869,278
-------------
(cost $151,160,825)
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.2%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 1.1%
2,500,000 7.22%, 6/14/06................. 2,583,600
-------------
FEDERAL NATIONAL MORTGAGE
ASSOC. -- 2.1%
5,000,000 7.40%, 7/1/04.................. 5,239,850
-------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS.................... 7,823,450
-------------
(cost $7,520,354)
COMMERCIAL PAPER -- 0.2%
FINANCE -- 0.2%
478,449 Ford Motor Credit Corp.,
6.00%, 1/2/97.................. 478,449
-------------
TOTAL COMMERCIAL PAPER......... 478,449
-------------
(cost $478,449)
CORPORATE NOTES AND BONDS -- 30.9%
BANKING -- 14.7%
2,700,000 Bank of Montreal-Chicago,
7.80%, 4/1/07.................. 2,811,078
2,000,000 Bank of New York,
8.50%, 12/15/04................ 2,184,060
2,000,000 BankAmerica Corp.,
7.20%, 4/15/06................. 2,019,580
2,000,000 Chase Manhattan Corp.,
7.13%, 3/1/05.................. 2,014,820
2,000,000 Fleet Financial Group,
8.63%, 1/15/07................. 2,206,680
2,000,000 Midland Bank PLC,
7.63%, 6/15/06................. 2,070,920
2,000,000 Midland Bank PLC,
6.95%, 3/15/11................. 1,929,580
3,000,000 National City Bank of
Cleveland,
7.25%, 7/15/10................. 3,007,050
3,000,000 NCNB Corp.,
10.20%, 7/15/15................ 3,795,570
2,250,000 PNC Bank, N.A.,
7.88%, 4/15/05................. 2,354,175
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ -------------
<S> <C> <C>
CORPORATE NOTES AND BONDS (CONTINUED)
BANKING (CONTINUED)
$2,000,000 Republic New York Corp.,
7.00%, 3/22/11................. $ 1,965,860
3,000,000 Royal Bank of Scotland,
6.38%, 2/1/11.................. 2,755,290
4,600,000 Societe Generale New York,
7.40%, 6/1/06.................. 4,679,764
2,000,000 Swiss Bank Corp. -- New York,
7.38%, 7/15/15................. 1,991,440
-------------
35,785,867
-------------
BROKERS -- 1.7%
2,000,000 Lehman Brothers Holdings, Inc.,
8.75%, 3/15/05................. 2,154,120
2,000,000 Salomon, Inc.,
6.75%, 2/15/03................. 1,958,820
-------------
4,112,940
-------------
CHEMICALS -- 1.3%
3,000,000 Engelhard Corp.,
7.38%, 8/1/06.................. 3,089,850
-------------
FINANCIAL SERVICES -- 4.5%
2,000,000 Discover Credit,
9.26%, 3/20/12................. 2,370,000
2,000,000 Ford Motor Credit Corp.,
9.03%, 12/30/09, Callable
12/30/04 @ 100................. 2,231,120
2,000,000 General Motors Acceptance
Corp.,
9.13%, 7/15/01................. 2,186,500
4,000,000 St. Paul Cos., Inc.,
7.25%, 8/9/07.................. 4,080,280
-------------
10,867,900
-------------
GAS TRANSMISSION -- 1.0%
2,500,000 Enserch Corp.,
7.13%, 6/15/05................. 2,487,800
-------------
HUMAN RESOURCES -- 0.6%
1,500,000 Olsten Corp.,
7.00%, 3/15/06................. 1,489,575
-------------
INSURANCE -- 1.7%
2,000,000 Geico Corp.,
7.50%, 4/15/05................. 2,067,760
2,000,000 Travelers Group, Inc.,
7.88%, 5/15/25................. 2,088,980
-------------
4,156,740
-------------
OIL & GAS -- 2.5%
5,000,000 Phillips Petroleum Co.,
9.38%, 2/15/11................. 5,971,750
-------------
RETAIL STORES -- 2.1%
5,000,000 Fred Meyer, Inc., Lease Trust,
8.50%, 7/15/17 (b)............. 5,166,500
-------------
</TABLE>
Continued
17
<PAGE> 19
The Kent INCOME FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------ -------------
<S> <C> <C>
CORPORATE NOTES AND BONDS (CONTINUED)
UTILITIES -- 0.8%
$2,000,000 Pacific Gas & Electric,
6.25%, 3/1/04.................. $ 1,918,380
-------------
TOTAL CORPORATE NOTES AND
BONDS.......................... 75,047,302
-------------
(cost $73,925,490)
FOREIGN GOVERNMENT AGENCY -- 0.5%
CANADA -- 0.5%
1,000,000 Hydro-Quebec,
9.41%, 3/23/00................. 1,081,880
-------------
TOTAL FOREIGN GOVERNMENT
AGENCY......................... 1,081,880
-------------
(cost $1,059,483)
MUNICIPAL SECURITY -- 0.8%
CALIFORNIA -- 0.8%
2,000,000 San Bernardino County Financing
Authority,
Pension Obligation Revenue,
6.99%, 8/1/10,
(Insured by MBIA).............. 1,995,000
-------------
TOTAL MUNICIPAL SECURITY....... 1,995,000
-------------
(cost $2,030,920)
TOTAL INVESTMENTS -- 98.2%................... 238,295,359
(cost $236,175,521)(a)
OTHER ASSETS IN EXCESS OF LIABILITIES --
1.8%....................................... 4,486,356
-------------
NET ASSETS -- 100.0%......................... $ 242,781,715
=============
<FN>
- ---------------------------------------
Percentages indicated are based on net assets of
$242,781,715.
(a) Represents cost for federal income tax purposes and
differs from value by net unrealized appreciation of
securities as follows:
Unrealized appreciation............ $ 3,752,698
Unrealized depreciation............ (1,632,860)
-----------
Net unrealized appreciation........ $ 2,119,838
============
(b) 144a security which is restricted as to resale to
institutional investors.
MBIA -- Municipal Bond Insurance Association
PLC -- Public Limited Company
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 20
The Kent STATEMENTS OF ASSETS AND LIABILITIES
Funds DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT TERM
BOND INTERMEDIATE
FUND BOND FUND INCOME FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost.................................................. $234,414,614 $773,709,363 $236,175,521
Net unrealized appreciation (depreciation)........................... (851,807) (5,447,773) 2,119,838
------------ ------------ ------------
Total investments at value......................................... 233,562,807 768,261,590 238,295,359
Interest and dividends receivable...................................... 3,628,157 13,741,603 4,592,584
Unamortized organizational costs (Note 2).............................. -- -- 6,024
Prepaid expenses....................................................... 1,563 2,223 --
------------ ------------ ------------
Total Assets......................................................... 237,192,527 782,005,416 242,893,967
------------ ------------ ------------
LIABILITIES:
Payable for investments purchased...................................... -- 5,000,000 --
Advisory fees payable (Note 3)......................................... 12,946 47,973 16,025
Payable to administrator (Note 3)...................................... 36,430 120,027 36,186
Payable to transfer agent (Note 3)..................................... 16,608 39,857 11,758
Printing fees payable.................................................. 4,851 12,085 6,901
Registration & filing fees payable..................................... -- -- 18,318
Accrued expenses and other liabilities................................. 24,782 62,636 23,064
------------ ------------ ------------
Total Liabilities.................................................... 95,617 5,282,578 112,252
------------ ------------ ------------
NET ASSETS............................................................... $237,096,910 $776,722,838 $242,781,715
============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $243,035,195 $789,079,580 $239,174,252
Accumulated undistributed net investment income........................ 108,998 131,834 49,689
Accumulated net realized gains (losses) on investments sold............ (5,195,476) (7,040,803) 1,437,936
Net unrealized appreciation/depreciation of investments................ (851,807) (5,447,773) 2,119,838
------------ ------------ ------------
TOTAL NET ASSETS......................................................... $237,096,910 $776,722,838 $242,781,715
============ ============ ============
INSTITUTIONAL SHARES:
Net Assets............................................................. $235,430,128 $769,395,499 $240,059,997
Shares Outstanding..................................................... 24,151,394 78,822,775 23,623,536
Net Asset Value, offering and redemption price per share............... $ 9.75 $ 9.76 $ 10.16
============ ============ ============
INVESTMENT SHARES:
Net Assets............................................................. $ 1,666,782 $ 7,327,339 $ 2,721,718
Shares Outstanding..................................................... 171,112 749,163 267,927
Net Asset Value and redemption price per share......................... $ 9.74 $ 9.78 $ 10.16
============ ============ ============
Maximum Sales Charge -- Investment Shares.............................. 4.00% 4.00% 4.00%
============ ============ ============
Maximum Offering Price Per Share -- Investment Shares
(100%/(100%-Maximum Sales Charge) of net asset value
adjusted to nearest cent)............................................ $ 10.15 $ 10.19 $ 10.58
============ ============ ============
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 21
The Kent STATEMENTS OF OPERATIONS
Funds FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT TERM
BOND INTERMEDIATE
FUND BOND FUND INCOME FUND
----------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 2):
Interest.............................................................. $19,169,228 $ 55,874,467 $14,688,283
Dividends............................................................. 249,655 1,250,117 234,655
Other income.......................................................... 49,300 -- --
----------- ------------ -----------
Total Investment Income............................................. 19,468,183 57,124,584 14,922,938
----------- ------------ -----------
EXPENSES:
Investment advisory fees (Note 3)..................................... 1,421,272 4,537,199 1,209,526
Administration fees (Note 3).......................................... 563,561 1,635,571 399,104
Custodian fees........................................................ 13,952 30,360 13,946
Legal and audit fees (Note 3)......................................... 11,500 41,331 23,288
Transfer agent fees (Note 3).......................................... 32,649 76,868 25,309
Distribution fees (Note 3)............................................ 3,861 18,017 5,672
Amortization of organization costs (Note 2)........................... -- -- 1,855
Other expenses........................................................ -- 56,522 1,358
----------- ------------ -----------
Total Expenses before waivers....................................... 2,046,795 6,395,868 1,680,058
Less: Waivers (Note 3).............................................. (6,738) (17,116) (5,166)
----------- ------------ -----------
Net Expenses.......................................................... 2,040,057 6,378,752 1,674,892
----------- ------------ -----------
NET INVESTMENT INCOME................................................... 17,428,126 50,745,832 13,248,046
----------- ------------ -----------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS (NOTE 2):
Net realized gains (losses) on investments sold....................... (937,245) (7,025,161) 2,157,485
Net change in unrealized appreciation/depreciation of investments..... (5,032,357) (20,975,605) (7,015,717)
----------- ------------ -----------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS....................... (5,969,602) (28,000,766) (4,858,232)
----------- ------------ -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $11,458,524 $ 22,745,066 $ 8,389,814
=========== ============ ===========
</TABLE>
See Notes to Financial Statements.
20
<PAGE> 22
The Kent
Funds STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT TERM INTERMEDIATE
BOND FUND BOND FUND INCOME FUND
---------------------------- ----------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995(1)
------------- ------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF
PERIOD.......................... $ 312,313,894 $178,414,322 $ 861,662,351 $ 987,061,853 $ 128,017,408 $ --
------------- ------------ ------------- ------------- ------------- ------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income........... 17,428,126 16,283,239 50,745,832 56,284,701 13,248,046 6,998,828
Net realized gains (losses) on
investments sold.............. (937,245) (169,677) (7,025,161) 26,073,254 2,157,485 3,044,746
Net change in unrealized
appreciation/depreciation of
investments................... (5,032,357) 9,890,799 (20,975,605) 51,247,235 (7,015,717) 9,135,555
------------- ------------ ------------- ------------- ------------- ------------
Net increase in net assets
resulting from operations..... 11,458,524 26,004,361 22,745,066 133,605,190 8,389,814 19,179,129
------------- ------------ ------------- ------------- ------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 2):
INSTITUTIONAL:
Net investment income........... (17,416,111) (16,005,158) (51,337,391) (54,864,816) (13,204,524) (6,835,136)
In excess of net investment
income........................ -- -- (2,304,413) -- (1,956,281) --
Net realized gains on
investments................... -- -- -- -- (717,482) (1,002,058)
------------- ------------ ------------- ------------- ------------- ------------
Total Dividends and
Distributions -- Institutional
Shares...................... (17,416,111) (16,005,158) (53,641,804) (54,864,816) (15,878,287) (7,837,194)
------------- ------------ ------------- ------------- ------------- ------------
INVESTMENT:
Net investment income........... (85,476) (86,567) (422,949) (405,376) (143,574) (63,640)
In excess of net investment
income........................ (9,055) -- (38,057) -- (20,998) --
Net realized gains on
investments................... -- -- -- -- (2,063) (15,724)
------------- ------------ ------------- ------------- ------------- ------------
Total Dividends and
Distributions -- Investment
Shares...................... (94,531) (86,567) (461,006) (405,376) (166,635) (79,364)
------------- ------------ ------------- ------------- ------------- ------------
Total Dividends and
Distributions to
shareholders................ (17,510,642) (16,091,725) (54,102,810) (55,270,192) (16,044,922) (7,916,558)
------------- ------------ ------------- ------------- ------------- ------------
FUND SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares issued..... 71,401,214 323,161,029 200,094,674 247,279,350 155,448,604 190,561,586
Reinvestment of distributions... 11,174,796 10,720,840 29,128,985 27,999,029 2,778,971 1,295,537
Cost of shares redeemed......... (151,740,876) (209,894,933) (282,805,428) (479,012,879) (35,808,160) (75,102,286)
------------- ------------ ------------- ------------- ------------- ------------
TOTAL NET INCREASE (DECREASE) FROM
SHARE TRANSACTIONS.............. (69,164,866) 123,986,936 (53,581,769) (203,734,500) 122,419,415 116,754,837
------------- ------------ ------------- ------------- ------------- ------------
Net increase (decrease) in net
assets........................ (75,216,984) 133,899,572 (84,939,513) (125,399,502) 114,764,307 128,017,408
------------- ------------ ------------- ------------- ------------- ------------
NET ASSETS AT END OF PERIOD
(INCLUDING LINE A).............. $ 237,096,910 $312,313,894 $ 776,722,838 $ 861,662,351 $ 242,781,715 $128,017,408
============= ============ ============== ============= ============= ============
(A) Accumulated undistributed net
investment income............... $ 108,998 $ 191,514 $ 131,834 $ 1,014,509 $ 49,689 $ 100,052
============= ============ ============== ============= ============= ============
<FN>
- ------------------------------------------------------------------------
(1) The Fund commenced operations on March 20, 1995.
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 23
The Kent
Funds NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Kent Funds (the "Trust") was organized as a Massachusetts business trust
on May 9, 1986 and is registered under the Investment Company Act of 1940 (the
"1940 Act"), as amended, as an open-end management investment company. As of the
date of this report, the Trust offered thirteen managed investment portfolios.
The accompanying financial statements and financial highlights are those of The
Kent Short Term Bond Fund, The Kent Intermediate Bond Fund and The Kent Income
Fund (individually, a "Portfolio", collectively, the "Portfolios") only.
The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited
number of shares of beneficial interest without par value. It allows for the
creation of one or more classes of shares within each series, each of which,
regardless of class designation, represents an equal proportionate interest in
the Portfolios with each other share of that series.
The Trust may issue more than one series of shares investing in portfolios of
securities. The Trust currently issues thirteen series of shares with two
separate classes in each series, Investment Shares and Institutional Shares.
Each class of shares is entitled upon liquidation of a series to a pro rata
share in the net assets of that class of such series. Each share in each series
or class has identical voting, dividend, liquidation and other rights, except in
matters affecting only a particular series or class, in which case only shares
of the affected series or class are entitled to vote. Class specific expenses,
if any, are currently limited to expenses directly attributable to the
Investment Shares under the Distribution Plan, shareholder services fees and
certain printing and postage expenses incurred as they relate to a particular
class of shares.
The investment objective of the Short Term Bond Fund is to seek current income
by investing primarily in a limited range of investment quality fixed income
securities. The Intermediate Bond Fund's investment objective is to seek current
income by investing primarily in a broad range of investment quality debt
securities. The investment objective of the Income Fund is to seek a high level
of current income by investing in a broad range of investment quality debt
securities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Portfolios in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual amounts could differ from those estimates.
PORTFOLIO VALUATION: Corporate debt securities, municipal securities and debt
securities of the U.S. government and its agencies (other than short-term
investments maturing in 60 days or less) are valued on the basis of valuations
provided by dealers or by an independent pricing service approved by the Board
of Trustees. Short-term obligations that mature in 60 days or less are valued at
amortized cost, which constitutes fair value and approximates market value. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Net realized gains and losses on investments sold
are recorded on the basis of identified cost. Interest income, including
accretion of discounts, is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Portfolios declare and
distribute dividends from net investment income monthly. Net investment income
for this purpose consists of interest accrued, discount earned (including both
original issue and market discount) and dividends earned less accrued expenses.
Net realized capital gains, if any, are distributed at least annually.
The amounts of income and capital gains to be distributed are determined in
accordance with income tax regulations. Such amounts may vary from income and
capital gains recognized in accordance with generally accepted accounting
principles.
FEDERAL INCOME TAXES: For federal income tax purposes, each Portfolio is treated
as a separate entity for the purpose of determining its qualification as a
regulated investment company under the Internal Revenue Code (the "Code"). It is
the policy of each Portfolio to meet the requirements of the Code applicable to
regulated investment companies, including the requirement that it distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
22
<PAGE> 24
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amounts of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
At December 31, 1996, the following Portfolios had capital loss carryforwards
which will expire during the years indicated:
<TABLE>
<CAPTION>
FUND AMOUNT YEAR
- -------------------------------- ---------- ----
<S> <C> <C>
Short Term Bond Fund............ $ 656,100 2001
3,015,994 2002
467,881 2003
438,260 2004
----------
$4,578,235
==========
Intermediate Bond Fund.......... $6,353,600 2004
==========
</TABLE>
EXPENSES: Expenses directly attributable to a Portfolio are charged to the
Portfolio, while expenses which are attributable to more than one series of the
Trust are allocated among the respective series based upon relative net assets
or another appropriate basis. In addition, investors in Investment Shares will
pay the expenses directly attributable to the Investment Shares as a class, and
investors in Institutional Shares will pay the expenses directly attributable to
the Institutional Shares as a class.
ORGANIZATION COSTS: The Kent Income Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years beginning with the Portfolio's commencement of operations. In the event
that any of the initial shares purchased by the Portfolio's sponsor are redeemed
during such period by any holder thereof, the Portfolio will be reimbursed by
such holder for any unamortized organization costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of redemption.
3. RELATED PARTY TRANSACTIONS
Old Kent Bank ("Investment Adviser") serves as the investment adviser to the
Trust. The Investment Adviser is a member of the Michigan State Banking
Association and the principal subsidiary of Old Kent Financial Corporation. The
Investment Adviser is entitled to receive a fee, computed daily and paid
monthly, at the annual rate of 0.50% of the average daily net assets of the
Short Term Bond Fund, 0.55% of the average daily net assets of the Intermediate
Bond Fund and 0.60% of the average daily net assets of the Income Fund.
Effective August 5, 1996, BISYS Fund Services Limited Partnership d/b/a BISYS
Fund Services ("BISYS") assumed the duties as Administrator and Distributor for
the Trust from First Data Investor Services Group, Inc. ("First Data") and 440
Financial Distributors, Inc., an indirect wholly owned subsidiary of First Data,
respectively. Also, effective August 5, 1996 and October 7, 1996, respectively,
BISYS Fund Services, Inc. assumed the duties as Fund Accountant and Transfer
Agent for the Trust from First Data. BISYS and BISYS Fund Services, Inc. are
both wholly owned subsidiaries of The BISYS Group, Inc. The Administrator is
entitled to receive a fee, computed daily and paid monthly, at the annual rate
of 0.185% of the average daily net assets of the Trust up to $5 billion; 0.165%
of the average daily net assets of the Trust in excess of $5 billion up to $7.5
billion; and 0.135% of the average daily net assets of the Trust in excess of
$7.5 billion. Fund Accounting fees are computed daily and paid monthly at the
annual rate of 0.015% of the average daily net assets of the Trust and are
included as part of the fees paid to the Administrator.
Transfer agent fees for each Portfolio for the year ended December 31, 1996
are as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTMENT
FUND SHARES SHARES
- --------------------------- ------------- ----------
<S> <C> <C>
Short Term Bond Fund....... $32,464 $185
Intermediate Bond Fund..... 76,182 686
Income Fund................ 25,024 285
</TABLE>
23
<PAGE> 25
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The current and previous Administrators have voluntarily reduced their fees
for the Portfolios. Total administration fees waived for the year ended December
31, 1996 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTMENT
FUND SHARES SHARES
- --------------------------- ------------- ----------
<S> <C> <C>
Short Term Bond Fund....... $ 5,159 $ 35
Intermediate Bond Fund..... 16,960 156
Income Fund................ 5,111 55
</TABLE>
Certain officers of the Trust are affiliated with BISYS. Such officers receive
no direct payments or fees from the Portfolios for serving as officers.
The Trust has adopted a distribution plan (the "Plan") on behalf of the
Investment Shares of the Portfolios pursuant to Rule 12b-1 of the 1940 Act. The
Plan provides for payments to the Distributor of up to 0.25% of the average
daily net assets of the Investment Shares of the Portfolios. Currently, the
Short Term Bond Fund makes payments at the rate of only 0.15% of the average
daily net assets of its Investment Shares pursuant to the Plan. For the year
ended December 31, 1996, the Distributor had waived a total of $1,544 of
distribution fees for the Short Term Bond Fund.
Gross distribution fees for each Portfolio for the year ended December 31,
1996 are as follows:
<TABLE>
<CAPTION>
FUND INVESTMENT SHARES
- ----------------------------------- -----------------
<S> <C>
Short Term Bond Fund............... $ 3,861
Intermediate Bond Fund............. 18,017
Income Fund........................ 5,672
</TABLE>
Expenses for the Trust include legal fees paid to Drinker Biddle & Reath. A
partner of that firm serves as an Assistant Secretary of the Trust.
24
<PAGE> 26
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Portfolios are summarized below:
<TABLE>
<CAPTION>
SHORT TERM INTERMEDIATE
BOND FUND BOND FUND INCOME FUND
----------------------------- ----------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995(1)
------------- ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DOLLAR AMOUNTS
INSTITUTIONAL:
Shares issued................. $ 71,054,235 $ 322,116,358 $ 198,301,060 $ 245,393,454 $154,129,760 $188,610,553
Reinvestment of
distributions............... 11,089,747 10,643,869 28,757,725 27,671,824 2,631,559 1,224,206
Shares redeemed............... (151,375,676) (208,678,578) (281,359,682) (473,921,393) (35,226,634) (74,962,453)
------------- ------------- ------------- ------------- ------------ ------------
Net increase (decrease) from
Institutional Share
transactions............. $ (69,231,694) $ 124,081,649 $ (54,300,897) $(200,856,115) $121,534,685 $114,872,306
============= ============= ============= ============= ============ ============
INVESTMENT:
Shares issued................. $ 346,979 $ 1,044,671 $ 1,793,614 $ 1,885,896 $ 1,318,844 $ 1,951,033
Reinvestment of
distributions............... 85,049 76,971 371,260 327,205 147,412 71,331
Shares redeemed............... (365,200) (1,216,355) (1,445,746) (5,091,486) (581,526) (139,833)
------------- ------------- ------------- ------------- ------------ ------------
Net increase (decrease) from
Investment Share
transactions............. $ 66,828 $ (94,713) $ 719,128 $ (2,878,385) $ 884,730 $ 1,882,531
============= ============= ============= ============= ============ ============
Total net increase (decrease) from
Share transactions.............. $ (69,164,866) $ 123,986,936 $ (53,581,769) $(203,734,500) $122,419,415 $116,754,837
============= ============= ============= ============= ============ ============
SHARE ACTIVITY
INSTITUTIONAL:
Shares issued................. 7,222,192 32,658,819 20,156,864 24,970,345 15,175,279 18,576,033
Reinvestment of
distributions............... 1,133,650 1,085,057 2,949,495 2,819,915 259,124 116,628
Shares redeemed............... (15,396,719) (21,120,973) (28,751,972) (48,530,997) (3,437,207) (7,066,321)
------------- ------------- ------------- ------------- ------------ ------------
Net increase (decrease) from
Institutional Share
transactions............. (7,040,877) 12,622,903 (5,645,613) (20,740,737) 11,997,196 11,626,340
============= ============= ============= ============= ============ ============
INVESTMENT:
Shares issued................. 35,323 106,935 182,449 192,685 129,967 187,592
Reinvestment of
distributions............... 8,703 7,878 38,010 33,253 14,507 6,743
Shares redeemed............... (37,044) (123,971) (148,005) (536,288) (57,824) (13,058)
------------- ------------- ------------- ------------- ------------ ------------
Net increase (decrease) from
Investment Share
transactions............. 6,982 (9,158) 72,454 (310,350) 86,650 181,277
============= ============= ============= ============= ============ ============
Total net increase (decrease) from
Share transactions.............. (7,033,895) 12,613,745 (5,573,159) (21,051,087) 12,083,846 11,807,617
============= ============= ============= ============= ============ ============
<FN>
- ------------------------------------------------------------------------
(1) The Fund commenced operations on March 20, 1995.
</TABLE>
25
<PAGE> 27
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------- -------------- --------------
<S> <C> <C>
Short Term Bond Fund... $ 86,687,429 $ 154,134,058
Intermediate Bond
Fund................. 1,044,698,353 1,048,061,020
Income Fund............ 317,210,138 197,212,919
</TABLE>
6. FEDERAL INCOME TAXES (UNAUDITED)
During the year ended December 31, 1996, the Income Fund declared long-term
capital distributions in the amount of $641,432.
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following year. The
Short Term Bond Fund and Income Fund had deferred losses of $617,241 and $2,737,
respectively, which will be treated as arising on the first day of the fiscal
year ending December 31, 1997.
26
<PAGE> 28
The Kent SHORT TERM BOND FUND
Funds FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 9.96 $ 9.52 $ 9.91 $ 9.99 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income...................................... 0.61 0.55 0.48 0.42 0.07
Net realized and unrealized gains (losses) on securities... (0.21) 0.43 (0.38) (0.09) (0.01)
-------- -------- -------- -------- --------
Total Income from Investment Operations.................. 0.40 0.98 0.10 0.33 0.06
-------- -------- -------- -------- --------
Less Dividends and Distributions from:
Net investment income...................................... (0.61) (0.54) (0.49) (0.41) (0.07)
In excess of net investment income......................... -- -- ** -- **
-------- -------- -------- -------- --------
Total Dividends and Distributions........................ (0.61) (0.54) (0.49) (0.41) (0.07)
-------- -------- -------- -------- --------
Net change in net asset value................................ (0.21) 0.44 (0.39) (0.08) (0.01)
-------- -------- -------- -------- --------
Net asset value, end of period............................... $ 9.75 $ 9.96 $ 9.52 $ 9.91 $ 9.99
======== ======== ======== ======== ========
Total return................................................. 4.22% 10.53% 1.03% 3.36% 0.53%++
Ratios/Supplemental Data:
Net Assets, end of period (000's).......................... $235,430 $310,680 $176,765 $255,892 $186,124
Ratio of expenses to average net assets.................... 0.70% 0.77% 0.73% 0.81% 0.14%++
Ratio of net investment income to average net assets....... 6.17% 5.60% 4.75% 4.24% 4.05%+
Ratio of expenses to average net assets.................... 0.70%* +++ +++ +++ +++
Ratio of net investment income to average net assets....... 6.17%* +++ +++ +++ +++
Portfolio turnover rate(2)................................. 32% 75% 56% 50% 5%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
+++ During the period, there were no waivers and/or reimbursements.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on November 2, 1992.
(2) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
27
<PAGE> 29
The Kent SHORT TERM BOND FUND
Funds FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.95 $ 9.52 $ 9.91 $ 10.02 $ 9.99
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income..................................... 0.59 0.52 0.47 0.38 0.02
Net realized and unrealized gains (losses) on
securities.............................................. (0.20) 0.44 (0.37) (0.08) 0.01
-------- -------- -------- -------- --------
Total Income from Investment Operations................. 0.39 0.96 0.10 0.30 0.03
-------- -------- -------- -------- --------
Less Dividends and Distributions from:
Net investment income..................................... (0.54) (0.53) (0.48) (0.41) --
In excess of net investment income........................ (0.06) -- -- -- --
Net realized gains on securities.......................... -- -- (0.01) -- --
-------- -------- -------- -------- --------
Total Dividends and Distributions....................... (0.60) (0.53) (0.49) (0.41) --
-------- -------- -------- -------- --------
Net change in net asset value............................... (0.21) 0.43 (0.39) (0.11) 0.03
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 9.74 $ 9.95 $ 9.52 $ 9.91 $ 10.02
======== ======== ======== ======== ========
Total return(2)............................................. 4.06% 10.30% 1.01% 3.04% 0.30%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)......................... $ 1,667 $ 1,634 $ 1,649 $ 1,427 $ 111
Ratio of expenses to average net assets................... 0.85% 0.91% 0.74% 1.24% 0.12%++
Ratio of net investment income to average net assets...... 6.02% 5.40% 4.79% 3.91% 3.31%+
Ratio of expenses to average net assets................... 0.96%* +++ +++ +++ +++
Ratio of net investment income to average net assets...... 5.91%* +++ +++ +++ +++
Portfolio turnover rate(3)................................ 32% 75% 56% 50% 5%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
+++ During the period, there were no waivers and/or reimbursements.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(1) The Investment Class date of initial public investment was December 4, 1992.
(2) Calculation does not include sales charge.
(3) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
28
<PAGE> 30
The Kent INTERMEDIATE BOND FUND
Funds FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 10.12 $ 9.29 $ 10.18 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
Income (Loss) from Investment Operations:
Net investment income...................................... 0.60 0.65 0.56 0.51 0.08
Net realized and unrealized gains (losses) on securities... (0.32) 0.81 (0.88) 0.32 **
-------- -------- -------- -------- --------
Total Income (Loss) from Investment Operations........... 0.28 1.46 (0.32) 0.83 0.08
-------- -------- -------- -------- --------
Less Dividends and Distributions from:
Net investment income...................................... (0.61) (0.63) (0.54) (0.51) (0.08)
In excess of net investment income......................... (0.03) -- (0.01) ** **
Net realized gains on securities........................... -- -- (0.02) (0.14) --
-------- -------- -------- -------- --------
Total Dividends and Distributions........................ (0.64) (0.63) (0.57) (0.65) (0.08)
-------- -------- -------- -------- --------
Net change in net asset value................................ (0.36) 0.83 (0.89) 0.18 --
-------- -------- -------- -------- --------
Net asset value, end of period............................... $ 9.76 $ 10.12 $ 9.29 $ 10.18 $ 10.00
======== ======== ======== ======== ========
Total return................................................. 3.01% 16.18% (3.19%) 8.42% 0.83%++
Ratios/Supplemental Data:
Net Assets, end of period (000's).......................... $769,395 $854,801 $977,865 $434,264 $203,129
Ratio of expenses to average net assets.................... 0.77% 0.77% 0.80% 0.85% 0.15%++
Ratio of net investment income to average net assets....... 6.18% 6.50% 6.03% 5.03% 5.32%+
Ratio of expenses to average net assets.................... 0.78%* +++ +++ +++ +++
Ratio of net investment income to average net assets....... 6.17%* +++ +++ +++ +++
Portfolio turnover rate(2)................................. 135% 166% 124% 126% 1%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
+++ During the period, there were no waivers and/or reimbursements.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on November 2, 1992.
(2) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 31
The Kent INTERMEDIATE BOND FUND
Funds FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.14 $ 9.32 $ 10.19 $ 10.03 $ 9.98
------ ------ ------ ------ ------
Income (Loss) from Investment Operations:
Net investment income..................................... 0.58 0.61 0.57 0.47 0.03
Net realized and unrealized gains (losses) on
securities.............................................. (0.32) 0.82 (0.87) 0.34 0.02
------ ------ ------ ------ ------
Total Income (Loss) from Investment Operations.......... 0.26 1.43 (0.30) 0.81 0.05
------ ------ ------ ------ ------
Less Dividends and Distributions from:
Net investment income..................................... (0.57) (0.61) (0.54) (0.46) --
In excess of net investment income........................ (0.05) -- (0.01) (0.05) --
Net realized gains on securities.......................... -- -- (0.02) (0.14) --
------ ------ ------ ------ ------
Total Dividends and Distributions....................... (0.62) (0.61) (0.57) (0.65) --
------ ------ ------ ------ ------
Net change in net asset value............................... (0.36) 0.82 (0.87) 0.16 0.05
------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 9.78 $ 10.14 $ 9.32 $ 10.19 $ 10.03
====== ====== ====== ====== ======
Total return(2)............................................. 2.76% 15.76% (3.01%) 8.19% 0.50%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)......................... $ 7,327 $ 6,862 $ 9,196 $ 4,966 $ 174
Ratio of expenses to average net assets................... 1.02% 1.01% 0.81% 1.13% 0.16%++
Ratio of net investment income to average net assets...... 5.92% 6.24% 5.94% 4.75% 4.94%+
Ratio of expenses to average net assets................... 1.03%* +++ +++ +++ +++
Ratio of net investment income to average net assets...... 5.91%* +++ +++ +++ +++
Portfolio turnover rate(3)................................ 135% 166% 124% 126% 1%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
+++ During the period, there were no waivers and/or reimbursements.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(1) The Investment Class date of initial public investment was November 25,
1992.
(2) Calculation does not include sales charge.
(3) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
30
<PAGE> 32
The Kent INCOME FUND
Funds FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1995(1)
-------- --------
<S> <C> <C>
Net asset value, beginning of period........................................................ $ 10.84 $ 10.00
-------- --------
Income from Investment Operations:
Net investment income..................................................................... 0.66 0.55
Net realized and unrealized gains (losses) on securities.................................. (0.56) 0.92
-------- --------
Total Income from Investment Operations................................................. 0.10 1.47
-------- --------
Less Dividends and Distributions from:
Net investment income..................................................................... (0.65) (0.54)
In excess of net investment income........................................................ (0.10) --
Net realized gains on securities.......................................................... (0.03) (0.09)
-------- --------
Total Dividends and Distributions....................................................... (0.78) (0.63)
-------- --------
Net change in net asset value............................................................... (0.68) 0.84
-------- --------
Net asset value, end of period.............................................................. $ 10.16 $ 10.84
======== ========
Total return................................................................................ 1.19% 15.05%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)......................................................... $240,060 $126,056
Ratio of expenses to average net assets................................................... 0.83% 0.91%+
Ratio of net investment income to average net assets...................................... 6.57% 6.65%+
Ratio of expenses to average net assets................................................... 0.83%* +++
Ratio of net investment income to average net assets...................................... 6.57%* +++
Portfolio turnover rate(2)................................................................ 102% 50%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
+++ During the period, there were no waivers and/or reimbursements.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(1) The Institutional Class commenced operations on March 20, 1995.
(2) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 33
The Kent INCOME FUND
Funds FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995(1)
------ ------
<S> <C> <C>
Net asset value, beginning of period............................................................. $10.82 $10.00
------ ------
Income from Investment Operations:
Net investment income.......................................................................... 0.66 0.52
Net realized and unrealized gains (losses) on securities....................................... (0.56) 0.91
------ ------
Total Income from Investment Operations...................................................... 0.10 1.43
------ ------
Less Dividends and Distributions from:
Net investment income.......................................................................... (0.64) (0.52)
In excess of net investment income............................................................. (0.09) --
Net realized gains on securities............................................................... (0.03) (0.09)
------ ------
Total Dividends and Distributions............................................................ (0.76) (0.61)
------ ------
Net change in net asset value.................................................................... (0.66) 0.82
------ ------
Net asset value, end of period................................................................... $10.16 $10.82
====== ======
Total return(2).................................................................................. 1.16% 14.63%++
Ratios/Supplemental Data:
Net Assets, end of period (000's).............................................................. $2,722 $1,961
Ratio of expenses to average net assets........................................................ 1.08% 1.14%+
Ratio of net investment income to average net assets........................................... 6.31% 6.40%+
Ratio of expenses to average net assets........................................................ 1.08%* +++
Ratio of net investment income to average net assets........................................... 6.31%* +++
Portfolio turnover rate(3)..................................................................... 102% 50%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
+++ During the period, there were no waivers and/or reimbursements.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(1) The Investment Class date of initial public investment was March 22, 1995.
(2) Calculation does not include sales charge.
(3) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
32
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees of
The Kent Funds:
We have audited the accompanying statements of assets and liabilities of The
Kent Funds -- Short Term Bond Fund, Intermediate Bond Fund and Income Fund,
including the portfolios of investments, as of December 31, 1996, and the
related statements of operations, statements of changes in net assets and the
financial highlights for each of the periods indicated herein. These financial
statements and the financial highlights are the responsibility of The Kent
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1996, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds at December 31, 1996, the results of their
operations, the changes in their net assets and the financial highlights for
each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 21, 1997
<PAGE> 35
THE KENT FUNDS(R) BULK RATE
P.O.Box 182201 US POSTAGE
Columbus, OH 43218-2201 PAID
PERMIT No. 1
CLEVELAND, OH
KKF-0159 (2/97)
