<PAGE> 1
As filed with the Securities and Exchange Commission on February 14, 1997
Securities Act File No. 33-8398
Investment Company Act File No. 811-4824
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.____ [ ]
Post-Effective Amendment No. 21 and/or [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22
</TABLE>
THE KENT FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
((614) 470-8000)
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
1345 Chestnut Street, Philadelphia, PA 19107
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
<TABLE>
<S> <C>
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2)
---
___ on (date) pursuant to paragraph (a)(2) of rule 485.
</TABLE>
The Registrant has filed a Declaration of indefinite registration of its shares
pursuant to Rule 24f-2 under the Investment Company Act of 1940. A Rule 24f-2
Notice for Registrant's fiscal year ended December 31, 1996 will be filed no
later than February 28, 1997.
-1-
<PAGE> 2
THE KENT FUNDS
CROSS REFERENCE SHEET
495(a) under the Securities Act of 1933.
<TABLE>
<CAPTION>
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Financial Information
Item 3. Condensed Financial Financial Information
Information
Item 4. General Description of Cover Page
Registrant Fund Choices
Structure and Management of the Funds
Item 5. Management of the Fund Structure and Management of the Funds
Expense Information
Item 5A. Management's Discussion of Not Applicable
Fund Performance
Item 6. Capital Stock and Other Structure and Management of
Securities the Funds
Dividends, Distributions and Taxes
Additional Information
Item 7. Purchase of Securities Purchase of Shares
Being Offered Expense Information
Item 8. Redemption or Repurchase Redemptions (Sales) of Shares
Item 9. Pending Legal Proceedings Not applicable
</TABLE>
-2-
<PAGE> 3
THE KENT FUNDS
Prospectus
Dated May 1, 1997
THIS PROSPECTUS RELATES TO THE FOLLOWING MONEY MARKET FUNDS ("FUNDS"):
THE KENT MONEY MARKET FUND seeks current income while preserving capital and
maintaining liquidity.
THE KENT GOVERNMENT MONEY MARKET FUND seeks current income from short-term
United States government securities while preserving capital and maintaining
liquidity.
THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND seeks current income, exempt
from Federal income and Michigan state personal income taxes, while preserving
capital and maintaining liquidity.
This Prospectus contains information that a prospective investor should know
before investing. Investors should read and retain this Prospectus for future
reference. The Kent Funds has filed a Statement of Additional Information
("SAI") dated May 1, 1997 with the Securities and Exchange Commission, which
is incorporated by reference into this Prospectus. For a free copy of the
SAI, or for other information about the Funds, write to the address or call
the telephone number listed below.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE FUNDS' INVESTMENT ADVISER OR ANY OF ITS AFFILIATES, AND ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. WHILE EACH FUND INTENDS TO
MAINTAIN A STABLE NET ASSET VALUE PER SHARE OF $1.00, THERE IS NO GUARANTEE
THAT IT WILL BE ABLE TO DO SO. AN INVESTMENT IN MUTUAL FUND SHARES INVOLVES
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. OLD KENT BANK RECEIVES FEES
FROM THE FUNDS FOR ADVISORY AND CERTAIN OTHER SERVICES.
THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND MAY INVEST A SIGNIFICANT PORTION
OF ITS ASSETS IN THE SECURITIES OF A SINGLE ISSUER. AS A RESULT, AN
INVESTMENT IN THE FUND MAY ENTAIL MORE RISKS THAN AN INVESTMENT IN ANOTHER
TYPE OF MONEY MARKET FUND.
THE KENT FUNDS
P.O. Box 182201
Columbus, Ohio 43218-2201
CALL TOLL-FREE FOR SHAREHOLDER SERVICES:
1-800-633-KENT (5368)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
HIGHLIGHTS
What are the key facts regarding the Funds? ..............................
FINANCIAL INFORMATION
What are the Funds' fees and expenses? ...................................
FUND CHOICES
What Funds are offered? ..................................................
What instruments do the Funds invest in? .................................
What are the risks of investing in the Funds? ............................
PERFORMANCE
How is the Funds' performance calculated? ................................
Where can I obtain performance data? .....................................
EXPENSE INFORMATION
What are the Funds' expenses? ............................................
PURCHASES OF SHARES
Who may want to invest in the Funds? .....................................
When can I purchase shares? ..............................................
What is the minimum required investment? .................................
How can I purchase shares? ...............................................
What price do I pay for shares? ..........................................
REDEMPTIONS (SALES) OF SHARES
When can I redeem shares? ................................................
How can I redeem shares? .................................................
What price do I receive for shares? ......................................
When will I receive redemption money? ....................................
STRUCTURE AND MANAGEMENT OF THE FUNDS
How are the Funds structured? ............................................
Who manages and services the Funds? ......................................
What are my rights as a Fund shareholder? ................................
DIVIDENDS, DISTRIBUTIONS AND TAXES
When will I receive distributions from the Funds? ........................
How will distributions be made? ..........................................
What are the tax implications of my investments in the Funds? ............
ADDITIONAL INFORMATION
Where do I get additional information about my account and the Funds? ....
</TABLE>
2
<PAGE> 5
HIGHLIGHTS
WHAT ARE THE KEY FACTS REGARDING THE FUNDS?
Q: What are The Kent Funds?
A: The Kent Funds (the "Trust") is an open-end management investment company
(commonly known as a mutual fund) that offers investors the opportunity to
invest in different investment portfolios, each having separate investment
objectives and policies. This prospectus describes the Trust's Money Market
Fund, Government Money Market Fund and Michigan Municipal Money Market Fund.
See "Fund Choices - What Funds are Offered?" The Trust also offers the
following investment portfolios by separate prospectuses: The Kent Short Term
Bond Fund, The Kent Intermediate Bond Fund, The Kent Income Fund, The Kent
Growth and Income Fund, The Kent Small Company Growth Fund, The Kent
International Growth Fund, The Kent Index Equity Fund, The Kent Limited Term
Tax-Free Fund, The Kent Intermediate Tax-Free Fund, The Kent Tax-Free Income
Fund and The Kent Michigan Municipal Bond Fund. To obtain a prospectus for
any Kent Fund, please call 1-800-633-KENT (5368).
Q: Who advises the Funds?
A: The Funds are managed by Old Kent Bank ("Old Kent"), an indirect
wholly-owned subsidiary of Old Kent Financial Corporation ("OKFC"). OKFC is a
financial services company with total assets as of December 31, 1996 of
approximately $ billion. See "Structure and Management of the Funds
- - Who Manages and Services the Funds?"
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed diversified investment portfolios without having to
become involved with the detailed accounting and safekeeping procedures
normally associated with direct investments in securities. The Funds also
offer the economic advantages of block trading in portfolio securities and the
availability of a family of fourteen mutual funds should your investment goals
change.
Q: How does someone buy and redeem shares?
A: The Funds are distributed by BISYS Fund Services ("BISYS" or the
"Distributor") and are sold in two classes: Investment Shares and
Institutional Shares. Investment Shares can be purchased from any
broker-dealer or financial institution which has entered into a dealer
agreement with the Distributor, or by completing an application and mailing it
directly to the Trust with a check, payable to the appropriate Fund, for
$1,000 or more, or $100 or more for Individual Retirement Accounts ("IRAs").
Institutional Shares are offered to financial and other institutions for the
benefit of fiduciary, agency or custodial accounts. The minimum initial
aggregate investment for Institutional Shares is $100,000. The Trust may
waive the minimum purchase requirements in certain instances. Institutional
Shares purchasers should call the Trust toll-free at 1-800-633-KENT (5368) for
instructions on how to open an account. See "Purchases of Shares." For
information on how to redeem your shares, see "Redemptions (Sales) of Shares."
3
<PAGE> 6
Q: When are dividends paid?
A: Dividends of each Fund's net investment income are declared daily and paid
monthly. Net realized capital gains of the Funds are distributed at least
annually. See "Dividends, Distributions and Taxes."
Q: What shareholder privileges are offered by the Trust?
A: Investors may exchange shares of a Fund having a value of at least $100 for
shares of the same class of any other investment portfolio offered by the
Trust in which the investor has an existing account. The Trust offers IRAs,
which can be established by contacting the Trust's Distributor. The Trust
also offers an Automatic Investment Program which allows investors to
automatically invest in Investment Shares on a monthly basis. See "Purchases
of Shares - How Can I Purchase Shares?"
Q: What are the potential risks presented by the Funds' investment practices?
A: Investing in the Funds involves the risks common to any investment in
securities. Although each Fund seeks to maintain a stable net asset value per
share of $1.00, there is no assurance that it will be able to do so. The
Michigan Municipal Money Market Fund's performance is closely tied to the
economic and political conditions in the State of Michigan. For a complete
description of the risks associated with each Fund, see "Fund Choices - What
Funds are Offered?" and " - What Are the Risks of Investing in the Funds?"
4
<PAGE> 7
FINANCIAL INFORMATION
WHAT ARE THE FUNDS' FEES AND EXPENSES?
FEE TABLE
The purpose of the fee table is to assist you in understanding the various
costs and expenses that an investor in each Fund will bear. See "Expense
Information" and "Purchases of Shares" for more information regarding such
costs and expenses.
<TABLE>
<CAPTION>
MICHIGAN MUNICIPAL
MONEY MARKET GOVERNMENT MONEY MONEY
FUND MARKET FUND MARKET FUND
Investment Institutional Investment Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES1
(as a % of average net assets)
Management Fees ____% ____% 0.40% 0.40% ____% ____%
12b-1 Fees3 None None None None None None
Other Expenses (after fee waivers)2 ____% ____% 0.17% 0.17% ____% ____%
TOTAL FUND OPERATING EXPENSES2
(after fee waivers) ____% ____% 0.57% 0.57% ____% ____%
</TABLE>
1 The expense ratios for the Money Market Fund and the Michigan Municipal
Money Market Fund are based on amounts incurred for the fiscal year ended
December 31, 1996, restated to reflect current fees and expenses. The
expense ratios for the Government Money Market Fund are estimates for the
Fund's fiscal year ending December 31, 1997, after giving effect to waivers
of expenses by the Fund's administrator. Sweep, trustee, agency, custody and
certain other fees charged by Old Kent and its affiliates to their customers
who own shares of the Funds are not reflected in the fee table.
2 Before waivers, Other Expenses and Total Fund Operating Expenses for the
Money Market Fund, Government Money Market Fund and Michigan Municipal Money
Market Fund would be _____%, 0.67% and _____%, respectively, for the
Investment Shares and the Institutional Shares of all three Funds.
3 Although each Fund is authorized to pay 12b-1 fees of up to 0.25% (on an
annualized basis) in connection with the sale of Investment Shares, none of
the Funds currently intends to pay such fees.
5
<PAGE> 8
EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (i) 5% annual return and (ii) redemption at the end of each period:
<TABLE>
<CAPTION>
MICHIGAN MUNICIPAL
MONEY MARKET GOVERNMENT MONEY MONEY
FUND MARKET FUND MARKET FUND
Investment Institutional Investment Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
One Year $____ $____ $6 $6 $____ $____
Three Years $____ $____ $18 $18 $____ $____
Five Years $____ $____ $32 $32 $____ $____
Ten Years $____ $____ $72 $72 $____ $____
</TABLE>
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RETURN OR EXPENSES; ACTUAL INVESTMENT RETURN AND
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
6
<PAGE> 9
FINANCIAL HIGHLIGHTS
The Financial Highlights presented below have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report, together with the financial statements
of the Funds, appears in the Funds' annual report, which can be obtained
without charge by calling 1-800-633-KENT (5368). These tables should be read
in conjunction with the Funds' financial statements and the related notes.
MONEY MARKET FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
________________________________________________________________________________
INVESTMENT SHARES
________________________________________________________________________________
Period Ended December 31,
1996 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C>
________________________________________________________________________________
NET ASSET VALUE, BEGINNING OF PERIOD $_____ $1.00 $1.00 $1.00 $1.00
________________________________________________________________________________
Income from Investment Operations:
Net investment income _____ 0.05 0.04 0.03 --
Net realized gain (loss) on investments _____ -- -- -- --
________________________________________________________________________________
Total from Investment Operations: _____ 0.05 0.04 0.03 --
________________________________________________________________________________
Less Distributions from:
Net investment income _____ (0.05) (0.04) (0.03) --
Net realized gains on investments _____ -- -- -- --
________________________________________________________________________________
Total Distributions: _____ (0.05) (0.04) (0.03) --
________________________________________________________________________________
Net increase (decrease) in net asset value_____ -- -- -- --
________________________________________________________________________________
Net Asset Value, End of period $_____ $1.00 $1.00 $1.00 $1.00
________________________________________________________________________________
TOTAL RETURN FOR PERIOD INDICATED _____% 5.56% 3.71% 2.67% 0.27%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $_____ $1,227 $369 $593 $11
Ratios to average net assets:
Net investment income
including reimbursement/waiver _____% 5.41% 3.58% 2.63% 3.30%*
Net investment income (loss)
excluding reimbursement/waiver _____% 5.33% 3.53% (1.24)% 3.25%*
Operating expenses
including reimbursement/waiver _____% 0.55% 0.63% 0.63% 0.63%*
Operating expenses
excluding reimbursement/waiver _____% 0.62% 0.68% 4.49% 0.68%*
________________________________________________________________________________
</TABLE>
* Annualized.
(1) The Investment Class date of initial public investment was December 9,
1992.
7
<PAGE> 10
MONEY MARKET FUND (CONTINUED)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
INSTITUTIONAL SHARES
________________________________________________________________________________________________________
Period Ended December 31,
1996 1995 1994 1993 1992 1991 1990(1)
<S> <C> <C> <C> <C> <C> <C> <C>
________________________________________________________________________________________________________
NET ASSET VALUE, BEGINNING OF PERIOD $____ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
________________________________________________________________________________________________________
Income from Investment Operations:
Net investment income ____ 0.05 0.04 0.03 0.03 0.06 0.01
Net realized gain (loss) on investments ____ -- -- -- -- -- --
________________________________________________________________________________________________________
Total from Investment Operations: ____ 0.05 0.04 0.03 0.03 0.06 0.01
________________________________________________________________________________________________________
Less Distributions from:
Net investment income ____ (0.05) (0.04) (0.03) (0.03) (0.06) (0.01)
Net realized gains on investments ____ -- -- -- -- -- --
________________________________________________________________________________________________________
Total Distributions: ____ (0.05) (0.04) (0.03) (0.03) (0.06) (0.01)
________________________________________________________________________________________________________
Net increase (decrease) in net asset value____ -- -- -- -- -- --
________________________________________________________________________________________________________
Net Asset Value, End of period $_____ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
________________________________________________________________________________________________________
TOTAL RETURN FOR PERIOD INDICATED _____% 5.58% 3.75% 2.68% 3.40% 5.65% 0.60%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $_____ $424,815 $323,539 $359,624 $220,508 $28 $23
Ratios to average net assets:
Net investment income
including reimbursement/waiver ______% 5.45% 3.65% 2.65% 3.23% 5.53% 7.27%*
Net investment income
excluding reimbursement/waiver ______% 5.37% 3.59% 2.57% 2.92% 5.21% 6.84%*
Operating expenses
including reimbursement/waiver ______% 0.55% 0.60% 0.60% 0.60% 0.60% 0.60%*
Operating expenses
excluding reimbursement/waiver ______% 0.63% 0.65% 0.68% 0.91% 0.92% 1.02%*
________________________________________________________________________________________________________
</TABLE>
* Annualized.
** Not Annualized.
(1) The Institutional Class commenced operations on December 3, 1990.
8
<PAGE> 11
MICHIGAN MUNICIPAL MONEY MARKET FUND
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
________________________________________________________________________________
INVESTMENT SHARES
________________________________________________________________________________
Period Ended December 31,
1996 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C>
________________________________________________________________________________
NET ASSET VALUE, BEGINNING OF PERIOD $_____ $1.00 $1.00 $1.00 $1.00
________________________________________________________________________________
Income from Investment Operations:
Net investment income _____ 0.03 0.02 0.02 **
Net realized gain (loss) on investments _____ -- -- -- --
________________________________________________________________________________
Total from Investment Operations: _____ 0.03 0.02 0.02 --
________________________________________________________________________________
Less Distributions from:
Net investment income _____ (0.03) (0.02) (0.02) --
Net realized gains on investments _____ -- -- -- --
________________________________________________________________________________
Total Distributions: _____ (0.03) (0.02) (0.02) --
________________________________________________________________________________
Net increase (decrease) in net
asset value _____ -- -- -- --
________________________________________________________________________________
Net Asset Value, End of period _____ $1.00 $1.00 $1.00 $1.00
TOTAL RETURN FOR PERIOD INDICATED _____ 3.48% 2.38% 1.98% 0.03%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $_____ $1,603 $379 $149 $0
Ratios to average net assets:
Net investment income
including reimbursement/waiver _____% 3.48% 2.47% 2.01% 2.92%*
Net investment income (loss)
excluding reimbursement/waiver _____% 3.39% 2.37% (1.13)% 2.92%*
Operating expenses
including reimbursement/waiver _____% 0.54% 0.63% 0.63% 0.00%*
Operating expenses
excluding reimbursement/waiver _____% 0.62% 0.73% 3.77% 0.00%*
________________________________________________________________________________
</TABLE>
* Annualized.
** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was December 15,
1992.
9
<PAGE> 12
MICHIGAN MUNICIPAL MONEY MARKET FUND (CONTINUED)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
________________________________________________________________________________________________
INSTITUTIONAL SHARES
________________________________________________________________________________________________
Period Ended December 31,
1996 1995 1994 1993 1992 1991(1)
<S> <C> <C> <C> <C> <C> <C>
________________________________________________________________________________________________
NET ASSET VALUE, BEGINNING OF PERIOD $____ $1.00 $1.00 $1.00 $1.00 $1.00
________________________________________________________________________________________________
Income from Investment Operations:
Net investment income ____ 0.03 0.02 0.02 0.03 0.02
Net realized gain (loss) on investments ____ -- -- -- -- --
________________________________________________________________________________________________
Total from Investment Operations: ____ 0.03 0.02 0.02 0.03 0.02
________________________________________________________________________________________________
Less Distributions from:
Net investment income ____ (0.03) (0.02) (0.02) (0.03) (0.02)
Net realized gains on investments ____ -- -- -- -- --
________________________________________________________________________________________________
Total Distributions: ____ (0.03) (0.02) (0.02) (0.03) (0.02)
________________________________________________________________________________________________
Net increase (decrease) in net asset value____ -- -- -- -- --
________________________________________________________________________________________________
Net Asset Value, End of period $_____ $1.00 $1.00 $1.00 $1.00 $1.00
________________________________________________________________________________________________
TOTAL RETURN FOR PERIOD INDICATED _____% 3.50% 2.40% 2.00% 2.63% 2.37%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $_____ $145,215 $128,164 $183,366 $72,906 $49,618
Ratios to average net assets:
Net investment income
including reimbursement/waiver _____% 3.45% 2.33% 1.96% 2.56% 4.03%*
Net investment income
excluding reimbursement/waiver _____% 3.36% 2.23% 1.87% 2.29% 3.93%*
Operating expenses
including reimbursement/waiver _____% 0.56% 0.60% 0.60% 0.60% 0.60%*
Operating expenses
excluding reimbursement/waiver _____% 0.65% 0.70% 0.69% 0.86% 0.77%*
________________________________________________________________________________________________
</TABLE>
* Annualized.
(1) The Institutional Class commenced operations on June 3, 1991.
10
<PAGE> 13
FUND CHOICES
WHAT FUNDS ARE OFFERED?
The Trust currently offers the three money market funds described below.
Money market funds typically seek to maintain a stable net asset value of
$1.00 per share, although there is no guarantee that their net asset value
will not vary. The investment objectives described below are considered
"fundamental" and may not be changed by a Fund without the approval of its
shareholders.
MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income from short-term securities while
preserving capital and maintaining liquidity.
PRINCIPAL INVESTMENTS: The Fund invests in a broad range of government, bank
and commercial obligations. These instruments primarily include obligations
of banks having total assets in excess of $1 billion at the time of purchase
and commercial paper that matures in 13 months or less. The Fund may also
invest in short-term obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities.
GOVERNMENT MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income from short-term United States
government securities while preserving capital and maintaining liquidity.
PRINCIPAL INVESTMENTS: The Fund invests in U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and repurchase agreements with respect to such
securities.
MICHIGAN MUNICIPAL MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income, exempt from Federal and State of
Michigan personal income taxes, from short-term securities while preserving
capital and maintaining liquidity.
PRINCIPAL INVESTMENTS: At least 80% of the Fund's net assets will be invested
in federally tax-exempt obligations ("Municipal Obligations") except during
periods of unusual market conditions. This is a fundamental policy, which
means it cannot be changed without shareholder approval. Municipal
Obligations consist of municipal bonds, notes and commercial paper issued by
states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is, in the opinion of counsel to the issuer of such
obligations, exempt from Federal income taxes. Under normal conditions, at
least 65% of the Fund's total assets will be invested in municipal obligations
issued by the State of Michigan or its political subdivisions, authorities or
corporations ("Michigan Municipal Obligations").
From time to time on a temporary defensive basis due to market conditions, the
Fund may hold uninvested cash reserves or invest in short-term taxable money
market obligations that are permissible investments for
11
<PAGE> 14
the Money Market Fund and the Government Money Market Fund (except guaranteed
investment contracts and custodial receipts), in such proportions as, in the
opinion of Old Kent, prevailing market or economic conditions warrant.
Taxable obligations acquired by the Fund will not exceed 20% of the Fund's net
assets at the time of purchase under normal market conditions.
WHAT INSTRUMENTS DO THE FUNDS INVEST IN?
The Funds may also invest in the securities and use the investment techniques
described below. Each of these securities and techniques is described in more
detail under "Investment Policies" in the SAI.
The Funds will only purchase U.S. dollar-denominated "ELIGIBLE SECURITIES" (as
defined by the Securities and Exchange Commission), which are securities that
either (i) have short-term debt ratings when purchased in the two highest
rating categories by at least two nationally recognized statistical rating
organizations ("NRSROs"), (ii) are comparable in priority and security to
another security issued by an issuer which has such ratings, or (iii) are
unrated, but are deemed by Old Kent to be of comparable quality pursuant to
guidelines approved by the Board of Trustees. Appendix A to the SAI contains
a description of NRSRO ratings. The average maturity of each Fund's portfolio
will not exceed 90 days and with certain exceptions, the Funds will not
purchase any securities which mature in more than 397 days from the date of
purchase. All securities purchased by the Funds will be determined by Old
Kent, under guidelines established by the Board of Trustees, to present
minimal credit risks.
Each Fund intends to typically invest its assets in DEBT SECURITIES. Debt
securities are issued in exchange for money borrowed. Debt securities, other
than securities known as zero coupon bonds, pay interest at set times, at
either a fixed (set) rate or a variable (changing) rate. Debt securities
purchased by the Funds may include corporate debt obligations, commercial
paper, U.S. Government securities, stripped securities, zero coupon
obligations, variable and floating rate securities, mortgage-backed securities
and asset-backed securities.
COMMERCIAL PAPER issues include securities issued by corporations without
registration under the Securities Act of 1933 (the "1933 Act") in reliance on
the exemption in Section 3(a)(3), and commercial paper issued in reliance on
the so-called "private placement" exemption in Section 4(2) ("SECTION 4(2)
PAPER"). Section 4(2) paper is restricted as to disposition under the Federal
securities laws in that any resale must similarly be made in an exempt
transaction. Section 4(2) paper is normally resold to other institutional
investors through or with the assistance of investment dealers which make a
market in Section 4(2) paper, thus providing liquidity.
Each Fund may invest in U.S. GOVERNMENT SECURITIES, which are obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of
the U.S. Government are backed by the full faith and credit of the United
States. Others are backed by the right of the issuer to borrow from the U.S.
Treasury or are backed only by the credit of the agency or instrumentality
issuing the obligation.
The Funds may also purchase "STRIPPED" U.S. TREASURY OBLIGATIONS offered under
the Separate Trading of Registered Interest and Principal Securities
("STRIPS") program or Coupon Under Bank-Entry Safekeeping ("CUBES") program or
other stripped securities issued directly by agencies or instrumentalities of
the U.S. Government. STRIPS and CUBES represent either future interest or
principal payments and are direct obligations of the U.S. Government that
clear through the Federal Reserve System.
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The Money Market Fund and Government Money Market Fund may also purchase U.S.
Treasury and agency securities that are stripped by brokerage firms and
custodian banks and sold under proprietary names. These stripped securities
are resold in custodial receipt programs with a number of different names
(such as TIGRs and CATS) and are not considered U.S. Government securities for
purposes of the 1940 Act. Stripped securities are issued at a discount to
their "face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
The Michigan Municipal Money Market Fund will principally invest in municipal
bonds, which are issued by state or local governments typically for general
funding or to finance specific projects. "General Obligation" securities are
backed by the full faith, credit and taxing power of the municipality.
"Revenue" securities are backed only by the revenues from a particular
facility or facilities or other specific revenue sources. "Private Activity
Bonds," which are revenue securities issued by industrial development
authorities, are issued to finance privately-owned facilities and are backed
by private entities. The credit quality of Private Activity Bonds is usually
related to the creditworthiness of the private entity using the facility
involved. "Moral Obligation Securities," which are typically issued by
special purpose public authorities, are backed by a reserve fund which the
issuer may draw on if it is unable to pay its debt service obligations, but
the issuer and the state or municipality which created the issuer have no
legal obligation to restore the reserve fund. A municipal obligation's credit
may be enhanced by a letter of credit issued by a bank and the payment of
principal and interest may be insured by an insurance company.
The Michigan Municipal Money Market Fund may enter into "Stand-By Commitments"
under which a dealer agrees when requested by the Fund to purchase a Municipal
Obligation from the Fund at a set price. Stand-by Commitments will be used to
provide portfolio liquidity and the Fund does not intend to use them for
trading purposes.
BANK OBLIGATIONS which may be acquired by the Funds include bankers'
acceptances, certificates of deposit, notes and time deposits. Bankers'
acceptances evidence the obligation of a bank to pay a draft drawn on the bank
by a customer. Certificates of deposit are certificates obligating a bank to
repay funds deposited with it for a specified period of time at a specified
interest rate.
Each Fund may purchase VARIABLE AND FLOATING RATE INSTRUMENTS which may have a
stated maturity in excess of 13 months but will, in any event, permit a Fund
to demand payment of the principal of the instrument at least once every 13
months upon not more than thirty days' notice (unless the instrument is
guaranteed by the U.S. Government or an agency or instrumentality thereof).
The Funds may invest in MORTGAGE-RELATED SECURITIES issued by the U.S.
Government or its agencies or instrumentalities or issued by private
companies. In periods of falling interest rates, the rate of mortgage
prepayments tends to increase. During these periods, the reinvestment of
prepayment proceeds by the Funds will generally be at lower rates than the
rates on the prepaid obligations.
Each Fund may purchase ASSET-BACKED SECURITIES, which are securities backed by
installment contracts, credit card receivables or other assets. The average
life of asset-backed securities varies with the maturities of the underlying
instruments, and may be less than the original maturity of the assets
underlying the securities as a result of prepayments.
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The Funds may enter into REPURCHASE AGREEMENTS. Under a repurchase agreement,
a Fund agrees to purchase securities from a seller and the seller agrees to
repurchase the securities at a later time, typically within seven days, at a
set price. The seller agrees to set aside collateral equal to the price it
has to pay during the term of the agreement. This ensures that the Fund will
receive the purchase price at the time it is due, unless the seller defaults
or declares bankruptcy, in which event the Fund will bear the risk of possible
loss due to adverse market action or delays in liquidating the underlying
obligation. The Funds will not enter into repurchase agreements with Old Kent
or its affiliates. Each Fund may also borrow money for temporary purposes by
entering into REVERSE REPURCHASE AGREEMENTS. Under these agreements, a Fund
sells portfolio securities to financial institutions and agrees to buy them
back later at an agreed upon time and price. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price of the securities the Fund is obligated to repurchase.
Each Fund may buy VARIABLE AND FLOATING RATE MASTER DEMAND NOTES, which permit
daily or weekly changes in the amount lent by the Fund and provide for
adjustments from time to time in the interest rates. The notes may or may not
be backed by bank letters of credit. These notes are direct lending
arrangements between the Fund and a borrower and, therefore, the notes
generally are not traded and there is no market in which to sell them to third
parties. A Fund could suffer a loss if, for example, the borrower defaults on
the note. This type of note will be subject to a Fund's limitations on
illiquid investments if the Fund cannot demand payment of the principal amount
of the note within seven days.
The Money Market Fund may acquire GUARANTEED INVESTMENT CONTRACTS ("GICs").
Under a GIC, the Fund gives cash to an insurance company which credits the
Fund with the amount given plus interest based on a certain index, which
interest is guaranteed to be not less than a certain minimum rate. An active
secondary market for GICs does not exist. Therefore, GICs are considered to
be illiquid investments and will be purchased only if after the purchase 10%
or less of the Fund's net assets would be invested in illiquid securities.
LOAN PARTICIPATION NOTES, which represent participation in a loan by a
commercial bank to a corporation, may be purchased by the Money Market Fund.
The notes must have a remaining maturity of one year or less and the bank
issuing the notes must have assets of at least $1 billion. The Fund bears the
risks that the corporate borrower or lending bank will become insolvent. The
secondary market for loan participations is very limited and loan
participations are considered illiquid.
The Funds may purchase RULE 144A SECURITIES. Rule 144A allows for a broader
institutional trading market for securities which otherwise would be
restricted on resale by allowing resales to certain qualified institutional
buyers. Old Kent will monitor the liquidity of Rule 144A securities under the
supervision of the Board of Trustees.
The Funds may buy shares of registered MONEY MARKET INVESTMENT COMPANIES. The
Funds will bear a portion of the expenses of any investment company whose
shares they purchase, including operating costs and investment advisory,
distribution and administration fees. These expenses would be in addition to
the Fund's own expenses.
The Funds may LEND SECURITIES to broker-dealers and other financially sound
institutional investors who will pay the Funds for the use of the securities.
The borrower must set aside cash or liquid high-grade debt securities equal to
the value of the securities borrowed at all times during the term of the loan.
Loans may
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not exceed one-third of the value of a Fund's total assets. Risks involved in
such transactions include possible delay in recovering the loaned securities
and possible loss of the securities or the collateral if the borrower declares
bankruptcy.
Each Fund may agree to purchase securities on a "WHEN ISSUED" basis and may
purchase or sell on a "FORWARD COMMITMENT" basis. These transactions include
a commitment by a Fund to purchase or sell particular securities with payment
or delivery taking place at a future date, sometimes a month or more after the
date of the agreement. The value of the securities may change between the
time the price is set and the time the price is paid. When a Fund purchases
securities for future delivery, the Trust's custodian will maintain a
segregated account containing cash, U.S. Government securities or other liquid
high-grade debt securities. The Funds do not intend to purchase securities
for future delivery for speculative purposes.
Except for the Michigan Municipal Money Market Fund's policy to invest at
least 80% of its net assets in federally tax-exempt obligations, the
investment policies discussed above are not "fundamental" policies and may be
changed by the Board of Trustees without shareholder approval. However, the
Funds also have in place certain fundamental investment limitations that
cannot be changed for a Fund without the approval of a "majority" (as defined
in the SAI) of that Fund's outstanding shares. Some of these limitations are
summarized below. A complete list of the fundamental investment limitations
for the Funds is contained in the SAI.
1. With respect to 75% of each Fund's total assets, the Funds cannot invest
more than 5% of their respective total assets in any one issuer (other
than the U.S. Government, its agencies and instrumentalities). In
addition, the Funds cannot invest more than 25% of their respective total
assets in a single industry. These restrictions require the Funds to be
more diversified in order to lower the risk to a Fund of an economic
setback for any one issuer or in any one industry.
2. Each Fund may only borrow money for temporary or emergency purposes, and
such borrowing is limited to an amount not greater than one-third of the
Fund's net assets, provided that while borrowings from banks exceed 5% of
a Fund's net assets, any such borrowings will be repaid before additional
investments are made. The limits on the amount each Fund can borrow
prevents the Funds from significantly leveraging their assets.
3. Each Fund may not invest more than 10% of its net assets in illiquid
securities. Typically, there is no ready market for such securities,
which inhibits a Fund's ability to sell the securities.
As a matter of non-fundamental policy, in order to comply with Securities and
Exchange Commission regulations relating to money market funds, the Money
Market Fund and the Government Money Market Fund will limit their investments
in securities of any one issuer (other than U.S. Government securities and
repurchase agreements collateralized by the same) to not more than 5% of the
value of total assets at the time of purchase, except for 25% of total
assets, which may be invested in any one issuer for a period of up to three
business days. The Funds are also permitted to invest in excess of 25% of
their total assets in obligations of the U.S. banks and domestic branches of
foreign banks that are subject to the same regulations as U.S. banks.
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WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?
Although each Fund seeks to maintain a stable net asset value per share of
$1.00, there is no assurance that they will be able to do so. There can also
be no assurance that a Fund will achieve its investment objective because there
is uncertainty in every investment.
The Funds invest mostly in debt instruments, whose values typically rise when
interest rates fall and fall when interest rates rise. The Funds buy bonds
with shorter maturities, which tend to be less affected by interest rate
changes, but generally offer lower yields than bonds with longer maturities.
Current yield levels should not be considered representative of yields for any
future time. The obligations of foreign issuers may involve certain risks in
addition to those of domestic issuers, including higher transactions costs,
less complete financial information, less stringent regulatory requirements and
less market liquidity.
The Michigan Municipal Money Market Fund is concentrated in securities issued
by the State of Michigan and entities within the State of Michigan and,
therefore, an investment in this Fund may be riskier than an investment in
other types of money market funds. Likewise, the Fund's performance is closely
tied to conditions in the State of Michigan. The economy of Michigan is
principally dependent on three sectors -- manufacturing (particularly durable
goods, automotive products and office equipment), tourism and agriculture.
Michigan encountered financial difficulties during the late 1980s, largely as a
result of poor conditions in the automotive industry, but recovered from the
prolonged downturn in production levels in this sector in the early 1990s.
Structural changes in the automotive industry have given the Michigan economy
greater financial stability. The state's finances continue to be in excellent
condition, and a Budget Stabilization Fund that exceeds $1.0 billion should
help the state weather any potential economic recession. The market value and
the marketability of bonds issued by local units of government in the state may
be affected adversely by the same factors that affect Michigan's economy
generally. The ability of the state and its local units of government to pay
the principal of and interest on their bonds may also be affected by such
factors and by certain constitutional, statutory and charter limitations. For
additional information on the specific risks associated with the Michigan
Municipal Money Market Fund, see Appendix B to the SAI.
PERFORMANCE
HOW IS THE FUNDS' PERFORMANCE CALCULATED?
Each Fund may advertise "yield" and "effective yield" and the Michigan
Municipal Money Market Fund may advertise "tax equivalent yield." All yield
figures are based on historical earnings and are not intended to indicate
future performance. Yields are calculated separately for each class of shares.
"Yield" refers to the income generated by a class of shares over a specified
seven-day period. This income is then annualized. That is, the amount of
income generated by the shares during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment.
"Effective yield" is calculated similarly but, when annualized, the income
earned is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. "Tax equivalent yield" is generally the yield divided by a
factor equal to one minus a stated income tax rate and reflects the yield a
taxable investment would have to achieve in order to equal on an after-tax
basis a tax-exempt yield. Because Investment Shares may be subject to higher
expenses and Rule 12b-1 fees, the yields on Investment Shares may be lower than
those on Institutional Shares.
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You should be aware that (i) past performance does not indicate how a Fund will
perform in the future and (ii) each Fund's yield will fluctuate, so you cannot
necessarily use a Fund's performance data to compare it to investments in
certificates of deposit, savings accounts or other investments that provide a
fixed or guaranteed yield.
Each Fund may compare its performance to that of other mutual funds, such as
the performance of similar funds prepared by Lipper Analytical Services, Inc.
or information reported in national financial publications (such as Money
Magazine, Forbes, Barron's, The Wall Street Journal and The New York Times) or
in local or regional publications. The Funds may also report their yields in
comparison to the Consumer Price Index, an indication of inflation reported by
the U.S. Government, a 91-day U.S. Treasury Bill or a relevant index.
WHERE CAN I OBTAIN PERFORMANCE DATA?
The Wall Street Journal and certain local newspapers report information on the
performance of mutual funds. In addition, performance information is contained
in the Funds' annual report dated December 31 of each year (the Trust's fiscal
year end) and semi-annual report dated June 30 of each year, which will
automatically be mailed to shareholders. To obtain copies of financial reports
or performance information, call 1-800-633-KENT (5368).
EXPENSE INFORMATION
WHAT ARE THE FUNDS' EXPENSES?
A pro rata portion of certain expenses of the Trust are allocated to the Fund
you own and to the particular class of shares you own and will be reflected in
the value of your shares. Such expenses are not paid directly by shareholders.
TRUST EXPENSES. Expenses charged at the Trust level include fees paid to
Trustees, legal counsel and auditors and administration fees. BISYS is
entitled to receive, for its administration services, an annual fee equal to
0.185% of the aggregate net assets of all funds in the Trust up to $5 billion;
0.165% of the Trust's aggregate net assets between $5 and $7.5 billion; and
0.135% of the Trust's aggregate net assets over $7.5 billion; provided,
however, that such annual fee shall be subject to an annual minimum fee of
$45,000 per fund that is applicable to certain funds of the Trust.
FUND EXPENSES. Most expenses will be charged at the Fund level, including
investment advisory fees, Securities and Exchange Commission registration fees,
transfer agency fees, custody fees, brokerage commissions, interest charges and
taxes. Old Kent is entitled to receive from each Fund an annual advisory fee
equal to 0.40% of its average daily net assets. For the fiscal year ended
December 31, 1996, the Money Market Fund and the Michigan Municipal Money
Market Fund paid or accrued to Old Kent an advisory fee, calculated daily and
payable monthly, at an annual rate of _____% and _____%, respectively, of the
average daily net assets of the Funds. Old Kent may rebate advisory fees to
certain institutional customers in accordance with Federal and state law.
CLASS EXPENSES. Expenses allocated at the class level include printing and
mailing expenses and expenses payable under the Trust's Distribution Plan. The
Distribution Plan provides that each Fund may
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spend, in one year, up to 0.25% of the average daily net assets of the Fund's
Investment Shares to finance sales activities of the Investment Shares,
including marketing and advertising shares, maintaining account records,
issuing confirmation statements and providing sub-accounting. Banks,
broker-dealers and other organizations may also receive payments for providing
support and/or distribution services to the Funds' shareholders who are their
customers. Federal banking law currently limits the securities activities of
banks. If a bank was not allowed to provide support and/or distribution
services, the Funds would find another organization to provide such services
and no shareholder should suffer any financial loss. The Funds do not
reimburse the Distributor for any distribution expenses in excess of the
payments received by the Distributor under the Distribution Plan or for its
overhead expenses. None of the Funds currently intends to charge any fees
under the Distribution Plan.
PURCHASES OF SHARES
WHO MAY WANT TO INVEST IN THE FUNDS?
Investment Shares may be purchased by individual investors and Institutional
Shares may be purchased only by financial and other institutions for the
benefit of fiduciary, agency or custodial accounts. The Funds, which are money
market funds, are designed for investors who primarily seek to preserve their
capital. The instruments in which the Funds invest may not earn as high a
level of current income as longer term or lower quality securities, which
generally have less liquidity, greater market risk and more price fluctuation.
Investors who desire higher returns and can risk a potential loss of capital
may wish to invest in the other portfolios of the Trust, which have fluctuating
net asset values and typically higher returns than the Funds.
Shares of the Michigan Municipal Money Market Fund would not be suitable for
tax-exempt institutions and may not be suitable for certain retirement plans
and for entities which are substantial users of the facilities financed by
industrial development bonds. Such investors may wish to consider instead an
investment in one of the other Funds.
WHEN CAN I PURCHASE SHARES?
Shares can be purchased on any day that both the New York Stock Exchange (the
"NYSE") and Bankers Trust Company, the Funds' custodian, are open for business.
WHAT IS THE MINIMUM REQUIRED INVESTMENT?
An investor must initially invest at least $1,000 ($100 for IRAs) in Investment
Shares and at least $100,000 in Institutional Shares. Subsequent investments
may be made in any amount. The investment minimums may be waived for purchases
by employees of Old Kent, participants in tax-sheltered plans and certain
qualified retirement accounts.
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HOW CAN I PURCHASE SHARES?
INVESTMENT SHARES
For your convenience, the Funds offer a wide variety of methods to purchase
Investment Shares.
THROUGH A BROKER. Any broker authorized by the Distributor can sell you
Investment Shares of the Funds. Please note that such brokers may charge
you fees for their services.
BY MAIL. You may open an account by mailing a completed application and a
check (payable to the applicable Fund) to: THE KENT FUNDS, P.O. Box
182201, Columbus, Ohio 43218-2201.
BY TELEPHONE. You may call 1-800-633-KENT (5368) to open an account and
electronically transfer money to the account, followed by a completed
application.
BY CHECK. Subsequent purchases of Investment Shares can be made by
mailing a check to the address listed above.
BY FEDERAL FUNDS WIRE. Subsequent purchases of Investment Shares can be
made via a federal funds wire. You should call 1-800-633-KENT (5368) for
complete wire instructions. You should be aware that banks may charge
fees for sending wires. The Distributor has the right to charge fees for
receiving wires, although it does not currently do so.
BY ELECTRONIC FUNDS TRANSFER. Subsequent purchases of Investment Shares
can be made via Electronic Funds Transfer. Call 1-800-633-KENT (5368) to
request a purchase to be made or for the forms to establish Electronic
Fund Transfer.
THROUGH AN AUTOMATIC INVESTMENT PLAN.
1. Call 1-800-633-KENT (5368) to establish an Automatic Investment Plan.
2. Invest at least $1,000 in an Investment Share account.
3. On the fifth day of each month, your checking account will be debited
(minimum of $50) and Investment Shares will be purchased and held in your
account.
To change the amount invested each month in Investment Shares, or to stop the
Automatic Investment Plan, call 1-800-633-KENT (5368), or write to: THE KENT
FUNDS, P.O. Box 182201, Columbus, Ohio 43218-2201 at least 5 days before a
scheduled investment.
THROUGH DIRECT DEPOSIT. You may authorize direct deposit of your payroll,
Social Security or Supplemental Security Income checks.
THROUGH A TAX-SHELTERED PLAN. Investment Shares of the Money Market Fund or
the Government Money Market Fund may be purchased through IRAs and Rollover
IRAs, which are available through the Trust. For details and application
forms, call 1-800-633-KENT (5368) or write to: THE KENT FUNDS, P.O. Box
182201, Columbus, Ohio 43218-2201.
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INSTITUTIONAL SHARES
You can purchase Institutional Shares by taking the following steps:
1. To open an account, call 1-800-633-KENT (5368) to obtain an account or
wire identification number and to place a purchase order.
2. Wire federal funds no later than the day after the purchase order is
placed.
You should note that (i) a purchase of Institutional Shares will not be
completed until the Trust receives the purchase proceeds and (ii) banks may
charge for wiring federal funds to the Trust. You may obtain information on
how to wire funds from any national bank and certain state banks.
EXCHANGE PRIVILEGE
You may acquire Investment or Institutional Shares of a Fund (the "new fund")
by exchanging shares of another investment portfolio offered by the Trust (the
"old fund") for shares of the new fund. Shares of the new fund will be of the
same class as the shares of the old fund. In effect, you would be redeeming
(reselling to the fund) shares of the old fund and purchasing shares of the
new fund. To determine the price at which shares are redeemed, see "What
Price Do I Receive for Shares?" and to determine the price at which shares are
purchased, see "What Price Do I Pay for Shares?"
1. Call 1-800-633-KENT (5368) or write to: THE KENT
FUNDS, P.O. Box 182201, Columbus, Ohio 43218-2201 to obtain a
prospectus for the new fund prior to the exchange.
2. Call or write as indicated in 1 above to place an
order to exchange shares. Purchases of shares of a new fund
must meet the minimum purchase requirement of that fund. If
the order to exchange shares is placed prior to or at 12:00
p.m. Eastern Time on any business day, the order will be
executed on the day received, and if the order is placed after
12:00 p.m. Eastern Time, the order will not be executed until
the next business day.
3. If a shareholder does not have an account with the
new fund, a new account will be established with the same
reinvestment options for distributions as the account for the
old fund, unless the shareholder writes to the new fund to
change the option.
IMPORTANT INFORMATION ABOUT EXCHANGES. IF SHARES OF A FUND ARE PURCHASED BY
CHECK, SUCH SHARES CANNOT BE EXCHANGED FOR 15 DAYS. THE TRUST MAY DISALLOW
EXCHANGES OF SHARES IF A SHAREHOLDER HAS MADE MORE THAN FIVE EXCHANGES BETWEEN
INVESTMENT PORTFOLIOS OFFERED BY THE TRUST IN A YEAR, OR MORE THAN THREE
EXCHANGES IN A CALENDAR QUARTER. ALTHOUGH UNLIKELY, THE TRUST MAY REJECT ANY
EXCHANGES OR THE FUNDS MAY CHANGE OR TERMINATE RIGHTS TO EXCHANGE SHARES. THE
EXCHANGE PRIVILEGE IS AVAILABLE ONLY IN STATES WHERE SHARES OF THE NEW FUND
MAY BE SOLD.
No sales charge is imposed when Investment Shares on which a shareholder
previously paid a sales charge are exchanged for Investment Shares of another
investment portfolio. However, a sales charge will be imposed on exchanges of
Investment Shares purchased without a sales charge for Investment Shares of
another portfolio which imposes a sales charge. In order to make an exchange,
shareholders will be required to maintain the applicable minimum account
balance in each investment portfolio of the Trust in which shares are owned.
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Institutional Shares of a Fund may be exchanged for Investment Shares of the
same Fund when the Institutional Shares are distributed to the underlying
beneficial owners of trust accounts, 401(k) plans and other fiduciary or
agency accounts. No sales charge is imposed in connection with such an
exchange.
Investors should note that each Fund has the right to stop offering its
shares, to reject purchase orders and to suspend the exchange privilege,
although such actions are unlikely. The Distributor may require additional
documents prior to accepting a purchase, redemption or exchange.
SHAREHOLDER SERVICES. FOR FURTHER INFORMATION ON ALL SHAREHOLDER SERVICES,
CALL 1-800-633-KENT (5368) OR WRITE TO: THE KENT FUNDS, P.O. BOX 182201,
COLUMBUS, OHIO 43218-2201.
WHAT PRICE DO I PAY FOR SHARES?
Shares are sold at the "net asset value next determined" by the Funds. This
term is explained below. You should be aware that broker-dealers (other than
the Funds' Distributor) may charge investors additional fees if shares are
purchased through them.
NET ASSET VALUE. Except in certain limited circumstances, at 12:00 p.m. on
each day the NYSE is open for trading each Fund determines its NAV. NAV is
calculated separately for the Investment Shares and Institutional Shares of
each Fund. The "net asset value next determined" is the NAV calculated at
12:00 p.m. on the day a purchase order for shares is received, if the purchase
order is received prior to or at 12:00 p.m., and is the net asset value
calculated at 12:00 p.m. on the next business day, if the purchase order is
received after 12:00 p.m. NAV is calculated by totaling the value of all of
the assets of a Fund allocated to a particular class of shares, subtracting
the Fund's liabilities and expenses allocated to that class, and dividing the
result by the number of shares of that class outstanding.
The Funds' assets are valued on the basis of amortized cost, meaning that
instruments are valued at their acquisition cost (as adjusted for amortization
of premium or discount) rather than at current market value. Material
deviations in the difference between amortized cost and market value will be
addressed by the Board of Trustees.
REDEMPTIONS (SALES) OF SHARES
WHEN CAN I REDEEM SHARES?
You can redeem shares on any day that both the NYSE and Bankers Trust Company,
the Funds' Custodian, are open for trading. Shares will not be redeemed by a
Fund unless all required documents have been received by the Trust. A Fund
may temporarily stop redeeming shares when the NYSE is closed or trading on
the NYSE is restricted, when an emergency exists and the Fund cannot sell its
assets or accurately determine the value of its assets or if the Securities
and Exchange Commission orders the Fund to stop redemptions. If you intend to
redeem shares worth more than $1,000,000, you should notify the Fund at least
one day in advance.
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HOW CAN I REDEEM SHARES?
INVESTMENT SHARES
Investment Shares may be redeemed in several ways.
BY MAIL. You may mail your redemption notice to: THE KENT FUNDS, P.O.
Box 182201, Columbus, Ohio 43218-2201. The redemption notice should
state the amount of money or number of shares to be redeemed, and the
account name and number. If a stock certificate has been issued to you,
you must endorse (sign the back of) the stock certificate and return it
to the Trust together with the written redemption notice.
IMPORTANT INFORMATION REGARDING STOCK CERTIFICATES AND REDEMPTION NOTICES FOR
INVESTMENT SHARES. SIGNATURES ON ALL REDEMPTION NOTICES AND STOCK
CERTIFICATES MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A U.S.
COMMERCIAL BANK OR TRUST COMPANY OR OTHER ENTITY APPROVED BY THE TRUST, UNLESS
THE AMOUNT REDEEMED IS LESS THAN $50,000 AND THE ACCOUNT ADDRESS HAS BEEN THE
SAME FOR AT LEAST 90 DAYS. THE TRUST CAN CHANGE THE ABOVE REQUIREMENTS OR
REQUIRE ADDITIONAL DOCUMENTS AT ANY TIME.
BY TELEPHONE. You can redeem up to $50,000 worth of Investment Shares
by calling 1-800-633-KENT (5368). If the amount redeemed is less than
$2,500, then a check will be mailed to you and if equal to or greater
than $2,500, then the proceeds will be mailed or sent by wire or
electronic funds transfer to the bank listed on your account.
THROUGH A BROKER. Investment Shares can be redeemed through a broker.
The broker should send the redemption notice and any other required
documents to the Trust, which will send the proceeds to the broker or
directly to you, at your option, within three days after receiving
proper documents. The Trust does not charge a fee for this service, but
the broker might.
THROUGH AN AUTOMATIC WITHDRAWAL PLAN. Under the Plan, a shareholder
with an account worth at least $10,000 may redeem, either monthly or
quarterly, fixed dollar amounts of Investment Shares. Each payment must
be at least $100 and can be no more than 1.5% per month, or 4.5% per
quarter, of the value of the shareholder's Investment Shares when the
Automatic Withdrawal Plan was opened. The proceeds can be mailed or
sent by electronic funds transfer to the bank listed on your account.
INSTITUTIONAL SHARES
You can redeem Institutional Shares by mail, by telephone or through a broker
by following the procedures described for Investment Shares. Redemption
proceeds will be wired in federal funds only to the commercial bank and
account number listed on your account application. To change the bank
account, you should call the Funds at 1-800-633-KENT (5368) and request the
appropriate form.
GENERAL REDEMPTION INFORMATION
DURING PERIODS OF UNUSUAL MARKET ACTIVITY IT MAY BE DIFFICULT TO REACH THE
TRUST BY TELEPHONE. IN SUCH CASES, SHAREHOLDERS SHOULD FOLLOW THE PROCEDURES
FOR REDEEMING BY MAIL OR THROUGH A BROKER. NEITHER
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THE TRUST NOR ANY OF ITS SERVICE PROVIDERS WILL BE LIABLE FOR FOLLOWING
TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNLESS IT ACTS WITH
WILLFUL MISFEASANCE, BAD FAITH OR GROSS NEGLIGENCE. IN THIS REGARD THE TRUST
AND ITS TRANSFER AGENT REQUIRE PERSONAL IDENTIFICATION BEFORE ACCEPTING A
TELEPHONE REDEMPTION. TO THE EXTENT THAT THE TRUST FAILS TO USE REASONABLE
PROCEDURES AS A BASIS FOR ITS BELIEF THAT TELEPHONE INSTRUCTIONS ARE GENUINE,
IT AND/OR ITS SERVICE PROVIDERS MAY BE LIABLE FOR INSTRUCTIONS THAT PROVE TO
BE FRAUDULENT AND UNAUTHORIZED.
EACH FUND RESERVES THE RIGHT TO REDEEM AN ACCOUNT IF ITS VALUE FALLS BELOW
$1,000 ($100 FOR IRA ACCOUNTS) FOR INVESTMENT SHARES AND $100,000 FOR
INSTITUTIONAL SHARES AS A RESULT OF REDEMPTIONS (BUT NOT AS A RESULT OF A
DECLINE IN NET ASSET VALUE). A SHAREHOLDER WILL BE NOTIFIED IN WRITING AND
ALLOWED 60 DAYS TO INCREASE THE VALUE OF THE ACCOUNT TO THE MINIMUM INVESTMENT
LEVEL.
WHAT PRICE DO I RECEIVE FOR SHARES?
You will receive the NAV next determined for each share you wish to redeem.
See "Purchases of Shares - What Price Do I Pay for Shares?" for an explanation
of how the NAV next determined is calculated.
WHEN WILL I RECEIVE REDEMPTION MONEY?
Redemption proceeds are typically sent to shareholders within three business
days after a request for redemption is made. You should be sure that you
submit all proper documents for redemption; otherwise, the payment of
redemption proceeds may be delayed. You may call 1-800-633-KENT (5368) to be
sure that you have proper documents for redemption. If you purchase shares
with a check and try to redeem shares a short time later, the Fund may delay
paying redemption proceeds until the check has been collected, although the
amount to be paid for the shares will be calculated when the redemption notice
is received. The delay could take 15 days or more. To avoid a delay in
receiving redemption proceeds, you should purchase shares through a bank wire
or electronic funds transfer. Information on wires can be obtained from all
national and many state banks.
STRUCTURE AND MANAGEMENT OF THE FUNDS
HOW ARE THE FUNDS STRUCTURED?
The Trust is an open-end management investment company, which is a mutual fund
that sells and redeems shares every day that it is open for business. The
Trust was organized on May 9, 1986 as a Massachusetts business trust. The
Trust is governed by a Board of Trustees. The Trustees are responsible for
the overall management of the Trust and retain and supervise the Funds'
Adviser, Administrator, Distributor, Transfer Agent and Custodian. Currently,
the Trust has 14 portfolios, each of which offers two classes of shares.
WHO MANAGES AND SERVICES THE FUNDS?
INVESTMENT ADVISER. The Funds are advised by Old Kent, an indirect
wholly-owned subsidiary of OKFC, which is a financial services company with
total assets as of December 31, 1996 of approximately $
billion. Old Kent provides investment advice to the Funds under a contract
with the Funds.
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<PAGE> 26
Old Kent's Investment Department employs an experienced staff of professional
investment analysts, portfolio managers and traders, and uses several
proprietary computer-based systems in conjunction with fundamental analysis to
identify investment opportunities. Old Kent has provided investment advisory
services to individual and corporate trust accounts for over 100 years. Old
Kent is located at One Vandenberg Center, Grand Rapids, MI 49503. Through
offices in Michigan, Florida and Illinois, OKFC and its subsidiaries provide a
broad range of financial services to individuals and businesses. Old Kent
currently has the right to vote a majority of the Trust's outstanding shares
on behalf of its underlying customer accounts and therefore it is considered
to be a controlling person of the Trust.
Old Kent selects broker-dealers to execute portfolio transactions for the
Funds based on best price and execution terms. Old Kent may consider as a
factor the number of shares of the Funds sold by the broker-dealer. The
broker-dealers may be affiliated with the Trust or its service providers or
their affiliates, subject to any limitations imposed by applicable securities
laws and regulations.
ADMINISTRATOR. BISYS provides management and administrative services to the
Funds, including providing office space, equipment and clerical personnel to
the Funds, supervising custodial, auditing, valuation, bookkeeping, legal and
dividend dispersing services. BISYS Fund Services, Inc., an affiliate of
BISYS, acts as the fund accountant, transfer agent and dividend paying agent
of the Funds. BISYS and BISYS Fund Services, Inc. are each located at 3435
Stelzer Road, Columbus, Ohio 43219.
DISTRIBUTOR. BISYS is also the distributor of the Funds' shares. BISYS may,
from time to time, provide promotional incentives to certain dealers whose
representatives have sold or are expected to sell significant amounts of
Investment Shares. BISYS may provide written information to dealers with whom
it has dealer agreements that relate to sales incentive campaigns conducted by
such dealers for their representatives. In addition, BISYS may similarly
provide financial assistance in connection with pre-approved seminars,
conferences and advertising. No such programs or additional compensation will
be offered to the extent that they are prohibited by the laws of any state or
any self-regulatory agency, such as the NASD. Dealers to whom substantially
the entire sales charge is reallowed may be deemed to be underwriters as that
term is defined under the Securities Act of 1933.
WHAT ARE MY RIGHTS AS A FUND SHAREHOLDER?
As a shareholder of a Fund, you have the right to vote on certain matters
affecting the Fund, such as elections of Trustees and approval of advisory
contracts and distribution arrangements. The Trust will not have annual
shareholder meetings, but special meetings may be held at the request of
investors holding 10% of the shares for the purpose of removing a Trustee.
You are entitled to one vote for each share you hold and a fractional vote for
each fraction of a share you hold. You will be asked to vote only on matters
affecting the Trust as a whole and your particular Fund and class of shares,
and not on matters only affecting other Funds or classes of shares. You
should be aware that under Massachusetts law it is possible that a shareholder
may be personally liable for the Trust's obligations. If a shareholder were
required to pay a debt of a Fund, however, the Trust has committed to
reimburse the shareholder in full from its assets.
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<PAGE> 27
DIVIDENDS, DISTRIBUTIONS AND TAXES
WHEN WILL I RECEIVE DISTRIBUTIONS FROM THE FUNDS?
Each Fund will distribute substantially all of its net investment income and
long-term capital gains to shareholders each year. Each Fund will declare
dividends daily and pay dividends monthly. The Funds do not expect to realize
or distribute long-term capital gains.
HOW WILL DISTRIBUTIONS BE MADE?
Dividend and capital gains distributions will be paid in additional shares of
the Funds. If you wish to receive distributions in cash, notify the Fund at
1-800-633-KENT (5368) and a check will be mailed to you each time a
distribution is made. Your distributions may also be sent by electronic funds
transfer directly to your designated bank account. Shareholders in IRA
accounts and participants in certain tax-qualified plans cannot receive
distributions in cash.
WHAT ARE THE TAX IMPLICATIONS OF MY INVESTMENTS IN THE FUNDS?
Because the Funds each intend to qualify as a "regulated investment company"
under the Internal Revenue Code (the "Code"), they generally will not be
required to pay Federal income taxes on their income and capital gains.
Dividends of investment company income by the Money Market Fund and the
Government Money Market Fund will be taxable to you as ordinary income, unless
you are exempt from Federal income taxes. Federal income taxes for
distributions to an IRA or to a qualified retirement plan are deferred. In
general, a Fund's investment company taxable income will be its taxable income
(including interest and short-term capital gains) subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year.
This tax treatment applies regardless of whether you receive your
distributions in cash or in additional shares.
To the extent distributions are attributable to interest from obligations of
the U.S. Government and certain of its agencies and instrumentalities, such
distributions may be exempt from certain types of state and local taxes.
The Michigan Municipal Money Market Fund intends to distribute monthly its net
tax-exempt income (such distributions are known as "exempt-interest
dividends") and any investment company taxable income. Exempt-interest
dividends may be treated by you as items of interest excludable from your
gross income under Section 103(a) of the Code, unless under the circumstances
applicable to you the exclusion would be disallowed. See the SAI under
"Dividends and Taxes." Shareholders receiving Social Security benefits should
note that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits. To the extent, if any, dividends
paid to you are derived from taxable income or from net long-term capital
gains, such dividends will not be exempt from Federal income tax, whether they
are paid in cash or reinvested in additional shares, and may also be subject
to state and local taxes.
The exemption of interest on municipal bonds for Federal income tax purposes
does not necessarily result in exemption under the income, corporate or
personal property tax laws of any state or city. Generally, individual
shareholders of the Michigan Municipal Money Market Fund are afforded
tax-exempt treatment at the state and local levels for distributions derived
from interest on municipal securities of their state of residency.
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<PAGE> 28
Dividends paid by the Michigan Municipal Money Market Fund that are derived
from interest attributable to tax-exempt Michigan Municipal Obligations will
be exempt from Michigan state and local taxes, even though the dividends may
not be exempt for Federal income tax purposes. The Fund is unable to predict
in advance the portion of its dividends that will be derived from interest on
Michigan Municipal Obligations, but will notify shareholders each year as to
the interest derived from Michigan Municipal Obligations.
Distributions of taxable income and taxable capital gains by the Michigan
Municipal Money Market Fund are taxable for Michigan taxation purposes when
received by you, except that distributions which are reinvested by you in
shares of the Fund are exempt from the Michigan intangibles tax. Except as
noted above with respect to Michigan income taxation, distributions of net
income may be taxable to investors as dividend income under other state or
local laws even though a substantial portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
You will receive from each Fund in which you are a shareholder shortly after
the end of each year a statement of the amount and nature of distributions
made to you during the year. You will also receive a confirmation statement
shortly after disposing of shares showing the amount and value of the
disposition.
Interest on indebtedness incurred by you to purchase or carry shares of the
Michigan Municipal Money Market Fund generally is not deductible for Federal
income tax purposes.
You should note that in certain cases (i) the Funds will be required to
withhold 31% of dividends or sale proceeds otherwise due to you and (ii) in
addition to Federal taxes, state and local taxes may apply to transactions in
shares.
THIS SECTION CONTAINS A BRIEF SUMMARY OF THE TAX IMPLICATIONS OF OWNERSHIP OF
THE FUNDS' SHARES. A LENGTHIER DESCRIPTION OF TAXES IS CONTAINED IN THE SAI.
YOU SHOULD CONSULT YOUR TAX ADVISER REGARDING THE IMPACT OF OWNING THE FUNDS'
SHARES ON YOUR OWN PERSONAL TAX SITUATION, INCLUDING THE APPLICABILITY OF ANY
STATE AND LOCAL TAXES.
ADDITIONAL INFORMATION
WHERE DO I GET ADDITIONAL INFORMATION ABOUT MY ACCOUNT AND THE FUNDS?
For more information, call 1-800-633-KENT (5368) or write to the Funds
at: THE KENT FUNDS, P.O. Box 182201, Columbus, Ohio 43218-2201.
EXCEPT AS OTHERWISE STATED IN THIS PROSPECTUS OR REQUIRED BY LAW, THE TRUST
RESERVES THE RIGHT TO CHANGE THE TERMS OF ANY OFFER STATED IN THIS PROSPECTUS
WITHOUT SHAREHOLDER APPROVAL, INCLUDING THE RIGHT TO CHARGE CERTAIN FEES FOR
SERVICES PROVIDED. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, OR IN THE SAI, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE> 29
<TABLE>
<CAPTION>
Items in
Part B of Statement of Additional
Form N-1A Information
- --------- -----------------------
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and Not Applicable
History
Item 13. Investment Objectives and The Trust
Policies Investment Policies
Investment Restrictions
Securities Transactions
Appendix C
Item 14. Management of the Fund Trustees and Officers
Item 15. Control Persons and Additional Information
Principal Holders of
Securities
Item 16. Investment Advisory and Investment Adviser
and Other Services Administrator
Distributor
Transfer Agent
Custodian, Auditors and Counsel
Distribution Plans
Item 17. Brokerage Allocation and Securities Transactions
Other Practices Distribution Plans
Item 18. Capital Stock and Other The Trust
Securities Declaration of Trust
Item 19. Purchase, Redemption and Valuation of Securities
Pricing of Securities Additional Purchase and
Being Offered Redemption Information
Item 20. Tax Status Dividends and Taxes
Item 21. Underwriters Distributor
Item 22. Calculation of Performance Standardized Total Return and
Data Yield Quotations
Item 23. Financial Statements Financial Statements
</TABLE>
-3-
<PAGE> 30
THE KENT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FOR
INVESTMENT AND INSTITUTIONAL SHARES
OF
THE KENT MONEY MARKET FUND
THE KENT GOVERNMENT MONEY MARKET FUND
THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND
THE KENT GROWTH AND INCOME FUND
THE KENT SMALL COMPANY GROWTH FUND
THE KENT INTERNATIONAL GROWTH FUND
THE KENT INDEX EQUITY FUND
THE KENT SHORT TERM BOND FUND
THE KENT INTERMEDIATE BOND FUND
THE KENT INCOME FUND
THE KENT LIMITED TERM TAX-FREE FUND
THE KENT INTERMEDIATE TAX-FREE FUND
THE KENT TAX-FREE INCOME FUND
THE KENT MICHIGAN MUNICIPAL BOND FUND
MAY 1, 1997
This Statement of Additional Information ("SAI") is not a prospectus but
relates to, and should be read in conjunction with, the prospectuses for the
Investment Shares and the Institutional Shares of the foregoing Funds dated May
1, 1997, as amended or supplemented from time to time. A copy of the
prospectuses may be obtained by writing to The Kent Funds, P.O. Box 182201,
Columbus, Ohio 43218-2201 or by calling 1-800-633-KENT (5368). Capitalized
terms not otherwise defined herein have the same meaning as in the
prospectuses.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, OLD KENT BANK OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN MUTUAL FUND SHARES
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. EACH MONEY
MARKET FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE, ALTHOUGH
THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
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<PAGE> 31
TABLE OF CONTENTS
The Trust ...............................................................
Investment Policies .....................................................
Investment Restrictions .................................................
Securities Transactions .................................................
Valuation of Securities .................................................
Trustees and Officers ...................................................
Expenses ................................................................
Investment Adviser ......................................................
Administrator ...........................................................
Distributor .............................................................
Transfer Agent ..........................................................
Custodian, Auditors and Counsel .........................................
Distribution Plan .......................................................
Additional Purchase and Redemption Information ..........................
Dividends and Taxes .....................................................
Declaration of Trust ....................................................
Standardized Total Return and Yield Quotations ..........................
Advertising Information .................................................
Financial Statements ....................................................
Additional Information ..................................................
Appendix A ..............................................................
Appendix B ..............................................................
Appendix C ..............................................................
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS SAI, OR IN THE PROSPECTUSES RELATED
HERETO, IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUSES AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST OR ITS DISTRIBUTOR. THIS SAI AND THE PROSPECTUSES
DO NOT CONSTITUTE AN OFFERING BY THE TRUST OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE> 32
THE TRUST
The Kent Funds (the "Trust") is an open-end management investment company,
commonly known as a mutual fund, which was organized on May 9, 1986 as a
Massachusetts business trust. The original name of the Trust was "Master
Municipal Trust." The Trust changed its name to "The Kent Funds" on May 1,
1990. The Trust consists of fourteen separate investment portfolios, each of
which is diversified and has a distinct investment objective and distinct
investment policies (individually, a "Fund," and collectively, the "Funds").
Each of the Funds has established two classes of shares, Investment Shares and
Institutional Shares. This SAI relates to the Investment and Institutional
Shares of The Kent Money Market Fund, The Kent Government Money Market Fund,
The Kent Michigan Municipal Money Market Fund (collectively, the "Money Market
Funds"), The Kent Growth and Income Fund, The Kent Small Company Growth Fund,
The Kent International Growth Fund, The Kent Index Equity Fund (collectively,
the "Equity Funds"), The Kent Short Term Bond Fund, The Kent Intermediate Bond
Fund, The Kent Income Fund (collectively, the "Income Funds"), The Kent Limited
Term Tax-Free Fund, The Kent Intermediate Tax-Free Fund, The Kent Tax-Free
Income Fund and The Kent Michigan Municipal Bond Fund (collectively, the
"Municipal Bond Funds"). The Equity Funds, Income Funds and Municipal Bond
Funds are sometimes collectively referred to as the "Non-Money Market Funds."
The Municipal Bond Funds and The Kent Michigan Municipal Money Market Fund are
sometimes collectively referred to as the "Tax-Free Funds." Each Fund is
advised by Old Kent Bank ("Old Kent" or the "Investment Adviser").
Important information about the Trust and the Investment and Institutional
Shares of the Funds is contained in the Funds' prospectuses. This SAI provides
additional information about the Trust and the Investment and Institutional
Shares of the Funds that may be of interest to some investors.
INVESTMENT POLICIES
The following information supplements the description of each Fund's
investment objective and policies as set forth in its respective prospectus.
The investment policies discussed below are applicable to all the Funds unless
otherwise noted.
MONEY MARKET INSTRUMENTS
The Funds may invest from time to time in "money market instruments," a
term that includes, among other things, bank obligations, commercial paper,
variable amount master demand notes and corporate bonds with remaining
maturities of thirteen months or less. Variable amount master demand notes are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although such notes are
not normally traded and there may be no secondary market in the notes, the
Funds may demand payment of the principal of the instrument at any time. If an
issuer of a variable amount master demand note defaulted on its payment
obligation, the Funds might be unable to dispose of the note because of the
absence of a secondary market and might, for this or other reasons, suffer a
loss to the extent of the default.
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by banks or bank holding companies, corporations and finance
companies. Investments by the Funds in taxable commercial paper will consist
of issues that are rated A-1 by Standard & Poor's Ratings Group ("S&P") or
3
<PAGE> 33
Prime-1 by Moody's Investors Service, Inc. ("Moody's"). In addition, the Funds
may acquire unrated commercial paper and corporate bonds that are determined by
Old Kent at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the Funds. Commercial paper may include
variable and floating rate instruments.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties that
vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed time deposit to a third party, although there is
no market for such deposits. Bank notes and bankers' acceptances rank junior
to deposit liabilities of the bank and pari passu with other senior, unsecured
obligations of the bank. Bank notes are classified as "other borrowings" on a
bank's balance sheet, while deposit notes and certificates of deposit are
classified as deposits. Bank notes are not insured by the Federal Deposit
Insurance Corporation or any other insurer. Deposit notes are insured by the
Federal Deposit Insurance Corporation only to the extent of $100,000 per
depositor per bank.
The Funds may invest a portion of their assets in the obligations of
foreign banks and foreign branches of domestic banks. Such obligations include
Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule
Bs, which are obligations issued by Canadian branches of foreign or domestic
banks; Yankee Certificates of Deposit ("Yankee CDs") which are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the United States; and Yankee Bankers' Acceptances ("Yankee
BAs") which are U.S. dollar-denominated bankers' acceptances issued by a U.S.
branch of a foreign bank and held in the United States.
Although the Funds will invest in obligations of foreign banks or foreign
branches of U.S. banks only when Old Kent deems the instrument to present
minimal credit risk, such investments nevertheless entail risks that are
different from those of investments in domestic obligations of U.S. banks.
These additional risks include future political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S. banks and U.S. branches of
foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and record keeping standards than
those applicable to domestic branches of U.S. banks. All investments in bank
obligations are limited to the obligations of financial institutions having
more than $1 billion in total assets at the time of purchase.
4
<PAGE> 34
GUARANTEED INVESTMENT CONTRACTS (The Income Funds, Municipal Bond Funds and
Money Market Fund only)
The above-referenced Funds may make limited investments in guaranteed
investment contracts ("GICs") issued by highly rated U.S. insurance companies.
A GIC is normally a general obligation of the issuing insurance company and not
a separate account. The purchase price paid for a GIC becomes part of the
general assets of the insurance company, and the contract is paid from the
company's general assets. The Income Funds, Municipal Bond Funds and Money
Market Fund will only purchase GICs from insurance companies which, at the time
of purchase, have total assets of $1 billion or more and meet quality and
credit standards established by Old Kent pursuant to guidelines approved by the
Board of Trustees. Generally, GICs are not assignable or transferable without
the permission of the issuing insurance companies, and an active secondary
market in GICs does not currently exist. Therefore, GICs will normally be
considered illiquid investments, and will be subject to a Fund's limitation on
illiquid investments.
REPURCHASE AGREEMENTS
Each Fund may agree to purchase portfolio securities from financial
institutions subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price ("repurchase agreements"). The Funds will enter
into such repurchase agreements only with financial institutions that are
deemed to be creditworthy by Old Kent, pursuant to guidelines established by
the Trust's Board of Trustees. During the term of any repurchase agreement,
Old Kent will continue to monitor the creditworthiness of the seller. The
Funds will not enter into repurchase agreements with Old Kent or its
affiliates. Although the securities subject to a repurchase agreement may bear
maturities exceeding one year, settlement for the repurchase agreement will
never be more than one year after a Fund's acquisition of the securities and
normally will be within a shorter period of time. Repurchase agreements with
deemed maturities in excess of seven days are considered illiquid investments,
and will be subject to a Fund's limitation on illiquid investments. Securities
subject to repurchase agreements are held either by the Trust's custodian or in
the Federal Reserve/Treasury Book-Entry System. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement in an amount exceeding the repurchase price (including accrued
interest) and the securities subject to repurchase agreements are maintained by
the Trust's custodian in segregated accounts in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"). Default by the seller would,
however, expose a Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying collateral
obligations. Repurchase agreements are considered to be loans by a Fund under
the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
A Fund may borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the
repurchase price. A Fund will pay interest on amounts obtained pursuant to a
reverse repurchase agreement. While reverse repurchase agreements are
outstanding, a Fund will maintain in a segregated account cash, U.S. Government
securities or other liquid high-grade debt securities of an amount at least
equal to the market value of the securities, plus accrued interest, subject to
the agreement. Reverse repurchase agreements are considered to be borrowings
by a Fund under the 1940 Act.
5
<PAGE> 35
VARIABLE AND FLOATING RATE INSTRUMENTS (The Income Funds, Municipal Bond Funds
and Money Market Funds only)
The above-referenced Funds may purchase rated and unrated variable and
floating rate instruments. When purchasing such instruments for the Funds, Old
Kent will consider the earning power, cash flows and other liquidity ratios of
the issuers and guarantors of such instruments and, if the instruments are
subject to demand features, will monitor their financial status to meet payment
on demand. In determining weighted average portfolio maturity, an instrument
will usually be deemed to have a maturity equal to the longer of the period
remaining until the next interest rate adjustment or the time a Fund can
recover payment of principal as specified in the instrument. Variable rate
U.S. Government obligations held by the Funds, however, will be deemed to have
maturities equal to the period remaining until the next interest rate
adjustment. Where necessary to ensure that a variable or floating rate
instrument is of the minimum required credit quality for a Fund, the issuer's
obligation to pay the principal of the instrument will be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Fund to
dispose of the instruments if the issuer defaulted on its payment obligation or
during periods that the Fund is not entitled to exercise demand rights, and a
Fund could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments (including inverse
floaters) will be subject to a Fund's limitation on illiquid investments when
the Fund may not demand payment of the principal amount within seven days and a
reliable trading market is absent.
LOAN PARTICIPATION NOTES
Each Fund may purchase Loan Participation Notes. A loan participation
note represents participation in a corporate loan of a commercial bank with a
remaining maturity of one year or less. Such loans must be to corporations in
whose obligations the Funds may invest. Any participation purchased by a Fund
must be issued by a bank in the United States with total assets exceeding $1
billion. Because the issuing bank does not guarantee the participations in any
way, they are subject to the credit risks generally associated with the
underlying corporate borrower. In addition, because it may be necessary under
the terms of the loan participation for a Fund to assert through the issuing
bank such rights as may exist against the corporate borrower if the underlying
corporate borrower fails to pay principal and interest when due, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation of such
borrower. Moreover, under the terms of the loan participation a Fund may be
regarded as a creditor of the issuing bank (rather than the underlying
corporate borrower), so that the Fund may also be subject to the risk that the
issuing bank may become insolvent. The secondary market, if any, for loan
participations is extremely limited and any such participations purchased by a
Fund may be regarded as illiquid.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS
Each Fund may purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment (sometimes called delayed delivery) basis.
These transactions involve a commitment by the Fund to purchase or sell
securities at a future date. The price of the underlying securities (usually
expressed
6
<PAGE> 36
in terms of yield) and the date when the securities will be delivered and paid
for (the settlement date) are fixed at the time the transaction is negotiated.
When-issued purchases and forward commitment transactions are normally
negotiated directly with the other party.
A Fund will purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis only with the intention of completing
the transaction and actually purchasing or selling the securities. If deemed
advisable as a matter of investment strategy, however, a Fund may dispose of or
negotiate a commitment after entering into it. A Fund also may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date.
Securities purchased or sold on a when-issued, delayed delivery or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines, or the value of the security to be sold increases, before
the settlement date. When a Fund engages in when-issued, delayed-delivery and
forward commitment transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Fund's incurring a
loss or missing an opportunity to obtain a price considered to be advantageous.
When a Fund purchases securities on a when-issued, delayed-delivery or
forward commitment basis, the Trust's custodian will maintain in a segregated
account cash, U.S. Government securities or other liquid high-grade debt
securities having a value (determined daily) at least equal to the amount of
the Fund's purchase commitments. In the case of a forward commitment to sell
portfolio securities, the custodian will hold the portfolio securities
themselves in a segregated account while the commitment is outstanding. These
procedures are designed to ensure that the Fund will maintain sufficient assets
at all times to cover its obligations under when-issued, forward commitment and
delayed-delivery transactions. Because a Fund sets aside liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its purchase
commitments exceed 25% of the value of its assets. For purposes of determining
a Fund's average dollar-weighted maturity, the maturity of when-issued,
delayed-delivery or forward commitment securities will be calculated from the
commitment date.
UNITED STATES GOVERNMENT OBLIGATIONS
Examples of the types of U.S. Government obligations that may be acquired
by the Funds include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association ("FNMA"), Government National Mortgage
Association ("GNMA"), General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal Intermediate Credit Banks, and Maritime
Administration. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the GNMA, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the FNMA, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
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ZERO COUPON OBLIGATIONS (The Income Funds and Money Market Funds only)
The Income Funds and Money Market Funds may acquire zero coupon
obligations, which have greater price volatility than coupon obligations and
which will not result in the payment of interest until maturity, provided that
the greater price volatility of any such zero coupon obligation is not
inconsistent with the Fund's investment objective. The Funds will accrue
income on such investments for tax and accounting purposes, as required, and
such income must be distributed to shareholders. Because no cash is received
at the time of such accruals, a Fund may be required to liquidate other
portfolio securities to satisfy its distribution obligations.
STRIPPED OBLIGATIONS (The Income Funds and Money Market Funds only)
To the extent described in their prospectuses, the Income Funds and Money
Market Funds may purchase Treasury receipts and other "stripped" securities
that evidence ownership in either the future interest payments or the future
principal payments on U.S. Government and other obligations. These
participations, which may be issued by the U.S. Government (or a U.S.
Government agency or instrumentality) or by private issuers such as banks and
other institutions, are issued at a discount to their "face value," and may,
with respect to the Income Funds, include stripped mortgage-backed securities
("SMBS"). Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. The Funds also may purchase
U.S. dollar-denominated "stripped" securities that evidence ownership in the
future interest payments or principal payments on obligations of foreign
governments.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool
of mortgage-backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class receives all of the
principal. However, in some cases, one class will receive some of the interest
and most of the principal while the other class will receive most of the
interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, a Fund may fail
to fully recoup its initial investment. The market value of the class
consisting entirely of principal payments can be extremely volatile in response
to changes in interest rates. The yields on a class of SMBS that receives all
or most of the interest are generally higher than prevailing market yields on
other mortgage-backed obligations because their cash flow patterns are also
volatile and there is a greater risk that the initial investment will not be
fully recouped.
SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid. SMBS issued by the U.S.
Government (or a U.S. Government agency or instrumentality) may be considered
liquid under guidelines established by the Trust's Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net
asset value.
Within the past several years, the Treasury Department has facilitated
transfers of ownership of stripped securities by accounting separately for the
beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department
is known as "STRIPS" or "Separate Trading of Registered Interest and Principal
of Securities." The Income Funds and Money Market Funds may purchase securities
registered in the STRIPS program. Under the STRIPS program, the Funds will be
able to have their beneficial ownership of stripped securities recorded
directly in the book-entry record-
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keeping system in lieu of having to hold certificates or other evidences of
ownership of the underlying U.S. Treasury securities.
In addition, the Income Funds and Money Market Funds (except the Michigan
Municipal Money Market Fund) may acquire other U.S. Government obligations and
their unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including
"Treasury Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on
Treasury Securities" ("CATS"). The stripped coupons are sold separately from
the underlying principal, which is usually sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. The
underlying U.S. Treasury bonds and notes themselves are held in book-entry form
at the Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are ostensibly owned by the bearer or holder), in
trust on behalf of the owners. Counsel to the underwriters of these
certificates or other evidences of ownership of U.S. Treasury securities have
stated that, in their opinion, purchasers of the stripped securities most
likely will be deemed the beneficial holders of the underlying U.S. Government
obligations for federal tax purposes. The Trust is unaware of any binding
legislative, judicial or administrative authority on this issue. The staff of
the Securities and Exchange Commission believes that participations in TIGRs,
CATs and other similar trusts are not U.S. Government securities.
MORTGAGE-BACKED SECURITIES (The Income Funds and Money Market Funds only)
The Income Funds and Money Market Funds may invest in mortgage-backed
securities, including those representing an undivided ownership interest in a
pool of mortgages, such as certificates of the GNMA and the FHLMC. These
certificates are in most cases pass-through instruments, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, net of certain fees. The average life of
a mortgage-backed security varies with the underlying mortgage instruments,
which have maximum maturities of 40 years. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by factors including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. Such prepayments are
passed through to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future payments.
In periods of falling interest rates, the rate of mortgage prepayments
tends to increase. During such periods, the reinvestment of prepayment
proceeds by a Fund will generally be at lower rates than the rates that were
carried by the obligations that have been prepaid. As a result, the
relationship between mortgage prepayments and interest rates may give some
high-yielding mortgage-related securities less potential for growth in value
than conventional bonds with comparable maturities. In calculating the average
weighted maturity of each Fund, the maturity of mortgage-backed and
asset-backed securities will be based on estimates of average life.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities
guaranteed by GNMA include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes"), which are guaranteed as to the timely payment of principal
and interest by GNMA and
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backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. Mortgage-backed securities issued by FNMA include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes"), which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States, but are supported by the right of the
issuer to borrow from the Treasury. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-related securities issued by FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed and do not constitute a debt or obligation of the United States
or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely
payment of interest, which is guaranteed by FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Income Funds also may acquire collateralized mortgage obligations
("CMOs"), which provide the holder with a specified interest in the cash flow
of a pool of underlying mortgages or other mortgage-backed securities. Issuers
of CMOs ordinarily elect to be taxed as pass-through entities known as real
estate mortgage investment conduits ("REMICs"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. The relative payment rights of the various CMO classes may
be structured in a variety of ways.
There are risks inherent in the purchase of mortgage-backed securities.
For example, these securities are subject to a risk that default in payment
will occur on the underlying mortgages. In addition to default risk, these
securities are subject to the risk that prepayment on the underlying mortgages
will occur earlier or later or at a lessor or greater rate than expected. To
the extent that Old Kent's assumptions about prepayments are inaccurate, these
securities may expose the Funds to significantly greater market risks than
expected.
ASSET-BACKED SECURITIES (The Income Funds and Money Market Funds only)
The Income Funds and Money Market Funds may purchase asset-backed
securities, which are securities backed by installment contracts, credit card
receivables or other assets. Asset-backed securities represent interests in
"pools" of assets in which payments of both interest and principal on the
securities are made monthly, thus in effect "passing through" monthly payments
made by the individual borrowers on the assets that underlie the securities,
net of any fees paid to the issuer or guarantor of the securities. The average
life of asset-backed securities varies with the maturities of the underlying
instruments, and is likely to be substantially less than the original maturity
of the assets underlying the securities as a result of prepayments. For this
and other reasons, an asset-backed security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely.
Non-mortgage asset-backed securities invoke certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of a security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of
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a number of state and federal consumer credit laws, many of which have given
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due.
CERTAIN DERIVATIVE SECURITIES (The Income Funds, Municipal Bond Funds and Money
Market Funds only)
The above-referenced Funds may invest in structured notes, bonds or other
instruments with interest rates that are determined by reference to changes in
the value of other interest rates, indices or financial indicators
("References") or the relative change in two or more References. The Funds
also may hold derivative instruments that have interest rates that re-set
inversely to changing current market rates and/or have embedded interest rate
floors and caps that require the issuer to pay an adjusted interest rate if
market rates fall below or rise above a specified rate. These instruments
represent relatively recent innovations in the bond markets, and the trading
market for these instruments is less developed than the markets for traditional
types of debt instruments. It is uncertain how these instruments will perform
under different economic and interest-rate scenarios. Because certain of these
instruments are leveraged, their market values may be more volatile than other
types of bonds and may present greater potential for capital gain or loss. On
the other hand, the embedded option features of other derivative instruments
could limit the amount of appreciation a Fund can realize on its investment,
could cause a Fund to hold a security it might otherwise sell or could force
the sale of a security at inopportune times or for prices that do not reflect
current market value. The possibility of default by the issuer or the issuer's
credit provider may be greater for these structured and derivative instruments
than for other types of instruments. In some cases it may be difficult to
determine the fair value of a structured or derivative instrument because of a
lack of reliable objective information and an established secondary market for
some instruments may not exist. With respect to purportedly tax-exempt
derivative securities, in many cases the Internal Revenue Service has not ruled
on whether the interest received on such securities is in fact free from
Federal income taxes. Purchases of such securities by the Tax-Free Funds are
therefore based on the opinion of counsel to the sponsors of the security. The
Money Market Funds will only purchase derivative securities that qualify as
"Eligible Securities" under Rule 2a-7 of the 1940 Act.
MUNICIPAL OBLIGATIONS (The Income Funds, Municipal Bond Funds and Money Market
Funds only)
The two principal classifications of Municipal Obligations which may be
held by the above-referenced Funds are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of the facility being financed. Private activity bonds (e.g.,
bonds issued by industrial development authorities) that are issued by or on
behalf of public authorities to finance various privately-operated facilities
are included within the term "Municipal Obligations" if the interest paid
thereon is exempt from regular Federal income tax and not treated as a specific
tax preference item under the Federal alternative minimum tax. Private
activity bonds are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. The credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. The Funds may also purchase "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer.
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Opinions relating to the validity of Municipal Obligations (including
Michigan Municipal Obligations) and to the exemption of interest thereon from
regular Federal income tax and, in the case of Michigan Municipal Obligations,
Michigan state personal income tax, are rendered by counsel to the respective
issuing authorities at the time of issuance. Such opinions may contain various
assumptions, qualifications or exceptions that are reasonably acceptable to Old
Kent. Neither the Trust nor Old Kent will review the proceedings relating to
the issuance of Municipal Obligations or the bases for such opinions.
An issuer's obligations under its Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Obligations may be
materially adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986 interest on certain private activity bonds must be included in an
investor's Federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their Federal alternative minimum
taxable income. The Trust cannot predict what legislation, if any, may be
proposed in the future in Congress as regards the Federal income tax status of
interest on Municipal Obligations or which proposals, if any, might be enacted.
Such proposals, if enacted, might materially adversely affect the availability
of Municipal Obligations and a Fund's liquidity and value. In such an event
the Board of Trustees would reevaluate the Funds' investment objectives and
policies and consider changes in their structure or possible dissolution.
Certain of the Municipal Obligations held by a Fund may be insured as to
the timely payment of principal and interest. The insurance policies will
usually be obtained by the issuer of the Municipal Obligations at the time of
its original issuance. In the event that the issuer defaults on an interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates and other
factors. The Tax-Free Funds may, from time to time, invest more than 25% of
their assets in Municipal Obligations covered by insurance policies.
Information about the financial condition of issuers of Municipal
Obligations may be less available than information about corporations that have
class of securities registered under the Securities Exchange Act of 1934.
The Income Funds and Municipal Bond Funds also may purchase Municipal
Obligations known as "certificates of participation" which represent undivided
proportional interests in lease payments by a governmental or nonprofit entity.
The lease payments and other rights under the lease provide for and secure the
payments on the certificates. Lease obligations may be limited by applicable
municipal charter provisions or the nature of the appropriation for the lease.
In particular, lease obligations may be subject to periodic appropriation. If
the entity does not appropriate funds for future lease payments, the entity
cannot be compelled to make such payments. Furthermore, a lease may or may not
provide that the certificate trustee can accelerate lease obligations upon
default. If the trustee could not accelerate lease obligations
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upon default, the trustee would only be able to enforce lease payments as they
became due. In the event of a default or failure of appropriation, it is
unlikely that the trustee would be able to obtain an acceptable substitute
source of payment. Certificates of participation are generally subject to
redemption by the issuing municipal entity under specified circumstances. If a
specified event occurs, a certificate is callable at par either at any interest
payment date or, in some cases, at any time. As a result, certificates of
participation are not as liquid or marketable as other types of Municipal
Obligations and are generally valued at par or less than par in the open
market. Municipal leases may be considered liquid, however, under guidelines
established by the Trust's Board of Trustees. The guidelines will provide for
determination of the liquidity and proper valuation of a municipal lease
obligation based on factors including the following: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of transfer.
Old Kent, under the supervision of the Trust's Board of Trustees, will also
consider the continued marketability of a municipal lease obligation based upon
an analysis of the general credit quality of the municipality issuing the
obligation and the essentiality to the municipality of the property covered by
the lease.
STANDBY COMMITMENTS (The Income Funds, Municipal Bond Funds and Money Market
Funds only)
The above-referenced Funds may enter into standby commitments with respect
to Municipal Obligations held by them. Under a standby commitment, a dealer
agrees to purchase at a Fund's option a specified Municipal Obligation at its
amortized cost value to the Fund plus accrued interest, if any. Standby
commitments may be exercisable by a Fund at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
The Funds expect that standby commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Funds may pay for a standby commitment either
separately in cash or by paying a higher price for Municipal Obligations which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities).
The Funds intend to enter into standby commitments only with dealers,
banks and broker-dealers which, in Old Kent's opinion, present minimal credit
risks. The Funds will acquire standby commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a standby commitment will not affect the
valuation of the underlying Municipal Obligation which will continue to be
valued in accordance with the amortized cost method. The actual standby
commitment will be valued at zero in determining net asset value. Accordingly,
where a Fund pays directly or indirectly for a standby commitment, its cost
will be reflected as an unrealized loss for the period during which the
commitment is held by the Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
WARRANTS (The Equity Funds only)
The Equity Funds may purchase warrants and similar rights, which are
privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The purchase of warrants involves the risk
that a Fund could lose the purchase value of a warrant if the right to
subscribe to additional shares is not
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exercised prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. A Fund will not invest more than 5% of its
total assets, taken at market value, in warrants, or more than 2% of its total
assets, taken at market value, in warrants not listed on the New York Stock
Exchange ("NYSE"), American Stock Exchange or a major foreign exchange.
Warrants acquired by a Fund in shares or attached to other securities are not
subject to this restriction.
FOREIGN SECURITIES (The Growth and Income Fund, International Growth Fund and
Income Funds only)
The International Growth Fund intends to invest primarily in the
securities of foreign issuers. In addition, the Growth and Income Fund may
invest a portion of its assets in such securities. The Income Funds may invest
a portion of their assets in U.S. dollar-denominated securities of foreign
issuers. The Income Funds may also invest in U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities. These obligations
may be issued by supranational entities, including internal organizations (such
as the European Coal and Steel Community) designated or supported by
governmental entities to promote economic reconstruction or development and
internal banking institutions and related government agencies.
Investment in foreign securities involves special risks. The performance
of investments in securities denominated in a foreign currency will depend on
the strength of the foreign currency against the U.S. dollar and the interest
rate environment in the country issuing the currency. Absent other events
which could otherwise affect the value of a foreign security (such as a change
in the political climate or an issuer's credit quality), appreciation in the
value of the foreign currency increases the value of a foreign
currency-denominated security in terms of U.S. dollars. A rise in foreign
interest rates or decline in the value of the foreign currency relative to the
U.S. dollar generally can be expected to depress the value of a foreign
currency-denominated security.
There are other risks and costs involved in investing in foreign
securities which are in addition to the usual risks inherent in domestic
investments. Investment in foreign securities involves higher costs than
investment in U.S. securities, including higher transaction and custody costs
as well as the imposition of additional taxes by foreign governments. Foreign
investments also involve risks associated with the level of currency exchange
rates, less complete financial information about the issuers, less market
liquidity, more market volatility and political instability. Future political
and economic developments, the possible imposition of withholding taxes on
dividend income, the possible seizure or nationalization of foreign holdings,
the possible establishment of exchange controls, or the adoption of other
governmental restrictions might adversely affect an investment in foreign
securities. With respect to securities issued by foreign governments, such
governments may default on their obligations, may not respect the integrity of
such debt, may attempt to renegotiate the debt at a lower rate, and may not
honor investments by United States entities or citizens.
Although the Growth and Income Fund and International Growth Fund may
invest in securities denominated in foreign currencies, their portfolio
securities and other assets are valued in U.S. dollars. Currency exchange
rates may fluctuate significantly over short periods of time causing, together
with other factors, a Fund's net asset value to fluctuate as well. Currency
exchange rates generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from
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an international perspective. Currency exchange rates also can be affected
unpredictably by the intervention or the failure to intervene by U.S. or
foreign governments or central banks, or by currency controls or political
developments in the U.S. or abroad. The Funds are also subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currencies.
Dividends and interest payable on a Fund's foreign portfolio securities
may be subject to foreign withholding taxes. To the extent such taxes are not
offset by credits or deductions allowed to investors under U.S. Federal income
tax law, they may reduce the net return to the shareholders.
AMERICAN DEPOSITORY RECEIPTS (The Equity Funds only)
The Equity Funds can invest in American Depository Receipts ("ADRs").
ADRs are receipts typically issued by a United States bank or trust company
evidencing ownership of underlying foreign securities and are denominated in
U.S. dollars. Some institutions issuing ADRs may not be sponsored by the
issuer. A non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its
contractual arrangement with the issuer.
EXCHANGE RATE-RELATED SECURITIES (The International Growth Fund only)
The International Growth Fund may invest in securities for which the
principal repayment at maturity, while paid in U.S. dollars, is determined by
reference to the exchange rate between the U.S. dollar and the currency of one
or more foreign countries ("Exchange Rate-Related Securities"). The interest
payable on these securities is denominated in U.S. dollars and is not subject
to foreign currency risk and, in most cases, is paid at rates higher than most
other similarly rated securities in recognition of the foreign currency risk
component of Exchange Rate-Related Securities.
Investments in Exchange Rate-Related Securities entail certain risks.
There is the possibility of significant changes in rates of exchange between
the U.S. dollar and any foreign currency to which an Exchange Rate-Related
Security is linked. In addition, there is no assurance that sufficient trading
interest to create a liquid secondary market will exist for a particular
Exchange Rate-Related Security due to conditions in the debt and foreign
currency markets. Illiquidity in the forward foreign exchange market and the
high volatility of the foreign exchange market may, from time to time, combine
to make it difficult to sell an Exchange Rate-Related Security prior to
maturity without incurring a significant price loss.
FOREIGN CURRENCY TRANSACTIONS (The International Growth Fund only)
In order to protect against a possible loss on investments resulting from
a decline or appreciation in the value of a particular foreign currency against
the U.S. dollar or another foreign currency or for other reasons, the
International Growth Fund is authorized to enter into forward currency exchange
contracts. A forward currency exchange contract is an obligation to purchase or
sell a specific currency, or a "basket" of currencies, at a future date, which
may be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of contract. Although the contracts
may be used to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of such currency increase. The Fund may
also engage in cross-hedging by using forward currency exchange contracts in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if Old Kent believes that there is a
pattern of correlation between the two currencies.
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The Fund may enter into forward currency exchange contracts in several
circumstances. When entering into a contract for the purchase or sale of a
security, the Fund may enter into a forward currency exchange contract for the
amount of the purchase or sale price to protect against variations, between the
date the security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
When Old Kent anticipates that a particular foreign currency may decline
substantially relative to the U.S. dollar or other leading currencies, in order
to reduce risk, the Fund may enter into a forward contract to sell, for a fixed
amount, the amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency. Similarly, when
the securities held by the Fund create a short position in a foreign currency,
the Fund may enter into a forward contract to buy, for a fixed amount, an
amount of foreign currency approximating the short position. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is
entered into and the date it matures. While forward contracts may offer
protection from losses resulting from declines or appreciation in the value of
a particular foreign currency, they also limit potential gains which might
result from changes in the value of such currency. The Fund will also incur
costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars.
A separate account consisting of cash, U.S. Government securities or other
liquid high-grade debt securities, equal to the amount of the Fund's assets
that could be required to consummate forward contracts will be established with
the Fund's custodian except to the extent the contracts are otherwise
"covered." For the purpose of determining the adequacy of the securities in
the account, the deposited securities will be valued at market or fair value.
If the market or fair value of such securities declines, additional cash or
securities will be placed in the account daily so that the value of the account
will equal the amount of such commitments by the Fund. A forward contract to
sell a foreign currency is "covered" if the Fund owns the currency (or
securities denominated in the currency) underlying the contract, or holds a
forward contract (or call option) permitting the Fund to buy the same currency
at a price no higher than the Fund's price to sell the currency. A forward
contract to buy a foreign currency is "covered" if a Fund holds a forward
contract (or put option) permitting the Fund to sell the same currency at a
price as high as or higher than the Fund's price to buy the currency.
CURRENCY SWAPS (The International Growth Fund only)
The International Growth Fund may also enter into currency swaps, which
involve the exchange of the rights of the Fund and another party to make or
receive payments in specific currencies. The net amount of the excess, if any,
of the Fund's obligations over its entitlements with respect to each currency
swap will be accrued on a daily basis and an amount of liquid assets, such as
cash, U.S. Government securities or other liquid high-grade debt securities,
having an aggregate net asset value at least equal to such accrued excess will
be maintained in segregated accounts by the Trust's custodian. Inasmuch as
these transactions are entered into for good faith hedging purposes, the Funds
and Old Kent believe that such obligations do not constitute senior securities
as defined in the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions.
The Fund will not enter into a currency swap unless the unsecured
commercial paper, senior debt or the claims-paying ability of the other party
thereto is rated either A or A-1 or better by S&P or Moody's.
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If there is a default by the other party to such transaction, the Fund will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with markets for other
similar instruments which are traded in the Interbank market.
OPTIONS (The Non-Money Market Funds only)
The Non-Money Market Funds may buy put and call options and write covered
call and secured put options. Such options may relate to particular securities,
indices, financial instruments or foreign currencies, and may or may not be
listed on a domestic or foreign securities exchange and may or may not be
issued by the Options Clearing Corporation. The prospectuses specifically set
forth the types of options used by each Fund. Options trading is a highly
specialized activity which entails greater than ordinary investment risk.
Options may be more volatile than the underlying instruments, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying instruments themselves.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract.
A put option for a particular security gives the purchaser the right to sell
the security at the stated exercise price at any time prior to the expiration
date of the option, regardless of the market price of the security. Options on
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option. With respect to options on indices, the amount of
the settlement will equal the difference between the closing price of the index
at the time of exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
The Funds will write call options only if they are "covered." In the case
of a call option on a security or currency, the option is "covered" if a Fund
owns the instrument underlying the call or has an absolute and immediate right
to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high-grade debt securities, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian a diversified portfolio of
securities comprising the index or liquid assets equal to the contract value. A
call option is also covered if a Fund holds a call on the same instrument or
index as the call written where the exercise price of the call held is (i)
equal to or less than the exercise price of the call written, or (ii) greater
than the exercise price of the call written provided the difference is
maintained by the Fund in liquid assets in a segregated account with its
custodian. The Funds will write put options only if they are "secured" by
liquid assets maintained in a segregated account by the Funds' custodian in an
amount not less than the exercise price of the option at all times during the
option period.
A Fund's obligation to sell an instrument subject to a covered call option
written by it, or to purchase an instrument subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction will ordinarily be effected to realize a profit on
an outstanding option, to prevent an
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<PAGE> 47
underlying instrument from being called, to permit the sale of the underlying
instrument or to permit the writing of a new option containing different terms
on such underlying instrument. The cost of such a liquidation purchase plus
transaction costs may be greater than the premium received upon the original
option, in which event the Fund will have incurred a loss in the transaction.
There is no assurance that a liquid secondary market will exist for any
particular option. An option writer, unable to effect a closing purchase
transaction, will not be able to sell the underlying instrument (in the case of
a covered call option) or liquidate the segregated account (in the case of a
secured put option) until the option expires or the optioned instrument or
currency is delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline or appreciation in
the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund will realize a gain if the premium received by the
Fund on the closing transaction is more than the premium paid to purchase the
option, or a loss if it is less. If an option written by a Fund expires on the
stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option
written by a Fund is exercised, the proceeds of the sale will be increased by
the net premium originally received and the Fund will realize a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In
addition, a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities or currencies; unusual or unforeseen circumstances may interrupt
normal operations on an exchange; the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
value; or one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
FUTURES CONTRACTS AND RELATED OPTIONS (The Non-Money Market Funds only)
The Non-Money Market Funds may purchase and sell futures contracts and may
purchase and sell call and put options on futures contracts. For a detailed
description of futures contracts and related options, see Appendix C to this
SAI.
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ILLIQUID AND RESTRICTED SECURITIES
The Funds will not invest more than 15% (10% in the case of the Money
Market Funds) of the value of their net assets in securities that are illiquid
because of restrictions on transferability or other reasons. Repurchase
agreements with deemed maturities in excess of seven days, time deposits
maturing in more than seven days, currency swaps, SMBSs issued by private
issuers, unlisted over-the-counter options, GICs and securities that are not
registered under the Securities Act of 1933 but that may be purchased by
institutional buyers under Rule 144A are subject to this limit (unless such
securities are variable amount master demand notes with maturities of nine
months or less or unless the Board determines that a liquid trading market
exists).
Rule 144A allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the
Securities Act of 1933 for resales of certain securities to qualified
institutional buyers. Old Kent believes that the market for certain restricted
securities such as institutional commercial paper may expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
Old Kent monitors the liquidity of restricted securities in the Funds'
portfolios under the supervision of the Board of Trustees. In reaching
liquidity decisions, Old Kent will consider such factors as: (a) the frequency
of trades and quotes for the security; (b) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (c)
the willingness of dealers to undertake to make a market in the security; and
(d) the nature of the security and the nature of the marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer). The use of Rule 144A transactions could have
the effect of increasing the level of illiquidity in the Funds during any
period that qualified institutional buyers become uninterested in purchasing
these restricted securities.
SECURITIES LENDING (The Income Funds, Equity Funds and Money Market Funds only)
To increase return the above-referenced Funds may lend their portfolio
securities to broker-dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Such loans will not be made by a Fund if, as a result, the aggregate of all
outstanding loans of the Fund exceeds one-third of the value of its total
assets. There may be risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are
made only to borrowers deemed by Old Kent to be of good standing and when, in
Old Kent's judgment, the income to be earned from the loan justifies the
attendant risks.
Collateral for loans of portfolio securities made by a Fund may consist of
cash, securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, irrevocable bank letters of credit or any other liquid
high-grade short-term instrument approved for use as collateral by the
Securities and Exchange Commission (or any combination thereof). The borrower
of securities will be required to maintain the market value of the collateral
at not less than the market value of the loaned securities, and such value will
be monitored on a daily basis. When a Fund lends its securities, it continues
to receive dividends and interest on the securities loaned and may
simultaneously earn interest on the investment of the cash
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collateral. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans will be called so that the
securities may be voted by a Fund if a material event affecting the investment
is to occur.
CONVERTIBLE SECURITIES (The Growth and Income Fund and the Income Funds only)
Convertible securities entitle the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
securities mature or are redeemed, converted or exchanged. Prior to
conversion, convertible securities have characteristics similar to ordinary
debt securities in that they normally provide a stable stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security.
In selecting convertible securities for the above-referenced Funds, Old
Kent will consider, among other factors, its evaluation of the creditworthiness
of the issuers of the securities; the interest or dividend income generated by
the securities; the potential for capital appreciation of the securities and
the underlying common stocks; the prices of the securities relative to other
comparable securities and to the underlying common stocks; whether the
securities are entitled to the benefits of sinking funds or other protective
conditions; diversification of the Funds' portfolios as to issuers; and whether
the securities are rated by a rating agency and, if so, the ratings assigned.
The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.
Capital appreciation for the Funds may result from an improvement in the
credit standing of an issuer whose securities are held in the Funds or from a
general lowering of interest rates, or a combination of both. Conversely, a
reduction in the credit standing of an issuer whose securities are held by the
Funds or a general increase in interest rates may be expected to result in
capital depreciation to the Funds.
INVESTMENT COMPANIES
The Funds may invest in securities issued by other investment companies
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, a Fund would bear, along with other shareholders, its pro
rata portion of the expenses of such other investment company, including
advisory fees.
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These expenses would be in addition to the advisory and other expenses that a
Fund bears directly in connection with its own operations, and may represent a
duplication of fees to shareholders of a Fund. Each Fund currently intends to
limit its investments in securities issued by other investment companies so
that immediately after a purchase of such securities: (a) not more than 5% of
the value of the Fund's total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by all the Funds as a whole.
YIELDS AND RATINGS
The yields on certain obligations, including the money market instruments
in which the Funds invest, are dependent on a variety of factors, including
general economic conditions, conditions in the particular market for the
obligation, financial condition of the issuer, size of the offering, maturity
of the obligation and ratings of the issue. The ratings of a nationally
recognized statistical rating organization (an "NRSRO") represent its opinion
as to the quality of the obligations it undertakes to rate. Ratings, however,
are general and are not absolute standards of quality. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices.
After its purchase by a Fund, a rated security may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by the
Fund. Old Kent will consider such an event in determining whether the Fund
should continue to hold the security. For a description of applicable
securities ratings, see Appendix A.
CALCULATION OF PORTFOLIO TURNOVER RATE (The Non-Money Market Funds only)
The Funds will not normally engage in the trading of securities for
short-term profits, but a Fund may sell a portfolio investment soon after it is
purchased if Old Kent believes that such a sale is consistent with the Fund's
investment objective. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by a Fund and ultimately by its
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains to a Fund. The portfolio turnover rate for the
Funds is calculated by dividing the lesser of purchases or sales of portfolio
investments for the reporting period by the monthly average value of the
portfolio investments owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements
which enable the Funds to receive favorable tax treatment.
MISCELLANEOUS
The Funds are not restricted by policy with regard to portfolio turnover
and will make changes in their investment portfolio from time to time as
business and economic conditions as well as market prices may dictate.
Securities may be purchased on margin by the Funds only to obtain such
short-term credits as are necessary for the clearance of purchases and sales of
securities. The Funds will not engage in selling securities short. The
Non-Money Market Funds may, however, make short sales against the box.
"Selling short against the box" involves selling a security that a Fund owns
for delivery at a specified date in the future.
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INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and may not be
changed with respect to a Fund without the vote of a "majority" of the Fund's
outstanding voting shares (as defined in "Declaration of Trust--Voting
Rights"). Except with respect to Investment Restriction (7), if a percentage
limitation is satisfied at the time of investment, a later increase in such
percentage resulting from a change in the value of a Fund's assets will not
constitute a violation of the limitation. Unless otherwise stated, each
restriction applies to all Funds:
A Fund may not:
(1) Purchase any security (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) of any issuer if as a
result more than 5% of its total assets would be invested in securities of the
issuer, except that up to 25% of its total assets may be invested without
regard to this limit;
(2) Purchase securities on margin, except that it may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of securities;
(3) Borrow money, which includes entering into reverse repurchase
agreements, except that a Fund may enter into reverse repurchase agreements or
borrow money from banks for temporary or emergency purposes in aggregate
amounts up to one-third of the value of the Fund's net assets; provided that
while borrowings from banks exceed 5% of a Fund's net assets, any such
borrowings and reverse repurchase agreements will be repaid before additional
investments are made;
(4) Pledge more than 15% of its net assets to secure indebtedness; the
purchase or sale of securities on a "when issued" basis, or collateral
arrangements with respect to the writing of options on securities, are not
deemed to be a pledge of assets;
(5) Issue senior securities; the purchase or sale of securities on a "when
issued" basis, or collateral arrangements with respect to the writing of
options on securities, are not deemed to be the issuance of a senior security;
(6) Make loans, except that a Fund may purchase or hold debt securities
consistent with its investment objective, lend Fund securities valued at not
more than 33 1/3% of its total assets to brokers, dealers and financial
institutions, and enter into repurchase agreements;
(7) Invest more than 15% of its total assets (10% of total assets for the
Money Market Funds in (i) securities with legal or contractual restrictions on
resale; (ii) securities for which market quotations are not readily available;
and (iii) repurchase agreements maturing in more than seven days;
(8) Invest more than 5% of its total assets in securities of any company
having a record, together with its predecessors, of less than three years of
continuous operation except that the Small Company Growth Fund may invest up to
10% of its total assets in such companies;
(9) Make short sales of securities or maintain a short position unless at
all times when a short position is open it owns an equal amount of such
securities or of securities which, without payment of any
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further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short;
(10) With respect to each Fund, other than the Tax-Free Funds, purchase
any security of any issuer if as a result more than 25% of its total assets
would be invested in a single industry; except that there is no restriction
with respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
(11) With respect to the Tax-Free Funds, purchase any security (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) of any issuer if as a result more than 25% of its total
assets would be invested in a single industry, including industrial development
bonds from the same facility or similar types of facilities if backed solely by
non-governmental users; governmental issuers of municipal bonds are not
regarded as members of an industry, and the Michigan Municipal Bond Fund and
the Michigan Municipal Money Market Fund may invest more than 25% of its assets
in industrial development bonds;
(12) With respect to the Non-Money Market Funds, purchase more than 3% of
the total outstanding voting securities of any one investment company, invest
more than 5% of a Fund's total assets in any one investment company, or invest
more than 10% of a Fund's total assets in the securities of other investment
companies in general, except as part of a merger, consolidation,
reorganization, purchase of assets or similar transaction;
(13) With respect to the Money Market Funds, purchase more than 3% of the
total outstanding voting securities of any one investment company or invest
more than 10% of its total assets in the securities of other investment
companies;
(14) Purchase or sell commodities or commodity contracts or real estate,
except a Fund may purchase and sell securities secured by real estate and
securities of companies which deal in real estate and may engage in currency or
other financial futures contracts and related options transactions;
(15) Underwrite securities of other issuers, except that a Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective; or
(16) With respect to the Equity Funds, purchase any security (other than
U.S. Government securities) of any issuer if as a result the Fund would hold
more than 10% of the voting securities of the issuer.
With respect to Investment Restriction (7), the Funds currently intend to
limit investment in illiquid securities to no more than 15% (10% for the Money
Market Funds) of each Fund's respective net assets. With respect to Investment
Restriction (11), examples of types of facilities using industrial development
bonds purchased by the Tax-Free Funds include water treatment plants,
educational and hospital facilities.
In order to comply with Securities and Exchange Commission regulations
relating to money market funds, the Money Market Funds will limit investments
in the securities of any single issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements collateralized by such securities) to not more than 5% of
the value of their total assets at the time of purchase, except for 25% of the
value of their total assets which, in the case of the Michigan Municipal
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Money Market Fund, may be invested without regard to the 5% limit, and, in the
case of the Money Market Fund and the Government Money Market Fund, may be
invested in any one issuer for a period of up to three business days. In
addition, no Money Market Fund will engage in options or futures as provided in
Investment Restrictions (4), (5) and (14), nor will the Money Market Funds
borrow money, pursuant to Investment Restriction (3), in excess of 10% of their
total assets. With respect to Investment Restrictions (10) and (11), the Money
Market Funds are permitted to invest in excess of 25% of their total assets in
obligations of U.S. banks and domestic branches of foreign banks that are
subject to the same regulation as U.S. banks.
SECURITIES TRANSACTIONS
Old Kent, under policies established by the Board of Trustees, selects
broker-dealers to execute transactions for the Funds. It is the policy of the
Trust, in effecting transactions in portfolio securities, to seek best price
and execution of orders. The determination of what may constitute best price
and execution in the execution of a transaction by a broker involves a number
of considerations, including, without limitation, the overall direct net
economic result to a Fund, involving both price paid or received and any
commissions and other costs paid, the breadth of the market where the
transaction is executed, the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a large block is involved,
the availability of the broker to stand ready to execute potentially difficult
transactions in the future and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by Old Kent in
determining the overall reasonableness of brokerage commissions paid. In
determining best price and execution and selecting brokers to execute
transactions, Old Kent may consider brokerage and research services, such as
analyses and reports concerning issuers, industries, securities, economic
factors and trends, and other statistical and factual information provided to a
Fund or to any other account over which Old Kent or its affiliates exercise
investment discretion. Old Kent is authorized to pay a broker-dealer who
provides such brokerage and research services a commission for executing a
Fund's transactions which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only
if, Old Kent determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which Old Kent exercises investment discretion. Any such
research and other statistical and factual information provided by brokers to a
Fund or Old Kent is considered to be in addition to and not in lieu of services
required to be performed by Old Kent under its Investment Advisory Agreement
with the Trust. The cost, value and specific application of such information
are indeterminable and hence are not practicably allocable among the Trust and
other clients of Old Kent who may indirectly benefit from the availability of
such information. Similarly, the Trust may indirectly benefit from information
made available as a result of transactions effected for such other clients.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of a transaction may vary among different brokers. Transactions on
foreign stock exchanges involve payment for brokerage commissions which are
generally fixed. Over-the-counter issues, including corporate debt and
government securities, are normally traded on a "net" basis (i.e., without
commission) through dealers, or otherwise involve transactions directly with
the issuer of an instrument. With respect to over-the-counter transactions,
Old Kent will normally deal directly with dealers who make a market in the
instruments involved except in those circumstances where more favorable prices
and execution are available elsewhere. The cost of securities purchased from
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underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down.
Each Fund may participate, if and when practicable, in group bidding for
the purchase directly from an issuer of certain securities for each Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group.
Neither Old Kent nor the Funds intend to place securities transactions
with any particular broker-dealer or group thereof. However, the Trust's Board
of Trustees has determined that each Fund may follow a policy of considering
sales of the Funds' shares as a factor in the selection of broker-dealers to
execute portfolio transactions, subject to the requirements of best price and
execution described above. The policy of each Fund with respect to brokerage
is and will be reviewed by the Trust's Board of Trustees from time to time.
Because of the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the foregoing practices
may be changed, modified or eliminated.
Old Kent expects that purchases and sales of securities for the Equity
Funds usually will be effected through brokerage transactions for which
commissions are payable. Purchases from underwriters will include the
underwriting commission or concession, and purchases from dealers serving as
market makers will include a dealer's mark up or reflect a dealer's mark down.
Old Kent expects that purchases and sales of municipal bonds and other
debt instruments for the Income Funds, Municipal Bond Funds and Money Market
Funds usually will be principal transactions. Municipal bonds and other debt
instruments are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually will be no
brokerage commissions paid by the Funds for such purchases. Purchases from
underwriters will include the underwriting commission or concession and
purchases from dealers serving as market makers will include the spread between
the bid and asked prices.
For the fiscal years ended December 31, 1994, 1995 and 1996, the following
Funds paid commission in the amounts indicated: $328,237, $557,711 and $
, respectively, for the Growth and Income Fund; $674,963, $1,001,650
and $ , respectively, for the Small Company Growth Fund;
$125,856, $192,985 and $ , respectively, for the
International Growth Fund; $296,953, $139,571 and $ ,
respectively, for the Index Equity Fund; and $9,075, $0 and $
, respectively, for the Intermediate Tax-Free Fund. No other Fund paid
brokerage commissions during the last three fiscal years. No Fund paid any
brokerage commissions to an affiliated broker of the Trust.
Investment decisions for each Fund are made independently by Old Kent from
those of the other Funds and investment accounts advised by Old Kent. It may
frequently develop that the same investment decision is made for more than one
Fund or account. Simultaneous transactions are inevitable when the same
security is suitable for the investment objective of more than one Fund or
account. When two or more Funds or accounts are engaged in the purchase or
sale of the same security, the transaction is allocated as to amount in
accordance with a formula which Old Kent believes is equitable to each Fund or
account. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as a
particular Fund is concerned. To the extent permitted by law, Old Kent may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for another Fund or account.
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<PAGE> 55
In no instances will securities held by a Fund be purchased from or sold
to Old Kent, the Trust's Distributor or any of their affiliated persons, as
defined in the 1940 Act, except as may be permitted by any applicable
regulatory exemption or exemptive order.
VALUATION OF SECURITIES
MONEY MARKET FUNDS
As stated in their prospectus, the Money Market Funds seek to maintain a
net asset value of $1.00 per share and, in this connection, value their
instruments on the basis of amortized cost pursuant to Rule 2a-7 under the 1940
Act. This method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Fund would receive if the Fund sold the
instrument. During such periods the yield to investors in the Fund may differ
somewhat from that obtained in a similar entity which uses available
indications as to market value to value its portfolio instruments. For
example, if the use of amortized cost resulted in a lower (higher) aggregate
Fund value on a particular day, a prospective investor in the Fund would be
able to obtain a somewhat higher (lower) yield and ownership interest than
would result from investment in such similar entity and existing investors
would receive less (more) investment income and ownership interest. However,
the Trust expects that the procedures and limitations referred to in the
following paragraphs of this section will tend to minimize the differences
referred to above.
Under Rule 2a-7, the Trust's Board of Trustees, in supervising the Money
Market Funds' operations and delegating special responsibilities involving
portfolio management to Old Kent, has established procedures that are intended,
taking into account current market conditions and the Funds' investment
objectives, to stabilize the net asset value of each Money Market Fund, as
computed for the purposes of purchases and redemptions, at $1.00 per share.
The Trustees' procedures include periodic monitoring of the difference between
the amortized cost value per share and the net asset value per share based upon
available indications of market value (the "Market Value Difference").
Available indications of market value consist of actual market quotations or
appropriate substitutes which reflect current market conditions and include (a)
quotations or estimates of market value for individual portfolio instruments
and/or (b) values for individual portfolio instruments derived from market
quotations relating to varying maturities of a class of money market
instruments.
In the event the Market Value Difference exceeds 1/2 of 1%, the Trustees'
procedures provide that the Trustees will take such steps as they consider
appropriate (e.g., selling portfolio instruments to shorten average portfolio
maturity or to realize capital gains or losses, reducing or suspending
shareholder income accruals, redeeming shares in kind, or utilizing a net asset
value per share based upon available indications of market value which under
such circumstances would vary from $1.00) to eliminate or reduce to the extent
reasonably practicable any material dilution or other unfair results to
investors or existing shareholders which might arise from Market Value
Differences. In particular, if losses were sustained by a Fund, the number of
outstanding shares might be reduced in order to maintain a net asset value per
share of $1.00. Such reduction would be effected by having each shareholder
proportionately contribute to the Fund's capital the necessary shares to
restore such net asset value per share. Each shareholder will be deemed to
have agreed to such contribution in these circumstances by investing in the
Fund.
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<PAGE> 56
The Funds limit their investments to instruments which Old Kent has
determined present minimal credit risk (pursuant to guidelines established by
the Board of Trustees) and which are "Eligible Securities" as defined by Rule
2a-7. The Funds are also required to maintain a dollar weighted average
portfolio maturity (not more than 90 days) appropriate to its objective of
maintaining a stable net asset value of $1.00 per share, and this precludes the
purchase of any security with a remaining maturity of more than 397 days.
Should the disposition of a security result in a dollar weighted average
portfolio maturity of more than 90 days, a Fund will invest its available cash
in such a manner as to reduce such maturity to 90 days or less as soon as
practicable. For the purpose of determining the dollar weighted average, any
instrument with a stated maturity of six months or less which has a coupon (or
yield) which is subject to renegotiation at designated periods of time (e.g.,
every 30 days), or any instrument having a coupon (or yield) which fluctuates
with the change in a predetermined standard (e.g., the so-called "Prime Rate"),
shall be deemed to have a maturity equivalent to the time remaining to the next
date of renegotiation or the next date on which the predetermined standard may
change.
It is the normal practice of the Funds to hold securities to maturity and
realize par therefor, unless a sale or other disposition is mandated by
redemption requirements or other extraordinary circumstances. Under the
amortized cost method of valuation traditionally employed by institutions for
valuation of money market instruments, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the Funds. In periods of declining interest rates, the indicated daily
yield on shares of the Funds, computed by dividing its annualized daily income
by the net asset value computed as above, may tend to be lower than similar
computations made by utilizing a method of valuation based upon market prices
and estimates. In periods of rising interest rates, the daily yield of shares
at the value computed as described above may tend to be higher than a similar
computation made by utilizing a method of calculation based upon market prices
and estimates.
NON-MONEY MARKET FUNDS
Current values for the Non-Money Market Funds' portfolio securities are
determined as follows:
(1) Common stock, preferred stock and other equity securities listed on
the NYSE are valued on the basis of the last sale price on the exchange. In
the absence of any sales, such securities are valued at the last bid price;
(2) Common stock, preferred stock and other equity securities listed on
other U.S. or foreign exchanges will be valued as described in (1) above using
quotations on the exchange on which the security is primarily traded;
(3) Common stock, preferred stock and other equity securities which are
unlisted and quoted on the National Market System (NMS) are valued at the last
sale price, provided a sale has occurred. In the absence of any sales, such
securities are valued at the high or "inside" bid, which is the bid supplied by
the National Association of Securities Dealers on its NASDAQ system for
securities traded in the over-the-counter market;
(4) Common stock, preferred stock and other equity securities which are
quoted on the NASDAQ system but not listed on NMS are valued at the high or
"inside" bid;
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<PAGE> 57
(5) Common stock, preferred stock and other equity securities which are
not listed and not quoted on the NASDAQ System and for which over-the-counter
market quotations are readily available are valued at the mean between the
current bid and asked prices for such securities;
(6) Non-U.S. common stock, preferred stock and other equity securities
which are not listed or are listed and subject to restrictions on sale are
valued at prices supplied by a dealer selected by Old Kent;
(7) Bonds, debentures and other debt securities, whether or not listed on
any national securities exchange, are valued at a price supplied by a pricing
service or a bond dealer selected by Old Kent;
(8) Short-term debt securities which when purchased have maturities of
sixty days or less are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount) which, when
combined with accrued interest, approximates market value and which reflects
fair value as determined by the Board of Trustees;
(9) Short-term money market instruments having maturities of more than
sixty days when purchased which are held on the sixtieth day prior to maturity
are thereafter valued at amortized cost (market value on the sixtieth day
adjusted for amortization of premium or accretion of discount) which when with
accrued interest approximates market and which reflects fair value as
determined by the Board of Trustees; and
(10) The following are valued at prices deemed in good faith to be fair
under procedures established by the Board of Trustees: (a) securities,
including restricted securities, for which market quotations are not readily
available, and (b) any other security for which the application of the above
methods is deemed by Old Kent not to be representative of the market value of
such security.
In valuing each Fund's assets, the Trust's fund accountant will
"mark-to-market" the current value of a Fund's open futures contracts and
options. For valuation purposes, quotations of securities denominated in
foreign currencies are converted to into U.S. dollars at the prevailing
currency exchange rate on the day of the conversion.
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<PAGE> 58
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust are listed below. The address of
all the Trustees and officers is 3435 Stelzer Road, Columbus, Ohio 43219.
ANNE T. COUGHLAN, Trustee, 40; she is Associate Professor of Marketing;
Kellogg Graduate School of Management, Northwestern University.
JOSEPH F. DAMORE, Trustee, 44; he is President and Chief Executive Officer
of Sparrow Hospital and Health System; formerly, Chairman of the Board of
Trustees of Americare Home Health Resources; Director of Mercy Alternative; and
former Director and Executive Vice President, Sisters of Mercy Health
Corporation.
JAMES F. RAINEY, Trustee, 57; he is Associate Dean for Academic Affairs at
Michigan State University.
RONALD F. VANSTEELAND, Trustee, 56; he is Vice President for Finance and
Administration and Treasurer of Grand Valley State University, Allendale,
Michigan; and Treasurer of Grand Valley State University Foundation.
* WALTER B. GRIMM, Trustee, Chairman and President, 50; he is Senior Vice
President of Client Services for BISYS Fund Services and was formerly President
of Leigh Investments.
R. JEFFREY YOUNG, Vice President and Assistant Secretary, 32; he is
Director of Client Services for BISYS Fund Services and was formerly employed
by The Heebink Group.
THOMAS E. LINE, Treasurer, 29; he is Vice President of Financial
Administration for BISYS Fund Services and was formerly employed by KPMG Peat
Marwick LLP.
ROBERT L. TUCH, Secretary, 44; he is Vice President - Legal Services for
BISYS Fund Services.
W. BRUCE MCCONNEL, III, Assistant Secretary, 57; he is a partner in the
law firm of Drinker Biddle & Reath.
GEORGE O. MARTINEZ, Assistant Secretary, 37; he is Senior Vice President
and Director of Legal and Compliance Services for BISYS Fund Services and was
formerly Vice President and Associate General Counsel with Alliance Capital
Management.
ALAINA V. METZ, Assistant Secretary, 28; she is Chief Administrator of the
Blue Sky Department for BISYS Fund Services and was formerly employed by
Alliance Capital Management.
During the fiscal year ended December 31, 1996, no officer, director or
employee of the Trust's service contractors, or any of their parents or
subsidiaries, received any direct remuneration from the Trust for serving as a
Trustee or officer of the Trust, although BISYS and its affiliates, of which
Messrs. Grimm,
___________________________________
* This Trustee is an interested person of the Trust as defined under the 1940
Act.
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<PAGE> 59
Young, Line, Tuch and Martinez and Ms. Metz are also employees, receives
fees from the Trust for administrative, fund accounting and transfer agency
services. Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives
legal fees as counsel to the Trust. Each Trustee earns an annual fee of $8,000
and an additional fee of $1,000 for each meeting attended, plus reimbursement
of expenses incurred as a Trustee.
Listed below is the compensation paid to each Trustee by the Trust for the
fiscal year ended December 31, 1996. Mr. Small has since resigned from the
Board of Trustees. The Fund did not provide any pension or retirement benefits
for its Trustees or officers during 1996. The Board of Trustees has
established The Kent Funds Deferred Compensation Plan (the "Plan") pursuant to
which the Trustees may elect to defer receipt of the compensation payable to
them by the Trust. Under the terms of the Plan, amounts deferred by the
Trustees are credited with the earnings on certain investment options which may
include one or more of the Funds. Trustees receive payment of their deferred
compensation and any related earnings upon ceasing to be a trustee of the
Trust. Such payment is made at the election of the Trustee, either in a lump
sum or in annual installments over two to fifteen years. The Trust's
obligation to pay the Trustee's deferred compensation is a general unsecured
obligation.
<TABLE>
<CAPTION>
Total Compensation
from the Trust and
Name of Person Aggregate Compensation Fund Complex Paid
and Position from the Trust to Trustees
------------------------------ ---------------------- ------------------
<S> <C> <C>
Anne T. Coughlan, Trustee $_______* $_______
Joseph F. Damore, Trustee $_______ $_______
Walter B. Grimm, Trustee $0 $0
James F. Rainey, Trustee $_______* $_______
William E. Small, Trustee $0 $0
Ronald F. VanSteeland, Trustee $_______ $_______
</TABLE>
As of , 1997, the Trustees and officers of
the Trust as a group beneficially owned less than 1% of the Trust's outstanding
shares.
* During the fiscal year ended December 31, 1996, Ms. Coughlan deferred
$______ and Mr. Rainey deferred $______ pursuant to The Kent Funds
Deferred Compensation Plan.
EXPENSES
Operating expenses borne by the Funds include taxes, interest, fees and
expenses of Trustees and officers, Securities and Exchange Commission fees,
state securities qualification fees, advisory fees, administration fees,
charges of the Funds' custodians and shareholder services agent, certain
insurance premiums, outside auditing and legal expenses, costs of preparing and
printing prospectuses for regulatory
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<PAGE> 60
purposes and for distribution to existing shareholders, costs of shareholder
reports and meetings and any extraordinary expenses. The Funds also pay for
brokerage fees, commissions and other transaction charges (if any) in
connection with the purchase and sale of portfolio securities.
INVESTMENT ADVISER
OLD KENT BANK
Old Kent Bank is the investment adviser to the Funds. Old Kent's services
as investment adviser are provided through its Trust Management Services
Department. As of December 31, 1996, Old Kent's Trust Management Services
Department managed assets of approximately $________ billion. The Trust is the
first registered investment company for which Old Kent has provided investment
advisory services. Old Kent is located at One Vandenberg Center, Grand Rapids,
MI 49503.
Old Kent is a Michigan banking corporation which, with its affiliates,
provided commercial and retail banking and trust services through ________
banking offices in Michigan and Illinois as of December 31, 1996. Old Kent
offers a broad range of financial services, including commercial and consumer
loans, corporate and personal trust services, demand and time deposit accounts,
letters of credit and international financial services.
Old Kent is a subsidiary of Old Kent Financial Corporation, a bank holding
company headquartered in Grand Rapids, Michigan, with approximately $________
billion in total consolidated assets as of December 31, 1996. Through offices
in Michigan and Illinois, Old Kent Financial Corporation and its subsidiaries
provide a broad range of financial services to individuals and businesses.
Old Kent's Trust Management Services Department employs an experienced
staff of professional investment analysts, portfolio managers and traders and
uses several proprietary computer-based systems in conjunction with fundamental
analysis to identify investment opportunities.
INVESTMENT ADVISORY AGREEMENT
The overall supervision and management of the Funds rests with the Trust's
Board of Trustees. Pursuant to a written Investment Advisory Agreement with
the Trust, dated October 12, 1990, as amended, Old Kent furnishes to the Trust
investment advice with respect to the Funds, makes all investment decisions for
the Funds, and places purchase and sale orders for the Funds' securities. Old
Kent is responsible for all expenses incurred by it in connection with its
advisory activities, other than the cost of securities and other investments
purchased or sold for the Funds, and any brokerage commissions or other
transaction charges that may be associated with such purchases and sales.
For its services to each Fund, Old Kent is entitled to an annual fee based
on the average daily net asset value of each Fund, payable monthly, at the
following rates: the Growth and Income Fund, 0.70%; the Small Company Growth
Fund, 0.70%; the International Growth Fund, 0.75%; the Index Equity Fund,
0.30%; the Short Term Bond Fund, 0.50%; the Intermediate Bond Fund, 0.55%; the
Income Fund, 0.60%; the Limited Term Tax-Free Fund, 0.45%; the Intermediate
Tax-Free Fund, 0.50%; the Tax-Free Income Fund, 0.55%; the Michigan Municipal
Bond Fund, 0.45%; the Money Market Fund, 0.40%; the Government
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<PAGE> 61
Money Market Fund, 0.40%; and the Michigan Municipal Money Market Fund, 0.40%.
Old Kent may rebate its advisory fees to certain of its institutional
customers.
For the fiscal years ended December 31, 1994, 1995 and 1996, Old Kent
earned the following advisory fees for each Fund: $1,855,551, $2,427,434 and
$____________, respectively, for the Growth and Income Fund; $2,025,868,
$2,210,891 and $____________, respectively, for the Small Company Growth Fund;
$1,427,820, $1,483,705 and $____________, respectively, for the International
Growth Fund; $906,077, $834,175 and $____________, respectively, for the Index
Equity Fund; $1,013,799, $1,454,445 and $____________, respectively, for the
Short Term Bond Fund; $3,870,183, $4,765,284 and $____________, respectively,
for the Intermediate Bond Fund; $1,436,354, $1,582,089 and $____________,
respectively, for the Intermediate Tax-Free Fund; $1,370,798, $2,056,213 and
$____________, respectively, for the Money Market Fund; and $551,177, $590,771
and $____________, respectively, for the Michigan Municipal Money Market Fund;
and $501,175, $738,023 and $____________, respectively, for the Michigan
Municipal Bond Fund. For the fiscal period ended December 31, 1994 and the
fiscal years ended December 31, 1995 and December 31, 1996, Old Kent earned
$72,787, $219,989 and $____________, respectively, in advisory fees for the
Limited Term Tax-Free Fund. For the fiscal period ended December 31, 1995 and
the fiscal year ended December 31, 1996, Old Kent earned $442,275 and
$____________, respectively, in advisory fees for the Tax-Free Income Fund and
$632,086 and $____________, respectively, for the Income Fund.
For the fiscal years ended December 31, 1994, 1995 and 1996, Old Kent
waived a portion of its advisory fees for the Money Market Fund and Michigan
Municipal Money Market Fund. Net of such waivers, Old Kent received
$1,166,047, $1,903,848 and $____________, respectively, for the Money Market
Fund; and $410,048, $535,921 and $____________, respectively, for the Michigan
Municipal Money Market Fund. For the fiscal years ended December 31, 1994,
1995 and 1996, Old Kent waived a portion of its advisory fees for the Michigan
Municipal Bond Fund. Net of such waivers, Old Kent received $226,335, $717,968
and $____________, respectively. For the fiscal period ended December 31, 1994
and the fiscal years ended December 31, 1995 and December 31, 1996, Old Kent
waived a portion of its advisory fees for the Limited Term Tax-Free Fund. Net
of such waivers, Old Kent received $44,959, $199,200 and $____________,
respectively. For the fiscal period ended December 31, 1995 and the fiscal
year ended December 31, 1996, Old Kent waived a portion of its advisory fees
for the Tax-Free Income Fund. Net of such waivers, Old Kent received $293,807
and $____________.
Under the Investment Advisory Agreement, Old Kent's liability in
connection with rendering services thereunder is limited to situations
involving a breach of its fiduciary duty, its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties.
The Trustees of the Trust, including a majority of those Trustees who are
not parties to the Investment Advisory Agreement or interested persons of any
such party, most recently approved the agreement, as amended, on April 30,
1996. The Agreement continues in effect from year to year with respect to each
Fund only if such continuance is specifically approved at least annually by the
Trustees of the Trust, including the "non-interested" Trustees, or by vote of a
majority of the outstanding voting shares of such Fund. The Investment
Advisory Agreement will terminate automatically upon its assignment and may be
terminated with respect to any Fund or Funds without penalty on 60-days'
written notice at the option of either party or by a vote of the shareholders
of such Fund or Funds.
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<PAGE> 62
THE GLASS-STEAGALL ACT AND OTHER APPLICABLE LAWS
The Glass-Steagall Act prohibits all entities which receive deposits (such
as Old Kent) from engaging in the business of issuing, underwriting, selling or
distributing securities. In 1971, the United States Supreme Court held in
Investment Company Institute v. Camp that the Glass-Steagall Act prohibits a
national bank from operating a fund for the collective investment of managed
agency accounts. Subsequently, the Board of Governors of the Federal Reserve
System (the "Board") issued a regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to serve as investment advisers
to both open-end and closed-end investment companies. The Board's
interpretation, however, provides that the Glass-Steagall Act forbids a bank
holding company or any non-bank affiliate of a bank holding company from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Bank Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. It is
believed that it would be consistent with these decisions to interpret the
Glass-Steagall Act as not prohibiting banks from serving as investment advisers
to open-end investment companies. However, neither case addressed this
specific issue.
Old Kent has been advised by the Financial Institutions Bureau of the
Department of Commerce of the State of Michigan, which is the bureau that
regulates Michigan state chartered banks, that it is the position of that
Bureau that a bank (such as Old Kent) which has been authorized to exercise
full trust powers is authorized under Michigan banking laws to provide
investment advice to an entity such as a mutual fund.
Old Kent has been advised by its legal counsel that in the opinion of such
counsel, Old Kent may lawfully serve as investment adviser to the Trust and
perform the services for the Trust required by the Investment Advisory
Agreement described in the prospectus and this SAI. Such counsel has, however,
cautioned that Old Kent's authority to serve in this capacity has not been
definitively established by any state or federal law or regulation or any
judicial decision or regulatory interpretation that constitutes binding
authority with respect to the activities of Old Kent. In addition, such
counsel has cautioned that state and federal laws and regulations relating to
the permissible activities of banks and bank holding companies may change and
may be subject to further judicial or administrative interpretation, the result
of which may be to cause Old Kent to conclude that it would be unlawful or
inadvisable to continue its relationship with the Trust. If Old Kent
discontinues its services as investment adviser to the Trust, it is expected
that the Board of Trustees of the Trust would select a new investment adviser
and recommend that the Trust's shareholders approve the new investment adviser
so recommended.
It is anticipated that Old Kent will effect purchases of Trust shares from
time to time upon the order of and as agent for certain customers. State and
federal law limit the ability of a depository institution, such as Old Kent, to
underwrite, sell or distribute securities. However, these laws permit, or are
generally interpreted to permit, the execution of purchase and sale
transactions without recourse upon the order and for the account of customers.
It is possible that future state or federal legislative or administrative
action or judicial or administrative decisions or interpretations could
prohibit or restrict the proposed activities of Old Kent to such a degree that
Old Kent or the Trust might conclude that it would be necessary or advisable to
discontinue or materially alter the services provided by Old Kent. Any such
discontinuation or alteration
33
<PAGE> 63
could cause the Trust's Board of Trustees to change the Trust's method of
operations or the market for the Trust's shares or to merge or liquidate the
Funds. It is not anticipated, however, that any such change would materially
affect the net asset values per share of the Funds or result in financial loss
to any shareholder.
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS
The Directors of Old Kent are Richard L. Antonini, William P. Crawford,
Robert L. Ellis, William Gonzales, Erina Hanka, Robert L. Hooker, Fred P.
Keller, Hendrik G. Meijer, Patrick M. Quinn, Margaret Sellers Walker, Richard
E. Tierney, David J. Wagner (also Chairman of the Board and Chief Executive
Officer) and Robert L. Sadler (also President).
The principal executive officers of Old Kent are: David J. Wagner,
Chairman; Robert L. Sadler, President and Chief Executive Officer; David Dams,
Edward P. Farley and David Kerstein, Executive Vice Presidents; Martin J.
Allen, Jr., Senior Vice President and Secretary; and Philip M. Allen, Richard
L. Arasmith, Thomas M. Bobrowski, Paul Colombe, James Habertein, Larry Hull,
John Erikson, Joseph T. Keating, Janet Nisbett, R. Joy Palmer, Dennis W.
Piskor, Thomas E. Powell and Daniel Terpsma, Senior Vice Presidents.
ADMINISTRATOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, a wholly-owned subsidiary
of The BISYS Group, Inc., is the Administrator of the Trust under an
Administration Agreement dated August 5, 1996. BISYS provides management and
administrative services and, in general, supervises the operation of each Fund
(other than investment advisory operations). The initial term of the
Administration Agreement ends on July 31, 1998. Thereafter, the agreement may
be renewed for successive one-year periods.
By the terms of the Administration Agreement, BISYS is required to provide
to the Funds management and administrative services, as well as all necessary
office space, equipment and clerical personnel for managing and administering
the affairs of the Funds. BISYS is required to supervise the provision of
custodial, auditing, valuation, bookkeeping, legal, stock transfer and dividend
disbursing services and provide other management and administrative services.
As compensation for the services and facilities provided to the Funds
pursuant to the Administration Agreement, BISYS is entitled to receive an
annual fee, payable monthly as one twelfth of the annual fee, based on the
Trust's aggregate average daily net assets as follows: up to $5.0 billion -
18.5 basis points; between $5.0 and $7.5 billion - 16.5 basis points; and over
$7.5 billion - 13.5 basis points; provided, however, that such annual fee shall
be subject to an annual minimum fee of $45,000 per fund that is applicable to
certain Funds of the Trust. All expenses (other than those specifically
referred to as being borne by BISYS in the Administration Agreement) incurred
by BISYS in connection with the operation of the Trust are borne by the Funds.
To the extent that BISYS incurs any such expenses or provides certain
additional services to the Trust, the Funds promptly will reimburse BISYS
therefor.
BISYS Fund Services, Inc., a wholly-owned subsidiary of The BISYS Group,
Inc., serves as the Trust's Fund Accountant pursuant to a Fund Accounting
Agreement, dated August 5, 1996. Under the Fund Accounting Agreement, BISYS
Fund Services, Inc. prices each Fund's shares, calculates each Fund's net asset
value, and maintains the general ledger accounting records for each Fund. For
these services, BISYS
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<PAGE> 64
Fund Services, Inc. is entitled to a fee computed daily at the annual rate of
1.5 basis points of the Trust's average daily net assets. The initial term of
the Fund Accounting Agreement ends on July 31, 1998. Thereafter, the agreement
may be renewed for successive one-year periods.
For the fiscal periods ended December 31, 1994, 1995 and 1996, the Trust
paid the following administrative fees to BISYS and the Trust's former
administrators: $530,158, $693,553 and $________, respectively, for the Growth
and Income Fund; $578,819, $631,683 and $________, respectively, for the Small
Company Growth Fund; $380,752, $395,655 and $________, respectively, for the
International Growth Fund; $604,052, $422,784 and $_________, respectively, for
the Index Equity Fund; $395,519, $581,778 and $_________, respectively, for the
Short Term Bond Fund; $1,407,339, $1,732,831 and $__________, respectively, for
the Intermediate Bond Fund; $574,541, $632,836 and $__________, respectively,
for the Intermediate Tax-Free Fund; $685,398, $772,894 and $________,
respectively, for the Money Market Fund; and $275,108, $220,170 and $________,
respectively, for the Michigan Municipal Money Market Fund. For the fiscal
period ended December 31, 1994 and the fiscal years ended December 31, 1995 and
December 31, 1996, the Michigan Municipal Bond Fund paid $222,744, $328,010 and
$_________, respectively, in administrative fees. For the fiscal period ended
December 31, 1994 and the fiscal years ended December 31, 1995 and December 31,
1996, the Limited Term Tax-Free Fund paid $32,350, $97,773 and $_________,
respectively, in administrative fees. For the fiscal period ended December 31,
1995 and the fiscal year ended December 31, 1996, the Tax-Free Income Fund paid
$160,827 and $_________, respectively; and the Income Fund paid $210,695 and
$_________, respectively, in administrative fees.
DISTRIBUTOR
The Trust has entered into a Distribution Agreement dated August 5, 1996
with BISYS. Unless otherwise terminated, the Distribution Agreement will
continue in effect until April 5, 1997 and will continue from year to year
thereafter, if approved at least annually at a meeting called for that purpose
by a majority of the Trustees and a majority of the "non-interested" Trustees,
as that term is defined in the 1940 Act. Shares of the Funds are sold on a
continuous basis by BISYS as agent for the Trust, and BISYS has agreed to
solicit orders for the sale of shares of the Funds.
For the fiscal years ended 1994, 1995 and 1996, the Trust paid BISYS and
the Trust's former distributor total underwriting commissions of $662,081,
$457,249 and $__________, respectively. This entire amount was re-allocated to
broker-dealers which had selling agreements with the distributor.
TRANSFER AGENT
BISYS Fund Services, Inc. also serves as the Trust's transfer agent and
dividend disbursing agent pursuant to a Transfer Agency Agreement. Under the
Transfer Agency Agreement, BISYS Fund Services, Inc. processes purchases and
redemptions of each Fund's shares and maintains each Fund's shareholder
transfer and accounting records, such as the history of purchases, redemptions,
dividend distributions, and similar transactions in a shareholder's account.
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<PAGE> 65
CUSTODIAN, AUDITORS AND COUNSEL
Bankers Trust Company, New York, NY, is custodian of all securities and
cash of the Trust.
KPMG Peat Marwick LLP, 2 Nationwide Plaza, Columbus, Ohio 43215, Certified
Public Accountants, are the independent auditors for the Trust.
Drinker Biddle & Reath, 1345 Chestnut Street, Philadelphia, PA 19107,
serves as counsel to the Trust.
DISTRIBUTION PLAN
THIS SECTION RELATES ONLY TO THE INVESTMENT SHARES OF THE FUNDS. THE
INSTITUTIONAL SHARES HAVE NOT ADOPTED A DISTRIBUTION PLAN.
As described in the prospectuses, the Trust has adopted with respect to
its Investment Shares a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act which regulates circumstances under which an investment
company may bear expenses associated with the distribution of its shares. The
Plan provides that the Investment Shares of a Fund may incur certain expenses
which may not exceed a maximum amount equal to 0.25% (on an annualized basis)
of the average daily net asset value of the Investment Shares.
All persons authorized to direct the disposition of monies paid or payable
by a Fund pursuant to the Plan or any related agreement must provide to the
Trust's Board of Trustees at least quarterly a written report of the amounts so
expended and the purposes for which such expenditures were made.
Representatives, brokers, dealers or others receiving payments pursuant to the
Plan must determine that such payments and the services provided in connection
with such payments are appropriate for such persons and are not in violation of
regulatory limitations applicable to such persons.
The services under the Plan may include assistance in advertising and
marketing of Investment Shares, aggregating and processing purchase, exchange
and redemption requests for Investment Shares, maintaining account records,
issuing confirmations of transactions and providing sub-accounting with respect
to Investment Shares.
As required by Rule 12b-1, the Plan and the related Distribution and
Servicing Agreements have been approved, and are subject to annual approval, by
a majority of the Trust's Board of Trustees, and by a majority of the Trustees
who are not "interested" persons of the Trust (as defined by the 1940 Act) and
who have no direct or indirect interest in the operation of the Plan and the
agreements related thereto ("Independent Trustees"), by a vote cast in person
at a meeting called for the purpose of voting on the Plan and related
agreements. The Plan was most recently approved by the Board of Trustees as a
whole and by the Independent Trustees on November 22, 1996. In compliance with
Rule 12b-1, the Trustees requested and evaluated information they thought
necessary to an informed determination of whether the Plan and related
agreements should be implemented, and concluded, in the exercise of reasonable
business judgment and in light of their fiduciary duties, that there was a
reasonable likelihood that the Plan and the related agreements would benefit
the Funds and their shareholders. The Plan may not be amended in order to
increase materially the amount of distribution expenses permitted under the
Plan without such amendment
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<PAGE> 66
being approved by a majority vote of the outstanding Investment Shares of the
affected Fund. The Plan may be terminated at any time by a majority vote of
the Independent Trustees or by a majority vote of the outstanding Investment
Shares of the affected Fund.
While the Plan is in effect, the selection and nomination of Trustees who
are not "interested persons" has been committed to the discretion of the
"non-interested" Trustees then in office.
For the fiscal year ended December 31, 1996 the following payments were
made under the Plan: Growth and Income Fund, $________; Small Company Growth
Fund, $________; International Growth Fund, $________; Index Equity Fund,
$________; Intermediate Bond Fund, $________; Intermediate Tax-Free Fund,
$________; Income Fund, $________; Tax-Free Income Fund, $________; Michigan
Municipal Bond Fund, $________; Limited Term Tax-Free Fund, $________; and
Short Term Bond Fund, $________. All of such payments were made to broker
dealers and other selling and/or servicing institutions. For the current
fiscal year, Investment Shares of the Growth and Income Fund, Small Company
Growth Fund, International Growth Fund, Index Equity Fund, Intermediate Bond
Fund, Intermediate Tax-Free Fund, Income Fund and Tax-Free Income Fund will be
charged a fee pursuant to the Plan at an annual rate of 0.25% of their average
Investment class net assets. For the current fiscal year, Investment Shares of
the Short Term Bond Fund, Limited Term Tax-Free Fund and Michigan Municipal
Bond Fund will be charged a fee pursuant to the Plan at an annual rate of 0.15%
of their average Investment class net assets. The Trust does not currently
intend to charge a fee under the Plan for the Money Market Fund, the Government
Money Market Fund or the Michigan Municipal Money Market Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The prospectuses for the Funds describe those investors who are eligible
to purchase Investment Shares and those who are eligible to purchase
Institutional Shares.
An illustration of the computation of the offering price per Investment
Share of each Non-Money Market Fund is provided below. The computations are
based on the value of each such Fund's Investment class net assets and number
of outstanding Investment Shares at the close of business on December 31, 1996
(the end of the Trust's last fiscal year).
<TABLE>
<CAPTION>
Growth and Small Company International
Income Fund Growth Fund Growth Fund
----------- ------------- -------------
<S> <C> <C> <C>
Net Assets $__________ $__________ $__________
Outstanding Shares __________ __________ __________
Net Asset Value
Per Share $__________ $__________ $__________
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $__________ $__________ $__________
Offering price to public $__________ $__________ $__________
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
Index Equity Short Term Intermediate
Fund Bond Fund Bond Fund
------------ ----------- ------------
<S> <C> <C> <C>
Net Assets $__________ $_________ $_________
Outstanding Shares __________ _________ _________
Net Asset Value
Per Share $__________ $_________ $_________
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $__________ $_________ $_________
Offering price to public $__________ $_________ $_________
</TABLE>
<TABLE>
<CAPTION>
Michigan
Limited Term Intermediate Municipal
Tax-Free Fund Tax-Free Fund Bond Fund
------------- ------------- ---------
<S> <C> <C> <C>
Net Assets $__________ $__________ $_________
Outstanding Shares __________ __________ _________
Net Asset Value
Per Share $__________ $__________ $_________
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $__________ $__________ $_________
Offering price to public $__________ $__________ $_________
</TABLE>
<TABLE>
<CAPTION>
Tax-Free
Income Fund Income Fund
----------- -----------
<S> <C> <C>
Net Assets $__________ $_________
Outstanding Shares __________ _________
Net Asset Value
Per Share $__________ $_________
Sales Charge, 4.00% of offering
price (4.17% of net asset value)
per share, or per Investment Share $__________ $_________
Offering price to public $__________ $_________
</TABLE>
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<PAGE> 68
A sales load will not be applicable to certain purchases of Investment
Shares as set forth in the prospectuses. These exemptions to the imposition of
a sales load are due to the nature of the investors and/or the reduced sales
effort that will be needed in obtaining such investments.
In an exchange, shares in the Fund from which an investor is withdrawing
will be redeemed at the net asset value per share next determined after the
exchange request is received. Shares of the Fund in which the investor is
investing will also normally be purchased at the net asset value per share
(plus any applicable sales load) next determined after acceptance of the
purchase order by the Trust in accordance with its customary policies for
accepting investments.
Under the 1940 Act, the Trust may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the NYSE is restricted by applicable rules and regulations of the Securities
and Exchange Commission; (b) the NYSE is closed for other than customary
weekend and holiday closings; (c) the Securities and Exchange Commission has by
order permitted such suspension; or (d) an emergency exists as determined by
the Securities and Exchange Commission. (The Trust may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
In addition to the situation described in the prospectuses under "How Can
I Redeem Shares," the Trust may redeem shares involuntarily if it appears
appropriate to do so in light of the Trust's responsibilities under the 1940
Act, to reimburse the Funds for any loss sustained by reason of the failure of
a shareholder to make full payment for shares purchased by the shareholder, or
to collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Fund shares as provided in the prospectuses
from time to time.
A Fund may make payment for redemption in securities or other property if
it appears appropriate to do so in light of the Fund's responsibilities under
the 1940 Act. In the event shares are redeemed for securities or other
property, shareholders may incur additional costs in connection with the
conversion thereof to cash. Redemption in kind is not as liquid as a cash
redemption. Shareholders who receive a redemption in kind may receive less
than the redemption value of their shares upon sale of the securities or
property received, particularly where such securities are sold prior to
maturity.
The Trust has filed an election pursuant to Rule 18f-1 under the 1940 Act
which provides that each portfolio of the Trust is obligated to redeem shares
solely in cash up to $250,000 or 1% of such portfolio's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount may be made in proceeds other than cash.
DIVIDENDS AND TAXES
The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the
prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in
the prospectuses is not intended as a substitute for careful tax planning.
Potential investors should consult their tax advisers with specific reference
to their own tax situations.
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<PAGE> 69
The discussion of Federal income tax consequences in the prospectuses and
this SAI is based on the Internal Revenue Code of 1986, as amended (the "Code")
and the laws and regulations issued thereunder as in effect on the date of this
SAI. Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.
FEDERAL - GENERAL INFORMATION
Each Fund will be treated as a separate corporate entity under the Code
and intends to elect to qualify as a regulated investment company. In order to
qualify as a regulated investment company, each Fund must comply with certain
requirements in the Code. Each Fund is required to distribute annually an
amount equal to at least the sum of 90% of its investment company income and
90% of its net tax-exempt interest income (the "Distribution Requirement").
Each Fund must derive with respect to a taxable year at least 90% of its gross
income from dividends, interest, certain payments with respect to securities
loans and gains from the sale or other disposition of stock, securities or
foreign currencies, or from other income derived with respect to its business
of investing in such stock, securities, or currencies (the "Income
Requirement"), and derive less than 30% of its gross income from the sale or
other disposition of securities and certain other investments held for less
than three months (the "Short-Short Test"). Interest (including original issue
discount and "accrued market discount") received by a Fund at maturity or on
disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of securities for
this purpose.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each Fund's assets must consist
of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which a
Fund has not invested more than 5% of the value of its total assets in
securities of any one issuer and as to which a Fund does not hold more than 10%
of the outstanding voting securities of any one issuer), and no more than 25%
of the value of each Fund's total assets may be invested in the securities of
any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Fund
controls and which are engaged in the same or similar trades or businesses.
Each Fund intends to distribute to shareholders any excess of net
long-term capital gain over net short-term capital loss ("net capital gain")
for each taxable year. Such gain is distributed as a capital gain dividend and
is taxable to shareholders as long-term capital gain, regardless of the length
of time the shareholder has held the shares, whether such gain was recognized
by the Fund prior to the date on which a shareholder acquired shares of the
Fund, or whether the distribution was paid in cash or reinvested in shares. In
addition, investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain dividends have been
paid with respect to such shares.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends received deduction to the
extent of the gross amount of "qualifying dividends" from domestic corporations
received by the Fund for the year. A dividend usually will be treated as a
"qualifying dividend" if it has been received from a domestic corporation. A
portion of the dividends paid by the Growth and Income Fund, Small Company
Growth Fund and Index Equity Fund may constitute "qualifying dividends." The
other Funds, however, are not expected to pay qualifying dividends.
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<PAGE> 70
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains will be taxable at a maximum nominal rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (an effective marginal rate of 39% applies in the case of
corporations with taxable incomes between $100,000 and $335,000, and an
effective marginal rate of 38% applies in the case of corporations with taxable
incomes between $15 million and $18,333,333).
If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, all distributions (whether or not derived from exempt-interest
income) would be taxable as ordinary income to the extent of such Fund's
current and accumulated earnings and profits and would be eligible for the
dividends received deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and capital gain net income each calendar year to avoid liability for this
excise tax.
Although each Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all Federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or
in which it is otherwise deemed to be conducting business, each Fund may be
subject to the tax laws of such states or localities.
FEDERAL - TAX-EXEMPT INFORMATION
As described in the prospectuses relating to the Tax-Free Funds, such
Funds are designed to provide investors with tax-exempt interest income. The
Tax-Free Funds are not intended to constitute a balanced investment program and
are not designed for investors seeking capital appreciation or maximum
tax-exempt income irrespective of fluctuations in principal. Shares of the
Tax-Free Funds would not be suitable for tax-exempt institutions and may not be
suitable for retirement plans qualified under Section 401 of the Code, H.R. 10
plans and individual retirement accounts because such plans and accounts are
generally tax-exempt and, therefore, would not gain any additional benefit from
the Funds' dividends being tax-exempt. In addition, the Tax-Free Funds may not
be an appropriate investment for persons or entities that are "substantial
users" of facilities financed by private activity bonds or "related persons"
thereof. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person which regularly uses a part of such facilities in
its trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, which occupies more than 5%
of the usable area of such facilities or for which such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.
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<PAGE> 71
In order for the Tax-Free Funds to pay Federal exempt-interest dividends
with respect to any taxable year, at the close of each taxable quarter at least
50% of the aggregate value of the Fund must consist of tax-exempt obligations.
An exempt-interest dividend is any dividend or part thereof (other than a
capital gain dividend) paid by a Tax-Free Fund and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than 60 days after the close of the Fund's taxable year. However, the
aggregate amount of dividends so designated by a Tax-Free Fund cannot exceed
the excess of the amount of interest exempt from tax under Section 103 of the
Code received by the Fund during the taxable year over any amounts disallowed
as deductions under Sections 265 and 171(a)(2) of the Code. The percentage of
total dividends paid by a Tax-Free Fund with respect to any taxable year which
qualifies as Federal exempt-interest dividends will be the same for all
shareholders receiving dividends from the Fund with respect to such year.
If a Tax-Free Fund holds certain so-called "private activity bonds,"
shareholders will be required to include as an item of tax preference for
purposes of the Federal alternative minimum tax that portion of the dividends
paid by the Fund derived from interest received on such bonds. In addition,
corporate shareholders will have to take into account all exempt-interest
dividends paid by the Tax-Free Funds in determining certain adjustments for the
Federal alternative minimum tax and the environmental tax.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the Federal income tax treatment of certain financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the Distribution Requirement, on the
income or gain qualifying under the Income Requirement, and on their ability to
comply with the Short-Short Test described above.
Generally, futures contracts, options on futures contracts and certain
foreign currency contracts held by a Fund (collectively, the "Instruments") at
the close of its taxable year are treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sales is treated as short-term capital gain or loss and
60% of such gain or loss is treated as long-term capital gain or loss without
regard to the period the Fund holds the Instruments ("the 40%-60% rule"). The
amount of any capital gain or loss actually realized by the Fund in a
subsequent sale or other disposition of those Instruments is adjusted to
reflect any capital gain or loss taken into account by the Fund in a prior year
as a result of the constructive sale of the Instruments. Losses with respect
to Instruments that are regarded as parts of a "mixed straddle" because their
values fluctuate inversely to the values of specific securities held by the
Fund are subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules,
which are also applicable, the holding period of the securities forming part of
the straddle will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With respect to
certain Instruments, deductions for interest and carrying charges may not be
allowed. Notwithstanding the rules described above, with respect to
Instruments that are part of a "mixed straddle" and are properly identified as
such, a Fund may make an election which will exempt (in whole or in part) those
identified Instruments from the rules of Section 1256 of the Code, including
"the 40%-60% rule" and the mark-to-market on gains and losses being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales and loss deferral rules and the requirement
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<PAGE> 72
to capitalize interest and carrying charges. Under Temporary Regulations, a
Fund would be allowed (in lieu of the foregoing) to elect either (a) to offset
gains or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (b) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under
either election, "the 40%-60% rule" will apply to the net gain or loss
attributable to the Instruments, but in the case of a mixed straddle account
election, not more than 50% of any net gain may be treated as long-term and no
more than 40% of any net loss may be treated as short-term.
A foreign currency contract must meet the following conditions in order to
be subject to the mark-to-market rules described above: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract
depends; (2) the contract must be entered into at arms' length at a price
determined by reference to the price in the Interbank market; and (3) the
contract must be traded in the Interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of the date of this SAI, the Treasury Department has
not issued any such regulations. Other foreign currency contracts entered into
by a Fund may result in the creation of one or more straddles for Federal
income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and the requirement to capitalize interest and carrying charges may
apply.
Some of the non-U.S. dollar-denominated investments that the Growth and
Income Fund and International Growth Fund may make, such as foreign debt
securities and foreign currency contracts, may be subject to the provisions of
Subpart J of the Code, which govern the Federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S dollar. The types of transactions covered by these provisions include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables
and payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option and similar financial instrument. The disposition of
a currency other than the U.S. dollar by a U.S. taxpayer also is treated as a
transaction subject to the special currency rules. However, regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts,
futures contracts and options that are capital assets in the hands of the
taxpayer and which are not part of a straddle. In accordance with Treasury
regulations, certain transactions that are part of a "Section 988 hedging
transaction" (as defined in the Code and Treasury regulations) may be
integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. "Section 988 hedging transactions" are
not subject to the mark-to-market or loss deferral rules under the Code. Gain
or loss attributable to the foreign currency component of transactions engaged
in by the Fund which are not subject to the special currency rules (such as
foreign equity investments other than certain preferred stocks) is treated as
capital gain or loss and is not segregated from the gain or loss on the
underlying transaction.
Certain of the Funds may be subject to U.S. Federal income tax on a
portion of any "excess distribution" from or a gain from the disposition of
shares of a passive foreign investment company.
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<PAGE> 73
DECLARATION OF TRUST
DESCRIPTION OF SHARES
The Trust's Restatement of Declaration of Trust authorizes the issuance of
an unlimited number of shares of beneficial interest in one or more separate
series, and the creation of one or more classes of shares within each series.
Each share of a series represents an equal proportionate interest in the Trust
with each other share of that series. Each series represents interests in a
different investment portfolio. The Trust currently offers fourteen series of
shares with two separate classes in each series -- Investment Shares and
Institutional Shares. Each share of the Trust has no par value and is entitled
to such dividends and distributions of the income earned on its respective
series' assets as are declared at the discretion of the Trustees. Each class
or series is entitled upon liquidation of such class or series to a pro rata
share in the net assets of that class or series. Shareholders have no
preemptive rights. When issued for payment as described in the prospectuses,
shares will be legally issued, fully paid and non-assessable.
The proceeds received by each Fund for each issue or sale of its shares,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically
allocated to and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to that Fund and with a share of the
general liabilities of the Trust. Expenses with respect to the portfolios of
the Trust are normally allocated in proportion to the net asset value of the
respective portfolios except where allocations of direct expenses can otherwise
be fairly made.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts
Business Trust." Pursuant to certain decisions of the Supreme Judicial Court
of Massachusetts, there is a possibility that shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, even if the Trust were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Restatement of Declaration of
Trust contains an express disclaimer of shareholder liability for obligations
of the Trust and requires that notice of such disclaimer be given in every
note, bond, contract or other undertaking entered into or executed by the Trust
or the Trustees. In addition, the Restatement of Declaration of Trust provides
for indemnification out of the Trust property for any shareholder held
personally liable for the obligations of the Trust.
VOTING RIGHTS
Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each investment portfolio affected by such matter. Rule 18f-2 further provides
that an investment portfolio shall be deemed to be affected by a matter unless
the interests of each investment portfolio in the matter are substantially
identical or the matter does not affect any interest of the investment
portfolio. Under the Rule, the approval of an investment advisory agreement, a
distribution plan subject to Rule 12b-1, or any change in a fundamental
investment policy would be effectively acted upon with respect to an investment
portfolio only if approved by a majority of
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<PAGE> 74
the outstanding shares of that investment portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together in
the aggregate without regard to a particular investment portfolio.
The term "majority of the outstanding shares" of a Fund means the vote of
the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
Shares of the Trust have non-cumulative voting rights, which means that
the holders of more than 50% of the shares of the Trust voting for the election
of Trustees can elect 100% of the Trustees to be elected at a meeting and, in
such event, the holders of the remaining less than 50% of the shares of the
Trust voting will not be able to elect any Trustees.
As a general matter, the Trust does not hold annual or other meetings of
shareholders. At such time, however, as less than a majority of the Trustees
holding office have been elected by shareholders, the Trustees then in office
will call a shareholders meeting for the election of Trustees. The Trustees
shall continue to hold office indefinitely, unless otherwise required by law,
and may appoint successor Trustees. A Trustee may be removed from office: (1)
at any time by two-thirds vote of the Trustees; or (2) at a special meeting of
shareholders by a two-thirds vote of the outstanding shares. Trustees may also
voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Restatement of Declaration of Trust provides that the Trustees shall
not be responsible or liable for any neglect or wrongdoing of any officer,
agent, employee or adviser of the Trust, provided that they have exercised
reasonable care in the selection of such individuals. The Restatement of
Declaration of Trust also provides that a Trustee shall be indemnified against
all liabilities and expenses reasonably incurred in connection with the defense
or disposition of any action, suit or other proceeding in which said Trustee is
involved by reason of being or having been a Trustee of the Trust, except with
respect to any matter as to which such Trustee has been finally adjudicated not
to have acted in good faith in the reasonable belief that his or her actions
were in the best interest of the Trust. Nothing in the Restatement of
Declaration of Trust shall protect a Trustee against any liability for his or
her willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office as Trustee.
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
MONEY MARKET FUNDS
The yields for the Investment Shares and the Institutional Shares of the
Money Market Funds as they may appear from time to time in advertisements will
be calculated by determining the net change exclusive of capital changes (all
realized and unrealized gains and losses) in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, multiplying
the base period return by (365/7) and carrying the resulting yield figure to
the nearest hundredth of
45
<PAGE> 75
one percent. The determination of net change in account value will reflect the
value of additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares
and all fees charged to all shareholder accounts for each class of shares in
proportion to the length of the base period and the average account size for
each class. The 30-day yield for each Fund is determined similarly. Based on
the foregoing formula, for the 7-day period ended December 31, 1996, the yields
of the Institutional Shares of the Money Market Fund and the Michigan Municipal
Money Market Fund were _______% and _______%, respectively. For the same
period, the 7-day yields of the Investment Shares of the Money Market Fund and
the Michigan Municipal Money Market Fund were _______% and _______%,
respectively. The yield figures reflect waivers of certain expenses.
If realized and unrealized gains and losses were included in the yield
calculation, the yield of a Fund might vary materially from that reported in
advertisements.
In addition to the yields for each class of shares of the Money Market
Funds, the effective yields for each class may appear from time to time in
advertisements. The effective yield will be calculated by compounding the
unannualized base period return by adding 1 to the quotient, raising the sum to
a power equal to 365 divided by 7, subtracting 1 from the result and carrying
the resulting effective yield figure to the nearest hundredth of one percent.
Based on the foregoing formula, for the period ended December 31, 1996, the
effective yields of the Institutional Shares of the Money Market Fund and the
Michigan Municipal Money Market Fund were _____% and _____%, respectively. For
the same period, the effective yields of the Investment Shares of the Money
Market Fund and the Michigan Municipal Money Market Fund were _____% and
_____%, respectively. These yield figures reflect waivers of certain expenses.
NON-MONEY MARKET FUNDS
A Non-Money Market Fund calculates its "average annual total return" by
determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
ERV 1/n
T = [(-------) - 1]
P
Where:
T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the
1, 5 or 10 year (or other) periods at the end of the applicable period (or
a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
46
<PAGE> 76
A Non-Money Market Fund calculates its "aggregate total return" by
determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
ERV
Aggregate Total Return = [(-------) - 1]
P
The calculations are made assuming that (a) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, and (b) all recurring fees charged to all
shareholder accounts are included. The ending redeemable value (variable "ERV"
in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the end
of the measuring period.
A Non-Money Market Fund calculates its 30-day (or one month) standard
yield in accordance with the method prescribed by the SEC for mutual funds:
a - b
Yield = 2 [ (------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period entitled
to receive dividends; and
d = net asset value per share on the last day of the period.
Based on the foregoing calculations, for the 30-day period ended December
31, 1996, the yields for the Investment Shares of the Income Funds and Tax-Free
Funds were as follows: Short Term Bond Fund, ______%; Intermediate Bond Fund,
______%; Income Fund, ______%; Limited Term Tax-Free Fund, ______%;
Intermediate Tax-Free Fund, ______%; Tax-Free Income Fund, ______%; and
Michigan Municipal Bond Fund, ______%. For the same period, the yields on the
Institutional Shares of the Income Funds and Tax-Free Funds were as follows:
Short Term Bond Fund, ______%; Intermediate Bond Fund, ______%; Income Fund,
______%; Limited Term Tax-Free Fund, ______%; Intermediate Tax-Free Fund,
______%; Tax-Free Income Fund, ______%; and Michigan Municipal Bond Fund,
______%.
THE TAX-FREE FUNDS
The Investment Shares and the Institutional Shares of the Tax-Free Funds
may also advertise "tax equivalent yield." Tax equivalent yield is, in
general, the yield divided by a factor equal to one minus a stated income tax
rate and reflects the yield a taxable investment would have to achieve in order
to equal on an after-tax basis a tax-exempt yield. For the 30-day period ended
December 31, 1996, the yields for the
47
<PAGE> 77
Investment Shares of the Tax-Free Funds were as follows: Limited Term Tax-Free
Fund, ______%; Intermediate Tax-Free Fund, ______%; Tax-Free Income Fund,
______%; Michigan Municipal Bond Fund, ______%; and Michigan Municipal Money
Market Fund, ______%. For the same period, the yields on the Institutional
Shares of the Tax-Free Funds were as follows: Limited Term Tax-Free Fund,
______%; Intermediate Tax-Free Fund, ______%; Tax-Free Income Fund, ______%;
Michigan Municipal Bond Fund, ______%; and Michigan Municipal Money Market
Fund, ______%.
ADVERTISING INFORMATION
The Funds may from time to time include in advertisements, sales
literature, communications to shareholders and other materials (collectively,
"Materials") a total return figure that more accurately compares a Fund's
performance with other measures of investment return than the total return
calculated as described above. For example, in comparing a Fund's total return
with data published by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. or Weisenberger Investment Company Service, or with the
performance of an index, a Fund may calculate its aggregate total return for
the period of time specified in the Materials by assuming the investment of
$10,000 in shares of a Fund and assuming the reinvestment of all dividends and
distributions. Percentage increases are determined by subtracting the initial
value of the investment from the ending value and by dividing the remainder by
the beginning value. The Funds may not, for these purposes, deduct from the
initial value invested any amount representing sales charges. A Fund will,
however, disclose the maximum sales charge and will also disclose that the
performance data does not reflect sales charges and that inclusion of sale
charges would reduce the performance quoted.
The Funds may also from time to time include discussions or illustrations
of the effects of compounding in Materials. "Compounding" refers to the fact
that, if dividends or other distributions on an investment in a Fund are paid
in the form of additional shares of the Fund, any future income or capital
appreciation of the Fund would increase the value, not only of the original
investment, but also of the additional shares received through reinvestment.
As a result, the value of the investment in the Fund would increase more
quickly than if dividends or other distributions had been paid in cash.
In addition, the Funds may also include in Materials discussions and/or
illustrations of the potential investment goals of a prospective investor,
investment management strategies, techniques, policies or investment
suitability of a Fund (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments), economic conditions, the relationship between sectors of
the economy and the economy as a whole, various securities markets, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury securities. From time to time,
Materials may summarize the substance of information contained in shareholder
reports (including the investment composition of a Fund), as well as the views
of the adviser as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in Materials charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Funds and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury securities and shares of a Fund and/or other mutual
funds. Materials may include a discussion of certain attributes or benefits to
be derived by an investment in a Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax and retirement planning
48
<PAGE> 78
and investment alternatives to certificates of deposit and other financial
instruments. Such Materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
FINANCIAL STATEMENTS
The Financial Statements included in the Funds' December 31, 1996 Annual
Reports to Shareholders are incorporated by reference into this SAI. No other
part of the Annual Reports are incorporated herein. Copies of the Financial
Statements may be obtained without charge by contacting The Kent Funds at P.O.
Box 182201, Columbus, Ohio 43218-2201 or at 1-800-633-KENT (5368).
ADDITIONAL INFORMATION
Set forth below are the record owners or, to the Trust's knowledge, the
beneficial owners of 5% or more of the outstanding Investment and Institutional
Shares of the Funds as of April 30, 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
Trent & Co. (C) The Kent Growth and Institutional 57%
Cash Account Income Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent Growth and Institutional 40%
Reinvestment Account Income Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Small Company Institutional 49%
Cash Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent Small Company Institutional 48%
Reinvestment Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
</TABLE>
49
<PAGE> 79
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
Trent & Co. (R) The Kent Index Institutional 55%
Reinvestment Account Equity Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Index Institutional 36%
Cash Account Equity Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Old Kent Bank Smartmove The Kent Index Institutional 9%
c/o 440 Financial Equity Fund
As Agent
Barbara Kane C36
440 Lincoln Street
Worcester, MA 01653
Trent & Co. (C) The Kent International Institutional 52%
Cash Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (R) The Kent International Institutional 46%
Reinvestment Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - Brokerage The Kent Index Investment 7%
Reinvestment Account Equity Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. Brokerage The Kent International Investment 5%
Reinvestment Account Growth Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
</TABLE>
50
<PAGE> 80
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
Trent & Co. (R) The Kent Short Institutional 63%
Reinvestment Account Term Bond Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Short Institutional 36%
Cash Account Term Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Intermediate Institutional 45%
Cash Account Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co (R) The Kent Intermediate Institutional 54%
Reinvestment Account Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Intermediate Institutional 99%
Cash Account Tax-Free Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Limited Institutional 100%
Cash Account Term Tax-Free Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. (C) The Kent Michigan Institutional 99%
Cash Account Municipal Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - (R) The Kent Tax-Free Institutional 99%
Cash Account Income Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
</TABLE>
51
<PAGE> 81
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
Trent & Co. - (R) The Kent Income Fund Institutional 83%
Cash Account
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - (R) The Kent Income Fund Institutional 17%
Reinvestment Account
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - Brokerage The Kent Short Investment 7%
Reinvestment Account Term Bond Fund
Attn: Anne Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Harold J. Buchmahl The Kent Short Investment 8%
604 S. 6th Ave. Term Bond Fund
Saint Charles, IL
Bankers Trust Company The Kent Short Term Investment 6%
Cust. for the IRA Plan Bond Fund
John B. Hogan
371 Gull Lake Dr. South
Richland, MI 49083-9610
Trent & Co. - Brokerage The Kent Intermediate Investment 6%
Cash Account Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Arametta L. Mitchell The Kent Intermediate Investment 13%
William F. Mitchell Co TTEES Tax-Free Fund
U/A DTD 04/24/72
Arametta L. Mitchell Liv Trust
900 W. Oliver Street
Owosso, MI 48867
The Northern Trust Co. The Kent Intermediate Investment 10%
FBO Christopher U. Light Tax-Free Fund
Rev. Tr. DTD 01/09/76
PO Box 92956
Chicago, IL 60675
</TABLE>
52
<PAGE> 82
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
The Northern Trust Co. The Kent Intermediate Investment 6%
FBO Richard U. Light Tax-Free Fund
Irrev. S. Tr.
U/AD 06/21/40
PO Box 92956
Chicago, IL 60675
Old Kent Bank South East The Kent Intermediate Investment 6%
FBO Edward E. Vollenweider Tax-Free Fund
U/A DTD 11/10/89
9936 Hawthorn Glen Drive
Grosse Ile, MI 48183
Trent & Co. Brokerage The Kent Intermediate Investment 7%
Reinvestment Account Tax-Free Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
John M. Crouse TTEE The Kent Intermediate Investment 5%
U/A DTD 6/27/85 Tax-Free Fund
222 Harbour Drive
Commodore Club #510
Naples, FL 33940
Trent & Co - Brokerage The Kent Michigan Investment 15%
Reinvestment Account Municipal Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Trent & Co. - Brokerage The Kent Michigan Investment 6%
Cash Account Municipal Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
Old Kent Bank South East The Kent Michigan Investment 5%
FBO Edward E. Vollenweider Municipal Bond Fund
U/A DTD 11/10/89
9936 Hawthorn Glen Drive
Grosse Ile, MI 48183
</TABLE>
53
<PAGE> 83
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
The Northern Trust Co. The Kent Michigan Investment 29%
FBO Christopher U. Light Municipal Bond Fund
Rev. Tr.
DTD 01/09/76
PO Box 92956
Chicago, IL 60675
The Northern Trust Co. The Kent Michigan Investment 20%
FBO Richard U. Light Municipal Bond Fund
Irrev. S. Tr.
U/A D 06/21/40
PO Box 92956
Chicago, IL 60675
Mark Dellar The Kent Tax- Investment 7%
151 East Poplar Free Income Fund
Glendale Heights, IL 60139
Old Kent Bank Central The Kent Tax-Free Investment 8%
FBO Jerry S. Voight Income Fund
U/A Dtd 01/28/91
Jerry S. Voight Trust
Attn: Russ Thomas
123 N. Washington
Owosso, MI 48867
E. Condit Newcommer Trust The Kent Tax- Investment 7%
E. Condit Newcommer Free Income Fund
TTEE 4/7/94
2089 Corunna Ave.
Owosso, MI 48867
Doris Anderson The Kent Tax-Free Investment 11%
Glen F. Anderson Income Fund
POA Dtd 12/3/93
815 W. Indiana St.
St. Charles, IL 60174
Rose M. Black Trust The Kent Tax-Free Investment 8%
Rose M. Black Trustee Income Fund
Dtd 06/14/95
1208 Baker Street
Kalamazoo, MI 49001
</TABLE>
54
<PAGE> 84
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
Pershing The Kent Tax-Free Investment 10%
FBO Leonard Krawczyk Income Fund
A/C 4AV-051503
One Pershing Plaza
Jersey City, NJ 07399
Lisa A. Boehm The Kent Tax-Free Investment 8%
668 Hill Ave. Income Fund
Elgin, IL 60120
First of America Bank of The Kent Short Term Investment 5%
Michigan Bond Fund
FBO Timothy Reineck
In K Valley Orthopedics
U/A DTD 022670
PO Box 4042
Kalamazzo, MI 49003
Rose M. Black Trust The Kent Limited Term Investment 54%
Rose M. Black Trustee Tax-Free Fund
Dtd 6/14/95
1208 Baker Street
Kalamazoo, MI 49001
Charles J. Cebuhar The Kent Limited Term Investment 39%
1310 Valley Lake Drive Tax-Free Fund
Shaumburg, IL 60195
Karla K Morence The Kent Limited Term Investment 7%
Douglas Morence JT WROS Tax-Free Fund
320 W M21
Owosso, MI 48867
William F. Mitchell TTEE The Kent Intermediate Investment 5%
U/A DTD 07/24/77 Tax-Free Fund
William F. Mitchell Liv. Trust
123 N. Chipman Street
Owosso, MI 48867
Trent & Co. - Brokerage The Kent Intermediate Investment 8%
Reinvestment Account Bond Fund
Attn: Ann Rumptz
1 Vandenberg Center
Grand Rapids, MI 49503
</TABLE>
55
<PAGE> 85
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF
OWNERSHIP
<S> <C> <C> <C>
Trent & Co. (C) The Kent Money Institutional 97%
Cash Account Market Fund
Attn: Billie Blair
1 Vandenberg Center
Grand Rapids, MI 49503
Kathleen B. Perlberg Trust The Kent Michigan Institutional 6%
Kathleen B. Perlberg TTEE Municipal Money Market
DAD 061393 Fund
3036 Hideaway Beach Drive
Brighton, MI 48116
Judith A. Kernell and The Kent Michigan Investment 16%
Sara E. Kontz JTWROS Municipal Money Market
5185 Pine Hill Circle Fund
Howell, MI 48843
Michael C. Corrigan The Kent Michigan Investment 7%
Julie C. Corrigan Municipal Money Market
3885 Flint Road Fund
Brighton, MI 48116
Julie A. St. Amorr The Kent Michigan Investment 26%
Raymond S. Stowers Municipal Money Market
David A. Stowers JTWROS Fund
1746 Lee Ave.
Muskegon, MI 49444
Lyle T. Cerda The Kent Michigan Investment 10%
Ida Cerda JTWROS Municipal Money Market
1129 Buckingham SW Fund
Wyoming, MI 49509
Philip M. Allen The Kent Michigan Investment 16%
Mary S. Allen JT WROS Municipal Money Market
2092 Northridge N.E. Fund
Grand Rapids, MI 49505
Larry M. Bebryune The Kent Money Investment 6%
Joy E. Bebryune JTWROS Market Fund
4270 Redbush Dr. SW
Grandville, MI 49418
Floyd F. Williams The Kent Money Investment 14%
Diane Williams JTWROS Market Fund
4535 Forest Lake CT SE
Kentwood, MI 49546
</TABLE>
56
<PAGE> 86
Except as otherwise stated in its prospectuses, statements of additional
information, or required by law, the Trust reserves the right to change the
terms of the offers stated in its prospectuses or statement of additional
information without shareholder approval, including the right to impose or
change certain fees for services provided.
57
<PAGE> 87
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market. The
following summarizes the rating categories used by S&P for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be
A-1
<PAGE> 88
more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps Credit Rating Co. ("Duff &
Phelps") for investment grade commercial paper and short-term debt are "Duff
1," "Duff 2" and "Duff 3." Duff & Phelps employs three designations, "Duff
1+," "Duff 1" and "Duff 1-," within the highest rating category. The following
summarizes the rating categories used by Duff & Phelps for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"Duff 4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"Duff 5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch Investors Service, Inc. ("Fitch") short-term ratings apply to debt
obligations that are payable on demand or have original maturities of up to
three years. The following summarizes the rating categories used by Fitch for
short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
A-2
<PAGE> 89
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which is issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA, Inc. ("IBCA") assesses the investment quality of unsecured debt with
an original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which are
currently in default.
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CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by S&P for corporate and
municipal debt:
"AAA" - This designation represents the highest rating assigned by S&P to
a debt obligation and indicates an extremely strong capacity to pay interest
and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied "BB" or
"BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
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"CI" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. "D" rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
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Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating
category.
The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA."
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Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that possess one
of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation
for bond issues not in default. For defaulted bonds, the rating "DDD" to "D"
is an assessment of the ultimate recovery value through reorganization or
liquidation.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "C" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and
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indicates a possibility of investment risk developing. "C" represents the
highest degree of speculation and indicates that the obligations are currently
in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues
rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment
of principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
An S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. The following summarizes the
ratings used by S&P for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
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"SP-3" - The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate quality,
carrying specific risk but having protection commonly regarded as required of
an investment security and not distinctly or predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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APPENDIX B
THE KENT MICHIGAN MUNICIPAL BOND FUND
THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND
SPECIAL INVESTMENT CONSIDERATIONS RELATING
TO INVESTING IN MICHIGAN MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn from a
Summary and Analysis of the Governor's Executive Budget for fiscal year 1996-97
issued February 15, 1996, by the Senate Fiscal Agency of the Michigan
Legislature, and from official statements relating to securities offerings of
the State available as of the date of this SAI. While the Trust has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects.
1995 ECONOMIC REVIEW AND 1996 ECONOMIC OUTLOOK
The State's economy has been undergoing certain basic changes in its
underlying structure and these changes continued in 1995. These changes
reflect a diversifying economy which is less reliant on the automobile
industry. As a result, the State anticipates that its economy in the future
will be less susceptible to cyclical swings and more resilient when national
downturns occur. In 1995, the major employment gains occurred in the motor
vehicle, construction, transportation, communication, utilities and service
industries. Total wage and salary employment is estimated to have grown by
2.6% in 1995. The rate of unemployment is estimated to have been 5.4% in 1995,
below the national average. Personal income grew at an estimated 7.1% annual
rate in 1995, above the national rate of growth but slightly down from the
strong 8.0% growth reported for 1994. Michigan employment is expected to grow
by a moderate 1.4% in 1996. This job growth is expected to help lower the
unemployment rate to 5.2% and result in income growth of 4.2% in 1996. The
inflation rate, as measured by the Detroit Consumer Price Index, is expected to
decrease to 2.4% in 1996. As a result, inflation adjusted purchasing power is
expected to grow 1.8% in 1996.
1995-96 BUDGET AND PROJECTED RESULTS
The Governor's Executive Budget was submitted to the Legislature in
February 1995. As of February 1996, the Governor had vetoed approximately
$45.7 million of appropriations passed by the Legislature. Two supplemental
appropriations, totaling $22.5 million, were passed by the Legislature for
fiscal year 1995-96. During the past four years, improvements in the Michigan
economy have resulted in increased revenue collections which, together with
restraints on the expenditure side of the budget, have resulted in General Fund
budget surpluses of $280.1 million, $398.7 million and $84.5 million, in fiscal
1992-93, 1993-94 and 1994-95, respectively, and are expected to result in a
General Fund budget surplus of $55.1 million in fiscal 1995-1996. Among the
budget uncertainties facing the State during the next several years are whether
the recently-enacted school finance reform package will provide adequate
revenues to fund K-12 education in the future, whether declining motor fuel tax
revenues resulting from more fuel-efficient vehicles will continue to provide
adequate funding to maintain the State's transportation infrastructure, whether
there will be adequate funds available to address the State's need for more
correctional facilities, and the uncertainties presented by proposed changes in
Federal aid policies for state and local governments.
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PROJECTED REVENUES FOR FISCAL 1995-96
General Fund - General Purpose consensus revenue is estimated at $8,396.7
million, a 5.2% increase over fiscal year 1994-95, reflecting increased tax
revenues in substantially all areas due to the improving economy of the state.
Overall General Purpose resources are estimated at $8,464.6 million.
Personal Income Tax - Net income tax collections are estimated at $4,084.4
million, a 8.2% increase over fiscal year 1994-95.
Single Business and Insurance Taxes - Gross single business tax
collections are projected to amount to $2,243.2 million, a slight increase over
fiscal year 1994-95. The General Fund - General Purpose shares of single
business tax revenue is estimated to be $1,888.3 million. The difference
between gross single business tax collections and General Fund - General
Purpose revenue represents payments to local units of government.
Sales Tax - Gross sales tax collections, including the 2% in the State's
general sales tax, are forecasted to total $5,120.0 million. The General Fund -
General Purpose portion of the sales tax is estimated at $806.2 million, a
12.6% increase over fiscal year 1994-95.
Use Tax - Gross use tax collections, including the 2% increase, are
forecast to be $1,003.0 million. The General Fund - General Purpose portion of
use tax collections are forecasted to increase to $666.0 million, a 8.5%
increase over fiscal year 1994-95.
PROJECTED APPROPRIATIONS FOR FISCAL 1995-96
General Fund - General Purpose appropriations were $8,409.5 million, 3.3%
above the level of 1994-95 expenditures.
Education and School Aid - General Purpose appropriations for public
elementary and secondary school aid, community colleges, state universities and
the State Department of Education are $2,306.3 million, a decrease of 0.5% from
fiscal year 1994-95 expenditures.
Social Services - General Purpose appropriations for public assistance,
Medicaid and other Social Services programs are $2,382.5 million, 6.6% above
fiscal year 1994-95 expenditures.
Public and Mental Health - General Purpose appropriations for public and
mental health programs were $1,204.4 million, 2.0% above fiscal year 1994-95
expenditures.
STATE CONSTITUTIONAL PROVISIONS AFFECTING REVENUES AND EXPENDITURES
The State Constitution provides that proposed expenditures and revenues of
any operating fund must be in balance and that any prior year's surplus or
deficit must be included in the succeeding year's budget for that fund.
The State Constitution limits the amount of total State revenues that can
be raised from taxes and certain other sources. State revenues (excluding
federal aid and revenues for payment of principal and interest on general
obligation bonds) in any fiscal year are limited to a fixed percentage of State
personal
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income in the prior calendar year or average of the prior three calendar years,
whichever is greater, and this fixed percentage equals the percentage of the
1978-79 fiscal year state government revenues to total calendar 1977 State
personal income (which was 9.49%).
If in any fiscal year revenues exceed the revenue limitation by 1% or
more, the entire amount of such excess must be rebated in the following fiscal
year's personal income tax or single business tax. Any excess of less than 1%
may be transferred to the State's Budget Stabilization Fund, a cash reserve
intended to mitigate the adverse effects on the State budget of downturns in
the business cycle and to reserve funds that can be available during periods of
high unemployment for State projects that will increase job opportunities. The
State may raise taxes in excess of the limit for emergencies when deemed
necessary by the Governor and two-thirds of the members of each house of the
Legislature.
The State Constitution also provides that the proportion of State spending
paid to all units of local government to total State spending may not be
reduced below the proportion in effect in the 1978-79 fiscal year. The State
originally determined that portion to be 41.6%. If such spending does not meet
the required level in a given year, an additional appropriation for local
governmental units is required by the following fiscal year; which means the
year following the determinations of the shortfall, according to an opinion
issued by the State's Attorney General. Spending for local units met this
requirement for fiscal years 1986-87 through 1991-92. As the result of
litigation, the State agreed to reclassify certain expenditures, beginning with
fiscal year 1992-93, and has recalculated the required percentage of spending
paid to local government units to be 48.97%. For fiscal 1993-94, a shortfall
resulted, which will be appropriated to the State's local government payment
fund in the next budget submission. The fiscal 1993-94 spending paid to local
governmental units exceeded the required proportion.
The State Constitution also requires the State to finance any new or
expanded activity of local governments mandated by State law. Any expenditures
required by this provision would be counted as State spending for local units
of government for the purpose of determining compliance with the provision
cited above.
STATE AND STATE-RELATED INDEBTEDNESS
The State Constitution limits State general obligation debt to (i)
short-term debt for State operating purposes, (ii) short- and long-term debt
for the purpose of making loans to school districts, and (iii) long-term debt
for voter-approved purposes.
Short-term debt for operating purposes is limited to an amount not in
excess of 15% of undedicated revenues received during the preceding fiscal year
and must be issued only to meet obligations incurred pursuant to appropriation
and repaid during the fiscal year in which incurred. Such debt does not
require voter approval.
The amount of debt incurred by the State for the purpose of making loans
to school districts is recommended by the Superintendent of Public Instruction,
who certifies the amounts necessary for loans to school districts for the
ensuing two calendar years. The bonds may be issued in whatever amount
required without voter approval. All other general obligation bonds issued by
the State must be approved as to amount, purpose and method of repayment by a
two-thirds vote of each house of the Legislature and by a majority vote of the
public at a general election. There is no limitation as to number or size of
such general obligation issues.
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There are also various State authorities and special purpose agencies
created by the State which issue bonds secured by specific revenues. Such debt
is not a general obligation of the State.
GENERAL OBLIGATION BONDS AND NOTES AND SCHOOL BOND LOAN FUND
The State has issued and outstanding general obligation full faith and
credit bonds for Water Resources, Environmental Protection Program, Recreation
Program and School Loan purposes. As of September 30, 1995, the State had
approximately $706 million of general obligations bonds outstanding.
The State may issue notes or bonds without voter approval for the purposes
of making loans to school districts. The proceeds of such notes or bonds are
deposited in the School Bond Loan Fund maintained by the State Treasurer and
used to make loans to school districts for payment of debt on qualified general
obligations bonds issued by local school districts. As of December 31, 1995,
approximately $5,001 million in principal amount of "qualified" bonds of local
school districts was outstanding.
As of February 1996, the ratings on State of Michigan general obligation
bonds were "A" by Moody's and "AA" by S&P, while the ratings on the State's
general obligation notes (due September 30, 1996) were "MIG-1" by Moody's,
"SP-1+" by S&P and "F-1+" by Fitch. There is no assurance that such ratings
will continue for any period of time or that such ratings will not be revised
or withdrawn. Because all or most of the Michigan Municipal Obligations are
revenue or general obligations of local governments or authorities, rather than
general obligations of the State of Michigan itself, ratings on such Michigan
Municipal Obligations may be different from those given to the State of
Michigan.
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APPENDIX C
As stated in the Prospectus, the Non-Money Market Funds may enter into
certain futures transactions. Such transactions are described in this
Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it hopes
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, by using futures contracts.
Only the Income Funds and Municipal Bond Funds will utilize interest rate
futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by a Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Fund pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.
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Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges --principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage backed
securities; three-month U.S. Treasury Bills; and ninety-day commercial paper.
The Funds may trade in any interest rate futures contracts for which there
exists a public market, including, without limitation, the foregoing
instruments.
II. Index Futures Contracts
General. A stock or bond index assigns relative values to the stocks or
bonds included in the index, which fluctuates with changes in the market values
of the stocks or bonds included.
A Fund may sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. A Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of
securities, in the value of the securities to be sold. Conversely, a Fund will
purchase index futures contracts in anticipation of purchases of securities. A
long futures position may be terminated without a corresponding purchase of
securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The Income Funds and Municipal Bond Funds will only utilize bond index
futures contracts and the Equity Funds will only utilize equity index futures
contracts.
III. Futures Contracts on Foreign Currencies
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency, for an amount fixed in U.S.
dollars. Foreign currency futures may be used by a Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
Only the International Growth Fund will utilize futures contracts on
foreign currencies.
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<PAGE> 102
IV. Margin Payments
Unlike purchase or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
a Fund will be required to deposit with the broker or in a segregated account
with the Custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the broker. At any time prior to expiration of the futures contract, Old Kent
may elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
V. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the future may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price
of the instruments being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price
of the instruments being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the futures. If the price of
the futures moves more than the price of the hedged instruments, the Fund
involved will experience either a loss or gain on the futures which will not be
completely offset by movements in the price of the instruments which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of instruments being hedged and movements in the price of futures
contracts, a Fund may buy or sell futures contracts in a greater dollar amount
than the dollar amount of instruments being hedged if the volatility over a
particular time period of the prices of such instruments has been greater than
the volatility over such time period of the futures, or if otherwise deemed to
be appropriate by Old Kent. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Old Kent. It is also possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
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<PAGE> 103
When futures are purchased to hedge against a possible increase in the
price of securities or a currency before a Fund is able to invest its cash (or
cash equivalents) in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest its cash at that time
because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial
futures contracts, the liquidity of the futures market depends on participants
entering into off-setting transactions rather than making or taking delivery.
To the extent participants decide to make or take delivery, liquidity in the
futures market could be reduced thus producing distortions. Third, from the
point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee
that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by a Fund is also subject to Old Kent's ability
to predict correctly movements in the direction of the market. For example, if
a particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value
of its securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
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<PAGE> 104
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to
sell securities at a time when it may be disadvantageous to do so.
VI. Options on Futures Contracts
A Fund may purchase and write options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option.
Upon exercise, the writer of the option is obligated to pay the difference
between the cash value of the futures contract and the exercise price. Like
the buyer or seller of a futures contract, the holder, or writer, of an option
has the right to terminate its position prior to the scheduled expiration of
the option by selling, or purchasing an option of the same series, at which
time the person entering into the closing transaction will realize a gain or
loss. A Fund will be required to deposit initial margin and variation margin
with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits. In anticipation
of a decline in interest rates, a Fund may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge
against a possible increase in the price of securities which the Fund intends
to purchase. Similarly, if the value of the securities held by a Fund is
expected to decline as a result of an increase in interest rates, the Fund
might purchase put options or sell call options on futures contracts rather
than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the
purchase or sale of an option also entails the risk that changes in the value
of the underlying futures contract will not correspond to changes in the value
of the option purchased. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts
may frequently involve less potential risk to the Fund because the maximum
amount at risk is the premium paid for the options (plus transaction costs).
The writing of an option on a futures contract involves risks similar to those
risks relating to the sale of futures contracts.
VII. Other Matters
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
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THE KENT FUNDS
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements:
(1) Financial Highlights for the fiscal year ended December 31, 1996
for The Kent Money Market Fund and The Kent Michigan Municipal
Money Market Fund will be included in Part A of a subsequent
Post-Effective Amendment to Registrant's Registration Statement
which will be filed on or before April 30, 1997 and will become
effective at the same time as this amendment.
(2) Financial Highlights for the fiscal year ended December 31, 1995
for The Kent Money Market Fund and The Kent Michigan Municipal
Money Market Fund are included in Part A.
(3) Audited Financial Statements for the fiscal year ended December
31, 1996 will be incorporated by reference into a subsequent
Post-Effective Amendment to Registrant's Registration Statement
which will be filed on or before April 30, 1997 and will become
effective at the same time as this amendment.
(4) Registrant's Audited Financial Statements (including Schedules
of Investments, Statements of Assets and Liabilities, Statements
of Operations, Statements of Changes in Net Assets, Notes to
Financial Statements and the Independent Auditor's Reports dated
February 9, 1996 related thereto) for the fiscal year ended
December 31, 1995 for The Kent Money Market Fund, The Kent
Michigan Municipal Money Market Fund, The Kent Growth and Income
Fund, The Kent Small Company Growth Fund, The Kent International
Growth Fund, The Kent Index Equity Fund, The Kent Short Term
Bond Fund, The Kent Intermediate Bond Fund, The Kent Income
Fund, The Kent Limited Term Tax- Free Fund, The Kent
Intermediate Tax-Free Fund, The Kent Tax-Free Income Fund and
The Kent Michigan Municipal Bond Fund are incorporated by
reference in Part B.
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<PAGE> 106
(b) Exhibits:
(1) The form of Restatement of Declaration of Trust of Registrant
was filed with the Registrant's Post-Effective Amendment No. 4
as Exhibit 24(b)(1) and is incorporated by reference herein.
(2) The Amended and Restated By-Laws of Registrant was filed with
Registrant's Post-Effective Amendment No. 9 as Exhibit 24(b)(2)
and is incorporated by reference herein.
(3) Not applicable.
(4) See Articles III, V and VIII of Registrant's Restatement of
Declaration of Trust and Article II of Registrant's Amended and
Restated By-Laws.
(5) The Investment Advisory Agreement between Registrant and Old
Kent Bank and Trust Company (now known as Old Kent Bank) was
filed with Registrant's Post-Effective Amendment No. 4 as
Exhibit 24(b)(5)(a) and is incorporated by reference herein.
The First Amendment to the Investment Advisory Agreement between
Registrant and Old Kent Bank and Trust Company was filed with
Registrant's Post-Effective Amendment No. 6 as Exhibit
24(b)(5)(a)(i) and is incorporated by reference herein.
The form of amended Schedule A to the First Amendment to the
Investment Advisory Agreement between Registrant and Old Kent
Bank and Trust Company relating to The Kent Income Fund and The
Kent Tax-Free Income Fund was filed with Registrant's
Post-Effective Amendment No. 14 as Exhibit 24(b)(5)(a)(ii) and
is incorporated by reference herein.
The form of notice to Old Kent Bank pursuant to the First
Amendment to the Investment Advisory Agreement between
Registrant and Old Kent Bank and Trust Company relating to The
Kent Government Money Market Fund is filed herewith as Exhibit
24(b)(5)(a)(iii).
(6) The Distribution Agreement between Registrant and BISYS Fund
Services Limited Partnership dated August 5, 1996 is filed
herewith as Exhibit 24(b)(6)(a).
The form of notice to BISYS Fund Services Limited Partnership
pursuant to the Distribution Agreement between Registrant and
BISYS Fund Services Limited Partnership relating to The Kent
Government Money Market Fund is filed herewith as Exhibit
24(b)(6)(b).
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<PAGE> 107
(7) The Kent Funds Deferred Compensation Plan and form of Deferred
Compensation Agreement relating to the Deferred Compensation
Plan are filed herewith as Exhibit 24(b)(7).
(8) The Custody Agreement between Registrant and Bankers Trust
Company was filed with Registrant's Post-Effective Amendment No.
18 as Exhibit 24(b)(8) and is incorporated by reference herein.
(9)(a) The Administration Agreement between Registrant and BISYS Fund
Services Limited Partnership dated August 5, 1996 is filed
herewith as Exhibit 24(b)(9)(a).
Form of notice to BISYS Fund Services Limited Partnership
pursuant to the Administration Agreement between Registrant and
BISYS Fund Services Limited Partnership relating to The Kent
Government Money Market Fund is filed herewith as Exhibit
24(b)(9)(a)(i).
(9)(b) The Fund Accounting Agreement between Registrant and BISYS Fund
Services, Inc. dated August 5, 1996 is filed herewith as Exhibit
24(b)(9)(b).
Form of notice to BISYS Fund Services, Inc. pursuant to the Fund
Accounting Agreement between Registrant and BISYS Fund Services,
Inc. relating to The Kent Government Money Market Fund is filed
herewith as Exhibit 24(b)(9)(b)(1).
(9)(c) The Transfer Agency Agreement between Registrant and BISYS Fund
Services, Inc. dated October 7, 1996 is filed herewith as
Exhibit 24(b)(9)(c).
Form of notice to BISYS Fund Services, Inc. pursuant to the
Transfer Agency Agreement between Registrant and BISYS Fund
Services, Inc. relating to The Kent Government Money Market Fund
is filed herewith as Exhibit 24(b)(9)(c)(i).
(10) Opinion and Consent of Counsel as to the legality of the
securities being registered, indicating whether they were
legally issued, fully paid and nonassessable will be filed no
later than February 28, 1997 under Rule 24f-2 as part of
Registrant's Rule 24f-2 Notice.
(11)(a) Consent of Registrant's Independent Auditors is filed herewith
as Exhibit 24(b)(11)(a).
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<PAGE> 108
(11)(b) Consent of Drinker Biddle & Reath is filed herewith as Exhibit
24(b)(11)(b).
(12) Not applicable.
(13) The subscription agreement was filed with the Registrant's
Registration Statement as Exhibit 24(b)(13) and is incorporated
by reference herein.
(14) Not applicable.
(15) Registrant's Amended and Restated Master Distribution Plan for
Investment Shares and related form of agreement are filed
herewith as Exhibit 24(b)(15)(a) and Exhibit 24(b)(15)(b),
respectively.
(16) Schedules showing performance computations were filed with
Registrant's Post-Effective Amendment No. 17 as Exhibit
24(b)(16) and are incorporated by reference herein.
(17) Financial Data Schedules for each series were filed with the
Registrant's Post-Effective Amendment No. 18 as Exhibit
24(b)(17) and are incorporated by reference herein.
(18) Rule 18f-3 Plan was filed with Registrant's Post-Effective
Amendment No. 17 as Exhibit 24(b)(18)(a) and is incorporated by
reference herein.
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<PAGE> 109
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Registrant is controlled by its Board of Trustees.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders as of February 1, 1997
- --------------- ------------------------------
Institutional Investment
Class Class
------------- ----------
<S> <C> <C>
The Kent Money Market Fund Shares of 4 111
Beneficial Interest, without par value
The Kent Michigan Municipal Money Market 2 26
Fund Shares of Beneficial Interest, without
par value
The Kent Limited Term Tax-Free Fund 3 7
Shares of Beneficial Interest, without par
value
The Kent Short Term Bond Fund Shares of 7 254
Beneficial Interest, without par value
The Kent Intermediate Bond Fund Shares of 7 813
Beneficial Interest, without par value
The Kent Intermediate Tax-Free Fund Shares 4 95
of Beneficial Interest, without par value
The Kent Michigan Municipal Bond Fund 4 35
Shares of Beneficial Interest, without par
value
The Kent Growth and Income Fund Shares of 6 2,229
Beneficial Interest, without par value
The Kent Small Company Growth Fund 7 2,587
Shares of Beneficial Interest, without par
value
The Kent International Growth Fund 7 2,005
Shares of Beneficial Interest, without par
value
The Kent Index Equity Fund Shares of 5 1,589
Beneficial Interest, without par value
</TABLE>
-5-
<PAGE> 110
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders as of February 1, 1997
- --------------- ------------------------------
Institutional Investment
Class Class
------------- ----------
<S> <C> <C>
The Kent Income Fund Shares of Beneficial 5 319
Interest, without par value
The Kent Tax-Free Income Fund Shares of 4 35
Beneficial Interest, without par value
</TABLE>
ITEM 27. INDEMNIFICATION
See Article VIII of Section 3 of Registrant's Restatement of the
Declaration of Trust which was filed with Post-Effective Amendment No. 4 as
Exhibit 24(b)(1) and is incorporated by reference herein.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
1. Incorporated herein by reference to Item 28 of Post-Effective
Amendment No. 20 to Registrant's Registration Statement on Form
N-1A (File No. 33-8398/811-4824) filed with the SEC on April 30,
1996.
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<PAGE> 111
ITEM 29. PRINCIPAL UNDERWRITERS
(a) BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services acts as distributor and administrator for Registrant.
BISYS Fund Services also distributes the securities of:
American Performance Funds
AmSouth Mutual Funds
The ARCH Fund, Inc.
The BB&T Mutual Funds Group
The Coventry Group
Empire Builder Tax Free Bond Fund
First Choice Funds Trust
Fountain Square Funds
Hirtle Callaghan Trust
HSBC Family of Funds
The Infinity Mutual Funds, Inc.
Intrust Funds
The Kent Funds
Marketwatch Funds
Meyers Sheppard Investment Trust
Minerva Funds
MMA Praxis Mutual Funds
M.S.D&T. Funds
Pacific Capital Funds
Parkstone Group of Funds
The Parkstone Advantage Funds
Pegasus Funds
Qualivest Funds
The Republic Funds Trust
The Republic Advisors Funds Trust
The Riverfront Funds, Inc.
SBSF Funds, Inc. dba Key Mutual Funds
Sefton Funds
The Sessions Group
Summit Investment Trust
The Time Horizon Funds
The Victory Portfolios
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<PAGE> 112
(b) Partners of BISYS Fund Services, as of February 11, 1997, were
as follows:
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices with Positions and Offices with
Addresses BISYS Fund Services Registrant
- --------------------------- -------------------------- --------------------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 to 31a-3 thereunder are maintained by BISYS Fund Services, Inc. at
3435 Stelzer Road, Columbus, Ohio 43219, except for Registrant's minute books,
which are maintained by Drinker Biddle & Reath, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to file a Post Effective Amendment relating to The
Kent Government Money Market Fund using financial statements, which need not be
certified, within four to six months from the effective date of Registrant's
1933 Act Registration Statement.
Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest Annual Report to shareholders,
upon request and without charge.
Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees of
Registrant when requested to do so by the holders of at least 10% of
Registrant's outstanding shares. Registrant undertakes further, in connection
with any such meeting, to comply with the provisions of Section 16(c) of the
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<PAGE> 113
Investment Company Act of 1940, as amended, relating to communications with the
shareholders of certain common-law trusts.
-9-
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia, in the
Commonwealth of Pennsylvania, on the 14th day of February, 1997.
THE KENT FUNDS
By: */ Walter B. Grimm
Walter B. Grimm
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Fund's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
<S> <C> <C>
*/ Walter B. Grimm President and Trustee February 14, 1997
Walter B. Grimm
*/ Thomas E. Line Treasurer (Principal February 14, 1997
Thomas E. Line Accounting and Financial
Officer)
*/ Anne T. Coughlan Trustee February 14, 1997
Anne T. Coughlan
*/ Joseph F. Damore Trustee February 14, 1997
Joseph F. Damore
*/ James F. Rainey Trustee February 14, 1997
James F. Rainey
</TABLE>
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<PAGE> 115
<TABLE>
<CAPTION>
SIGNATURES TITLE
<S> <C> <C>
*/ Ronald F. VanSteeland Trustee February 14, 1997
Ronald F. VanSteeland
</TABLE>
*By:/s/ W. Bruce McConnel, III
W. Bruce McConnel, III
Attorney-in-Fact
* W. Bruce McConnel, III, by signing his name hereto, does hereby sign
this document on behalf of each of the above-named Trustees and Officers of the
Fund pursuant to powers of attorney duly executed by such persons.
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<PAGE> 116
CERTIFICATE OF ASSISTANT SECRETARY
The following resolution was duly adopted by the Board of Trustees of The
Kent Funds on February 12, 1997, and remains in full force and effect as of the
date hereof:
RESOLVED, that the Trustees and officers of the Trust, who may be
required to execute any amendments to the Trust's Registration Statement
be, and each of them hereby is, authorized to execute a power of attorney
appointing W. Bruce McConnel, III and George O. Martinez, and either of
them, their true and lawful attorneys to execute in their name, place and
stead, in their capacity as trustee or officer, or both, of the Trust any
and all amendments to the Registration Statement, and all instruments
necessary or incidental in connection therewith, and to file the same
with the Securities and Exchange Commission; and either of said attorneys
shall have the power to act thereunder with or without the other of said
attorneys and shall have full power of substitution and resubstitution;
and either of said attorneys shall have full power and authority to do in
the name and on behalf of said Trustees and officers, or any or all of
them, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as full and to intents and
purposes, as each of said Trustees or officers, or any or all of them,
might or could do in person, said acts of said attorneys, or either of
them, being hereby ratified and approved.
IN WITNESS WHEREOF, I have hereunto signed my name.
DATED: February 12, 1997 By: /s/ W. Bruce McConnel, III
W. Bruce McConnel, III
Assistant Secretary
<PAGE> 117
THE KENT FUNDS
POWER OF ATTORNEY
I, Anne T. Coughlan, hereby appoint W. Bruce McConnel, III and George O.
Martinez, and either of them, my true and lawful attorneys and agents, with
power of substitution and resubstitution, to perform any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or either of them, may deem necessary or advisable or which may be required to
enable The Kent Funds, a Massachusetts business trust (the "Fund"), to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in my name and on my behalf as a trustee and/or
officer of the Fund any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and I hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
/s/ Anne T. Coughlan
Anne T. Coughlan
Date: February 12, 1997
<PAGE> 118
THE KENT FUNDS
POWER OF ATTORNEY
I, Joseph F. Damore, hereby appoint W. Bruce McConnel, III and George O.
Martinez, and either of them, my true and lawful attorneys and agents, with
power of substitution and resubstitution, to perform any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or either of them, may deem necessary or advisable or which may be required to
enable The Kent Funds, a Massachusetts business trust (the "Fund"), to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in my name and on my behalf as a trustee and/or
officer of the Fund any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and I hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
/s/ Joseph F. Damore
Joseph F. Damore
Date: February 12, 1997
<PAGE> 119
THE KENT FUNDS
POWER OF ATTORNEY
I, Walter B. Grimm, hereby appoint W. Bruce McConnel, III and George O.
Martinez, and either of them, my true and lawful attorneys and agents, with
power of substitution and resubstitution, to perform any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or either of them, may deem necessary or advisable or which may be required to
enable The Kent Funds, a Massachusetts business trust (the "Fund"), to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in my name and on my behalf as a trustee and/or
officer of the Fund any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and I hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
/s/ Walter B. Grimm
Walter B. Grimm
Date: February 12, 1997
<PAGE> 120
THE KENT FUNDS
POWER OF ATTORNEY
I, James F. Rainey, hereby appoint W. Bruce McConnel, III and George O.
Martinez, and either of them, my true and lawful attorneys and agents, with
power of substitution and resubstitution, to perform any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or either of them, may deem necessary or advisable or which may be required to
enable The Kent Funds, a Massachusetts business trust (the "Fund"), to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in my name and on my behalf as a trustee and/or
officer of the Fund any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and I hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
/s/ James F. Rainey
James F. Rainey
Date: February 12, 1997
<PAGE> 121
THE KENT FUNDS
POWER OF ATTORNEY
I, Ronald F. VanSteeland, hereby appoint W. Bruce McConnel, III and George
O. Martinez, and either of them, my true and lawful attorneys and agents, with
power of substitution and resubstitution, to perform any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or either of them, may deem necessary or advisable or which may be required to
enable The Kent Funds, a Massachusetts business trust (the "Fund"), to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in my name and on my behalf as a trustee and/or
officer of the Fund any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and I hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
/s/ Ronald F. VanSteeland
Ronald F. VanSteeland
Date: February 12, 1997
<PAGE> 122
THE KENT FUNDS
POWER OF ATTORNEY
I, Thomas Line, hereby appoint W. Bruce McConnel, III and George O.
Martinez, and either of them, my true and lawful attorneys and agents, with
power of substitution and resubstitution, to perform any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or either of them, may deem necessary or advisable or which may be required to
enable The Kent Funds, a Massachusetts business trust (the "Fund"), to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in my name and on my behalf as a trustee and/or
officer of the Fund any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and I hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
/s/ Thomas Line
Thomas Line
Date: February 12, 1997
<PAGE> 123
EXHIBITS
PAGE
<TABLE>
<S> <C>
Exhibit 24(b)(5)(a)(iii) Form of notice to Old Kent Bank pursuant to First
Amendment to Investment Advisory Agreement between
Registrant and Old Kent Bank and Trust Company
relating to The Kent Government Money Market Fund.
Exhibit 24(b)(6)(a) Distribution Agreement between Registrant and BISYS
Fund Services Limited Partnership dated August 5,
1996.
Exhibit 24(b)(6)(b) Form of notice to BISYS Fund Services Limited
Partnership pursuant to the Distribution Agreement
between Registrant and BISYS Fund Services Limited
Partnership relating to The Kent Government Money
Market Fund.
Exhibit 24(b)(7) The Kent Funds Deferred Compensation Plan and form of
Deferred Compensation Agreement relating to The Kent
Funds Deferred Compensation Plan.
Exhibit 24(b)(9)(a) Administration Agreement between Registrant and BISYS
Fund Services Limited Partnership dated August 5,
1996.
Exhibit 24(b)(9)(a)(i) Form of notice to BISYS Fund Services Limited
Partnership pursuant to the Administration Agreement
between Registrant and BISYS Fund Services Limited
Partnership relating to The Kent Government Money
Market Fund.
Exhibit 24(b)(9)(b) Fund Accounting Agreement between Registrant and
BISYS Fund Services, Inc. dated August 5, 1996.
Exhibit 24(b)(9)(b)(i) Form of notice to BISYS Fund Services, Inc. pursuant
to the Fund Accounting Agreement between Registrant
and BISYS Fund Services, Inc. relating to The Kent
Government Money Market Fund.
Exhibit 24(b)(9)(c) Transfer Agency Agreement between Registrant and
BISYS Fund Services, Inc. dated October 7, 1996.
</TABLE>
<PAGE> 124
<TABLE>
<S> <C>
Exhibit 24(b)(9)(c)(i) Form of notice to BISYS Fund Services,Inc. pursuant
to the Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc. relating to The Kent
Government Money Market Fund;
Exhibit 24(b)(11)(a) Consent of Registrant's Independent
Auditors
Exhibit 24(b)(11)(b) Consent of Drinker Biddle & Reath
Exhibit 24(b)(15)(a) Amended and Restated Master Distribution Plan for
Investment Shares.
Exhibit 24(b)(15)(b) Agreement relating to Amended and Restated Master
Distribution Plan for Investment Shares.
</TABLE>
<PAGE> 1
Exhibit 24(b)(5)(a)(iii)
THE KENT FUNDS
P.O. BOX 182201
COLUMBUS, OHIO 43218-2201
May 1, 1997
Old Kent Bank
One Vandenberg Center
Grand Rapids, Michigan 49503
Attn: Joseph T. Keating,
Senior Vice President
Re: The Kent Funds (the "Trust")
Dear Mr. Keating:
The Trust hereby requests, pursuant to paragraph 1(b) of the First
Amendment to the Investment Advisory Agreement dated May 2, 1991 ("Agreement")
between Old Kent Bank and the Trust, that Old Kent perform for the following
additional portfolio of the Trust the services described in the Agreement. The
compensation to be paid by such portfolio to Old Kent for its services is as
set forth below:
COMPENSATION - ANNUAL FEE AS A
PORTFOLIO PERCENTAGE OF AVERAGE DAILY NET ASSETS
The Kent Government 0.40%
Money Market Fund
Please acknowledge your consent to the above by signing and returning this
letter to the Trust.
Very truly yours,
THE KENT FUNDS
By: _______________________
Title: ____________________
Agreed to and Accepted:
OLD KENT BANK
By: _____________________________
Title: __________________________
<PAGE> 1
Exhibit 24(b)(6)(a)
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 5th day of August, 1996, between THE KENT FUNDS
(the "Trust"), a Massachusetts business trust having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES
LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES ("Distributor"), having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company, organized
as a Massachusetts business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust in effect
from time to time under the Securities Act of 1933, as amended (the "Securities
Act"). As used in this Agreement, the term "registration statement" shall mean
Parts A (the prospectus), B (the Statement of Additional Information) and C of
each registration statement that is filed on Form N-1A, or any successor
thereto, with the Commission, together with any amendments thereto. The term
"prospectus" shall mean each form of prospectus and Statement of Additional
Information used by the Funds for delivery to shareholders and prospective
shareholders after the effective dates of the above referenced registration
statements, together with any amendments and supplements thereto.
1.2 Distributor agrees to use best efforts to solicit orders for the sale
of the Shares and will undertake such advertising and promotion as it believes
reasonable in connection with such solicitation. The Trust understands that
Distributor is now and may in the future be the distributor of the shares of
several investment companies or series (together, "Companies") including
Companies having investment objectives similar to those of the Funds. The
Trust further understands that investors and potential investors in the Funds
may invest in shares of such other Companies. The Trust agrees that
Distributor's duties to such Companies shall not be deemed in conflict with its
duties to the Trust under this paragraph 1.2.
<PAGE> 2
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable, which are primarily intended to result in the sale
of the Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing
of sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall conform with the
Trust's Declaration of Trust, By-Laws, registration statement and prospectuses
as in effect from time to time and shall conform to and comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under
the Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal business
hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the Trust.
1.6 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions, or by abnormal circumstances of any kind, the
Trust's officers may decline to accept any orders for, or make any sales of,
the Shares until such time as those officers deem it advisable to accept such
orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it chooses
to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all documents
and to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the Shares
for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection with
the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent
what they purport to show or represent. The Trust shall also furnish
Distributor upon request with: (a) unaudited semi-annual statements of the
Funds' books and accounts prepared by the Trust, (b) a monthly itemized list of
the securities in the Funds, (c) monthly balance sheets as soon as practicable
after the end of each month, and (d) from time to time such additional
information regarding the financial condition of the Funds as Distributor may
reasonably request.
1.10 The Trust represents to Distributor that, with respect to the Shares,
all registration statements and prospectuses filed by the Trust with the
Commission under the Securities
2
<PAGE> 3
Act have been prepared in conformity with requirements of said Act and rules
and regulations of the Commission thereunder. As of their effective date, the
Trust's registration statement and prospectus contained all statements
required to be stated therein in conformity with said Act and the rules and
regulations of the Commission and all statements of fact contained in any such
registration statement and prospectus were true and correct. Furthermore, as
of their effective date, neither any registration statement nor any prospectus
included an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of the Shares. The Trust may, but shall not be
obligated to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus as,
in the light of future developments, may, in the opinion of the Trust's
counsel, be necessary or advisable. If the Trust shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by the Trust of a written request from Distributor to do so,
Distributor may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any registration statement or supplement to any
prospectus without giving Distributor reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any way
limit the Trust's right to file at any time such amendments to any registration
statement and/or supplements to any prospectus, of whatever character, as the
Trust may deem advisable, such right being in all respects absolute and
unconditional.
1.11 The Trust authorizes Distributor and dealers to use any prospectus in
the form furnished from time to time in connection with the sale of the Shares.
The Trust agrees to indemnify, defend and hold Distributor, its several
partners and employees, and any person who controls Distributor within the
meaning of Section 15 of the Securities Act free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which Distributor,
its partners and employees, or any such controlling person, may incur under the
Securities Act or under common law or otherwise, arising out of or based upon
any untrue statement, or alleged untrue statement, of a material fact contained
in any registration statement or any prospectus or arising out of or based upon
any omission, or alleged omission, to state a material fact required to be
stated in either any registration statement or any prospectus necessary to
make the statements in either thereof not misleading; provided, however, that
the Trust's agreement to indemnify Distributor, its partners or employees, and
any such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance and in conformity with
information furnished to the Trust by the Distributor or its affiliated persons
and further provided that the Trust's agreement to indemnify Distributor and
the Trust's representations and warranties hereinbefore set forth in paragraph
1.10 shall not be deemed to cover any liability to the Trust or its
Shareholders to which Distributor would otherwise be subject by reason of
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of Distributor's reckless disregard of its obligations and duties
under this Agreement. The Trust's agreement to indemnify Distributor, its
partners and employees and any such controlling person, as aforesaid, is
expressly conditioned upon the Trust being notified of any action brought
against Distributor, its partners or employees, or any such controlling person,
such notification to be given by letter or by
3
<PAGE> 4
telegram addressed to the Trust at its principal office in Columbus, Ohio and
sent to the Trust by the person against whom such action is brought, within 10
days after the summons or other first legal process shall have been served.
The failure in good faith to so notify the Trust of any such action shall not
relieve the Trust from any liability which the Trust may have to the person
against whom such action is brought by reason of any such untrue, or allegedly
untrue, statement or omission, or alleged omission, otherwise than on account
of the Trust's indemnity agreement contained in this paragraph 1.11. The Trust
will be entitled to assume the defense of any suit brought to enforce any such
claim, demand or liability, but, in such case, such defense shall be conducted
by counsel of good standing chosen by the Trust and approved by Distributor,
which approval shall not be unreasonably withheld. In the event the Trust
elects to assume the defense of any such suit and retain counsel of good
standing approved by Distributor, the defendant or defendants in such suit
shall bear the fees and expenses of any additional counsel retained by any of
them; but in case the Trust does not elect to assume the defense of any such
suit, or in case Distributor reasonably does not approve of counsel chosen by
the Trust, the Trust will reimburse Distributor, its partners and employees, or
the controlling person or persons named as defendant or defendants in such
suit, for the fees and expenses of any counsel retained by Distributor or them.
The Trust's indemnification agreement contained in this paragraph 1.11 and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares.
This Agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several partners and employees, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the Securities Act free and harmless from and against
any and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands, or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Trust, its
officers or Trustees or any such controlling person, may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Trust, its officers or Trustees or
such controlling person resulting from such claims or demands, shall arise out
of or be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Trust's registration statement or any prospectus
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon information furnished to
the Trust by the Distributor or its affiliated persons. Distributor's
agreement to indemnify the Trust, its officers and Trustees, and any such
controlling person, as aforesaid, is expressly conditioned upon Distributor
being notified of any action brought against the Trust, its officers or
Trustees, or any such controlling person, such notification to be given by
letter or telegram addressed to Distributor at its principal
4
<PAGE> 5
office in Columbus, Ohio, and sent to Distributor by the person against whom
such action is brought, within 10 days after the summons or other first legal
process shall have been served. The failure in good faith to so notify
Distributor of any such action shall not relieve Distributor from any liability
which Distributor may have to the Trust, its officers or Trustees, or to such
controlling person by reason of any such untrue or alleged untrue statement, or
omission or alleged omission, otherwise than on account of Distributor's
indemnity agreement contained in this paragraph 1.12. Distributor shall have
the right of first control of the defense of such action, with counsel of its
own choosing, satisfactory to the Trust, if such action is based solely upon
such alleged misstatement or omission on Distributor's part, and the Trust, its
officers or Trustees or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any such action.
1.13 No Shares shall be offered by either Distributor or the Trust under
any of the provisions of this Agreement and no orders for the purchase or sale
of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act or if and so long as a current prospectus as required by Section
10 of said Act is not on file with the Commission; provided, however, that
nothing contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's registration
statement, Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments
to the registration statement or prospectus then in effect or
for additional information;
(b) in the event of the issuance by the Commission of
any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the
initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue
any statement of a material fact made in the registration
statement or prospectus then in effect or which requires the
making of a change in such registration statement or
prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to
any amendment to any registration statement or prospectus
which may from time to time be filed with the Commission.
5
<PAGE> 6
For purposes of this section, informal requests by or acts of the Staff of
the Commission shall not be deemed actions of or requests by the Commission.
1.15 Distributor shall review, provide advice with respect to, and file
with the federal and state agencies or other organization as required by
federal, state, and other applicable laws and regulations, all sales literature
for each Fund and any classes of Shares thereof.
1.16 This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
2. Fee.
During the term of this Agreement, Distributor shall receive from the
Funds identified in the Distribution Plans attached as Schedule A hereto (the
"Distribution Plan Funds") a distribution fee at the rate and upon the terms
and conditions set forth in the Trust's registration statement from time to
time.. The distribution fee shall be accrued daily and shall be paid on the
first business day of each month, or at such time(s) as the Distributor shall
reasonably request. Distributor may reallow all or a portion of the
distribution fees paid by the Distribution Plan Funds to such brokers, dealers
or other persons as Distributor may determine.
3. Sale and Payment.
3.1 Sales of Shares by Distributor shall be at the applicable public
offering price determined in the manner set forth in the registration statement
current at the time of the Trust's acceptance of the order for Shares; provided
that Distributor also shall have the right to sell shares at net asset value,
if such sale is permissible under and consistent with applicable statutes,
rules, regulations and orders. All orders shall be subject to acceptance by
the Trust and the Trust reserves the right in its sole discretion to reject any
order received. The Trust shall not be liable to anyone for failure to accept
any order. Shares of a Fund that are subject to a sales load are hereinafter
referred to as "Load Shares."
3.2 Distributor shall have the right to purchase Load Shares at their net
asset value and to sell such Load Shares to the public against orders therefor
at the applicable public offering price. Distributor shall also have the right
to sell Load Shares to dealers against orders therefor at the public offering
price less a concession determined by Distributor, which concession shall not
exceed the amount set forth in the Trust's then current prospectuses.
3.3 Prior to the time of delivery of any Shares by a Fund to, or on the
order of, Distributor, Distributor shall pay or cause to be paid to the Fund or
to its order an amount in Boston or New York clearing house funds equal to the
applicable net asset value of such Shares. Distributor may retain so much of
any sales charge or underwriting discount as is not allowed by Distributor as a
concession to brokers, dealers or other persons.
6
<PAGE> 7
4. Issuance of Shares.
The Trust reserves the right to issue, transfer or sell Shares otherwise
subject to a sales load at net asset value (a) in connection with the merger or
consolidation of the Trust or a Fund with any other investment company or the
acquisition by the Trust or a Fund of all or substantially all of the assets or
of the outstanding Shares of any other investment company; (b) in connection
with a pro rata distribution directly to the holders of Shares in the nature of
a stock dividend or split; (c) upon the exercise of subscription rights granted
to the holders of Shares on a pro rata basis; (d) in connection with the
issuance of Shares pursuant to any exchange and reinvestment privileges
described in any then-current prospectus of a Fund; and (e) otherwise in
accordance with any then-current prospectus of a Fund.
5. Term, Duration and Termination.
This Agreement shall become effective with respect to each Fund as of the
date first written above and, unless sooner terminated as provided herein,
shall continue for an initial one-year term and thereafter shall be renewed for
successive one-year terms, provided that such continuance is specifically
approved at least annually by (a) by the vote of a majority of those members of
the Trust's Board of Trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting for the
purpose of voting on such approval and (b) by the vote of the Trust's Board of
Trustees or the vote of a majority of the outstanding voting securities of such
Fund. This Agreement is terminable without penalty, on not less than sixty
days' prior written notice, by the Trust's Board of Trustees, by vote of a
majority of the outstanding voting securities of the Trust or by the
Distributor. This Agreement will also terminate automatically in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall
have the same meanings as ascribed to such terms in the 1940 Act.)
6. Confidentiality.
The Distributor agrees on behalf of itself and its partners and employees
to treat confidentially and as the proprietary information of the Trust, all
records and other information relative to the Trust and prior, present or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where the
Distributor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
7
<PAGE> 8
7. Notices.
Any notice required or permitted to be given by either party to the other
shall be deemed sufficient if sent by facsimile or registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the following address: 3435 Stelzer Road, Columbus, Ohio 43219, facsimile
number: 614-470-8715, or at such other address or facsimile number as such
party may from time to time specify in writing to the other party pursuant to
this Section. Notice sent by registered or certified mail shall be deemed to
have been given three days after it is sent. Notice sent by facsimile shall be
deemed to have been given immediately.
8. Amendments.
No provision of this Agreement may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party against whom
an enforcement of the change, waiver, discharge or termination is sought.
9. Multiple Originals.
This Agreement may be executed in two or more counterparts, each of which
when so executed shall be deemed to be an original, but such counterparts shall
together constitute but one and the same instrument.
10. Matters Relating to the Trust as a Massachusetts Business Trust.
The names "The Kent Funds" and "Trustees of The Kent Funds" refer
respectively to the business trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Kent Funds"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, shareholders or representatives
of the Trust personally, but bind only the assets of the Trust, and all persons
dealing with any Fund must look solely to the assets of the Trust belonging to
such Fund for the enforcement of any claims against the Trust.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
written above.
THE KENT FUNDS BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: /s/ Ronald F. Van Steeland By: /s/ Stephen G. Mintos
----------------------------- ----------------------------
Title: President Title: Executive Vice President
-------------------------- -------------------------
Date: June 14, 1996 Date: June 14, 1996
--------------------------- --------------------------
9
<PAGE> 10
Dated: ___________
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE KENT FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DISTRIBUTION PLANS
A-1
<PAGE> 1
Exhibit 24(b)(6)(b)
THE KENT FUNDS
P.O. BOX 182201
COLUMBUS, OHIO 43218-2201
May 1, 1997
BISYS Fund Services
Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
Attn: J. David Huber
Re: The Kent Funds (the "Trust")
Dear Mr. Huber:
The Trust hereby requests, pursuant to the Distribution Agreement dated
August 5, 1996 ("Agreement") between BISYS Fund Services Limited Partnership
("BISYS LP") and the Trust, that BISYS LP perform for the following newly
created portfolio of the Trust the services described in the Agreement. The
compensation to be paid to BISYS LP for its services is the amount set forth in
Section 2 of the Agreement.
PORTFOLIO
The Kent Government Money Market Fund
Please acknowledge your consent to the above by signing and returning this
letter to the Trust.
Very truly yours,
THE KENT FUNDS
By: _______________________
Title: _____________________
Agreed to and Accepted:
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: ____________________________
Title: _________________________
<PAGE> 1
Exhibit 24(b)(7)
THE KENT FUNDS
DEFERRED COMPENSATION PLAN
1. Eligibility. Each Trustee of the Board of Trustees (the "Board") of
The Kent Funds (the "Trust") shall be eligible to participate in The Kent Funds
Deferred Compensation Plan (the "Plan").
2. Terms of Participation
(a) A Trustee may elect to participate in the Plan by signing the Deferred
Compensation Agreement (the "Agreement") in the form attached hereto and
incorporated by reference herein. A Trustee's participation will commence on
January 1 of the calendar year immediately following the year in which the
Trustee executed the Agreement, except that when a Trustee executes an
Agreement within 30 days of the Plan's initial effective date or within 30 days
of first becoming eligible to participate in the Plan, participation will
commence with respect to services to be performed subsequent to the date of the
Agreement.
(b) Participation in the Plan will continue until the Trustee furnishes
written notice to the Trust that the Trustee terminates his participation in
the Plan or until such time as the Trust terminates the Plan pursuant to
Section 6 below. Termination by a Trustee shall be made by written notice
delivered or mailed to the Treasurer of the Trust (the "Treasurer") (or his
delegate) no later than December 31 of the calendar year preceding the calendar
year in which such termination is to take effect.
(c) A Trustee who has terminated his participation may subsequently elect
to participate in the Plan by executing a new Agreement in accordance with
subsection (a) above.
(d) A Trustee may alter the amount of deferral for any future calendar
year, and/or elect a different method by which he will receive amounts deferred
for future calendar years, if the Trustee and the Trust enter into a new
Agreement on or before December 31 of the calendar year preceding the calendar
year for which the new Agreement is to take effect. For each new Agreement
which changes the method of receipt of deferred amounts, a new record account
(the "Deferred Compensation Account" or "Account") will be established for the
Trustee.
3. Deferred Compensation Account. While a Trustee participates in the
Plan pursuant to an Agreement, all deferred
<PAGE> 2
compensation payable by the Trust for the Trustee's services shall be credited
to the Trustee's Deferred Compensation Account under the applicable Agreement
at the end of the calendar quarter in which such amounts are otherwise payable.
A Trustee shall allocate amounts in his Account among the investment options
available under the Plan by submitting a written election to the Treasurer (or
his delegate) on such form as may be required by the Treasurer prior to the
date deferrals are scheduled to begin. The percentage allocated to an
investment option shall be a multiple of 5% and no less than 10%. The Board
shall specify from time to time the investment options available under the
Plan.
A Trustee may elect to change the investment allocation for future
deferrals by submitting a written request to the Treasurer (or his delegate) on
such form as may be required by the Treasurer. A Trustee may make such an
investment allocation change only once per calendar quarter and, as with a
Trustee's initial allocation, the percentage allocated to an investment option
shall be a multiple of 5% and no less than 10%. Such a change shall become
effective as of the end of the calendar quarter in which the Treasurer (or his
delegate) receives written notice of the change.
A Trustee may also transfer amounts previously allocated to one investment
option into one or more different investment options which are available at the
time of the transfer by submitting a written request to the Treasurer (or his
delegate) on such form as may be required by the Treasurer. A Trustee may make
such a transfer only once per calendar quarter and the transferred amount must
be in increments of $500. Such a transfer shall become effective as of the end
of the calendar quarter in which the Treasurer (or his delegate) receives
written notice of the transfer.
A Trustee's Account(s) will be credited with any income, gains and losses
that would have been realized if amounts equal to the deferred amounts had been
invested in accordance with the Trustee's allocation election on the date such
deferred amounts were credited to the Trustee's Account(s). For this purpose,
any amounts that would have been received, had amounts been invested as
described above, from a chosen investment option will be treated as if
reinvested in that option on the date such amounts would have been received.
4. Distribution. As of January 31 of the year following the year in which
a Trustee dies, retires, resigns, becomes disabled or otherwise ceases to be a
member of the Board, the total amount credited to the Trustee's Account under
the applicable Agreement shall be distributed to the Trustee (or upon his
death, to his designated beneficiary) in accordance with one of the
alternatives set forth below:
<PAGE> 3
(i) one single-sum payment; or
(ii) any number of annual installments (as calculated in the following
paragraph) for a period of two to 15 years. Installments shall be paid
annually as of January 31 until the balance in the Trustee's Account is
exhausted.
Selection of an alternative shall be made at the time the Trustee executes
the Agreement. Except as provided in the following paragraph, the amount of
each installment payment, other than the final payment, shall be equal to 1/n
multiplied by the balance in the Trustee's Account as of the previous December
31, where "n" equals the number of payments yet to be made. The final payment
will equal the balance in the Trustee's Account as of the final January 31
payment date, and such payment shall be made as soon as practicable after such
date. For example, if payments are to be made in ten annual installments
commencing on January 31, 2000, the first payment will be equal to 1/10th of
the December 31, 1999 balance in the Account, and the following year's payment
would be equal to 1/9th of the December 31, 2000 balance.
If the balance in the Trustee's Account as of the date of the first
scheduled payment is less than $2,000, the Trust shall instead pay such amount
in a single sum as of that date. Further, the Trustee may not select a period
of time which will cause an annual payment to be less than $1,000.
Notwithstanding the foregoing, in the event the Trustee ceases to be a Trustee
of the Trust and becomes a proprietor, officer, partner, or employee of, or
otherwise becomes affiliated with, any business or entity that is in
competition with the Trust, or becomes employed by any governmental agency
having jurisdiction over the affairs of the Trust, the Trust reserves the right
at the sole discretion of the Board to make an immediate single-sum payment to
the Trustee in an amount equal to the balance in the Trustee's Account at that
time.
Notwithstanding the preceding two paragraphs, the Trust may at any time
make a single sum payment to a Trustee (or surviving beneficiary) equal to a
part or all of the balance in the Trustee's Account upon a showing of an
unforeseeable (i.e., unanticipated) financial emergency caused by an event
beyond the control of the Trustee (or surviving beneficiary) which would result
in severe financial hardship to the Trustee (or surviving beneficiary) if such
payment were not made. The determination of whether such emergency exists
shall be made at the sole discretion of the Board (with the Trustee requesting
the payment not participating in the discussion or the decision). The amount
of the payment shall be limited to the amount necessary to meet the financial
emergency, and any remaining balance in the Trustee's Account shall thereafter
be paid at the time and in the manner otherwise set forth in this Section.
<PAGE> 4
If there is no beneficiary designation in effect at the Trustee's death or
the designated beneficiary is dead at the Trustee's death, any amounts in the
Trustee's Account shall be paid in a single sum to the Trustee's estate. If
the designated beneficiary dies after beginning to receive installment
payments, any amounts payable from the Trustee's Account shall be paid in a
single sum to the beneficiary's estate at the beneficiary's death.
5. Designation of Beneficiary. A Trustee may designate in writing any
person or legal entity as his beneficiary to receive any amounts payable from
his Account(s) upon his death. If the Trustee should die without effectively
designating a surviving beneficiary, his beneficiary shall be his estate.
6. Amendment and Termination of the Plan. The Trust reserves the right to
amend or terminate the Plan by a Board resolution. A written notice of any
such amendment or termination shall be delivered or mailed to each
participating Trustee no later than December 31 of the calendar year preceding
the calendar year in which the amendment or termination is to take effect. The
balance in the Trustee's Account(s) shall remain subject to the provisions of
the Plan and distribution will not be accelerated because of the termination of
the Plan.
7. Non-Assignability. The right of a Trustee or any other person to
receive payments under this Plan or any Agreement hereunder shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Trustee or
any beneficiary.
8. Miscellaneous
(a) No Funding. The Trust shall not be required to fund or secure in any
way its obligations hereunder. Nothing in the Plan or in any Agreement
hereunder and no action taken pursuant to the provisions of the Plan or of any
Agreement hereunder shall be construed to create a trust or a fiduciary
relationship of any kind. Payments under the Plan and any Agreement hereunder
shall be made when due from the general assets of the Trust. Neither a Trustee
nor his designated beneficiary shall acquire any interest in such assets by
virtue of the Plan or any Agreement hereunder. This Plan constitutes a mere
promise by the Trust to make payments in the future, and to the extent that a
Trustee or his designated beneficiary acquires a right to receive any payment
from the Trust under the Plan, such right shall be no greater than the right of
any unsecured general creditor of the Trust. The Trust intends for this Plan
to be unfunded for tax purposes and for the purposes of Title I
<PAGE> 5
of the Employee Retirement Income Security Act of 1974, as amended.
(b) Interpretation. The Trust shall have full power and authority to
interpret, construe and administer this Plan and any Agreement hereunder and
its interpretation and construction thereof, and actions hereunder, including
any valuation of the Trustee's Account(s), or the amount or recipients of the
payment to be made therefrom, shall be binding and conclusive on all persons
for all purposes. The Trust shall not be liable to any person for any action
taken or omitted in connection with the interpretation and administration of
this Plan and any Agreement hereunder unless attributable to its own willful
misconduct or lack of good faith.
(c) Withholding. To the extent required by law, the Trust shall withhold
federal or state income or employment taxes from any payments under the Plan or
any Agreement hereunder and shall furnish the Trustee (or beneficiary) and the
applicable governmental agency or agencies with such reports, statements or
information as may be required in connection with such payments.
(d) Incapacity of Payee. If the Trust shall find that any person to whom
any payment is payable under this Plan or any Agreement hereunder is unable to
care for his affairs because of illness or accident, or is a minor, any payment
due (unless a prior claim therefor shall have been made by a duly appointed
guardian, committee or other legal representative) may be paid to the spouse, a
parent, or a brother or sister, or to any person deemed by the Trust to have
incurred expense for the person who is otherwise entitled to payment, in such
manner and proportions as the Trust may determine. Any such payment shall
serve to discharge the liability of the Trust under this Agreement to make
payment to the person who is otherwise entitled to payment.
(e) Expenses. All expenses incurred in administering this Plan and any
Agreement hereunder shall be paid by the Trust.
(f) No Additional Rights. Nothing in this Plan or any Agreement hereunder
shall be construed as conferring any right on the part of a Trustee to be or
remain a Trustee of the Trust or to receive any particular amount of Trustee's
fees.
(g) Binding Nature. This Plan and any Agreement hereunder shall be
binding upon, and inure to the benefit of, the Trust, its successors and
assigns, and each Trustee and his heirs, executors, administrators and legal
representatives.
(h) Governing Law. This Plan and any Agreement hereunder shall be
governed by and construed under the laws of the Commonwealth of Massachusetts.
<PAGE> 6
(i) Effective Date. This Plan shall be effective as of April 30, 1996.
<TABLE>
<S> <C>
Date: April 30, 1996 Adopted by the
Board of Trustees
of The Kent Funds
</TABLE>
<PAGE> 7
THE KENT FUNDS
DEFERRED COMPENSATION AGREEMENT
This Agreement is entered into this ____ day of ___________, 19__, between
The Kent Funds (the "Trust") (consisting of several separate investment
portfolios) and _______________________ (the "Trustee") under The Kent Funds
Deferred Compensation Plan (the "Plan").
WHEREAS, the Trustee will be rendering valuable services to the Trust as a
member of the Board of Trustees (the "Board"), and the Trust is willing to
accommodate the Trustee's desire to be compensated for such services on a
deferred basis;
NOW, THEREFORE, the parties hereto agree as follows:
1. With respect to services performed by the Trustee for the
Trust on and after _____________, 19__, the Trustee shall defer
____% of the amounts otherwise payable to the Trustee for serving as
a Trustee. The deferred compensation shall be credited to a book
reserve maintained by the Trust in the Trustee's name, together with
credited amounts in the nature of income, gains and losses (the
"Account"). The Account maintained for the Trustee shall be paid to
the Trustee on a deferred basis in accordance with the terms of this
Agreement.
2. The Trust shall credit the Trustee's Account as of the end of
the calendar quarter in which such amounts would be paid to the
Trustee if this Agreement were not in effect. Such Account shall be
valued at fair market value as of the last day of the calendar year
and such other dates as are necessary for the proper administration
of this Agreement, and the Trustee shall receive a written
accounting of his Account balance following such valuation.
The Trustee's Account shall be credited with earnings or losses as
if the amounts credited to the Account were invested in accordance
with the Trustee's election. The Board will periodically decide
which investment options will be available under the Plan. The
initial allocation election must be made at the time of enrollment.
Once made, an investment allocation election shall remain in
effect for all future amounts allocated to the Trustee's Account
until changed by the Trustee. The Trustee may change his
investment allocation for past deferrals and/or future deferrals by
submitting a written request to the
<PAGE> 8
Treasurer of the Trust (the "Treasurer") (or his delegate) on such
form as may be required by the Treasurer. The Trustee may make such
an investment allocation change only once per calendar quarter. Such
changes shall become effective as of the end of the calendar quarter
in which the Treasurer (or his delegate) receives such request.
The Trustee agrees on behalf of the Trustee and any designated
beneficiary to assume all risks in connection with the investment
performance of any chosen investment options.
Title to and beneficial ownership of any assets, whether cash or
investments, which the Trust may use to pay benefits hereunder, shall
at all times remain in the Trust, and the Trustee and any designated
beneficiary shall not have any property interest whatsoever in any
specific assets of the Trust.
3. As of January 31 of the calendar year following the calendar
year in which the Trustee dies, retires, resigns, becomes disabled
or otherwise ceases to be a member of the Board, the Trust (subject
to the terms of the Plan) shall: [check one]
[ ] pay the Trustee (or his beneficiary) a single-sum amount equal to the
balance in the Trustee's Account on that date; or
[ ] commence making annual payments to the Trustee (or his beneficiary)
for a period of __ [insert a whole number from two through 15] years.
If the second box is selected, such payments shall be made on January
31st of each year in approximately equal annual installments as
adjusted and computed by the Trust in accordance with the terms of
the Plan, with the final payment equalling the then remaining balance
in the Trustee's Account.
4. In the event the Trustee dies before payments have commenced
or been completed under Section 3, the Trust shall make payment in
accordance with Section 3 to the Trustee's designated beneficiary,
whose name, address, and Social Security number are:
<PAGE> 9
______________________________________
______________________________________
______________________________________
______________________________________
If there is no beneficiary designation in effect at the Trustee's
death or the designated beneficiary is dead at the Trustee's death,
any amounts in the Trustee's Account shall be paid in a single sum
to the Trustee's estate. If the designated beneficiary dies after
beginning to receive installment payments, any amounts payable from
the Trustee's Account shall be paid in a single sum to the
beneficiary's estate at the beneficiary's death.
5. This Agreement shall remain in effect with respect to the
Trustee's compensation for services performed as a Trustee of the
Trust in all future years unless terminated on a prospective basis
in writing in accordance with the terms of the Plan. The Trustee
may subsequently elect to defer his compensation by executing a new
Deferred Compensation Agreement. If a new Agreement is entered into
which changes the manner in which deferred amounts will be
distributed, a new Trustee's Account will be established for
purposes of crediting deferrals, income, gains, and losses under the
new Agreement. Any new Agreement shall relate solely to
compensation for services performed after the new Agreement becomes
effective and shall not alter the terms of this Agreement with
respect to the deferred payment of compensation for services
performed during any calendar year in which this Agreement was in
effect. Notwithstanding the foregoing, the Trustee may at any time
amend the beneficiary designation hereunder by written notice to the
Trust.
6. This Agreement constitutes a mere promise by the Trust to
make benefit payments in the future, and the right of any person to
receive such payments under this Agreement shall be no greater than
the right of any unsecured general creditor of the Trust. The Trust
and Trustee intend for this Agreement to be unfunded for tax
purposes and for the purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended.
7. Any written notice to the Trust referred to in this Agreement
shall be made by mailing or delivering such notice to the Trust, c/o
BISYS Funds Services, 3435
<PAGE> 10
Stelzer Road, Columbus, Ohio 43219 to the attention of the
Treasurer. Any written notice to the Trustee referred to in this
Agreement shall be made by delivery to the Trustee in person or by
mailing such notice to the Trustee at his last known residential or
business address.
8. This Agreement is subject to all of the terms contained in
the Plan as attached hereto and incorporated by reference herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
THE KENT FUNDS
By:___________________________
Title:________________________
_____________________, TRUSTEE
______________________________
<PAGE> 1
Exhibit 24(b)(9)(a)
ADMINISTRATION AGREEMENT
This AGREEMENT is made as of this 5th day of August, 1996, by and between
THE KENT FUNDS, a Massachusetts business trust (the "Company"), and BISYS FUND
SERVICES LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES (the "Administrator"),
an Ohio limited partnership.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest
("Shares"); and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such series of the Company that are currently in existence and which may
hereafter be created (the "Portfolios") on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the covenants herein
set forth, the Company and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator. The Company hereby appoints
the Administrator to act as the administrator of the Portfolios and, subject to
the supervision, direction and control of the Company's Board of Trustees, to
furnish the Portfolios with the management and administrative services set
forth in Article 2 below. The Administrator hereby accepts such appointment
and agrees to perform said services for the compensation provided for in
Article 4 below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way and
shall not be deemed an agent of the Company.
ARTICLE 2. Administrative Services. The Administrator shall perform or
supervise the performance by others of the administrative services described
herein in connection with the operations of the Portfolios, and, on behalf of
the Company, will investigate, assist in the selection of and conduct relations
with custodians, depositories, accountants, legal counsel, underwriters,
brokers and dealers, corporate fiduciaries, insurers, banks and persons in any
other capacity deemed to be necessary or desirable for the Portfolios'
operations. The Administrator shall provide the Trustees of the Company with
such reports regarding the Portfolios' investment performance as they may
reasonably request but shall have no responsibility for supervising the
performance by any investment adviser or sub-adviser of its responsibilities.
The Administrator agrees to perform the services described herein in accordance
with the service standards set forth in Schedule A attached hereto and made a
part hereof.
<PAGE> 2
The Administrator shall provide the Company with regulatory reporting, all
necessary office space, equipment, personnel, and facilities (including
facilities for Shareholders' and Trustees' meetings) for handling the affairs
of the Portfolios and such other services as the Administrator shall, from time
to time, determine to be necessary to perform its obligations under this
Agreement. In addition, at the request of the Company's Board of Trustees, the
Administrator shall make reports to the Trustees concerning the performance of
its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator shall:
(a) calculate each Portfolio's contractual expenses and control all
disbursements by the Company and the Portfolios, and as appropriate
compute each Portfolio's yields, total return, expense ratios,
portfolio turnover rate and, if required, portfolio average
dollar-weighted maturity;
(b) prepare drafts of prospectuses, statements of additional
information, registration statements and proxy materials with the
advice of Company counsel and assist Company counsel with the
filing of the same;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities law)
as may be necessary or desirable to register the Company's Shares
with state securities authorities, monitor the sale of Company
Shares for compliance with state securities laws, and file with the
appropriate state securities authorities the registration
statements and reports for the Company and the Company's Shares and
all amendments thereto, as may be necessary or desirable to
register, or otherwise qualify, and keep effective the Company and
the Company's Shares with state securities authorities to enable
the Company to make a continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Company's
investment adviser, communications to Shareholders, including
annual and semi-annual reports to Shareholders, coordinate the
mailing of prospectuses, statements of additional information,
notices, proxy statements, proxies and other reports to Company
Shareholders, and supervise and facilitate the proxy solicitation
process for all Shareholder meetings, including the tabulation of
Shareholder votes;
(e) administer contracts on behalf of the Company with, among
others, the Company's investment adviser, distributor, custodian,
transfer agent and fund accountant;
(f) supervise the Company's transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
2
<PAGE> 3
(g) calculate performance data of the Portfolios for dissemination
to information services covering the investment company industry;
(h) coordinate and supervise the preparation and filing of the
Company's tax returns and required tax filings;
(i) examine and review the operations and performance of the
various organizations providing services to the Company or any
Portfolio, including, without limitation, the Company's investment
adviser, distributor, custodian, fund accountant, transfer agent,
outside legal counsel and independent public accountants, and at the
request of the Company's Board of Trustees, report to the Board on
the performance of such organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing of
the Company's semi-annual and annual reports to Shareholders;
(k) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives, policies
and structure;
(l) provide individuals reasonably acceptable to the Company's
Board of Trustees to serve as officers of the Company, who will be
responsible for the management of certain of the Company's affairs
as determined by the Company's Board of Trustees;
(m) advise the Company and its Board of Trustees on matters
concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Company in
accordance with the requirements of Rules 17g-1 and 17d-1(d)(7)
under the 1940 Act as such bonds and policies are approved by the
Company's Board of Trustees;
(o) monitor and advise the Company and its Portfolios on their
registered investment company status under the Internal Revenue
Code of 1986, as amended;
(p) perform all administrative services and functions of the
Company and each Portfolio to the extent administrative services
and functions are not provided to the Company or such Portfolio
pursuant to the Company's or such Portfolio's investment advisory
agreement, distribution agreement, custodian agreement, transfer
agent agreement and fund accounting agreement;
3
<PAGE> 4
(q) furnish advice and recommendations with respect to other aspects
of the business and affairs of the Portfolios as the Company and the
Administrator shall determine desirable;
(r) prepare and file with the SEC the semi-annual report for the
Company on Form N-SAR and, within 60 days after the close of each
fiscal year of the Company, all required notices pursuant to Rule
24f-2;
(s) provide reasonable assistance to the Company in connection with
any examination by the SEC;
(t) prepare and maintain a current compliance manual for the Company;
(u) monitor on at least a monthly basis compliance by each Portfolio
with (i) the investment restrictions and diversification requirements
of the 1940 Act; and (ii) the investment restrictions and policies in
the Portfolio's current prospectus and statement of additional
information; and
(v) prepare drafts of minutes for all meetings of the Company's Board
of Trustees and each committee thereof with the advice of Company
counsel and otherwise prepare and distribute all materials necessary
or desirable for each such meeting.
The Administrator shall perform such other services for the Company that
are mutually agreed upon by the parties from time to time. Such services may
include performing internal audit examinations; mailing the annual and
semi-annual reports of the Portfolios; preparing an annual list of
Shareholders; and mailing notices of Shareholders' meetings, proxies and proxy
statements, for all of which the Company will pay the Administrator's
out-of-pocket expenses.
In performing its duties as Administrator under this Agreement, the
Administrator will act in conformity with the Company's Declaration of Trust,
By-Laws, prospectuses and statements of additional information as in effect
from time to time and will conform to and comply with the requirements of the
1940 Act and all applicable federal and state laws and regulations.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any other
organization affiliated with the Administrator; provided, however, that unless
otherwise specifically provided, the Administrator shall not be obligated to
pay the compensation of any employee of the Company retained by the Trustees of
the Company to perform services on behalf of the Company.
4
<PAGE> 5
(B) The Company. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of
custodial services, the cost of initial and ongoing registration of the Shares
under Federal and state securities laws, fees and out-of-pocket expenses of
Trustees who are not affiliated persons of the Administrator or the investment
adviser to the Company or any other organization affiliated with the
Administrator or the investment adviser, insurance, interest, brokerage costs,
litigation and other extraordinary or nonrecurring expenses, and all fees and
charges of investment advisers to the Company.
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Company shall pay to the Administrator during the term of this
Agreement compensation in accordance with, and in the manner set forth in,
Schedule B attached hereto. Such compensation shall be calculated and accrued
daily, and paid to the Administrator monthly. The Company shall also reimburse
the Administrator for its reasonable out-of-pocket expenses, including the
reasonable travel and lodging expenses incurred by officers and employees of
the Administrator in connection with attendance at Board meetings.
(B) Survival of Compensation Rights. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
(C) Reimbursement Based Upon State Expense Limitations. If in any fiscal
year the aggregate expenses of a particular Portfolio (as defined under the
securities regulations of any state having jurisdiction over the Company)
exceed the expense limitations of any such state, the Administrator will
reimburse such Portfolio for a portion of such excess expenses equal to such
excess times the ratio of the fees respecting such Portfolio otherwise payable
to the Administrator hereunder to the aggregate fees respecting such Portfolio
otherwise payable to the Administrator hereunder and to Old Kent Bank under the
Investment Advisory Agreement between Old Kent Bank and the Company. The
expense reimbursement obligation of the Administrator is limited to the amount
of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Administrator shall reimburse a particular
Portfolio for such proportion of such excess expenses regardless of the amount
of fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Company so require. Such
expense reimbursement, if any, will be estimated daily and reconciled and paid
on a monthly basis.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error
5
<PAGE> 6
of judgment or mistake of law or for any loss arising out of any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable law which
cannot be waived or modified hereby. (As used in this Article 5, the term
"Administrator" shall include partners, officers, employees and other agents of
the Administrator as well as the Administrator itself.) Any person, even
though also an officer, director, partner, employee or agent of the
Administrator, who may be or become an officer, Trustee, employee or agent of
the Company, shall be deemed, when rendering services to the Company or to any
Portfolio, or acting on any business of the Company or of any Portfolio (other
than services or business in connection with the Administrator's duties
hereunder) to be rendering such services to or acting solely for the Company or
the Portfolio and not as an officer, director, partner, employee or agent or
one under the control or direction of the Administrator even though paid by the
Administrator.
So long as the Administrator acts in good faith and with due diligence and
without negligence, the Company assumes full responsibility and shall indemnify
the Administrator and hold it harmless from and against any and all actions,
suits and claims, whether groundless or otherwise, and from and against any and
all losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation
expenses) arising directly or indirectly out of the Administrator's actions
taken or nonactions with respect to the performance of services hereunder. The
indemnity and defense provisions set forth herein shall survive the termination
of this Agreement for a period of five years.
Except for actions, suits or claims brought or threatened against the
Administrator by (i) the Company, or (ii) one or more Shareholders of the
Company, the rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold
the Administrator harmless, the Company shall be fully and promptly advised of
all pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Company promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Company, but failure to do so in good faith shall not affect the
Administrator's indemnification rights hereunder.
The Company shall be entitled to participate at its own expense or, if it
so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the
defense of any such claim, the defense shall be conducted by counsel chosen by
the Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and retain counsel, the Administrator shall bear the fees
and expenses of any additional counsel retained by it. If the Company does not
elect to assume the defense of a suit, it will reimburse the Administrator for
the reasonable fees and expenses of any counsel retained by the Administrator.
6
<PAGE> 7
The Administrator may apply to the Company at any time for instructions
and may consult counsel for the Company or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or
accountable for any reasonable action taken or omitted by it in good faith in
accordance with such instruction or with the opinion of such counsel,
accountants or other experts.
Also, the Administrator shall be protected in acting in good faith upon
any document which it reasonably believes to be genuine and to have been signed
or presented by the proper person or persons.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive.
The Administrator is free to render such services to others and to have other
businesses and interests. To the extent the Administrator renders services to
another investment company which are similar to the services the Administrator
is obligated to perform under this Agreement, the Administrator will take
reasonable precautions to avoid any conflict of interest between its
obligations to the Company and its obligations to any such other investment
company. It is understood that directors, officers, employees and Shareholders
of the Company are or may be or become interested in the Administrator, as
officers, employees or otherwise and that partners, officers and employees of
the Administrator and its counsel are or maybe or become similarly interested
in the Company, and that the Administrator may be or become interested in the
Company as a Shareholder or otherwise.
ARTICLE 7. Duration of this Agreement. The duration of this Agreement
shall be as specified in Schedule B hereto.
ARTICLE 8. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article
5 hereof, for all acts of such subcontractor as if such acts were its own.
This Agreement shall be binding upon, and shall inure to the benefit of, the
parties hereto and their respective successors and permitted assigns.
ARTICLE 9. Amendments. No provision of this Agreement may be changed,
waived, discharged or terminated, except by an instrument in writing signed by
the party against whom an enforcement of the change, waiver, discharge or
termination is sought.
ARTICLE 10. Certain Records. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and maintained at the expense of
7
<PAGE> 8
the Administrator, but shall be the property of the Company and will be made
available to or surrendered promptly to the Company on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. Definitions of Certain Terms. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by facsimile or
registered or certified mail, postage prepaid, addressed by the party giving
notice to the other party at the following address: 3435 Stelzer Road,
Columbus, Ohio 43219, facsimile number (614) 470-8715, or at such other
address or facsimile number as such party may from time to time specify in
writing to the other party pursuant to this Section. Notice sent by registered
or certified mail shall be deemed to have been given three days after it is
sent. Notice sent by facsimile shall be deemed to have been given immediately.
ARTICLE 13. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 14. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. Confidentiality. The Administrator agrees on behalf of itself
and its employees to treat confidentially and as the proprietary information of
the Company, all records and other information relative to the Company and
prior, present or potential Shareholders, and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except, after prior notification to and approval in writing
by the Company, which approval shall not be unreasonably withheld and may not
be withheld where the Administrator may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Company.
ARTICLE 16. Matters Relating to the Company as a Massachusetts Business
Trust. The names "The Kent Funds" and "Trustees of The Kent Funds" refer
respectively to the business trust
8
<PAGE> 9
created and the Trustees, as trustees but not individually or personally,
acting from time to time under a Declaration of Trust dated as of May 9, 1986
to which reference is hereby made and a copy of which is on file at the office
of the Secretary of the Commonwealth of Massachusetts and elsewhere as required
by law, and to any and all amendments thereto so filed or hereafter filed. The
obligations of "The Kent Funds" entered into in the name or on behalf thereof
by any of the Trustees, representatives or agents are made not individually,
but in such capacities, and are not binding upon any of the Trustees,
shareholders or representatives of the Company personally, but bind only the
assets of the Company, and all persons dealing with any Portfolio must look
solely to the assets of the Company belonging to such Portfolio for the
enforcement of any claims against the Company.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE KENT FUNDS
By: /s/ Ronald F. Van Steeland
---------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
BY: BISYS FUND SERVICES, INC.,
GENERAL PARTNER
By: /s/ Stephen G. Mintos
---------------------------
10
<PAGE> 11
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
BETWEEN THE KENT FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
SERVICE STANDARDS
Pursuant to Article 2 of this Agreement, the Administrator has agreed to
perform the services described in this Agreement in accordance with the service
standards set forth in this Schedule A. Such standards are contained on the
pages attached hereto. The parties agree that such service standards may be
revised, from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance team.
In the event the Administrator fails to meet a service standard in any
particular month, the Administrator agrees to take appropriate corrective
measures within the following thirty-day period in order to be in compliance
with the appropriate standard at the end of such thirty-day period; provided,
however, that the foregoing requirement shall not apply in those instances in
which the Administrator's failure to meet a service standard was due to
circumstances beyond its control.
In the event the Administrator fails to meet a particular service standard
(except for any failure due to circumstances beyond its control) in two
consecutive months, the fee payable to the Administrator hereunder shall be
reduced by one percent (1%) or such lower amount as the parties shall agree
upon for the second of those two months. If such failure occurs in three
consecutive months, the fee payable to the Administrator hereunder shall be
reduced by one and one-half percent (1.5%) or such lower amount as the parties
shall agree upon for the third of those three months.
In the event the Administrator fails to meet a particular service standard
(except for any failure due to circumstances beyond its control) for any three
months within a six-month period, such failure shall be deemed to be a service
standard deficiency for purposes of the "cause" definition contained in the
Duration and Termination provisions set forth in Schedule C.
A-1
<PAGE> 12
SCHEDULE B
TO THE ADMINISTRATION AGREEMENT
DATED AS OF AUGUST 5, 1996
BETWEEN THE KENT FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios of the Company, either
now or hereafter created (collectively, the "Portfolios"). The
current Portfolios of the Company are set forth below: The Kent
International Growth Fund, The Kent Small Company Growth Fund, The
Kent Index Equity Fund, The Kent Growth and Income Fund, The Kent
Income Fund, The Kent Intermediate Bond Fund, The Kent Short Term
Bond Fund, The Kent Tax-Free Income Fund, The Kent Intermediate
Tax-Free Fund, The Kent Michigan Municipal Bond Fund, The Kent
Limited Term Tax-Free Fund, The Kent Money Market Fund and The Kent
Michigan Municipal Money Market Fund.
Fees: Pursuant to Article 4, in consideration of services rendered and
expenses assumed pursuant to this Agreement, the Company will pay
the Administrator on the first business day of each month, or at
such time(s) as the Administrator shall request and the parties
hereto shall agree, a fee computed daily at the annual rate of:
Eighteen and one-half one-hundredths of
one percent (.185%) of the Company's
average daily net assets up to $5 billion.
Sixteen and one-half one-hundredths of one
percent (.165%) of the Company's average
daily net assets in excess of $5 billion
up to $7.5 billion.
Thirteen and one-half one-hundredths of
one percent (.135%) of the Company's
average daily net assets in excess of $7.5
billion.
The fee payable by the Company hereunder shall be allocated to each
Portfolio based upon its pro rata share of the total fee payable
hereunder. Such fee as is attributable to each Portfolio shall be a
separate (and not joint or joint and several) obligation of each
such Portfolio. The Administrator may agree, from time to time, to
waive any fees payable under this Agreement. Such waiver shall be
at Administrator's sole discretion. All Portfolios that are created
after the effective date of this Agreement shall be subject to a per
Portfolio annual minimum fee of $45,000.
Upon any termination of this Agreement before the end of any month,
the fee for
B-1
<PAGE> 13
such part of a month shall be prorated according to the proportion
which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
For purposes of determining the fees payable to the Administrator,
the value of the net assets of a particular Portfolio shall be
computed in the manner described in the Company's Declaration of
Trust or in the Prospectus or Statement of Additional Information
respecting that Portfolio as from time to time is in effect for the
computation of the value of such net assets in connection with the
purchase and redemption of the shares of such Portfolio.
B-2
<PAGE> 14
SCHEDULE C
TO THE ADMINISTRATION AGREEMENT
BETWEEN THE KENT FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DURATION AND TERMINATION
Pursuant to Article 7, the term of this Agreement shall commence on August 5,
1996 and shall remain in effect through July 31, 1998 (the "Initial Term").
Thereafter, unless otherwise terminated as provided herein, this Agreement
shall be renewed automatically for successive one-year periods ("Rollover
Periods"). This Agreement may be terminated without penalty (i) by provision of
a notice of nonrenewal in the manner set forth below, (ii) by provision of 60
days advance written notice of termination during any Rollover Period, (iii) by
mutual agreement of the parties or (iv) for "cause," as defined below, upon the
provision of 45 days advance written notice by the party alleging cause.
Written notice of nonrenewal must be provided within 60 days following the
Initial Term or any Rollover Period in order to avoid automatic renewal. In
the event such notice is provided in a timely manner, this Agreement shall
terminate 180 days after such notice, if given following the Initial Term, or
60 days after such notice, if given following a Rollover Period.
For purposes of this Agreement, "cause" shall mean (a) willful misfeasance, bad
faith, gross negligence or reckless disregard on the part of the party to be
terminated with respect to its obligations and duties set forth herein; (b)
multiple negligent acts on the part of the party to be terminated which in the
aggregate constitute a serious failure to perform satisfactorily that party's
obligations hereunder; (c) a final, unappealable judicial, regulatory or
administrative ruling or order in which the party to be terminated has been
found guilty of criminal or unethical behavior in the conduct of its business;
(d) financial difficulties on the part of the party to be terminated which are
evidenced by the authorization or commencement of, or involvement by way of
pleading, answer, consent or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to time is in effect, or
any applicable law, other than said Title 11, of any jurisdiction relating to
the liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors; or (e) a service standard deficiency as
defined in Schedule A.
Notwithstanding the foregoing, after such termination for so long as the
Administrator, with the written consent of the Company, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due the Administrator and unpaid by the Company
upon such termination shall be immediately due and payable upon and
notwithstanding such termination. The Administrator shall be entitled to
collect from the Company, in addition to the compensation described in Schedule
B, the amount of all of the Administrator's reasonable cash disbursements for
services in connection with the Administrator's activities in effecting such
termination, including
C-1
<PAGE> 15
without limitation, the delivery to the Company and/or its designees of the
Company's property, records, instruments and documents, or any copies thereof.
Subsequent to such termination, the Administrator shall remain obligated to
provide the Company with reasonable access to any Company documents or records
remaining in its possession. If requested by the Company, the Administrator
shall deliver such documents or records, or copies thereof, to the Company or
its designee for a reasonable fee.
If the Company terminates this Agreement other than as provided in the first
paragraph of this Schedule C, then the Company shall make a one-time cash
payment, as liquidated damages, to the Administrator equal to the balance due
the Administrator for the remainder of the then current term of this Agreement,
assuming for purposes of calculation of the payment that the asset level of the
Company on the date the Agreement is terminated will remain constant for the
balance of the then current contract term.
C-2
<PAGE> 1
Exhibit 24(b)(9)(a)(i)
THE KENT FUNDS
P.O. BOX 182201
COLUMBUS, OHIO 43218-2201
May 1, 1997
BISYS Fund Services
Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
Attn: J. David Huber
Re: The Kent Funds (the "Trust")
Dear Mr. Huber:
The Trust hereby requests, pursuant to the Administration Agreement dated
August 5, 1996 ("Agreement") between BISYS Fund Services Limited Partnership
("BISYS LP") and the Trust, that BISYS LP perform for the following newly
created portfolio of the Trust the services described in the Agreement. The
compensation to be paid by such portfolio to BISYS LP for its services is the
portfolio's pro rata share of the amount set forth below, subject to the annual
minimum fee for such portfolio that is set forth below:
COMPENSATION - ANNUAL FEE AS A
PORTFOLIO PERCENTAGE OF THE TRUST'S
AVERAGE DAILY NET ASSETS
The Kent Government .185% of the Trust's average daily net assets up to
Money Market Fund $5 billion; .165% of the Trust's average daily net assets
in excess of $5 billion up to $7.5 billion; .135% of the
Trust's average daily net assets in excess of
$7.5 billion; subject to an annual minimum fee for
such portfolio of $45,000.
Please acknowledge your consent to the above by signing and returning this
letter to the Trust.
Very truly yours,
THE KENT FUNDS
By: ____________________
Title: _________________
Agreed to and Accepted:
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: _________________________
Title: ______________________
<PAGE> 1
Exhibit 24 (b)(9)(b)
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 5th day of August, 1996, by and between THE KENT
FUNDS (the "Trust"), a Massachusetts business trust having its principal place
of business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND
SERVICES, INC. ("Fund Accountant"), a corporation organized under the laws of
the State of Delaware and having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each investment portfolio of the Trust currently in
existence or hereafter created (individually referred to herein as a "Fund" and
collectively as the "Funds"); and
WHEREAS, Fund Accountant is willing to perform such services on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
Subject to the supervision, direction and control of the
Trust's Board of Trustees, Fund Accountant shall provide the
services set forth below in accordance with the service standards
set forth in Schedule A attached hereto and made a part hereof. In
performing its duties as Fund Accountant under this Agreement, Fund
Accountant will act in conformity with the Trust's Declaration of
Trust, By-Laws, Prospectuses and Statements of Additional
Information as in effect from time to time and will conform to and
comply with the requirements of the Investment Company Act of 1940
(the "1940 Act") and all other applicable federal and state laws
and regulations.
(a) Performance of Daily Accounting Services. Fund
Accountant shall perform the following accounting services
daily for each Fund:
(i) Calculate the net asset value per share in accordance
with the Fund's Prospectus and statement of additional
information utilizing prices obtained from the sources
described in subsection 1(a)(ii) below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then
obtain such prices from such other appropriate sources
in accordance with the Trust's Pricing Procedures, as
approved by the Trust's Board of Trustees;
<PAGE> 2
(iii) Verify and reconcile with the Funds' custodian all
daily trade activity;
(iv) Compute, as appropriate, each Fund's net income and
capital gains, dividend payables, dividend factors,
7-day yields, 7-day effective yields, 30-day yields,
and weighted average portfolio maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to release
to shareholders, check and confirm the net asset values
and dividend factors for reasonableness and deviations,
and distribute net asset values and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the
comparison to the amortized cost basis;
(vii) Determine unrealized appreciation and depreciation on
securities held in variable net asset value Funds;
(viii) Amortize premiums and accrete discounts on securities
purchased at a price other than face value, if
requested by the Trust;
(ix) Update fund accounting system to reflect rate changes,
as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to instructions
received from the Trust's Administrator;
(xii) Determine the outstanding receivables and payables for
all (1) security trades, (2) Fund share transactions
and (3) income and expense accounts;
(xiii) Provide accounting reports in connection with the
Trust's regular annual audit and other audits and
examinations by regulatory agencies; and
(xiv) Provide such periodic reports as the parties shall
agree upon.
2
<PAGE> 3
(b) Special Reports and Services.
(i) Fund Accountant may provide additional special reports
upon the request of the Trust or a Fund's investment
adviser, which may result in an additional charge, the
amount of which shall be agreed upon between the parties.
(ii) Fund Accountant may provide such other similar services
with respect to a Fund as may be reasonably requested by
the Trust, which may result in an additional charge, the
amount of which shall be agreed upon between the parties.
(c) Additional Accounting Services. Fund Accountant
shall also perform the following additional accounting
services for each Fund:
(i) Provide monthly a download (and hard copy thereof) of the
financial statements described below, upon request of the
Trust. The download will include the following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and federal
excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission ("SEC") on Form N-SAR;
(C) the Trust's annual, semi-annual and quarterly
(if any) shareholder reports;
(D) registration statements on Form N-1A and other
filings relating to the registration of shares;
(E) the Administrator's monitoring of the Trust's
status as a regulated investment company under Subchapter
M of the Internal Revenue Code, as amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
3
<PAGE> 4
2. Subcontracting.
Fund Accountant may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder; provided,
however, that Fund Accountant shall not be relieved of any of its obligations
under this Agreement by the appointment of such subcontractor and provided
further, that Fund Accountant shall be responsible, to the extent provided in
Section 7 hereof, for all acts of such subcontractor as if such acts were its
own.
3. Compensation.
During the term of this Agreement, the Trust shall pay Fund Accountant for
the services to be provided by Fund Accountant under this Agreement in
accordance with, and in the manner set forth in, Schedule B hereto, as such
Schedule may be amended from time to time.
4. Reimbursement of Expenses.
In addition to paying Fund Accountant the fees described in Section 3
hereof, the Trust agrees to reimburse Fund Accountant for its reasonable
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
(a) All freight and other delivery and bonding charges incurred by
Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund Accountant
in communication with the Trust, the Trust's investment advisor or
custodian, dealers or others as required for Fund Accountant to
perform the services to be provided hereunder;
(c) The cost of obtaining security market quotes pursuant to Section
l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly authorized; and
(f) Any additional expenses reasonably incurred by Fund Accountant
in the performance of its duties and obligations under this
Agreement.
5. Effective Date.
This Agreement shall become effective with respect to a Fund as of the
date first written above or, if a particular Fund is not in existence on that
date, on the date such Fund commences operation (the "Effective Date").
4
<PAGE> 5
6. Term.
This Agreement shall commence on August 5, 1996 and shall remain in effect
through July 31, 1998 (the "Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be renewed automatically
for successive one-year periods ("Rollover Periods"). This Agreement may be
terminated without penalty (i) by provision of a notice of nonrenewal in the
manner set forth below, (ii) by provision of 60 days advance written notice of
termination during any Rollover Period, (iii) by mutual agreement of the
parties or (iv) for "cause," as defined below, upon the provision of 45 days
advance written notice by the party alleging cause. Written notice of
nonrenewal must be provided within 60 days following the Initial Term or any
Rollover Period in order to avoid automatic renewal. In the event such notice
is provided in a timely manner, this Agreement shall terminate 180 days after
such notice, if given following the Initial Term, or 60 days after such notice,
if given following a Rollover Period.
After such termination for so long as Fund Accountant, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due Fund Accountant and unpaid by the Trust upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
Fund Accountant shall be entitled to collect from the Trust, in addition to
the compensation described under Section 3 hereof, the amount of all of Fund
Accountant's reasonable cash disbursements for services in connection with Fund
Accountant's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents, or any copies thereof.
Subsequent to such termination, Fund Accountant shall remain obligated to
provide the Trust with reasonable access to any Trust documents or records
remaining in its possession. If requested by the Trust, Fund Accountant shall
deliver such documents or records, or copies thereof, to the Trust or its
designee for a reasonable fee.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) multiple negligent acts on the part of the party to be terminated
which in the aggregate constitute a serious failure to perform satisfactorily
that party's obligations hereunder; (c) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be
terminated has been found guilty of criminal or unethical behavior in the
conduct of its business; (d) financial difficulties on the part of the party to
be terminated which are evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; or (e) a service
standard deficiency, as defined in Schedule A.
5
<PAGE> 6
If the Trust terminates this Agreement other than as provided in the first
paragraph of this Section 6, then the Trust shall make a one-time cash payment,
as liquidated damages, to Fund Accountant equal to the balance due Fund
Accountant for the remainder of the then current term of this Agreement,
assuming for purposes of calculation of the payment that the asset level of the
Trust on the date the Agreement is terminated will remain constant for the
balance of the then current contract term.
7. Standard of Care; Reliance on Records and Instructions;
Indemnification.
Fund Accountant shall use its best efforts to insure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by Fund Accountant in the absence of bad faith,
willful misfeasance, negligence or reckless disregard by it of its obligations
and duties hereunder. The Trust agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, directors and officers from and against any
and all claims, demands, actions and suits, whether groundless or otherwise,
and from and against any and all judgments, liabilities, losses, damages,
costs, charges, reasonable counsel fees and other expenses of every nature and
character arising out of or in any way relating to Fund Accountant's actions
taken or nonactions with respect to the performance of services under this
Agreement or based, if applicable, upon reasonable reliance on information,
records, instructions or requests given or made to Fund Accountant by a duly
authorized representative of the Trust; provided that this indemnification
shall not apply to actions or omissions of Fund Accountant in cases of its own
bad faith, willful misfeasance, negligence or from reckless disregard by it of
its obligations and duties, and further provided that prior to confessing any
claim against it which may be the subject of this indemnification, Fund
Accountant shall give the Trust written notice of and reasonable opportunity to
defend against said claim in its own name or in the name of Fund Accountant.
Any person even though also an officer, director, employee or agent of
Fund Accountant, who may be or become an officer, Trustee, employee or agent of
the Trust, shall be deemed, when rendering services to the Trust or to any
Fund, or acting on any business of the Trust or of any Fund (other than
services or business in connection with Fund Accountant's duties hereunder) to
be rendering such services to or acting solely for the Trust or the Fund and
not as an officer, director, employee or agent or one under the control or
direction of Fund Accountant even though paid by Fund Accountant.
8. Record Retention and Confidentiality.
Fund Accountant shall keep and maintain on behalf of the Trust all books
and records which the Trust and Fund Accountant is, or may be, required to keep
and maintain pursuant to any applicable statutes, rules and regulations,
including without limitation Rules 31a-1 and 31a-2 under the 1940 Act, relating
to the maintenance of books and records in connection with the services to be
provided hereunder. Fund Accountant further agrees that all such books and
records shall be the property of the Trust and to make such books and records
available for inspection by the Trust or by the Securities and Exchange
Commission at reasonable times and otherwise to keep confidential
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<PAGE> 7
all books and records and other information relative to the Trust and its
shareholders; except when requested to divulge such information by
duly-constituted authorities or court process. Fund Accountant agrees to
surrender promptly such books and records on the Trust's request.
9. Uncontrollable Events.
Fund Accountant assumes no responsibility hereunder, and shall not be
liable, for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control. Fund Accountant shall, however, be
obligated to design and institute reasonable procedures to prevent or limit any
such damages, loss of data, delay or other losses.
10. Rights of Ownership.
All computer programs and procedures developed to perform services
required to be provided by Fund Accountant under this Agreement are the
property of Fund Accountant. All records and other data except such computer
programs and procedures are the exclusive property of the Trust and all such
other records and data will be furnished to the Trust in appropriate form as
soon as practicable after termination of this Agreement for any reason.
11. Representations of the Trust.
The Trust certifies to Fund Accountant that: (1) as of the close of
business on the Effective Date, each Fund that is in existence as of the
Effective Date has authorized unlimited shares, and (2) this Agreement has been
duly authorized by the Trust and, when executed and delivered by the Trust,
will constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
12. Representations of Fund Accountant.
Fund Accountant represents and warrants that: (1) the various procedures
and systems which Fund Accountant has implemented with regard to safeguarding
from loss or damage attributable to fire, theft, or any other cause the
records, and other data of the Trust and Fund Accountant's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
7
<PAGE> 8
13. Insurance.
Fund Accountant shall notify the Trust should any of Fund Accountant's
insurance coverage be canceled or reduced. Such notification shall include the
date of change and the reasons therefor. Fund Accountant shall notify the
Trust of any material claims against Fund Accountant with respect to services
performed under this Agreement, whether or not they may be covered by
insurance, and shall notify the Trust from time to time as may be appropriate
of the total outstanding claims made by Fund Accountant under its insurance
coverage.
14. Information to be Furnished by the Trust and Funds.
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state
in which such document has been filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of Trustees
covering the approval of this Agreement and authorization of
a specified officer of the Trust to execute and deliver this
Agreement.
(c) A list of all the officers of the Trust.
(d) Two copies of the Prospectuses and Statements of Additional
Information for each Fund.
15. Information Furnished by Fund Accountant.
(a) Fund Accountant has furnished to the Trust the following:
(i) Fund Accountant's Articles of Incorporation; and
(ii) Fund Accountant's Bylaws and any amendments thereto.
(b) Fund Accountant shall, upon request, furnish certified copies of
corporate actions covering the following matters:
(i) Approval of this Agreement, and authorization of a specified
officer of Fund Accountant to execute and deliver this
Agreement; and
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<PAGE> 9
(ii) Authorization of Fund Accountant to act as
fund accountant for the Trust and to provide accounting
services for the Trust.
16. Amendments to Documents.
The Trust shall furnish Fund Accountant written copies of any amendments
to, or changes in, any of the items referred to in Section 14 hereof forthwith
upon such amendments or changes becoming effective. In addition, the Trust
agrees that no amendments will be made to the Prospectuses or Statements of
Additional Information of the Trust which might have the effect of changing the
procedures employed by Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes.
17. Compliance with Law.
The Trust assumes full responsibility for the preparation, contents and
distribution of each prospectus of the Trust in compliance with all applicable
requirements of the Securities Act of 1933, as amended, the 1940 Act and any
other laws, rules and regulations of governmental authorities having
jurisdiction, except for any noncompliance caused by the actions of Fund
Accountant and its affiliates or based upon information provided by Fund
Accountant and its affiliates. Fund Accountant shall have no obligation to
take cognizance of any laws relating to the sale of the Trust's shares.
18. Notices.
Any notice provided hereunder shall be sufficiently given when sent by
facsimile or registered or certified mail to the party required to be served
with such notice, at the following address: 3435 Stelzer Road, Columbus, Ohio
43219, facsimile number (614) 470-8715, or at such other address or facsimile
number as such party may from time to time specify in writing to the other
party pursuant to this Section. Notice sent by registered or certified mail
shall be deemed to have been given three days after it is sent. Notice sent by
facsimile shall be deemed to have been given immediately.
19. Headings.
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
20. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
by either of the parties hereto except by the specific written consent of the
other party. This Agreement shall
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<PAGE> 10
be binding upon, and shall inure to the benefit of, the parties hereto and
their respective successors and permitted assigns.
21. Amendments.
No provision of this Agreement may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party against whom
an enforcement of the change, waiver, discharge or termination is sought.
22. Multiple Originals.
This Agreement may be executed in two or more counterparts, each of which
when so executed shall be deemed to be an original, but such counterparts shall
together constitute but one and the same instrument.
23. Governing Law.
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of Ohio.
24. Confidentiality.
Fund Accountant agrees on behalf of itself and its employees to treat
confidentially and as the proprietary information of the Trust, all records and
other information relative to the Trust and prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except, after
prior notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld where the Fund
Accountant may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
25. Matters Relating to the Trust as a Massachusetts Business Trust.
The names "The Kent Funds" and "Trustees of The Kent Funds" refer
respectively to the business trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Kent Funds"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, shareholders or representatives
of the Trust personally, but bind only the assets of the Trust, and all persons
dealing with any Fund must look solely to the assets of the Trust belonging to
such Fund for the enforcement of any claims against the Trust.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE KENT FUNDS
By: /s/ Ronald F. Van Steeland
--------------------------
BISYS FUND SERVICES, INC.
By: /s/ Stephen G. Mintos
------------------------
11
<PAGE> 12
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE KENT FUNDS
AND
BISYS FUND SERVICES, INC.
SERVICE STANDARDS
Pursuant to Section 1 of this Agreement, Fund Accountant has agreed to perform
the services described in this Agreement in accordance with the service
standards set forth in this Schedule A. Such standards are contained on the
pages attached hereto. The parties agree that such service standards may be
revised, from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance team.
In the event Fund Accountant fails to meet a service standard in any particular
month, Fund Accountant agrees to take appropriate corrective measures within
the following thirty-day period in order to be in compliance with the
appropriate standard at the end of such thirty-day period; provided, however,
that the foregoing requirement shall not apply in those instances in which Fund
Accountant's failure to meet a service standard was due to circumstances beyond
its control.
In the event Fund Accountant fails to meet a particular service standard
(except for any failure due to circumstances beyond its control) in two
consecutive months, the fee payable to Fund Accountant hereunder shall be
reduced by one percent (1%) or such lower amount as the parties shall agree
upon for the second of those two months. If such failure occurs in three
consecutive months, the fee payable to Fund Accountant hereunder shall be
reduced by one and one-half percent (1.5%) or such lower amount as the parties
shall agree upon for the third of those three months.
In the event Fund Accountant fails to meet a particular service standard
(except for any failure due to circumstances beyond its control) for any three
months within a six-month period, such failure shall be deemed to be a service
standard deficiency for purposes of the "cause" definition set forth in Section
6 of this Agreement.
A-1
<PAGE> 13
SCHEDULE B
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE KENT FUNDS
AND
BISYS FUND SERVICES, INC.
FEES
The Trust will pay Fund Accountant on the first business day of each month, or
at such time(s) as Fund Accountant shall request and the parties hereto shall
agree, a fee computed daily at the annual rate of one and one-half
one-hundredths of one percent (.015%) of the Trust's average daily net assets.
The fee payable by the Trust hereunder shall be allocated to each Fund based
upon its pro rata share of the total fee payable hereunder. Such fee as is
attributable to each Fund shall be a separate (and not joint or joint and
several) obligation of each such Fund. Fund Accountant may agree, from time to
time, to waive fees payable under this Agreement. Such waiver shall be at Fund
Accountant's sole discretion. All Funds that are created after the effective
date of this Agreement shall be subject to a per Fund annual minimum fee of
$5,000. With respect to any class of shares (other than Investment Shares or
Institutional Shares) that is created after the effective date of this
Agreement in a Fund in existence on the date hereof or in a Fund established
after the date hereof, the fee paid by such Fund that is allocated to such
class shall be subject to an annual minimum of $10,000.
B-1
<PAGE> 1
Exhibit 24(b)(9)(b)(i)
THE KENT FUNDS
P.O. BOX 182201
COLUMBUS, OHIO 43218-2201
May 1, 1997
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Attn: J. David Huber
Re: The Kent Funds (the "Trust")
Dear Mr. Huber:
The Trust hereby requests, pursuant to the Fund Accounting Agreement dated
August 5, 1996 ("Agreement") between BISYS Fund Services, Inc. ("BISYS") and
the Trust, that BISYS perform for the following newly created portfolio of the
Trust the services described in the Agreement. The compensation to be paid by
such portfolio to BISYS for its services is the portfolio's pro rata share of
the amount set forth below, subject to the annual minimum fee for such
portfolio that is set forth below:
COMPENSATION - ANNUAL FEE AS A
PORTFOLIO PERCENTAGE OF THE TRUST'S
AVERAGE DAILY NET ASSETS
The Kent Government .015%, subject to an annual minimum fee
Money Market Fund of $5,000
Please acknowledge your consent to the above by signing and returning this
letter to the Trust.
Very truly yours,
THE KENT FUNDS
By: _____________________
Title: __________________
Agreed to and Accepted:
BISYS FUND SERVICES, INC.
By: _________________________
Title: ______________________
<PAGE> 1
Exhibit 24(b)(9)(c)
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of this 7th day of October, 1996, between THE KENT FUNDS
(the "Trust"), a Massachusetts business trust having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES,
INC. ("BISYS"), a Delaware corporation having its principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for each
series of the Trust currently in existence or hereafter created (individually
referred to herein as a "Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
Subject to the supervision, direction and control of the Trust's Board of
Trustees, BISYS shall perform for the Trust the transfer agent services set
forth in Schedule A hereto. BISYS agrees to perform such services in
accordance with the service standards set forth in Schedule B attached hereto
and made a part hereof. BISYS also agrees to perform for the Trust such
special services incidental to the performance of the services enumerated
herein as agreed to by the parties from time to time. BISYS shall perform such
additional services as are provided on an amendment to Schedule A hereof, in
consideration of such fees as the parties hereto may agree.
In performing its duties under this Agreement, BISYS will act in
conformity with the Trust's Declaration of Trust, By-Laws, Prospectuses and
Statements of Additional Information as in effect from time to time and will
conform to and comply with the requirements of the Investment Company Act of
1940 (the "1940 Act") and all other applicable federal and state laws and
regulations.
BISYS may, in its discretion, appoint in writing other parties qualified
to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided,
however, that the Sub-transfer Agent shall be the agent of BISYS and not the
agent of the Trust or such Fund, and that BISYS shall be fully responsible for
the acts of such Sub-transfer Agent and shall not be relieved of any of its
responsibilities hereunder by the appointment of such Sub-transfer Agent.
<PAGE> 2
2. Fees.
During the term of this Agreement, the Trust shall pay BISYS for the
services to be provided by BISYS under this Agreement in accordance with, and
in the manner set forth in, Schedule C hereto. Fees for any additional
services to be provided by BISYS pursuant to an amendment to Schedule A hereto
shall be subject to mutual agreement at the time such amendment to Schedule A
is proposed.
3. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 2 hereof, the
Trust agrees to reimburse BISYS for BISYS' reasonable out-of-pocket expenses in
providing services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges incurred by BISYS
in delivering materials to and from the Trust and in delivering all
materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS in communication
with the Trust, the Trust's investment adviser or custodian,
dealers, shareholders or others as required for BISYS to perform the
services to be provided hereunder;
(c) Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be required by
BISYS for the performance of the services to be provided hereunder;
(d) The cost of microfilm or microfiche of records or other materials;
and
(e) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized.
4. Effective Date.
This Agreement shall become effective with respect to a Fund as of the
date first written above or, if a particular Fund is not in existence on that
date, on the date such Fund commences operation (the "Effective Date").
5. Term.
This Agreement shall commence on October 7, 1996 and shall remain in
effect through September 30, 1998 (the "Initial Term"). Thereafter, unless
otherwise terminated as
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<PAGE> 3
provided herein, this Agreement shall be renewed automatically for successive
one-year periods ("Rollover Periods"). This Agreement may be terminated without
penalty (i) by provision of a notice of nonrenewal in the manner set forth
below, (ii) by provision of 60 days advance written notice of termination
during any Rollover Period, (iii) by mutual agreement of the parties or (iv)
for "cause," as defined below, upon the provision of 45 days advance written
notice by the party alleging cause. Written notice of nonrenewal must be
provided within 60 days following the Initial Term or any Rollover Period in
order to avoid automatic renewal. In the event such notice is provided in a
timely manner, this Agreement shall terminate 180 days after such notice, if
given following the Initial Term, or 60 days after such notice, if given
following a Rollover Period.
After such termination, for so long as BISYS, with the written consent of
the Trust, in fact continues to perform any one or more of the services
contemplated by this Agreement or any Schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees
and out-of-pocket expenses incurred by BISYS but unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' reasonable cash disbursements for services in connection with
BISYS' activities in effecting such termination, including without limitation,
the delivery to the Trust and/or its designee of the Trust's property, records,
instruments and documents, or any copies thereof. Subsequent to such
termination, BISYS shall remain obligated to provide the Trust with reasonable
access to any Trust documents or records remaining in its possession. If
requested by the Trust, BISYS shall deliver such documents or records, or
copies thereof, to the Trust or its designee for a reasonable fee.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) multiple negligent acts on the part of the party to be terminated
which in the aggregate constitute a serious failure to perform satisfactorily
that party's obligations hereunder; (c) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be
terminated has been found guilty of criminal or unethical behavior in the
conduct of its business; (d) financial difficulties on the part of the party to
be terminated which are evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; or (e) a service
standard deficiency, as defined in Schedule B.
If the Trust terminates this Agreement other than as provided in the first
paragraph of this Section 5, then the Trust shall make a one-time cash payment,
as liquidated damages, to BISYS equal to the balance due BISYS for the
remainder of the then current term of this Agreement, assuming for purposes of
calculation of the payment that the asset level of the Trust on the date this
Agreement is terminated, will remain constant for the balance of the then
current contract term.
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<PAGE> 4
6. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and shall not be liable for any
damage, loss of data, delay or any other loss whatsoever caused by events
beyond its reasonable control. BISYS shall, however, be obligated to design
and institute reasonable procedures to prevent or limit any such damages, loss
of data, delay or other loss.
7. Legal Advice.
BISYS shall notify the Trust at any time BISYS believes that it is in need
of the advice of counsel (other than counsel in the regular employ of BISYS or
any affiliated companies) with regard to BISYS' responsibilities and duties
pursuant to this Agreement; and after so notifying the Trust, BISYS, at its
discretion, shall be entitled to seek, receive and act upon advice of qualified
legal counsel of its choosing, reasonably acceptable to the Trust, and BISYS
shall in no event be liable to the Trust or any Fund or any shareholder or
beneficial owner of the Trust for any action reasonably taken pursuant to such
advice.
8. Instructions.
Whenever BISYS is requested or authorized to take action hereunder
pursuant to instructions from a shareholder, or a properly authorized agent of
a shareholder ("shareholder's agent"), concerning an account in a Fund, BISYS
shall be entitled to rely upon any certificate, letter or other instrument or
communication, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely conclusively
upon the terms of the Prospectuses and Statement of Additional Information of
the Trust relating to the Funds to the extent that such services are described
therein unless BISYS receives written instructions to the contrary in a timely
manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions; Indemnification.
BISYS shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Trust for any
action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or reckless disregard by it of its obligations and
duties hereunder. The Trust agrees to indemnify and hold harmless BISYS, its
employees, agents, directors and officers from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
reasonable counsel fees and other expenses of every nature and character
arising out
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<PAGE> 5
of or in any way relating to BISYS' actions taken or nonactions with respect to
the performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by a duly authorized representative of the Trust, provided that
this indemnification shall not apply to actions or omissions of BISYS in cases
of its own bad faith, willful misfeasance, negligence or from reckless
disregard by it of its obligations and duties; and further provided that prior
to confessing any claim against it which may be the subject of this
indemnification, BISYS shall give the Trust written notice of and reasonable
opportunity to defend against said claim in its own name or in the name of
BISYS.
Any person, even though also an officer, director, employee or agent of
BISYS who may be or become an officer, Trustee, employee or agent of the Trust,
shall be deemed, when rendering services to the Trust or to any Fund, or acting
on any business of the Trust or of any Fund (other than services or business in
connection with BISYS' duties hereunder) to be rendering such services to or
acting solely for the Trust or the Fund and not as an officer, director,
employee or agent or one under the control or direction of BISYS even though
paid by BISYS.
10. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the Trust all books and records
which the Trust or BISYS is, or may be, required to keep and maintain pursuant
to any applicable statutes, rules and regulations, including without limitation
Rules 31a-1 and 31a-2 under the 1940 Act, relating to the maintenance of books
and records in connection with the services to be provided hereunder. BISYS
further agrees that all such books and records shall be the property of the
Trust and to make such books and records available for inspection by the Trust
or by the Securities and Exchange Commission (the "Commission") at reasonable
times and otherwise to keep confidential all books and records and other
information relative to the Trust and its shareholders, except when requested
to divulge such information by duly-constituted authorities or court process,
or requested by a shareholder or shareholder's agent with respect to
information concerning an account as to which such shareholder has either a
legal or beneficial interest or when requested by the Trust, the shareholder,
or shareholder's agent, or the dealer of record as to such account. BISYS
agrees to surrender promptly such books and records on the Trust's request.
11. Rights of Ownership.
All computer programs and procedures developed to perform services
required to be provided by BISYS under this Agreement are the property of
BISYS. All records and other data except such computer programs and procedures
are the exclusive property of the Trust and all such other records and data
will be furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
5
<PAGE> 6
12. Bank Accounts.
The Trust and the Funds shall establish and maintain such bank accounts
with such bank or banks as are selected by the Trust, as are necessary in order
that BISYS may perform the services required to be performed hereunder. To the
extent that the performance of such services shall require BISYS directly to
disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
13. Representations of the Trust.
The Trust certifies to BISYS that: (a) as of the close of business on the
Effective Date, each Fund which is in existence as of the Effective Date has
authorized unlimited shares, and (b) this Agreement has been duly authorized by
the Trust and, when executed and delivered by the Trust, will constitute a
legal, valid and binding obligation of the Trust, enforceable against the Trust
in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
14. Representations of BISYS.
BISYS represents and warrants that: (a) BISYS has been in, and shall
continue to be in, substantial compliance with all provisions of law, including
Section 17A(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of its duties
under this Agreement; (b) the various procedures and systems which BISYS has
implemented with regard to safekeeping from loss or damage attributable to
fire, theft or any other cause of the blank checks, records, and other data of
the Trust and BISYS' records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as are required for the secure
performance of its obligations hereunder; and (c) this Agreement has been duly
authorized by BISYS and, when executed and delivered by BISYS, will constitute
a legal, valid and binding obligation of BISYS, enforceable against BISYS in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
15. Insurance.
BISYS shall notify the Trust should BISYS' insurance coverage with respect
to professional liability or errors and omissions coverage be canceled or
reduced. Such notification shall include the date of change and the reasons
therefor. BISYS shall notify the Trust of any material claims against BISYS
with respect to services performed under this Agreement, whether or not they
may be covered by insurance, and shall notify the Trust from time to time as
may be appropriate of the total outstanding claims made by BISYS under its
insurance coverage.
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<PAGE> 7
16. Information to be Furnished by the Trust.
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state
in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of Trustees
covering the approval of this Agreement and authorization of a
specified officer of the Trust to execute and deliver this
Agreement and authorization for specified officers of the Trust
to instruct BISYS hereunder.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct BISYS
in all matters.
(d) Two copies of the Prospectuses and Statement of Additional
Information for each Fund.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of
BISYS' appointment as Transfer Agent (or as of the date on which
BISYS' services are commenced, whichever is the later date) and as
to receipt of full consideration by the Trust for all shares
outstanding, such statement to be certified by the Treasurer of the
Trust.
17. Information Furnished by BISYS.
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a specified
officer of BISYS to execute and deliver this Agreement;
7
<PAGE> 8
2. Authorization of BISYS to act as Transfer Agent for the Trust.
(d) A copy of the most recent independent accountants' report relating
to internal accounting control systems as filed with the Commission
pursuant to Rule 17Ad-13 under the Exchange Act.
18. Amendments to Documents.
The Trust shall furnish BISYS written copies of any amendments to, or
changes in, any of the items referred to in Section 16 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Trust agrees
that no amendments will be made to the Prospectuses or Statement of Additional
Information of the Trust which might have the effect of changing the procedures
employed by BISYS in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS hereunder unless the Trust first
obtains BISYS' approval of such amendments or changes.
19. Reliance on Amendments.
BISYS may rely on any amendments to or changes in any of the documents and
other items to be provided by the Trust pursuant to Sections 16 and 18 of this
Agreement and the Trust hereby indemnifies and holds harmless BISYS from and
against any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character which may result from actions or omissions on the
part of BISYS in reasonable reliance upon such amendments and/or changes.
Although BISYS is authorized to rely on the above-mentioned amendments to and
changes in the documents and other items to be provided pursuant to Sections 16
and 18 hereof, BISYS shall be under no duty to comply
with or take any action as a result of any of such amendments or changes unless
the Trust first obtains BISYS' written consent to and approval of such
amendments or changes.
20. Compliance with Law.
The Trust assumes full responsibility for the preparation, contents and
distribution of each prospectus of the Trust in compliance with all applicable
requirements of the Securities Act of 1933, as amended, the 1940 Act and any
other laws, rules and regulations of governmental authorities having
jurisdiction, except for any noncompliance caused by the actions of BISYS and
its affiliates or based upon information provided by BISYS and its affiliates.
BISYS shall have no obligation to take cognizance of any laws relating to the
sale of the Trust's shares.
21. Notices.
Any notice provided hereunder shall be sufficiently given when sent by
facsimile or registered or certified mail to the party required to be served
with such notice at the following
8
<PAGE> 9
address: 3435 Stelzer Road, Columbus, Ohio 43219, facsimile number (614)
470-8715, or at such other address or facsimile number as such party may from
time to time specify in writing to the other party pursuant to this Section.
Notice sent by registered or certified mail shall be deemed to have been given
three days after it is sent. Notice sent by facsimile shall be deemed to have
been given immediately.
22. Headings.
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
23. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
by either of the parties hereto except by the specific written consent of the
other party. This Section 23 shall not limit or in any way affect BISYS' right
to appoint a Sub-transfer Agent pursuant to Section 1 hereof. This Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto
and their respective successors and permitted assigns.
24. Governing Law.
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of Ohio.
25. Amendments.
No provision of this Agreement may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party against whom
an enforcement of the change, waiver, discharge or termination is sought.
26. Multiple Originals.
This Agreement may be executed in two or more counterparts, each of which
when so executed shall be deemed to be an original, but such counterparts shall
together constitute but one and the same instrument.
27. Confidentiality.
BISYS agrees on behalf of itself and its employees to treat confidentially
and as the proprietary information of the Trust, all records and other
information relative to the Trust and prior, present or potential shareholders,
and not to use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except, after prior
notification to and approval in writing by the Trust, which approval shall not
be unreasonably withheld and may not
9
<PAGE> 10
be withheld where BISYS may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information
by duly constituted authorities, or when so requested by the Trust.
28. Matters Relating to the Trust as a Massachusetts Business Trust.
The names "The Kent Funds" and "Trustees of The Kent Funds" refer
respectively to the business trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Kent Funds"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, shareholders or representatives
of the Trust personally, but bind only the assets of the Trust, and all persons
dealing with any Fund must look solely to the assets of the Trust belonging to
such Fund for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE KENT FUNDS
By: /s/ Ronald F. Van Steeland
--------------------------
BISYS FUND SERVICES, INC.
By: /s/ Stephen G. Mintos
------------------------
10
<PAGE> 11
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE KENT FUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option, taxpayer
identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the Securities
Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares, through
dividend reimbursement.
2. Shareholder Information Services
a. Make information available to shareholder servicing unit and other remote
access units regarding trade date, share price, current holdings, yields,
and dividend information.
b. Produce detailed history of transactions through duplicate or special
order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
A-1
<PAGE> 12
3. Compliance Reporting
a. Provide reports to the Securities and Exchange Commission, the National
Association of Securities Dealers and the States in which the Fund is
registered.
b. Prepare and distribute appropriate Internal Revenue Service forms for
corresponding Fund and shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and purchases made
under a Letter of Intent.
b. Account for separation of shareholder investments from transaction sale
charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
d. Track sales and commission statistics by dealer and provide for payment of
commissions on direct shareholder purchases in a load Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing duplicate second
and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE> 13
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN THE KENT FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
SERVICE STANDARDS
Pursuant to Section 1 of this Agreement, BISYS has agreed to perform the
services described in this Agreement in accordance with the service standards
set forth in this Schedule B. Such standards are contained on the pages
attached hereto. The parties agree that such service standards may be revised,
from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance team.
In the event BISYS fails to meet a service standard in any particular month,
BISYS agrees to take appropriate corrective measures within the following
thirty-day period in order to be in compliance with the appropriate standard at
the end of such thirty-day period; provided, however, that the foregoing
requirement shall not apply in those instances in which BISYS' failure to meet
a service standard was due to circumstances beyond its control.
In the event BISYS fails to meet a particular service standard (except for any
failure due to circumstances beyond its control) in two consecutive months, the
fee payable to BISYS hereunder shall be reduced by one percent (1%) or such
lower amount as the parties shall agree upon for the second of those two
months. If such failure occurs in three consecutive months, the fee payable to
BISYS hereunder shall be reduced by one and one-half percent (1.5%) or such
lower amount as the parties shall agree upon for the third of those three
months.
In the event BISYS fails to meet a particular service standard (except for any
failure due to circumstances beyond its control) for any three months within a
six-month period, such failure shall be deemed to be a service standard
deficiency for purposes of the "cause" definition set forth in Section 5 of
this Agreement.
B-1
<PAGE> 14
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE KENT FUNDS
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENT FEES
<TABLE>
<S> <C>
Annual Per Fund Minimum Fee: $15,000.00
annual Per Account Fee:
Daily/Monthly Dividend $18.00
Annual Dividend $16.50
Closed Accounts $7.50
</TABLE>
Multiple Classes of Shares:
Separate fees, pursuant to the fee schedule set forth above, will be
charged for all classes of shares created after the Effective Date of this
Agreement; provided, however, that the annual per fund fee shall be a minimum
of $10,000 for such newly created classes.
Additional Services:
Additional services such as IRA processing, development of interface
capabilities, servicing of 403(b) and 408(c) accounts, management of cash
sweeps between DDAs and mutual fund accounts and coordination of the printing
and distribution of prospectuses, annual reports and semi-annual reports are
subject to additional fees which will be quoted upon request. Programming
costs or database management fees for special reports or specialized processing
will be quoted upon request.
C-1
<PAGE> 15
SCHEDULE D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE KENT FUNDS
AND
BISYS FUND SERVICES, INC.
REPORTS
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed with
the Securities and Exchange Commission pursuant to Rule 17Ad-13 of the
Securities Exchange Act of 1934, as amended.
D-1
<PAGE> 1
Exhibit 24(b)(9)(c)(i)
THE KENT FUNDS
P.O. BOX 182201
COLUMBUS, OHIO 43218-2201
May 1, 1997
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Attn: J. David Huber
Re: The Kent Funds (the "Trust")
Dear Mr. Huber:
The Trust hereby requests, pursuant to the Transfer Agency Agreement dated
October 7, 1996 ("Agreement") between BISYS Fund Services, Inc. ("BISYS") and
the Trust, that BISYS perform for the following newly created portfolio of the
Trust the services described in the Agreement. The compensation to be paid by
such portfolio to BISYS for its services is the portfolio's pro rata share of
the amount set forth in Schedule C of the Agreement.
PORTFOLIO
The Kent Government Money Market Fund
Please acknowledge your consent to the above by signing and returning this
letter to the Trust.
Very truly yours,
THE KENT FUNDS
By: ____________________
Title: _________________
Agreed to and Accepted:
BISYS FUND SERVICES, INC.
By: __________________________
Title: _______________________
<PAGE> 1
EXHIBIT 24(b)(11)(a)
AUDITOR'S CONSENT
The Board of Trustees of
The Kent Funds:
We consent to the use of our reports incorporated by reference herein dated
February 9, 1996 for The Kent Funds--Money Market Fund, Michigan Municipal Money
Market Fund, Growth and Income Fund, Small Company Growth Fund, International
Growth Fund, Index Equity Fund, Short Term Bond Fund, Intermediate Bond Fund,
Income Fund, Limited Term Tax-Free Fund, Intermediate Tax-Free Fund, Tax-Free
Income Fund and Michigan Municipal Bond Fund--as of December 31, 1995 and for
the periods indicated therein, and to the references to our firm under the
headings "Financial Highlights" in the Prospectus and "Custodian, Auditors and
Counsel" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
----------------------------
KPMG Peat Marwick LLP
Columbus, Ohio
February 14, 1997
<PAGE> 1
Exhibit 24(b)(11)(b)
CONSENT OF COUNSEL
We hereby consent to use of our name and to the reference to our firm
under the caption "Custodian, Auditors and Counsel" in the Statement of
Additional Information that is included or incorporated by reference in
Post-Effective Amendment No. 21 to the Registration Statement (No. 33-8398) on
Form N-1A under the Securities Act of 1933, as amended, of The Kent Funds.
This consent does not constitute a consent under Section 7 of the Securities
Act of 1933, and in consenting to the use of our name and the references to our
firm under such caption we have not certified any part of the Registration
Statement and do not otherwise come within the categories of persons whose
consent is required under Section 7 or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH
Drinker Biddle & Reath
Philadelphia, Pennsylvania
Date: February 14, 1997
<PAGE> 1
Exhibit 24(b)(15)(a)
AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN OF
THE KENT FUNDS
WHEREAS, each portfolio of The Kent Funds (the "Trust") has previously
adopted a separate Distribution Plan pursuant to the requirements of Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, it is deemed desirable to combine each of the separate
Distribution Plans into this single Amended and Restated Master Distribution
Plan (the "Plan") covering each of the investment portfolios of the Trust
listed on Appendix A hereto; and
WHEREAS, this Plan has been adopted by the Board of Trustees of the Trust
in accordance with Rule 12b-1 under the 1940 Act.
NOW, THEREFORE, each of the Trust's separate Distribution Plans are hereby
amended and restated in their entirety as follows:
Section 1. The Trust's Principal Underwriter shall enter into written
agreements based on the form attached hereto as Appendix B or any other form
duly approved by the Board of Trustees ("Agreements") with securities dealers,
financial institutions and other industry professionals that are shareholders
or dealers of record or which have a servicing relationship with the beneficial
owners of Investment Shares of the Funds ("Shareholder Organizations").
Pursuant to such Agreements, Shareholder Organizations shall provide
distribution and support services as set forth therein to their clients who
acquire and beneficially own Investment Shares of any Fund in consideration of
a fee, computed monthly in the manner set forth in the Agreements, at an annual
rate of up to 0.25% of the average daily net asset value of the Investment
Shares beneficially owned by such clients.
Section 2. Any person authorized to direct the disposition of monies paid
or payable by a Fund pursuant to this Plan or any related Agreement shall
provide to the Trust's Board of Trustees, and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
Section 3. This Plan shall become effective immediately with respect to
each particular Fund upon the approval of the Plan (and the form of Agreement
attached hereto) by (a) a majority of the Trust's Board of Trustees, including
a majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of this Plan or in any Agreement related to this
<PAGE> 2
Plan (the "Rule 12b-1 Trustees"), pursuant to a vote cast in person at a
meeting called for the purpose of voting on the approval of this Plan (and form
of Agreement), and (b) a majority (as defined in the 1940 Act) of the
outstanding Investment Shares of such Fund, unless such approval was previously
obtained with respect to one of the predecessor Distribution Plans.
Section 4. Unless sooner terminated pursuant to Section 5, this Plan
shall continue until December 31, 1996 and thereafter shall continue
automatically for successive annual periods so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 3(a).
Section 5. This Plan may be terminated at any time with respect to any
Fund by (a) vote of a majority of the Rule 12b-1 Trustees, or (b) vote of a
majority (as defined in the 1940 Act) of the outstanding Investment Shares of
such Fund.
Section 6. This Plan may be amended at any time with respect to any Fund
by the Board of Trustees, provided that (a) any amendment to increase
materially the costs (whether for distribution or any other purpose) which such
Fund may bear pursuant to this Plan shall be effective only upon the favorable
vote of a majority (as defined in the 1940 Act) of the outstanding Investment
Shares of such Fund, and (b) any material amendment of the terms of this Plan
shall become effective only upon the approvals set forth in Section 3(a).
Section 7. While this Plan is in effect, the selection and nomination of
those Trustees who are not "interested persons" of the Trust (as defined in the
1940 Act) shall be committed to the discretion of such non-interested Trustees.
Section 8. All expenses incurred by the Trust with respect to the
Investment Shares of a particular Fund in connection with Agreements and the
implementation of this Plan shall be borne entirely by Investment Shares of
such Fund.
Amended and Restated: November 22, 1996
- 2 -
<PAGE> 3
APPENDIX A
The Kent Money Market Fund
The Kent Government Money Market Fund
The Kent Michigan Municipal Money Market Fund
The Kent Short Term Bond Fund
The Kent Intermediate Bond Fund
The Kent Income Fund
The Kent Limited Term Tax-Free Fund
The Kent Intermediate Tax-Free Fund
The Kent Tax-Free Income Fund
The Kent Michigan Municipal Bond Fund
The Kent Growth and Income Fund
The Kent Small Company Growth Fund
The Kent International Growth Fund
The Kent Index Equity Fund
- 3 -
<PAGE> 1
Exhibit 24(b)(15)(b)
APPENDIX B
Agreement With Respect to Investment Shares of
of
THE KENT FUNDS
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
Gentlemen:
We wish to enter into this Agreement ("Agreement") with you concerning the
provision, to the extent provided below, of distribution services to our
clients ("Clients") who may from time to time beneficially own Investment
Shares of the portfolios (collectively the "Funds") offered by The Kent Funds
(the "Trust") of which you are the principal underwriter as defined in the
Investment Company Act of 1940 (the "Act") and the exclusive agent for the
continuous distribution of said shares. Investment Shares of the Funds are
hereinafter referred to "Shares."
The terms and conditions of this Agreement are as follows:
Section 1. We agree to provide(1): (a) reasonable assistance in connection
with the distribution of Shares to Clients as requested from time to time by
you, which assistance may include forwarding sales literature and advertising
provided by you to Clients; and (b) the following support services to Clients
who may from time to time acquire and beneficially own Shares: (i) establishing
and maintaining accounts and records relating to Clients that invest in Shares;
(ii) processing dividend and distribution payments from the Funds on behalf of
Clients; (iii) providing information periodically to Clients regarding their
positions in Shares; (iv) arranging for bank wires; (v) responding to Client
inquiries concerning their investments in Shares; (vi) providing the
information to the Funds necessary for accounting or subaccounting; (vii)
assisting in processing exchange and redemption requests from Clients; (viii)
assisting Clients in changing dividend options, account designations and
addresses; and (ix) providing such other similar personal services to
shareholders as you may reasonably request to the extent we are permitted to do
so under applicable statutes, rules and regulations.
Section 2. We will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in our
- ----------
1. Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE> 2
business, or any personnel employed by us) as may be reasonably necessary or
beneficial in order to provide the aforementioned services and assistance to
Clients.
Section 3. Neither we nor any of our officers, employees or agents are
authorized to make any representations concerning you or the Shares except
those contained in the Funds' applicable prospectuses and statements of
additional information for the Shares, copies of which will be supplied by you
to us, or in such supplemental literature or advertising as may be authorized
by you in writing.
Section 4. For all purposes of this Agreement we will be deemed to be an
independent contractor, and will have no authority to act as agent for you or
the Funds in any matter or in any respect. We and our employees will, upon
request, be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities provided by us
hereunder, you will pay to us, and we will accept as full payment therefor, a
fee at the annual rate of 0.25% of 1% of the average daily net asset value of
the Shares beneficially owned by our Clients for whom we are the dealer of
record or holder of record or with whom we have a servicing relationship (the
"Clients' Shares"). Said fee will be computed daily and payable monthly. For
purposes of determining the fee payable under this Section 5, the average daily
net asset value of the Clients' Shares will be computed in the manner specified
in the Funds' Registration Statement (as the same is in effect from time to
time) in connection with the computation of the net asset value of the
particular Shares involved for purposes of purchases and redemptions. The fee
rate stated above may be prospectively increased or decreased by you, in your
sole discretion, at any time upon notice to us. Further, you may, in your
discretion and without notice, suspend or withdraw the sale of Shares,
including the sale of Shares for the account of any Client or Clients.
Section 6. We acknowledge that you will provide to the Trust's board of
trustees, and the board of trustees will review, at least quarterly, a written
report of the amounts expended pursuant to this Agreement and the purposes for
which such expenditures were made. In connection with such reviews, we will
furnish you or your designees with such information as you or they may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Clients of the services described herein), and will
otherwise cooperate with you and your designees (including, without limitation,
any auditors designated by you), in connection with the preparation of reports
to the Trust's board of trustees concerning this Agreement and the monies paid
or payable by you pursuant hereto, as well as any other reports or filings that
may be required by law. We will be responsible for promptly reporting to you
and the Trust's board of trustees any potential or existing conflicts with
respect to the investments of our customers in the Funds.
Section 7. You may enter into other similar Agreements with any other
person or persons without our consent.
-2-
<PAGE> 3
Section 8. We hereby represent, warrant and agree that the compensation
payable to us hereunder, together with any other compensation payable to us by
our Clients in connection with the investment of their assets in Shares of the
Funds, will be disclosed by us to our Clients, will be authorized by our
Clients and will not result in an excessive or unreasonable fee to us. In
addition, we understand that this Agreement has been entered into in reliance
on Rule 12b-1 under the Act and is subject to the provisions of said Rule, as
well as any other applicable rules or regulations promulgated by the Securities
and Exchange Commission. We will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law unless
we have obtained the licenses required by such law.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by you or your designee. Unless
sooner terminated, this Agreement will continue until December 31st of this
year, and thereafter will continue automatically for successive annual periods
provided such continuance is specifically approved at least annually by the
Trust in the manner described in Section 12. This Agreement is terminable with
respect to the Shares of any Fund, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 12 or by vote of the holders of a majority of the
outstanding Shares of such Fund) or by us or you upon notice to the other party
hereto. This Agreement will also terminate automatically in the event of its
assignment (as defined in the Act).
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
Section 11. This Agreement will be construed in accordance with the
internal laws of the Commonwealth of Massachusetts, without giving effect to
principles of conflict of laws.
-3-
<PAGE> 4
Section 12. This Agreement has been approved by vote of a majority of (i)
the Trust's board of trustees and (ii) those trustees of the Trust who are not
"interested persons" (as defined in the Act) of the Trust and have no direct or
indirect financial interest in the operation of the Amended and Restated
Distribution Plan adopted by the Trust regarding the provision of distribution
and support services in connection with the Shares or in any agreement related
thereto cast in person at a meeting called for the purpose of voting on such
approval ("Disinterested Trustees").
Very truly yours,
__________________________________________
Service Organization Name
(Please Print or Type)
__________________________________________
Address
__________________________________________
City State Zip Code
Date:______________________ By: _____________________________________
Authorized Signature
NOTE: Please return both signed copies of this Agreement to BISYS Fund
Services Limited Partnership. Upon acceptance one countersigned copy will be
returned for your files.
Accepted:
BISYS FUND SERVICES
LIMITED PARTNERSHIP
Date: ____________________ By: ______________________________________
-4-
<PAGE> 5
THE KENT FUNDS
AUTHORIZATION
The following person or persons represent(s) and warrant(s) that he (they) are
fully authorized to purchase or redeem Shares on behalf of the beneficial
owners.
___________________________ _______________________________
Name Signature
___________________________ _______________________________
Title Date
___________________________ _______________________________
Name Signature
___________________________ _______________________________
Title Date
___________________________ _______________________________
Name Signature
___________________________ _______________________________
Title Date
___________________________ _______________________________
Name Signature
___________________________ _______________________________
Title Date
