<PAGE> 1
ANNUAL REPORT
DECEMBER 31, 1996
YOUR FOUNDATION FOR INVESTMENT STRENGTH
THE
KENT
FUNDS(R)
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
<PAGE> 2
MESSAGE TO SHAREHOLDERS
Dear Kent Fund Shareholder:
Enclosed is the annual report for The Kent Tax-Free Bond Funds for the
twelve months ended December 31, 1996. Inside, you'll find an Economic Outlook
which characterizes the U.S. economy as being in the best fundamental shape in
25 years. There are also Portfolio Reviews for each Fund that explain how the
Fund managers adjusted their portfolios in the prevailing investment environment
and what the managers expect in the months to come.
During the period, The Kent Funds concentrated on providing shareholders
good value and attractive potential for growth while managing risks. If you have
any questions about your investments after reading this report, please see your
investment representative or call 1-800-633-KENT (1-800-633-5368) to speak to a
shareholder services representative. We remain committed to providing you with
useful information that can help you make the most of your investments.
Sincerely,
The Kent Funds
<PAGE> 3
INVESTMENT ADVISER
Old Kent Bank
One Vandenberg Center
Grand Rapids, MI 49503
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
This report is submitted for the general information of shareholders of The Kent
Limited Term Tax-Free Fund, The Kent Intermediate Tax-Free Fund, The Kent
Tax-Free Income Fund and The Kent Michigan Municipal Bond Fund. It is not
authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus for the funds, which contains more
information concerning the funds' investment policies as well as fees and
expenses and other pertinent information. Please read the prospectus carefully
before investing.
The performance indices used for comparison in this report, including the Lehman
Brothers One-Year General Obligations Municipal Bond Index, the Lehman Brothers
Three-Year General Obligations Municipal Bond Index, the Lehman Brothers
Five-Year General Obligations Municipal Bond Index and the Lehman Brothers
Municipal Bond Index are unmanaged indices. Unlike actual mutual fund
performance, the performance of an index does not reflect any management fees,
other expenses or sales charges. A direct investment in an unmanaged index is
not possible.
[GRAPHIC]
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, Old Kent Bank or any of its affiliates. Shares of the funds are not
federally insured by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment return
and principal value will vary as a result of market conditions or other factors,
so that shares of the funds, when redeemed, may be worth more or less than their
original cost. An investment in the funds involves investment risks, including
the possible loss of principal.
1
<PAGE> 4
ECONOMIC OUTLOOK
REAL ECONOMIC ACTIVITY
Economy in Best Fundamental Shape in 25 Years.
As 1997 begins, the economy appears to be in the best fundamental shape in
25 years:
o Despite a sharp rebound in the fourth quarter, economic growth for this
business expansion at 2.6 percent remains below the economy's long-run
growth rate of 3.2 percent, which has helped prolong the longevity of the
current expansion.
o Inflation remains in check, although worries surface from time-to-time.
o Even though the economy is running near full employment levels, the labor
markets appear to be "comfortably tight" with few signs of accelerating
wage pressures.
o The level of interest rates and bond yields is moderate, ranging from 5.0
to 7.0 percent in the Treasury market.
o Corporate earnings are still rising, albeit at a slower rate in some
industries than earlier in the expansion.
o The international competitiveness of U.S. companies has increased markedly
in recent years and cost-cutting and restructuring efforts seem likely to
continue.
o The Federal budget deficit shrunk from $290 billion in FY1992 to $107
billion in FY1996.
o And finally, U.S. companies continue to lead the world in the development
and proliferation of new information and telecommunications technologies.
REAL GROSS DOMESTIC PRODUCT
ANNUALIZED GROWTH RATE
---------------------------
2Q 1991 1.7
1
1
1Q 1992 4.7
2.5
3
4.3
1Q 1993 -0.1
1.9
2.3
4.8
1Q 1994 2.5
4.9
3.5
3
1Q 1995 0.4
0.7
3.8
0.3
1Q 1996 2
4.7
2.1
4Q 1996 4.7
Long-Run Growth Rate = 3.2%
2Q91 to 4Q96 Growth Rate = 2.6%
This business expansion will be six years old next quarter and is now the
third longest expansion since World War II. In fact, the previous business
expansion, which ended in 1990, is the second longest, with the expansion in the
1960s that was fueled by the military buildup associated with the Vietnam War
being the longest. So, the last two expansions are two of the three longest on
record, with the current expansion still rolling along. Most likely this is a
reflection of the vastly improved inventory-control technologies that have been
developed in recent years and the proclivity of the Federal Reserve under the
guidance of Alan Greenspan to engage in pre-emptive strikes against any signs of
the economy overheating and/or inflationary pressures building.
Exports Boost Fourth-Quarter Growth.
The economy's "stop/go" pattern of growth, as depicted in the previous
graph, continued in the fourth quarter. Real Gross Domestic Product (GDP)
sprinted ahead at a 4.7 percent pace compared to the 2.1 percent gain recorded
in the third quarter. Exports surged at a 25.5 percent rate, causing a
significant improvement in net exports that accounted for almost half of the
rise in real GDP. Capital goods, particularly aircraft, were primarily
responsible for the extraordinary gain in exports. Domestic private final sales,
which excludes net exports, government spending and inventory swings, rose at
the more moderate pace of 3.2 percent. This measure probably gives a more
realistic picture of the economy's underlying strength as 1996 drew to a close.
Despite reports of only a moderately successful holiday season for the
nation's retailers and the sharp rise in consumer indebtedness, delinquencies
and bankruptcies, consumer spending rebounded at a 3.4 percent rate last quarter
from the paltry 0.5 percent pace of the third quarter. Durable goods
<TABLE>
<CAPTION>
REAL ECONOMIC ACTIVITY
----------------------------
4Q 1996* 4Q95 to 4Q96
------- ------------
<S> <C> <C>
Gross Domestic Product 4.7% 3.4%
Domestic Private Final Sales 3.2% 3.6%
Personal Consumption Expenditures 3.4% 2.7%
<FN>
* Annualized
</TABLE>
2
<PAGE> 5
ECONOMIC OUTLOOK
spending was the strongest component, with furniture outlays leading the
way. At first blush, the rise in spending on furniture doesn't seem to be
consistent with the decline in residential construction outlays over the past
two quarters, which resulted from the rise in mortgage rates last year. The
housing market proved to be very resilient during 1996, however, as aggressive
switching to adjustable-rate mortgages and some purchases in anticipation of
even higher mortgage rates actually led to an 8.8 percent gain in housing starts
last year. The strong job market and high levels of consumer confidence also
contributed to a record sales year for existing homes as 4.09 million homes
exchanged hands, eclipsing the previous high of 3.99 million reached in 1978.
Aside from exports, business capital spending was again the strongest
sector of the economy during the fourth quarter. The contribution from the
various components was somewhat different than over the previous 23 quarters,
however. Capital outlays on structures grew at a 22.5 percent rate as the high
level of capacity utilization, falling commercial and industrial vacancy rates,
and ongoing retail expansion spurred additional construction. In a somewhat
unexpected turn, producers' durable equipment outlays fell for the first time in
over four years. Equipment outlays have been the strongest sector of the economy
during the business expansion, as demand for computers, telecommunications
equipment and other forms of information technology has surged.
Looking at the components of equipment spending shows that all of the
decline last quarter was contained in the industrial machinery and volatile
transportation equipment sectors and that outlays for high-technology equipment,
particularly computers, remained strong. The main motivation behind the surge in
equipment purchases over the past five and a half years is the desire of
businesses to improve their competitiveness by increasing productivity,
restraining costs and boosting quality. The fact that the price of capital goods
has been declining relative to labor compensation is an added incentive to
invest in equipment.
Companies have responded aggressively during this expansion
to the heightened competitive pressures coming at them from both domestic and
international competitors. The table below depicts how large the representative
share of the nation's total output equipment spending has become over the course
of this expansion. In the second quarter of 1991 when the economy turned from
recession to expansion, equipment outlays accounted for 6 percent of total
output; the high technology portion was less than 2 percent; and business
computers were half of one percent.
Five and a half years later, equipment production, and particularly
high-technology equipment, has become a much more significant portion of the
economy and has grown at rates far in excess of the 2.6 percent growth rate for
the entire economy. Equipment outlays now account for the highest proportion
of real GDP since World War II, when
<TABLE>
<CAPTION>
PERCENT OF REAL GDP ANNUALIZED GROWTH RATE
------------------- ----------------------
2Q91 4Q96 2Q91 to 4Q96
---- ---- ------------
<S> <C> <C> <C>
Producers' Durable Equipment 6.0% 8.5% 9.3%
High Technology Equipment 1.9% 3.7% 15.6%
Computers 0.5% 2.1% 32.9%
Real GDP 2.6%
</TABLE>
<TABLE>
<CAPTION>
BUSINESS CAPITAL SPENDING* 4Q1996
---------------------------------
<S> <C>
Structures 22.5%
Producer's Durable Equipment -1.7%
High-Technology Equipment 11.5%
Computers 26.8%
Industrial Machinery -6.0%
Transportation Equipment -15.7%
<FN>
*Annualized.
</TABLE>
3
<PAGE> 6
ECONOMIC OUTLOOK
wartime manufacturing sharply boosted equipment production and consumer spending
was severely curtailed. When students of the business cycle look back on this
expansion, what occurred in the business equipment sector will likely be the
most remarkable feature of this economic expansion.
Another Year of Moderate Growth for 1997.
As the business expansion is about to enter its seventh year, the economy
appears to be on the path toward another year of moderate growth. No serious
imbalances are evident in the economy, which lowers the odds of the economy
falling into recession during 1997. The rapid rise in consumer indebtedness over
the past three years and the attendant burden of servicing that debt buildup
points to, at best, further moderate gains in consumer spending. The housing
sector should be flat to modestly lower due to the late point in the economic
cycle and the higher level of mortgage rates. Business capital spending for
equipment should be the strongest sector of the economy as the continued
advancement of electronic technology permits sharp declines in equipment prices,
which provides incentives to substitute high-technology equipment, for labor
and/or other types of capital goods. We do anticipate that it will be tough for
spending on high-technology equipment to match the heady pace reached earlier in
the expansion, however. Exports had such a blockbuster quarter that a slower
growth rate is likely, particularly given the U.S. dollar's recent strength. We
expect the economy to grow at a rate near two percent during 1997.
INFLATION
Negligible Inflation.
The inflation data for 1996 was excellent, particularly considering the
advanced age of the current business expansion. Except for a sharp run-up in
energy costs last year, overall inflation remained very well behaved, in part
because increased competition is restraining the ability of many businesses to
raise their prices. Consumers are little influenced in their buying decisions by
expectations of price increases in the future. Pricing leverage remains the
exception and not the rule in the domestic economy.
The Federal Reserve remains concerned that a slow but steady increase in
labor costs could translate into higher consumer prices. The low unemployment
rate, however, has not yet empowered labor to exact higher wage increases. The
employment cost index rose only 2.9 percent last year, the lowest annual figure
on record. Companies' emphasis on cutting labor costs, which represent about 70
percent of production expenses, has made them more resistant to higher wage
demands. At the same time, wage earners have placed more emphasis on job
security rather than wage increases as the tidal wave of substituting equipment
for labor continues to wash over Corporate America. The battle for market share
from both domestic and foreign producers remains intense, exerting additional
restraint on prices. We expect inflation to remain in the two to three percent
range for 1997.
JOSEPH T. KEATING
Chief Investment Officer
The information discussed herein is based on Commerce Department data released
January 31, 1997.
<TABLE>
<CAPTION>
INFLATION MEASURES 1996
-----------------------
<S> <C>
Consumer Price Index (CPI) 3.3%
CPI less Food & Energy 2.6%
Producer Price Index (PPI) 2.8%
PPI less Food & Energy 0.1%
GDP Fixed-Weight Price Index 2.2%
</TABLE>
4
<PAGE> 7
PORTFOLIO REVIEWS
THE KENT LIMITED TERM TAX-FREE FUND
BY MICHAEL J. MARTIN,
PORTFOLIO MANAGER
The 12 months ended December 31, 1996, were a volatile period for the
tax-exempt bond market. Yields on five-year AAA-rated General Obligation
municipal securities began the year at 4.1%, declined to 3.8% in February, then
rose as high as 4.8% in June, before finishing the year at 4.4%. The Fund's
Institutional and Investment Shares before the deduction of sales charges posted
total returns of 3.54% and 3.51%, respectively, for the 12-month period. That
compares to a total return of 4.60% for the Lehman Brothers Three-Year General
Obligations Municipal Bond Index and 4.42% for the Lehman Brothers One-Year
General Obligations Municipal Bond Index.
OPPORTUNITY AMID VOLATILITY
Periods of volatility in the municipal market can be trying, but they also
provide interesting opportunities for long-term investors. The Kent Limited Term
Tax-Free Fund began the period with an average maturity of around 3.2 years. As
municipal yields rose during the period from March through June, the average
maturity gradually climbed to around 3.7 years--which helped the Fund's
performance when yields fell and the bond market rallied during the autumn
months.
In December, bond prices declined again as municipal yields rebounded. We
took that opportunity to lock in the higher yields on tax-exempt securities,
extending the Fund's average maturity to around 3.9 years at the end of the
year.
MAINTAINING CREDIT QUALITY
The Fund continued to hold a majority of high-quality securities with AAA
or AA credit ratings. Given that we are in the advanced stages of an economic
expansion, it seems prudent to avoid lower-quality issues, which could suffer if
their issuers experience financial stress in an economic slowdown. In fact, such
a slowdown, when it comes, will provide much better opportunities to purchase
lower-quality credits at attractive prices.
That said, even in this environment our credit research occasionally turns
up opportunities to purchase the bonds of small or relatively unknown issuers
backed by insurance. Such bonds may be neglected by the market despite their AAA
ratings, and thus provide a chance to bolster the Fund's yield without taking on
extra risk.
LOOKING AHEAD
The Federal Reserve's actions will largely determine the behavior of
short-term interest rates during the coming period. For now, it appears that the
Federal Reserve is not likely to raise rates unless inflation or employment
increases sharply. We will continue to make modest adjustments in the Fund's
average maturity as rates fluctuate, taking advantage of rate increases to lock
in higher payouts for the Fund's shareholders.
The Fund's income may be subject to the federal alternative minimum tax and
to certain state and local taxes.
<TABLE>
<CAPTION>
THE KENT LIMITED TERM TAX-FREE FUND
DISTRIBUTION OF NET ASSETS
AS OF DECEMBER 31, 1996
--------------------------
<S> <C>
East 15.0%
North Central 39.7%
Mountain 5.3%
Pacific 8.2%
South 29.4%
Other 2.4%
Portfolio composition is subject to change.
</TABLE>
<TABLE>
<CAPTION>
THE KENT LIMITED TERM TAX-FREE FUND
TAX EQUIVALENT YIELDS+ AS OF DECEMBER 31, 1996
- -----------------------------------------------------------------------------
Tax Bracket Institutional Class Investment Class
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
28.0% 5.61% 5.15%
31.0% 5.86% 5.38%
36.0% 6.31% 5.80%
39.6% 6.69% 6.14%
<FN>
+Based on an SEC 30-day yield on 12/31/96 of 4.04% for the Institutional Class
and 3.71% for the Investment Class. SEC 30-day yield is computed based on net
income during the 30-day period ended December 31, 1996. Yield calculations
represent past performance and will fluctuate.
Certain fees were being waived. Had these waivers not been in effect, total
return would have been lower, and the 30-day SEC yields would have been 4.01%
for Institutional Shares and 3.59% for Investment Shares.
</TABLE>
5
<PAGE> 8
PORTFOLIO REVIEWS
<TABLE>
<CAPTION>
THE KENT LIMITED TERM TAX-FREE FUND
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1996
- -----------------------------------------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(INCEPTION: 11/1/94) (INCEPTION: 9/1/94)
- -----------------------------------------------------------------------------
<S> <C> <C>
One Year -0.66% 3.54%
Life of Fund 3.51% 4.73%
<FN>
* Reflects deduction of 4.00% sales charge.
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS ONE-YEAR GENERAL OBLIGATIONS MUNICIPAL BOND INDEX
AND THE LEHMAN BROTHERS THREE-YEAR GENERAL OBLIGATIONS MUNICIPAL BOND INDEX
- ------------------------------------------------------------------------------
9/1/94 12/31/94 12/31/95 12/31/96
--------- -------- -------- --------
<S> <C> <C> <C> <C>
The Lehman Brothers One-Year General Obligations $10,000 10,108 10,767 11,243
Municipal Bond Index
The Kent Limited Term Tax-Free Fund
Institutional Class Shares $10,000 9,923 10,759 11,140
The Lehman Brothers Three-Year General
Obligations Municipal Bond Index $10,000 9,943 10,821 11,319
11/1/94 12/31/94 12/31/95 12/31/96
--------- -------- -------- --------
The Lehman Brothers One-Year General Obligations $10,000 10,198 10,863 11,343
The Kent Limited Term Tax-Free Fund
Investment Class Shares $ 9,601 9,604 10,411 10,777
The Lehman Brothers Three-Year General
Obligations Municipal Bond Index $10,000 10,132 11,027 11,534
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate, so that shares, when redeemed, may be worth
more or less than the original cost. Performance for each class will differ
based on differences in sales charges and expenses for each class of shares.
Return figures and investment values are quoted after deducting class expenses
and sales charges (if applicable). Investment class shares are sold with a
maximum front-end sales charge of 4.00%. The Lehman Brothers One-Year General
Obligations Municipal Bond Index and the Lehman Brothers Three-Year General
Obligations Municipal Bond Index are unmanaged indices of debt instruments
issued by municipalities. Total return is based on changes in net asset value
assuming reinvestment of all dividends and capital gains distributions.
6
<PAGE> 9
PORTFOLIO REVIEWS
THE KENT INTERMEDIATE TAX-FREE FUND
BY ALLAN J. MEYERS,
PORTFOLIO MANAGER
A number of factors affected the Kent Intermediate Tax-Free Fund during the
12 months ended December 31, 1996. Early in the year, concerns that a flat tax
would diminish the tax advantages offered by municipal securities began to fade.
That helped bring some money back into the municipal bond market, and supported
prices of tax-exempt issues. However, rising municipal yields during the first
eight months of the year caused bond prices to decline for much of that period
before rebounding later in the year. Yields on ten-year municipal bonds with AAA
credit ratings began 1996 at 4.6% and rose as high as 5.3% in June, before
finishing the year at 4.8%.
The Fund's Institutional and Investment Shares before the deduction of
sales charges posted total returns of 3.41% and 3.17%, respectively. That
compares to 4.63% for the Lehman Brothers Five-Year General Obligations
Municipal Bond Index.
RESPONDING TO INTEREST RATE CHANGES
We increased the Fund's average maturity from 7.5 years at the start of the
year to 8.3 years in June, when yields on intermediate-term issues peaked. That
allowed us to lock in those higher yields for a longer period. It also helped
the Fund's performance during the fall months, when yields declined and the
municipal bond market rallied.
LOOKING AHEAD
During the first six months of 1996, the supply of new tax-exempt issues in
the intermediate sector was strong. However, supply was relatively weak during
the second half of the year, which helped support the municipal market during
those months.
Several factors might weigh on the municipal market in the coming year. The
improved condition of many states and municipalities probably will boost new
issues to around $200 billion in 1997, up from $183 billion in 1996. Moreover,
many issues that came out during the mid-Eighties in response to tax reform have
been redeemed by their issuers during the past several years. The need to
reinvest the proceeds from such redemptions has provided support for the
municipal market. Such reinvestment opportunities will play a much smaller role
in the future.
Regardless of such factors, we will continue to make modest adjustments in
the Fund's average maturity to take advantage of opportunities to lock in higher
yields on some issues. We also will restrict our investments to investment grade
issues that can hold their own in a slowing economic environment.
The Fund's income may be subject to the federal alternative minimum tax and
to certain state and local taxes.
<TABLE>
<CAPTION>
THE KENT INTERMEDIATE TAX-FREE FUND
DISTRIBUTION OF NET ASSETS
AS OF DECEMBER 31, 1996
--------------------------
<S> <C>
East 16.1%
North Central 32.8%
Mountain 4.1%
Pacific 19.7%
South 23.0%
Other 4.3%
Portfolio composition is subject to change.
</TABLE>
<TABLE>
<CAPTION>
THE KENT INTERMEDIATE TAX-FREE FUND
TAX EQUIVALENT YIELDS+ AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
TAX BRACKET INSTITUTIONAL CLASS INVESTMENT CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
28.0% 5.78% 5.22%
31.0% 6.03% 5.45%
36.0% 6.50% 5.88%
39.6% 6.89% 6.23%
<FN>
+ Based on an SEC 30-day yield on 12/31/96 of 4.16% for the Institutional
Class and 3.76% for the Investment Class. SEC 30-day yield is computed
based on net income during the 30-day period ended December 31, 1996. Yield
calculations represent past performance and will fluctuate.
Certain fees were being waived. Had these waivers not been in effect, total
return would have been lower, and the 30-day SEC yields would have been 4.14%
for Institutional Shares and 3.73% for Investment Shares.
</TABLE>
7
<PAGE> 10
PORTFOLIO REVIEWS
<TABLE>
<CAPTION>
THE KENT INTERMEDIATE TAX-FREE FUND
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(INCEPTION: 12/18/92)* (INCEPTION: 12/16/92)
- ------------------------------------------------------------------------------
<S> <C> <C>
One Year -0.96% 3.41%
Three Years 2.68% 4.26%
Life of Fund 4.12% 5.35%
<FN>
* Reflects deduction of 4.00% sales charge.
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS THREE-YEAR GENERAL OBLIGATIONS MUNICIPAL BOND INDEX
AND THE LEHMAN BROTHERS FIVE-YEAR GENERAL OBLIGATIONS MUNICIPAL BOND INDEX
- ---------------------------------------------------------------------------
12/16/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
a -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Lehman Brothers Three-Year General Obligations
Municipal Bond Index $10,000 10,300 10,673 10,755 11,705 12,243
The Kent Intermediate Tax-Free Fund
Institutional Class Shares $10,000 10,060 10,895 10,567 11,941 12,349
The Lehman Brothers Five-Year General
Obligations Municipal Bond Index $10,000 10,500 10,930 10,779 12,032 12,589
The Lehman Brothers Three-Year General Obligations
Municipal Bond Index $10,000 10,200 10,673 10,755 11,705 12,243
The Kent Intermediate Tax-Free Fund
Investment Class Shares $ 9,597 9,635 10,434 10,118 11,409 11,772
The Lehman Brothers Five-Year General
Obligations Municipal Bond Index $10,000 10,600 10,930 10,779 12,032 12,589
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate, so that shares, when redeemed, may be worth
more or less than the original cost. Performance for each class will differ
based on differences in sales charges and expenses for each class of shares.
Return figures and investment values are quoted after deducting class expenses
and sales charges (if applicable). Investment class shares are sold with a
maximum front-end sales charge of 4.00%. The Lehman Brothers Three-Year General
Obligations Municipal Bond Index and the Lehman Brothers Five-Year General
Obligations Municipal Bond Index are unmanaged indices of debt instruments
issued by municipalities. Total return is based on changes in net asset value
assuming reinvestment of all dividends and capital gains distributions.
8
<PAGE> 11
PORTFOLIO REVIEWS
THE KENT TAX-FREE INCOME FUND
BY ALLAN J. MEYERS,
PORTFOLIO MANAGER
The 12 months ended December 31, 1996, provided excellent opportunities for
the Kent Tax-Free Income Fund to take advantage of market fluctuations. We
increased the Fund's average maturity from 12.7 years at the beginning of the
year to 13.4 years in June, taking advantage of higher yields on long-term
bonds. For example, yields on 30-year AAA General Obligation municipal bonds
climbed from 5.2% in January to 6% in early June.
That move captured higher yields for the Fund's shareholders, and allowed
the Fund to participate more fully in the bond-market rally that occurred later
in the year. The Fund's Institutional and Investment Shares before sales charge
deductions delivered total returns of 3.92% and 3.53%, respectively. That
compares to a 4.43% total return for the Lehman Brothers Municipal Bond Index.
MANAGING RISK AND RETURNS
Most of the Fund's efforts to extend maturity took place during the second
quarter of 1996. Our purchases included municipal bonds with maturities ranging
from 15 to 25 years with solid call protection.
We also bought some discount bonds with 30-year maturities. Such issues
generate less current income but more potential for price appreciation than
bonds that trade at a premium to their par value. Thus, they participated more
fully in the rally when bond prices rose in the fall.
As always, the Fund maintained a portfolio of issues with high credit
quality. The average rating of the issues in the portfolio was a high AA at the
end of the period.
WHAT'S AHEAD
We believe the Fund is well positioned to take advantage of any decline in
municipal yields that might occur if the economy slows down during 1997. At the
same time, the Fund's high-quality holdings should resist the financial stress
that might affect the prices of lower-quality securities in a slower economy.
The Fund's income may be subject to the federal alternative minimum tax and
to certain state and local taxes.
<TABLE>
<CAPTION>
THE KENT TAX-FREE INCOME FUND
DISTRIBUTION OF NET ASSETS
AS OF DECEMBER 31, 1996
--------------------------
<S> <C>
East 12.2%
North Central 44.7%
Mountain 7.6%
Pacific 13.9%
South 18.2%
Other 3.4%
Portfolio composition is subject to change.
</TABLE>
<TABLE>
<CAPTION>
THE KENT TAX-FREE INCOME FUND
TAX EQUIVALENT YIELDS+ AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
TAX BRACKET INSTITUTIONAL CLASS INVESTMENT CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
28.0% 6.14% 5.51%
31.0% 6.41% 5.75%
36.0% 6.91% 6.20%
39.6% 7.32% 6.57%
<FN>
+ Based on an SEC 30-day yield on 12/31/96 of 4.42% for the Institutional Class
and 3.97% for the Investment Class. SEC 30-day yield is computed based on net
income during the 30-day period ended December 31, 1996. Yield calculations
represent past performance and will fluctuate
Certain fees were being waived. Had these waivers not been in effect, total
return would have been lower, and the 30-day SEC yields would have been 4.39%
for Institutional Shares and 3.95% for Investment Shares.
</TABLE>
9
<PAGE> 12
PORTFOLIO REVIEWS
<TABLE>
<CAPTION>
THE KENT TAX-FREE INCOME FUND
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(INCEPTION: 3/31/95)* (INCEPTION: 3/20/95)
- ------------------------------------------------------------------------------
<S> <C> <C>
One Year -0.63% 3.92%
Life of Fund 4.28% 6.99%
<FN>
* Reflects deduction of 4.00% sales charge.
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF $10,000 INVESTMENT COMPARISON WITH THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
- -------------------------------------------------------------------------------
3/20/95 12/31/95 12/31/96
--------- ---------- ---------
<S> <C> <C> <C>
The Lehman Brothers Muncipal Bond Index $10,000 10,971 11,457
The Kent Tax-Free Income Fund
Institutional Class Shares $10,000 10,864 11,290
The Lehman Brothers Muncipal Bond Index $10,000 10,971 11,457
The Kent Tax-Free Income Fund
Investment Class Shares $ 9,597 10,397 10,764
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate, so that shares, when redeemed, may be worth
more or less than the original cost. Performance for each class will differ
based on differences in sales charges and expenses for each class of shares.
Return figures and investment values are quoted after deducting class expenses
and sales charges (if applicable). Investment class shares are sold with a
maximum front-end sales charge of 4.00%. The Lehman Brothers Municipal Bond
Index is an unmanaged index of general obligation municipal debt instruments.
Total return is based on changes in net asset value assuming reinvestment of all
dividends and capital gains distributions.
10
<PAGE> 13
PORTFOLIO REVIEWS
THE KENT MICHIGAN MUNICIPAL BOND FUND
BY ALLAN J. MEYERS,
PORTFOLIO MANAGER
The Michigan tax-exempt securities market provided excellent opportunities
for long-term investors during the 12 months that ended December 31, 1996. Those
opportunities occurred in the midst of considerable volatility, due mostly to
interest-rate fluctuations and supply and demand factors.
The Fund's Institutional and Investment Shares before sales charge
deductions had total returns of 3.51% and 3.36%, respectively. That compares to
a 4.60% total return for the Lehman Brothers Three-Year General Obligations
Municipal Bond Index.
MANAGING THE FUND'S MATURITY
We increased the Fund's average maturity from 3.1 years at the beginning of
the year to 3.8 years on June 30. That enabled the Fund to take advantage of
higher yields on short-term tax-exempt securities in the Michigan market. For
example, yields on five-year, AAA-rated General Obligations municipal bonds rose
from 4.1% to 4.8% during the first six months of the year.
The Fund's longer maturity helped it post solid gains when municipal yields
declined in the fall. As that occurred, we allowed the Fund's average maturity
to drift lower, to around 3.6 years in September.
At the same time, the Fund took advantage of opportunities created by a
large supply of new issues in the Michigan municipal market. During October and
November alone, $1.4 billion in new Michigan tax-exempt securities came to
market. That figure represented the highest issuance of unlimited-tax General
Obligations debt for new and existing public schools in recent history. As a
result, prices for Michigan issues declined, and we took the opportunity to make
selective purchases at attractive prices.
LOOKING AHEAD
The Fund's average maturity climbed back up to around 3.8 years at the end
of the year as municipal yields rose. As such, we believe the Fund is
well-positioned for any decline in yields that might result from a slower rate
of economic growth.
Meanwhile, the outlook for Michigan tax-exempt issues is positive. The
State of Michigan's finances are strong, and the state's economic base has
become more diversified over the past few years. We'll continue to make
adjustments to seize opportunities that occur due to fluctuations in municipal
yields or new issuances.
The Fund's income may be subject to the federal alternative minimum tax and
to certain state and local taxes.
<TABLE>
<CAPTION>
THE KENT MICHIGAN MUNICIPAL BOND FUND
DISTRIBUTION OF NET ASSETS
AS OF DECEMBER 31, 1996
--------------------------
<S> <C>
Cash Equivalents & Net Other Assets & Liabilities 0.29%
Municipal Securities 99.71%
<FN>
Portfolio composition is subject to change.
</TABLE>
<TABLE>
<CAPTION>
THE KENT MICHIGAN MUNICIPAL BOND FUND
TAX EQUIVALENT YIELDS+ AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
TAX BRACKET INSTITUTIONAL CLASS INVESTMENT CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
28.0% 5.79% 5.33%
31.0% 6.04% 5.57%
36.0% 6.52% 6.00%
39.6% 6.90% 6.36%
<FN>
+ Based on an SEC 30-day yield on 12/31/96 of 4.17% for the Institutional Class
and 3.84% for the Investment Class. SEC 30-day yield is computed based on net
income during the 30-day period ended December 31, 1996. Yield calculations
represent past performance and will fluctuate.
Certain fees were being waived. Had these waivers not been in effect, total
return would have been lower, and the 30-day SEC yields would have been 4.14%
for Institutional Shares and 3.71% for Investment Shares.
</TABLE>
11
<PAGE> 14
PORTFOLIO REVIEWS
<TABLE>
<CAPTION>
THE KENT MICHIGAN MUNICIPAL BOND FUND
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
INVESTMENT CLASS* INSTITUTIONAL CLASS
(INCEPTION: 5/11/93)* (INCEPTION: 5/3/93)
- ------------------------------------------------------------------------------
<S> <C> <C>
One Year -0.76% 3.51%
Three Years 2.39% 3.97%
Life of Fund 2.74% 4.09%
<FN>
* Reflects deduction of 4.00% sales charge.
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF $10,000 INVESTMENT COMPARISON
WITH THE LEHMAN BROTHERS THREE-YEAR GENERAL OBLIGATIONS MUNICIPAL BOND INDEX
- ------------------------------------------------------------------------------
5/3/93 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
The Lehman Brothers Three-Year General
Obligations Muncipal Bond Index $10,000 10,311 10,390 11,308 11,828
The Kent Michigan Municipal Bond Fund
Institutional Class Shares $10,000 10,306 10,343 11,190 11,583
The Lehman Brothers Three-Year General
Obligations Muncipal Bond Index $10,000 10,311 10,390 11,308 11,828
The Kent Michigan Municipal Bond Fund
Investment Class Shares $ 9,597 9,871 9,886 10,678 11,037
</TABLE>
Past performance is no guarantee of future performance. The investment return
and principal value will fluctuate, so that shares, when redeemed, may be worth
more or less than the original cost. Performance for each class will differ
based on differences in sales charges and expenses for each class of shares.
Return figures and investment values are quoted after deducting class expenses
and sales charges (if applicable). Investment class shares are sold with a
maximum front-end sales charge of 4.00%. The Lehman Brothers Three-Year General
Obligations Municipal Bond Index is an unmanaged index of debt obligations
issued by municipalities. Total return is based on changes in net asset value
assuming reinvestment of dividends and capital gains distributions.
12
<PAGE> 15
The Kent LIMITED TERM TAX-FREE FUND
Funds PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
MUNICIPAL SECURITIES -- 97.6%
ALASKA -- 2.5%
$ 500,000 Alaska State Housing Finance
Corp., Series A,
4.35%, 6/1/98 (Insured by
MBIA)............................ $ 500,625
530,000 Alaska State Housing Finance
Corp., Series A,
4.60%, 12/1/00 (Insured by
MBIA)............................ 531,988
-----------
1,032,613
-----------
ARIZONA -- 2.7%
1,000,000 Arizona State University Revenue,
Prerefunded 7/1/01 @ 102,
7.10%, 7/1/16.................... 1,125,000
-----------
CALIFORNIA -- 3.0%
1,000,000 University of California,
Multiple Purpose Projects, Series
B,
9.00%, 9/1/03 (Insured by
MBIA)............................ 1,237,500
-----------
CONNECTICUT -- 2.5%
1,000,000 Connecticut State, Series C, GO,
5.38%, 8/15/02................... 1,043,750
-----------
DISTRICT OF COLUMBIA -- 2.4%
1,000,000 District of Columbia, GO,
5.10%, 12/1/99 (Insured by
MBIA)............................ 1,017,500
-----------
GEORGIA -- 3.9%
1,500,000 Georgia State, Series B, GO,
5.95%, 3/1/03.................... 1,616,250
-----------
ILLINOIS -- 11.3%
500,000 Chicago Metropolitan Water
Reclamation District, Capital
Improvement, GO,
6.20%, 1/1/98.................... 511,210
1,000,000 Chicago Metropolitan Water
Reclamation District, Working
Cash Fund, GO,
5.90%, 12/1/04................... 1,076,250
1,010,000 Cook County High School District
No. 227,
5.00%, 12/1/05................... 1,013,787
1,000,000 Illinois Educational Facilities
Authority Revenue, Loyola
University, Series A,
6.30%, 7/1/98 (Insured by
MBIA)............................ 1,035,000
1,000,000 Illinois State Sales Tax Revenue,
Series O,
5.90%, 6/15/01................... 1,047,500
-----------
4,683,747
-----------
KENTUCKY -- 2.5%
1,000,000 Kentucky State Property &
Buildings, Commission, Project
No. 53,
5.80%, 10/1/98................... 1,026,250
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
LOUISIANA -- 2.5%
$ 1,000,000 Louisiana State Gas & Fuels Tax
Revenue, Series A,
7.00%, 11/15/98 (Insured by
FGIC)............................ $ 1,048,750
-----------
MARYLAND -- 2.5%
1,000,000 Washington Suburban Sanitary
District, Sewerage Disposal,
First Series, GO,
6.13%, 6/1/98.................... 1,028,750
-----------
MASSACHUSETTS -- 2.5%
1,000,000 Massachusetts State, Series B,
GO,
5.10%, 11/1/02................... 1,028,750
-----------
MICHIGAN -- 13.3%
1,235,000 Detroit, GO, Prerefunded
4/1/01 @ 102,
8.00%, 4/1/11.................... 1,420,250
1,000,000 Detroit, Self-Insurance,
Series A, GO,
5.20%, 5/1/98.................... 1,003,750
500,000 Michigan State Hospital Finance
Authority, Genesys Health
Systems, Series A,
6.40%, 10/1/97................... 505,885
1,600,000 Michigan State Hospital Finance
Authority Revenue, Sisters of
Mercy Health Corp., Series P,
4.60%, 8/15/02 (Insured by
MBIA)............................ 1,588,000
1,000,000 Michigan State Housing
Development Authority, Rental
Housing Revenue,
5.15%, 10/1/00 (Insured by
MBIA)............................ 1,015,000
-----------
5,532,885
-----------
MINNESOTA -- 2.4%
1,000,000 University of Minnesota,
4.80%, 8/15/03................... 1,000,000
-----------
NEVADA -- 2.7%
1,090,000 Las Vegas, GO,
6.75%, 8/1/98 (Insured by
MBIA)............................ 1,134,962
-----------
NEW JERSEY -- 2.7%
1,000,000 New Jersey Economic Development
Authority, Series A, Market
Transition Facility Revenue,
7.00%, 7/1/03 (Insured by
MBIA)............................ 1,130,000
-----------
</TABLE>
Continued
13
<PAGE> 16
The Kent LIMITED TERM TAX-FREE FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
OKLAHOMA -- 5.2%
$ 1,000,000 Oklahoma County Independent,
School District No. 89, GO,
5.40%, 2/1/99.................... $ 1,021,250
1,115,000 Tulsa Industrial Authority
Revenue, University of Tulsa,
Series A,
5.50%, 10/1/00 (Insured by
MBIA)............................ 1,155,419
-----------
2,176,669
-----------
PENNSYLVANIA -- 2.4%
1,000,000 Pennsylvania State,
First Series, GO,
5.00%, 5/1/99.................... 1,016,250
-----------
SOUTH DAKOTA -- 2.5%
1,050,000 Sioux Falls Sales Tax Revenue,
Series A,
4.50%, 11/15/01.................. 1,047,375
-----------
TEXAS -- 14.2%
1,000,000 Harris County Flood Control
District, Series C, GO,
Prerefunded 11/1/99 @ 100,
6.50%, 11/1/10 (Insured by
MBIA)............................ 1,058,750
1,000,000 Houston Independent School
District, GO, Public Property
Finance Contractual Obligation,
6.25%, 7/15/99................... 1,047,500
1,500,000 Houston Water & Sewer System
Revenue, Junior Lien, Series C,
4.75%, 12/1/97 (Insured by
MBIA)............................ 1,513,530
1,000,000 Pasadena Independent School
District, GO, Prerefunded
8/15/01 @ 100,
6.75%, 8/15/05 (Insured by
FGIC)............................ 1,092,500
1,100,000 Texas State Public Finance
Authority, Building Revenue,
Series A,
6.00%, 8/1/02 (Insured by
AMBAC)........................... 1,179,750
-----------
5,892,030
-----------
UTAH -- 2.6%
1,000,000 Intermountain Power Agency, Utah
Power Supply, Series A,
Prerefunded 7/1/99 @ 102,
7.00%, 7/1/21.................... 1,083,750
-----------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- -----------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
VIRGINIA -- 3.7%
$ 1,500,000 Norfolk, GO,
5.13%, 6/1/01.................... $ 1,541,250
-----------
WEST VIRGINIA -- 2.6%
1,000,000 West Virginia State Hospital
Finance Authority, Revenue,
Cabell Huntington Hospital, Inc.,
Series B, Prerefunded
1/1/99 @ 102,
7.70%, 1/1/19.................... 1,085,000
-----------
WISCONSIN -- 2.5%
1,000,000 Green Bay, Series A, GO,
5.10%, 4/1/00.................... 1,025,000
-----------
WYOMING -- 2.5%
1,000,000 Campbell County School District,
No. 001 Gillette, GO,
5.15%, 6/1/02.................... 1,026,250
-----------
TOTAL MUNICIPAL SECURITIES....... 40,580,281
-----------
(cost $39,983,660)
</TABLE>
<TABLE>
<CAPTION>
SHARES
- -----------
<S> <C> <C>
INVESTMENT COMPANY -- 1.0%
407,775 Dreyfus Tax-Exempt Cash
Management Fund.................. 407,775
-----------
TOTAL INVESTMENT COMPANY......... 407,775
-----------
(cost $407,775)
TOTAL INVESTMENTS -- 98.6%.................... 40,988,056
(cost $40,391,435)(a)
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.4%......................... 589,263
-----------
NET ASSETS -- 100.0%.......................... $41,577,319
===========
<FN>
- ---------------------------------------
Percentages indicated are based on net assets of $41,577,319.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<CAPTION>
<S> <C> <C>
Unrealized appreciation............. $601,011
Unrealized depreciation............. (4,390)
--------
Net unrealized appreciation......... $596,621
========
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Corp.
GO General Obligation
MBIA Municipal Bond Insurance Association
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 17
The Kent INTERMEDIATE TAX-FREE FUND
Funds PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------
VALUE
(NOTE 2)
------------
<S> <C> <C>
MUNICIPAL SECURITIES -- 98.2%
ALASKA -- 3.2%
$1,520,000 Alaska Municipal Bond Bank
Authority, Series A, GO, 4.75%,
10/1/99......................... $ 1,527,600
1,000,000 Anchorage, GO, 6.30%, 7/1/99
(Insured by MBIA)............... 1,047,500
1,000,000 Anchorage Electric Utility,
Revenue Bond, Senior Lien,
5.50%, 12/1/03, Callable 6/1/03
@ 102 (Insured by MBIA)......... 1,038,750
5,000,000 North Slope Boro, Series B, GO,
7.50%, 6/30/01 (Insured by
FSA)............................ 5,587,500
------------
9,201,350
------------
ARIZONA -- 4.2%
5,000,000 Arizona State Transportation
Board, Excise Tax Revenue,
Series A, Maricopa County
Regional Area Read, 5.60%,
7/1/03 (Insured by AMBAC)....... 5,262,500
1,500,000 Pima County Unified School
District, No. 1 Tucson, Series
B, GO, 6.80%, 7/1/00............ 1,620,000
5,000,000 Salt River Project Agricultural
Improvement and Power District
Electric System, Series A,
5.625%, 1/1/06.................. 5,299,400
------------
12,181,900
------------
CALIFORNIA -- 7.2%
3,400,000 California State, GO, 6.60%,
2/1/10.......................... 3,838,702
2,250,000 Metropolitan Water District,
Southern California Waterworks
Revenue, Series B, 5.50%, 7/1/03
(Insured by MBIA)............... 2,370,937
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
$3,000,000 Orange County, Series A,
Refunding Recovery Bonds, 6.00%,
6/1/10 (Insured by MBIA)........ $3,206,250
CALIFORNIA (CONTINUED)
2,000,000 Riverside County Transportation
Commission, Sales Tax Revenue,
Series A, 5.60%, 6/1/05 (Insured
by AMBAC)....................... 2,112,500
1,000,000 San Francisco City & County
School District, Facility
Improvements, Series C, GO,
6.00%, 6/15/01 (Insured by
FGIC)........................... 1,062,500
2,000,000 Turlock Irrigation District
Revenue, Series A, 6.00%, 1/1/06
(Insured by MBIA)............... 2,170,000
4,850,000 University of California
Revenue, Multiple Purpose
Projects, Series B, 9.00%,
9/1/03 (Insured by MBIA)........ 6,001,875
------------
20,762,764
------------
COLORADO -- 2.5%
4,000,000 Arapahoe County School District
No. 5, Cherry Creek, Series A,
GO, 5.25%, 12/15/02............. 4,145,000
1,000,000 Colorado Springs Utility
Revenue, Series A, 6.50%,
11/15/03........................ 1,088,750
2,000,000 Jefferson County School District
No. 1, Series A, GO, 4.00%,
12/15/98........................ 1,995,000
------------
7,228,750
------------
CONNECTICUT -- 1.5%
4,000,000 Connecticut State, Series A
6.00%, 5/15/02.................. 4,285,000
------------
</TABLE>
Continued
15
<PAGE> 18
The Kent INTERMEDIATE TAX-FREE FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
FLORIDA -- 4.8%
$1,000,000 Broward County School District,
GO, 5.20%, 2/15/03.............. $ 1,022,500
1,000,000 Dade County Water & Sewer System
Revenue, 5.50%, 10/1/25,
Callable 10/1/05 @ 102 (Insured
by FGIC)........................ 981,250
3,000,000 Florida State, Series A, Broward
County Expressway Authority, GO
5.90%, 7/1/97................... 3,036,150
2,000,000 Florida State Board of Education
Capital Outlay, Series A, GO,
7.25%, 6/1/97................... 2,030,800
1,140,000 Gainesville Utilities System
Revenue, Series A, Prerefunded
10/1/02 @ 102, 6.50%, 10/1/22... 1,262,550
1,350,000 Jacksonville Excise Tax Revenue
Bonds, 4.75%, 10/1/01........... 1,360,125
2,000,000 Lakeland Electric & Water
Revenue, 5.90%, 10/1/07......... 2,140,000
1,000,000 Tampa Guaranteed Entitlement
Revenue, 6.60%, 10/1/00 (Insured
by AMBAC)....................... 1,075,000
1,000,000 Tampa Utility Tax & Special
Revenue, 6.30%, 10/1/00 (Insured
by AMBAC)....................... 1,065,000
------------
13,973,375
------------
GEORGIA -- 4.3%
2,670,000 Atlanta Airport Facilities
Revenue, Series B, (AMT), 5.50%,
1/1/03 (Insured by AMBAC)....... 2,763,450
4,000,000 Georgia State, Series B, GO,
5.95%, 3/1/08................... 4,330,000
4,000,000 Georgia State, Series F, GO,
6.50%, 12/1/01.................. 4,385,000
1,000,000 Georgia State Tollway Authority
Revenue, Georgia 400 Project,
6.25%, 7/1/00................... 1,067,500
------------
12,545,950
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
HAWAII -- 1.2%
1,025,000 Honolulu City & County, Series
A, GO, 5.60%, 1/1/05............ $ 1,074,969
1,000,000 Honolulu City & County, Series
D, GO, 6.50%, 12/1/00........... 1,080,000
1,150,000 Maui County, Series A, GO,
Prerefunded 12/1/00 @ 101,
6.80%, 12/1/03 (Insured by
AMBAC).......................... 1,263,562
------------
3,418,531
------------
ILLINOIS -- 6.5%
2,000,000 Chicago Metropolitan Water,
Reclamation District, Capital
Improvement, GO, 6.80%,
1/1/03.......................... 2,152,500
$3,000,000 Chicago Metropolitan Water,
Reclamation District, Capital
Improvement, GO, 5.50%,
12/1/10......................... $ 3,033,750
2,000,000 Chicago School Finance
Authority, Series A, GO, 4.90%,
6/1/05 (Insured by MBIA)........ 1,987,500
4,270,000 DuPage & Will Counties Community
Schools, District No. 204, GO,
4.95%, 12/30/01 (Insured by
FGIC)........................... 4,344,725
4,000,000 Illinois Development Finance
Authority, Pollution Control
Revenue, Commonwealth Edison,
5.30%, 1/15/04 (Insured by
MBIA)........................... 4,085,000
3,135,000 Northwest Suburban Municipal
Joint Action, Water Agency,
Water Supply System, Series A,
5.25%, 5/1/04 (Insured by
MBIA)........................... 3,162,431
------------
18,765,906
------------
INDIANA -- 3.1%
2,000,000 Indiana Municipal Power Supply
System Revenue, Series B, 5.88%,
1/1/10 (Insured by MBIA)........ 2,112,500
3,000,000 Indiana Municipal Power Supply
System Revenue, Series B, 6.00%,
1/1/13 (Insured by MBIA)........ 3,150,000
1,000,000 Indiana Transportation Finance
Authority, Highway Revenue,
Series A, 5.75%, 6/1/12 (Insured
by AMBAC)....................... 1,033,750
</TABLE>
Continued
16
<PAGE> 19
INTERMEDIATE TAX-FREE FUND
The Kent PORTFOLIO OF INVESTMENTS (CONTINUED)
Funds DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
INDIANA (CONTINUED)
$1,000,000 Purdue University Dormitory
System Revenue, Series A, 6.40%,
7/1/99 (Insured by AMBAC)....... $ 1,046,250
1,000,000 Purdue University Student Fee
Revenue, Series D, 6.50%,
7/1/03.......................... 1,080,000
500,000 St. Joseph County Educational
Facilities Revenue, University
of Notre Dame, 6.50%, 3/1/26.... 565,625
------------
8,988,125
------------
KENTUCKY -- 0.4%
1,000,000 Kentucky State Property &
Buildings, Prerefunded 8/1/05 @
100, 6.00%, 8/1/10.............. 1,061,250
------------
LOUISIANA -- 1.4%
4,000,000 Louisiana State, Series A, GO,
5.30%, 8/1/04 (Insured by
MBIA)........................... 4,110,000
------------
MASSACHUSETTS -- 4.5%
5,000,000 Massachusetts Bay Transportation
Authority, Series A, 5.05,
3/1/02.......................... 5,106,250
3,750,000 Massachusetts State, Special
Obligation Revenue, Series A,
5.25%, 6/1/08 (Insured by
AMBAC).......................... 3,764,062
4,000,000 Massachusetts State Turnpike
Authority, Series A, Bond
Anticipation Note, 5.00%,
6/1/99.......................... 4,070,000
------------
12,940,312
------------
MICHIGAN -- 18.4%
4,000,000 Battle Creek Downtown
Development Authority, Tax
Increment Revenue, 7.30%,
5/1/10.......................... 4,465,000
2,100,000 Caledonia Community Schools, GO,
Prerefunded 5/1/02 @ 102, 6.70%,
5/1/22 (Insured by AMBAC)....... 2,344,125
3,000,000 Detroit, GO, Distributable State
Aid, 5.70%, 5/1/01 (Insured by
AMBAC).......................... 3,127,500
3,000,000 Detroit Sewage Disposal Revenue,
Series B, 6.00%, 7/1/09 (Insured
by MBIA)........................ 3,232,500
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$1,750,000 Detroit Water Supply System,
5.70%, 7/1/00 (Insured by
FGIC)........................... $ 1,822,188
6,000,000 Detroit Water Supply System,
Permanent Linked Bonds, 5.25%,
7/1/13 (Insured by FGIC)........ 5,835,000
2,840,000 Grand Ledge Public Schools
District, GO, 5.35%, 5/1/10
(Insured by MBIA)............... 2,840,000
1,700,000 Greater Detroit Resource
Recovery Authority, Series A,
5.50%, 12/13/04 (Insured by
AMBAC).......................... 1,776,500
2,000,000 Kalamazoo Hospital Finance
Authority, Refunding &
Improvement, Bronson Methodist
Hospital, 5.35%, 5/15/06
(Insured by MBIA)............... 2,037,500
1,675,000 Lanse Creuse Public Schools, GO,
5.30%, 5/1/07................... 1,685,469
1,475,000 Michigan State Environmental
Protection, Prerefunded 11/15/99
@ 102, 7.10%, 11/15/09.......... 1,611,438
2,000,000 Michigan State Comprehensive
Transportation, Series B, 5.50%,
5/15/02......................... 2,075,000
1,450,000 Michigan State Hospital Finance
Authority Revenue, St. John
Hospital & Medical Center,
5.00%, 5/15/06 (Insured by
AMBAC).......................... 1,442,750
1,000,000 Michigan State South Central
Power Agency, Power Supply
System Revenue, 5.80%, 11/1/05
(Insured by MBIA)............... 1,065,000
2,300,000 Michigan State Strategic Fund,
Limited Obligation Revenue, Ford
Motor Co. Project, Series A,
7.10%, 2/1/06................... 2,670,875
2,500,000 Michigan State Trunk Line,
Series A, 5.50%, 10/1/02........ 2,600,000
1,340,000 Michigan State University,
Series A, 4.80%, 2/15/08........ 1,291,425
2,000,000 Northville Public Schools,
Series A, GO, 7.00%, 5/1/08..... 2,155,000
1,575,000 South Redford School District,
5.25%, 5/1/09 (Insured by
FGIC)........................... 1,569,094
</TABLE>
Continued
17
<PAGE> 20
INTERMEDIATE TAX-FREE FUND
The Kent PORTFOLIO OF INVESTMENTS (CONTINUED)
Funds DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$3,700,000 University of Michigan Hospital
Revenue, Series A, 5.10%*,
1/2/97.......................... $ 3,700,000
2,725,000 Walled Lake Consolidated School
District, 5.50%, 5/1/02......... 2,837,406
1,000,000 Western Michigan University
Revenue, GO, 5.40%, 11/15/01
(Insured by FGIC)............... 1,047,500
------------
53,231,270
------------
MINNESOTA -- 1.3%
1,000,000 Minneapolis Community
Development Agency, Tax
Increment Revenue, 7.00%, 9/1/00
(Insured by MBIA)............... 1,088,750
2,810,000 North St. Paul Maplewood,
Independent School District No.
622, Series A, GO, 5.13%,
2/1/25.......................... 2,634,375
------------
3,723,125
------------
NEVADA -- 1.0%
2,500,000 Clark County School District,
Group 2, GO, Prerefunded 5/1/00
@ 102, 7.20%, 5/1/01 (Insured by
FGIC)........................... 2,762,500
------------
NEW JERSEY -- 3.6%
1,375,000 New Jersey State, Series D, GO,
5.25%, 2/15/01.................. 1,421,406
6,000,000 New Jersey State Economic
Development Authority, Market
Transition Facility Revenue,
Senior Lien, Series A, 7.00%,
7/1/04 (Insured by MBIA)........ 6,855,000
2,000,000 New Jersey State Transportation
Trust Fund Authority,
Transportation System, Series A,
6.00%, 12/15/06 (Insured by
MBIA)........................... 2,167,500
------------
10,443,906
------------
NEW YORK -- 1.5%
1,130,000 Metropolitan Transportation
Authority, Series M, 5.50%,
7/1/08 (Insured by FGIC)........ 1,168,137
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
NEW YORK (CONTINUED)
$3,000,000 Triborough Bridge & Tunnel
Authority, General Purpose,
Series Y, 5.50%, 1/1/17......... $ 3,033,750
------------
4,201,887
------------
NORTH CAROLINA -- 0.7%
2,000,000 North Carolina Municipal Power,
Agency No. 1, Catawba Electric
Revenue, 5.90%, 1/1/03.......... 2,072,500
------------
OHIO -- 0.8%
2,125,000 Columbus, Sewer Improvement, GO,
6.30%, 9/15/99.................. 2,241,875
------------
OKLAHOMA -- 1.4%
1,825,000 Grand River Dam Authority
Revenue, Prerefunded 6/1/97 @
100, 7.20%, 6/1/98.............. 1,844,619
2,000,000 Tulsa Industrial Authority
Revenue, University of Tulsa,
Series A, 6.00%, 10/1/16
(Insured by MBIA)............... 2,127,500
------------
3,972,119
------------
PENNSYLVANIA -- 3.6%
4,000,000 Allegheny County, Refunding
Series C-45, 5.10%, 10/1/06
(Insured by FGIC)............... 4,080,000
4,375,000 Chartiers Valley Joint School
District Authority, School
Revenue, ETM, 6.15%, 3/1/07..... 4,730,469
1,475,000 Pennsylvania State, Series A,
GO, Prerefunded 5/1/00 @ 101.5,
7.00%, 5/1/05................... 1,613,281
------------
10,423,750
------------
PUERTO RICO -- 2.5%
3,055,000 Puerto Rico Commonwealth,
Aqueduct & Sewer Authority,
6.00%, 7/1/06................... 3,272,669
2,000,000 Puerto Rico Commonwealth,
Highway & Transportation
Authority, Highway Revenue,
Series X, 4.90%, 7/1/01......... 2,022,500
</TABLE>
Continued
18
<PAGE> 21
The Kent INTERMEDIATE TAX-FREE FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
PUERTO RICO (CONTINUED)
$2,000,000 Puerto Rico Electric Power
Authority Revenue, Series W,
5.00%, 7/1/98................... $ 2,022,500
------------
7,317,669
------------
RHODE ISLAND -- 1.4%
1,000,000 Providence, GO, 6.70%, 1/15/02
(Insured by MBIA)............... 1,078,750
2,000,000 State Depositors Economic
Protection Corp., Series A,
Special Obligation, 6.15%,
8/1/99 (Insured by MBIA)........ 2,082,500
1,000,000 State Depositors Economic
Protection Corp., Series B,
Special Obligation, 5.20%,
8/1/03 (Insured by MBIA)........ 1,025,000
------------
4,186,250
------------
TENNESSEE -- 0.5%
1,230,000 Tennessee State, Series B, GO,
6.20%, 6/1/01................... 1,320,712
------------
TEXAS -- 9.5%
1,000,000 Austin Independent School
District, GO, 6.20%, 8/1/99..... 1,048,750
2,245,000 Dallas Independent School
District, GO, 5.40%, 8/15/03.... 2,340,413
1,055,000 Hays Consolidated Independent
School District, 6.00%,
9/1/02.......................... 1,138,081
1,190,000 Hays Consolidated Independent
School District, 6.00%,
9/1/04.......................... 1,291,150
1,000,000 Houston Water & Sewer System,
Prior Lien, Series A, 7.00%,
12/1/01 (Insured by AMBAC)...... 1,107,500
1,500,000 Houston Water & Sewer System,
Junior Lien, Series C, 5.75%,
12/1/03 (Insured by MBIA)....... 1,586,250
3,000,000 Lower Colorado River Authority,
4.90%, 1/1/07................... 2,977,500
1,050,000 Round Rock Independent School
District, GO, 5.25%, 2/15/05.... 1,077,562
2,800,000 Texas Municipal Power Agency,
5.60%, 9/1/01 (Insured by
MBIA)........................... 2,919,000
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
TEXAS (CONTINUED)
$4,450,000 Texas State, Series A, GO,
5.70%, 10/1/03.................. $4,728,125
5,595,000 Texas State Public Finance
Authority, Series A, 6.50%,
10/1/04......................... 6,245,419
1,015,000 University of Texas, Series A,
6.60%, 8/15/02.................. 1,121,575
------------
27,581,325
------------
UTAH -- 0.6%
1,690,000 Davis County Solid Waste
Management & Recovery, Special
Service District, 4.90%,
6/15/97......................... 1,690,693
------------
VIRGINIA -- 1.0%
3,000,000 Norfolk, GO, 5.20%, 6/1/08...... 3,018,750
------------
WASHINGTON -- 3.9%
8,000,000 Washington State, Series A, GO,
5.50%, 9/1/05................... 8,300,000
850,000 Washington State, Series III-H,
Motor Vehicle Fuel Tax, GO,
5.75%, 9/1/12................... 882,938
2,000,000 Washington State Public Power
Supply System, Nuclear Project
No. 1 Bond Revenue, Series C,
7.25%, 7/1/00 (Insured by
FGIC)........................... 2,170,000
------------
11,352,938
------------
WEST VIRGINIA -- 0.4%
1,095,000 West Virginia School Building
Authority Revenue, Capital
Improvement, Series A, 6.70%,
7/1/00 (Insured by MBIA)........ 1,173,019
------------
WISCONSIN -- 1.3%
1,025,000 Milwaukee Metropolitan Sewer
District, Series A, GO, 6.60%,
10/1/99......................... 1,082,656
1,500,000 Milwaukee Metropolitan Sewer
District, Series A, GO, 6.70%,
10/1/00......................... 1,612,500
1,000,000 Wisconsin State Public Power
Supply System, Series A, 7.00%,
7/1/01 (Insured by AMBAC)....... 1,096,250
------------
3,791,406
------------
TOTAL MUNICIPAL SECURITIES...... 283,968,907
------------
(cost $274,158,372)
</TABLE>
Continued
19
<PAGE> 22
The Kent INTERMEDIATE TAX-FREE FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
INVESTMENT COMPANY -- 0.3%
713,880 Dreyfus Tax-Exempt Cash
Management Fund................. $ 713,880
------------
TOTAL INVESTMENT COMPANY........ 713,880
------------
(cost $713,880)
TOTAL INVESTMENTS -- 98.5%................... 284,682,787
(cost $274,872,252)(a)
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.5%.......................... 4,360,118
------------
NET ASSETS -- 100.0%......................... $289,042,905
============
<FN>
- ---------------------------------------
Percentages indicated are based on net assets of $289,042,905.
* Variable rate security. Rate presented represents rate in effect at December
31, 1996. Maturity date reflects next rate change date.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<CAPTION>
<S> <C> <C>
Unrealized appreciation......... $10,144,475
Unrealized depreciation......... (333,940)
------------
Net unrealized appreciation..... $ 9,810,535
===========
AMBAC AMBAC Indemnity Corporation
AMT Alternative Minimum Tax Paper
ETM Escrowed to Maturity
FGIC Financial Guaranty Insurance Corp.
FSA Financial Security Assurance
GO General Obligation
MBIA Municipal Bond Insurance Association
</TABLE>
See Notes to Financial Statements.
20
<PAGE> 23
The Kent TAX-FREE INCOME FUND
Funds PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES -- 97.5%
CALIFORNIA -- 11.1%
$2,000,000 California State, GO,
6.25%, 9/1/12................... $ 2,182,500
1,400,000 California State, GO,
7.00%, 6/1/05................... 1,601,250
1,570,000 California State Public Works
Board Lease Revenue, University
of California Projects, Series
A, Prerefunded 12/1/02 @ 102,
6.60%, 12/2/22.................. 1,768,213
3,000,000 Northern California Power Agency
Revenue, Geothermal Project,
Series A,
5.50%, 7/1/05 (Insured by
AMBAC).......................... 3,150,000
2,000,000 Orange County, Series A,
6.00%, 6/1/10 (Insured by
MBIA)........................... 2,137,500
1,380,000 Turlock Irrigation District
Revenue, Series A,
6.00%, 1/1/07 (Insured by
MBIA)........................... 1,495,575
------------
12,335,038
------------
COLORADO -- 1.9%
2,000,000 Denver City & County Airport
Revenue, Series C, (AMT),
6.75%, 11/15/22................. 2,115,000
------------
FLORIDA -- 3.5%
1,000,000 Dade County Water & Sewer System
Revenue,
5.50%, 10/1/25, Callable 10/1/05
@ 102 (Insured by FGIC)......... 981,250
1,355,000 Florida State Board of Education
Capital Outlay, Public
Education, Series E, GO,
5.10%, 6/1/12................... 1,314,350
1,400,000 Port Everglades Authority, Port
Improvement, ETM,
7.13%, 11/1/16.................. 1,643,250
------------
3,938,850
------------
GEORGIA -- 1.0%
1,000,000 Georgia State, Series B, GO,
5.95%, 3/1/08................... 1,082,500
------------
HAWAII -- 0.9%
1,000,000 Honolulu City & County, Series
A, GO,
5.75%, 4/1/10................... 1,047,500
------------
ILLINOIS -- 8.4%
2,000,000 Chicago Metropolitan Water
Reclamation District, Capital
Improvement, GO,
5.50%, 12/1/10.................. 2,022,500
1,000,000 Chicago Public Building
Commission, Series A,
7.00%, 1/1/20 (Insured by
MBIA)........................... 1,186,250
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
ILLINOIS (CONTINUED)
$2,000,000 Chicago School Finance
Authority, Series A, GO,
4.90%, 6/1/05 (Insured by
MBIA)........................... $ 1,987,500
2,000,000 Du Page & Will Counties,
Community School District No.
204, GO,
4.95%, 12/30/01 (Insured by
FGIC)........................... 2,035,000
1,000,000 Illinois State Sales Tax, Series
S,
5.00%, 6/15/08.................. 980,000
1,000,000 Will County Forest Preserve
District, GO,
5.90%, 12/1/03 (Insured by
AMBAC).......................... 1,063,750
------------
9,275,000
------------
INDIANA -- 5.8%
2,000,000 Indiana Municipal Power Supply
Agency, Series B,
6.00%, 1/1/13 (Insured by
MBIA)........................... 2,100,000
2,250,000 Indiana State Office Building
Commission, Capital Complex,
Government Center Parking
Facilities, Series A,
4.80%, 7/1/03 (Insured by
AMBAC).......................... 2,250,000
1,000,000 Indiana Transportation Finance
Authority, Highway Revenue,
Series A,
5.75%, 6/1/12 (Insured by
AMBAC).......................... 1,033,750
1,000,000 Marion County Hospital Authority
Revenue, Community Hospital,
Indianapolis Project,
6.00%, 5/1/06................... 1,063,750
------------
6,447,500
------------
IOWA -- 2.0%
2,055,000 Iowa Finance Authority Private
College Revenue, Drake
University Project,
6.50%, 12/1/11 (Insured by
MBIA)........................... 2,273,344
------------
LOUISIANA -- 2.9%
3,000,000 Louisiana State Gas & Fuels Tax
Revenue, Series A,
7.25%, 11/15/00................. 3,273,750
------------
MARYLAND -- 1.8%
2,000,000 Prince Georges County,
Consolidated Public Improvement,
GO,
5.00%, 1/1/02 (Insured by
MBIA)........................... 2,047,500
------------
</TABLE>
Continued
21
<PAGE> 24
The Kent TAX-FREE INCOME FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MASSACHUSETTS -- 3.5%
$1,000,000 Massachusetts State, Series B,
GO,
5.40%, 11/1/06.................. $ 1,036,250
1,000,000 Massachusetts State Industrial
Finance Agency, Resource
Recovery Revenue, Refusetech,
Inc. Project, Series A,
5.25%, 7/1/99 (Insured by
FSA)............................ 1,020,000
2,000,000 Massachusetts State Water,
Resource Authority, Series B,
5.00%, 12/1/25 (Insured by
MBIA)........................... 1,817,500
------------
3,873,750
------------
MICHIGAN -- 23.8%
2,000,000 Battle Creek Downtown
Development Authority, Tax
Increment Revenue,
7.30%, 5/1/10................... 2,232,500
1,300,000 Berkley City School District,
GO,
7.00%, 1/1/07 (Insured by
FGIC)........................... 1,499,875
2,000,000 Detroit Sewage Disposal Revenue,
Series B,
6.00%, 7/1/09 (Insured by
MBIA)........................... 2,155,000
1,000,000 Detroit Water Supply System,
Series B,
5.10%, 7/1/07 (Insured by
MBIA)........................... 995,000
930,000 Kent County Airport Facility,
Kent County International
Airport, (AMT),
5.50%, 1/1/07................... 964,875
1,000,000 Michigan State Hospital
Financial Authority,
5.50%, 1/1/16, Callable 1/1/07 @
102 (Insured by AMBAC).......... 981,250
2,365,000 Michigan State Hospital Finance
Authority, Detroit Medical
Center, Series B,
5.00%, 8/15/06 (Insured by
AMBAC).......................... 2,344,306
2,000,000 Michigan State Hospital Finance
Authority, Henry Ford Health,
Series A,
5.25%, 11/15/20 (Insured by
AMBAC).......................... 1,892,500
2,000,000 Michigan State Hospital Finance
Authority, Sisters of Mercy,
Series P,
5.25%, 8/15/21 (Insured by
MBIA)........................... 1,890,000
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$1,300,000 Michigan State Housing
Development Authority, Rental
Housing Revenue, Series A,
5.15%, 4/1/02 (Insured by
AMBAC).......................... $ 1,322,750
1,000,000 Michigan State South Central
Power Agency, Power Supply
System Revenue,
5.80%, 11/1/05 (Insured by
MBIA)........................... 1,065,000
2,000,000 Michigan State Trunk Line,
5.50%, 11/1/16.................. 1,970,000
2,000,000 Michigan State University
Revenue, General, Series A,
5.50%, 8/15/22.................. 1,930,000
1,000,000 Michigan Strategic Fund, Dow
Chemical, (AMT),
5.10%*, 1/2/97.................. 1,000,000
2,400,000 Midland County, Economic
Development Corp., Dow Chemical,
Series B,
4.15%*, 12/1/15................. 2,400,000
500,000 University of Michigan, Hospital
Revenue, Series A,
5.10%*, 1/2/97.................. 500,000
1,200,000 University of Michigan, Revenue,
5.10%*, 1/2/97.................. 1,200,000
------------
26,343,056
------------
MINNESOTA -- 1.3%
1,500,000 North St. Paul, Maplewood
Independent District No. 622,
Series A, GO,
5.13%, 2/1/25................... 1,406,250
------------
MISSOURI -- 0.5%
500,000 Missouri State Health &
Education Facilities, Lake of
Ozarks General Hospital,
6.50%, 2/15/21.................. 508,125
------------
NEBRASKA -- 1.0%
1,075,000 Omaha Public Power District,
5.10%, 2/1/08................... 1,083,063
------------
NEVADA -- 3.9%
1,805,000 Clark County School District,
GO,
5.75%, 6/15/10 (Insured by
FGIC)........................... 1,850,125
2,000,000 Nevada State, Nevada Municipal
Bond Bank, Series A, GO,
8.00%, 11/1/05.................. 2,450,000
------------
4,300,125
------------
</TABLE>
Continued
22
<PAGE> 25
The Kent TAX-FREE INCOME FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
NEW JERSEY -- 3.0%
$1,500,000 New Jersey Economic Development
Authority, Market Transition
Facility Revenue, Senior Lien,
7.00%, 7/1/04 (Insured by
MBIA)........................... $ 1,713,750
1,500,000 New Jersey State Transportation
Trust Fund Authority,
Transportation System, Series A,
6.00%, 12/15/06 (Insured by
MBIA)........................... 1,625,625
------------
3,339,375
------------
NEW YORK -- 1.2%
1,350,000 New York City Municipal Water &
Sewer Revenue,
5.50%, 6/15/24, Callable 6/15/06
@ 101........................... 1,290,938
------------
OKLAHOMA -- 1.9%
1,000,000 Grand River Dam Authority,
5.75%, 6/1/08 (Insured by
FSA)............................ 1,063,750
1,000,000 Tulsa Industrial Authority,
University of Tulsa, Series A,
6.00%, 10/1/16 (Insured by
MBIA)........................... 1,063,750
------------
2,127,500
------------
PENNSYLVANIA -- 1.8%
2,000,000 Pennsylvania State, First
Series, GO,
5.38%, 5/15/16 (Insured by
FGIC)........................... 1,950,000
------------
PUERTO RICO -- 0.9%
1,000,000 Puerto Rico Commonwealth Highway
& Transportation Authority,
Highway Revenue, Series X,
4.90%, 7/1/01................... 1,011,250
------------
RHODE ISLAND -- 0.9%
1,000,000 Convention Center Authority,
Series B,
5.00%, 5/15/09 (Insured by
MBIA)........................... 977,500
------------
SOUTH CAROLINA -- 2.5%
1,200,000 Myrtle Beach Water & Sewer
Revenue,
4.90%, 3/1/02 (Insured by
MBIA)........................... 1,210,500
1,500,000 Myrtle Beach Water & Sewer
Revenue,
5.00%, 3/1/03 (Insured by
MBIA)........................... 1,515,000
------------
2,725,500
------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
TENNESSEE -- 1.1%
$1,225,000 Tennessee Housing Development
Agency, Mortgage Finance, Series
C (AMT),
5.95%, 7/1/09 (Insured by
MBIA)........................... $ 1,251,031
------------
TEXAS -- 6.1%
1,000,000 Brownsville Utility System,
6.25%, 9/1/11 (Insured by
AMBAC).......................... 1,088,750
1,000,000 Harris County, Certificates of
Obligation,
6.00%, 12/15/11................. 1,073,750
2,000,000 Texas City Industrial
Development Corp., Marine
Terminal Revenue, Arco Pipeline
Co. Project,
7.375%, 10/1/20................. 2,465,000
2,000,000 Texas State, Series A, GO,
5.70%, 10/1/03.................. 2,125,000
------------
6,752,500
------------
UTAH -- 1.8%
2,175,000 Intermountain Power Agency, Utah
Power Supply, Series D,
5.00%, 7/1/23................... 1,976,531
------------
VIRGINIA -- 1.1%
1,230,000 Norfolk, State Aid, GO,
5.40%, 6/1/12................... 1,225,386
------------
WASHINGTON -- 1.9%
1,000,000 Douglas County Public Utility
District No. 001, Electric
Distribution System,
5.90%, 1/1/11 (Insured by
MBIA)........................... 1,021,250
1,000,000 Washington State, Motor Vehicle
Fuel Tax, R-92D, GO,
6.25%, 9/1/07................... 1,098,750
------------
2,120,000
------------
TOTAL MUNICIPAL SECURITIES...... 108,097,862
------------
(cost $105,019,317)
</TABLE>
Continued
23
<PAGE> 26
The Kent TAX-FREE INCOME FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ----------- ------------
<S> <C> <C>
INVESTMENT COMPANY -- 1.2%
$1,315,963 Dreyfus Tax-Exempt Cash
Management Fund................. $ 1,315,963
------------
TOTAL INVESTMENT COMPANY........ 1,315,963
------------
(cost $1,315,963)
TOTAL INVESTMENTS -- 98.7%................... 109,413,825
(cost $106,335,280)(a)
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.3%........................ 1,469,921
------------
NET ASSETS -- 100.0%......................... $110,883,746
=============
</TABLE>
[FN]
- ---------------------------------------
Percentages indicated are based on net assets of $110,883,746.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C> <C>
Unrealized appreciation......... $ 3,252,490
Unrealized depreciation......... (173,945)
------------
Net unrealized appreciation..... $ 3,078,545
============
</TABLE>
[FN]
* Variable rate security. Rate presented represents rate in effect at December
31, 1996. Maturity date reflects next rate change date.
AMBAC AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
ETM Escrowed To Maturity
FGIC Financial Guaranty Insurance Corp.
FSA Financial Security Assurance
GO General Obligation
MBIA Municipal Bond Insurance Association
See Notes to Financial Statements.
24
<PAGE> 27
The Kent MICHIGAN MUNICIPAL BOND FUND
Funds PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
MUNICIPAL SECURITIES -- 98.4%
MICHIGAN -- 93.0%
$ 1,990,000 Allegan Sanitary Sewer System
(AMT),
5.45%, 11/1/02.................. $ 1,997,463
1,220,000 Auburn Hills Local Development
Authority, Tax Increment
Revenue, Series A,
6.75%, 11/1/97 (LC: Dai-Ichi
Kangyo Bank Ltd.)............... 1,242,229
2,000,000 Battle Creek Downtown
Development Authority, Tax
Increment Revenue,
6.90%, 5/1/04................... 2,177,500
695,000 Bay City School District, GO,
5.30%, 5/1/97................... 699,413
745,000 Bay City School District, GO,
5.50%, 5/1/98................... 758,969
500,000 Central Michigan University,
6.70%, 10/1/97.................. 510,055
1,445,000 Chippewa Valley School District,
Series A, GO,
5.60%, 5/1/99................... 1,490,156
1,000,000 Chippewa Valley School District,
GO, Prerefunded 5/1/01 @ 101.5,
6.375%, 5/1/05 (Insured by FGIC)... 1,087,500
1,700,000 Clintondale Community School
District, GO,
4.65%, 5/1/03................... 1,680,875
2,000,000 Dearborn School District, GO,
Prerefunded 5/1/00 @ 102,
6.625%, 5/1/09 (Insured by MBIA)... 2,177,500
1,000,000 Dearborn School District, GO,
Prerefunded 5/1/00 @ 102,
6.375%, 5/1/10 (Insured by MBIA)... 1,081,250
1,075,000 Dearborn Sewage Disposal System,
7.00%, 4/1/99 (Insured by MBIA)... 1,132,780
965,000 Dearborn Sewage Disposal System,
6.90%, 4/1/02 (Insured by MBIA)... 1,059,088
1,000,000 Detroit, GO,
5.00%, 4/1/04................... 1,006,250
750,000 Detroit, GO,
5.05%, 4/1/06................... 799,688
580,000 Detroit, GO, Distributable State
Aid,
5.60%, 5/1/00 (Insured by
AMBAC).......................... 600,300
2,500,000 Detroit, GO, Prerefunded 5/1/99
@ 102,
7.20%, 5/1/09 (Insured by
AMBAC).......................... 2,712,500
2,000,000 Detroit Convention Facility,
Cobo Hall Expansion Project,
4.00%, 9/30/97.................. 1,999,320
2,800,000 Detroit Sewage Disposal, Series A,
4.85%, 7/1/01 (Insured by FGIC)... 2,835,000
720,000 Detroit Water Supply System,
4.30%, 7/1/00 (Insured by FGIC)... 716,400
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$ 2,000,000 East China Township School
District, GO,
6.00%, 5/1/02................... $ 2,102,500
720,000 Eastern Michigan University, GO,
3.95%, 6/1/98 (Insured by
AMBAC).......................... 718,200
1,000,000 Eastern Michigan University, GO,
5.80%, 6/1/01 (Insured by
AMBAC).......................... 1,051,250
405,000 Farmington Hills Economic
Development Corp. Revenue,
Botsford Continuing Care, Series A,
4.90%, 2/15/02 (Insured by MBIA)... 408,038
425,000 Farmington Hills Economic
Development Corp. Revenue,
Botsford Continuing Care, Series A,
5.00%, 2/15/03 (Insured by MBIA)... 428,718
445,000 Farmington Hills Economic
Development Corp. Revenue,
Botsford Continuing Care, Series A,
5.10%, 2/15/04 (Insured by MBIA)... 448,338
470,000 Farmington Hills Economic
Development Corp. Revenue,
Botsford Continuing Care, Series A,
5.20%, 2/15/05 (Insured by MBIA)... 473,525
275,000 Ferris State College, Special
Obligation,
7.50%, 8/15/03.................. 278,438
1,915,000 Flint Hospital Building
Authority, Hurley Medical
Center, Series A,
7.00%, 7/1/97................... 1,933,767
1,000,000 Grand Haven Area Public Schools,
GO,
5.45%, 5/1/04 (Insured by MBIA)... 1,043,750
500,000 Grand Rapids Water Supply
System,
6.60%, 1/1/97 (Insured by FGIC)... 500,000
990,000 Grand Rapids Water Supply
System,
7.40%, 1/1/97................... 990,000
1,250,000 Greater Detroit Resource
Recovery Authority Revenue,
Series B,
5.00%, 12/13/02 (Insured by
AMBAC).......................... 1,271,875
1,500,000 Haslett Public School District,
GO, Prerefunded 5/1/00 @ 101,
7.50%, 5/1/20................... 1,657,500
1,000,000 Holland Electric Revenue,
Prerefunded 7/1/99 @ 100,
6.40%, 7/1/02................... 1,052,500
1,100,000 Holland Electric Revenue,
Prerefunded 7/1/99 @ 100,
6.50%, 7/1/03................... 1,159,125
</TABLE>
Continued
25
<PAGE> 28
The Kent MICHIGAN MUNICIPAL BOND FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$ 675,000 Hudsonville Public Schools,
Series B, GO,
4.50%, 5/1/98 (Insured by FGIC)... $ 679,219
500,000 Hudsonville Public Schools,
Series B, GO,
4.60%, 5/1/99 (Insured by FGIC)... 505,625
1,250,000 Huron Valley School District,
GO, Prerefunded 5/1/01 @ 102,
7.10%, 5/1/08 (Insured by FGIC)... 1,400,000
470,000 Iron Mountain City School
District, GO,
3.60%, 5/1/97 (Insured by
AMBAC).......................... 470,343
485,000 Iron Mountain City School
District, GO,
3.90%, 5/1/98 (Insured by
AMBAC).......................... 483,788
1,810,000 Kalamazoo Hospital Finance
Authority, Refunding &
Improvement, Bronson Methodist
Hospital,
4.95%, 5/15/02 (Insured by MBIA)... 1,832,625
1,000,000 Kalamazoo Hospital Finance
Authority, Refunding &
Improvement, Bronson Methodist
Hospital,
5.25%, 5/15/05 (Insured by MBIA)... 1,020,000
1,295,000 Kenowa Hills Public Schools, GO,
5.50%, 5/1/05................... 1,354,894
500,000 Kent County Airport Facility,
Kent County International
Airport (AMT),
5.25%, 1/1/04................... 512,500
505,000 Kent County Airport Facility,
Kent County International
Airport (AMT),
5.30%, 1/1/05................... 519,518
500,000 Kent Hospital Finance Authority,
Butterworth Hospital, Series A,
6.50%, 1/15/97.................. 500,280
500,000 Kent Hospital Finance Authority,
Butterworth Hospital, Series A,
6.60%, 1/15/98.................. 511,655
1,150,000 Kent Hospital Finance Authority,
Butterworth Hospital, Series A,
4.90%, 1/15/05.................. 1,132,750
1,500,000 Kent Hospital Finance Authority,
Pine Rest Christian Hospital,
5.40%, 11/1/98 (Insured by
FGIC)........................... 1,531,875
2,000,000 Lake Orion Community School
District, GO,
6.20%, 5/1/04 (Insured by
AMBAC).......................... 2,177,500
850,000 Lanse Creuse Public Schools, GO,
7.70%, 5/1/04................... 878,236
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$ 2,250,000 Michigan Higher Education
Student Loan Authority, Series
XII-E (AMT),
6.00%, 10/1/97 (Insured by
AMBAC).......................... $ 2,281,320
1,000,000 Michigan Higher Education
Student Loan Authority, Series
XII-G (AMT),
4.45%, 10/1/99 (Insured by
AMBAC).......................... 1,000,000
1,000,000 Michigan Municipal Bond
Authority, Local Government Loan
Program, Series B,
6.90%, 5/1/99 (Insured by FGIC)... 1,055,000
1,020,000 Michigan Municipal Bond
Authority, Local Government Loan
Program, Qualified School,
6.35%, 5/15/01.................. 1,095,225
1,000,000 Michigan Municipal Bond
Authority, Pooled Projects,
Series B,
5.10%, 10/1/04.................. 1,018,750
1,000,000 Michigan Municipal Bond
Authority, State Revolving Fund,
5.50%, 10/1/99.................. 1,032,500
2,000,000 Michigan Public Power Agency,
Belle River Project, Series A,
5.30%, 1/1/00................... 2,042,500
750,000 Michigan Public Power Agency,
Belle River Project, Series A,
5.70%, 1/1/03................... 785,625
1,000,000 Michigan State Building
Authority, Series II,
6.10%, 10/1/01.................. 1,065,000
3,000,000 Michigan State Comprehensive
Transportation, Series B,
5.625%, 5/15/03, Callable 7/1/02
@ 102........................... 3,153,750
3,000,000 Michigan State Environment
Protection Program, GO,
Prerefunded 11/1/02 @ 102,
6.25%, 11/1/08.................. 3,288,750
910,000 Michigan State Hospital Finance
Authority,
4.90%, 11/1/02.................. 922,512
2,000,000 Michigan State Hospital Finance
Authority, McLaren Obligation
Group, Series A,
4.10%, 10/15/97................. 2,005,200
1,000,000 Michigan State Hospital Finance
Authority, Mercy Memorial
Hospital,
4.00%, 6/1/99 (Insured by MBIA)... 993,750
</TABLE>
Continued
26
<PAGE> 29
The Kent MICHIGAN MUNICIPAL BOND FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$ 1,000,000 Michigan State Hospital Finance
Authority, Oakwood Hospital
Obligation Group, Prerefunded
7/1/00 @ 102,
6.95%, 7/1/02 (Insured by FGIC)... $ 1,102,500
500,000 Michigan State Hospital Finance
Authority, Pontiac Osteopathic,
Series A,
4.65%, 2/1/97................... 499,950
1,060,000 Michigan State Hospital Finance
Authority, Sisters of Mercy
Health Corp., Series J,
7.15%, 2/15/99.................. 1,111,675
1,000,000 Michigan State Hospital Finance
Authority, Sisters of Mercy
Health Corp., Series P,
4.60%, 8/15/02 (Insured by MBIA)... 992,500
2,800,000 Michigan State Hospital Finance
Authority, Sisters of Mercy
Health Corp., Series J,
Prerefunded 2/15/01 @ 102,
7.375%, 2/15/11................. 3,150,000
1,150,000 Michigan State Hospital Finance
Authority, St. John Hospital &
Medical Center,
4.50%, 5/15/01 (Insured by
AMBAC).......................... 1,148,562
1,000,000 Michigan State Hospital Finance
Authority, St. John Hospital &
Medical Center,
5.00%, 5/15/05 (Insured by
AMBAC).......................... 1,005,000
475,000 Michigan State Housing
Development Authority, Mercy
Bellbrook Project,
4.40%, 4/1/98 (Insured by MBIA)... 476,188
2,680,000 Michigan State Housing
Development Authority, Rental
Housing Revenue, Series A,
(AMT),
5.25%, 10/1/01 (Insured by MBIA)... 2,726,900
885,000 Michigan State Strategic Fund,
Industrial Development Revenue,
Grand Rapids Motel Co. Project
(AMT),
5.25%*, 6/1/98.................. 887,213
420,000 Michigan State Strategic Fund,
Limited Obligation Revenue,
Lutheran Social Services
Project,
4.25%, 9/1/97 (LC: First of
America)........................ 420,248
415,000 Michigan State Strategic Fund,
Limited Obligation Revenue,
Lutheran Social Services
Project,
4.40%, 9/1/98 (LC: First of
America)........................ 415,518
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$ 480,000 Michigan State Strategic Fund,
Limited Obligation Revenue,
Lutheran Social Services
Project,
4.55%, 9/1/99 (LC: First of
America)........................ $ 481,200
2,000,000 Michigan State Underground
Storage Tank Financial Assurance
Authority, Series I,
5.00%, 5/1/00 (Insured by
AMBAC).......................... 2,040,000
1,270,000 Michigan State Underground
Storage Tank Financial Assurance
Authority, Series I,
6.00%, 5/1/06 (Insured by
AMBAC).......................... 1,376,362
1,200,000 Michigan State University,
Series A,
5.50%, 2/15/99 (Insured by
AMBAC).......................... 1,228,500
1,100,000 Michigan State University,
Series A,
5.50%, 2/15/00 (Insured by
AMBAC).......................... 1,133,000
1,000,000 Mount Clemens Community School
District, GO, Prerefunded 5/1/02
@ 102,
6.60%, 5/1/20 (Insured by MBIA)... 1,111,250
1,000,000 Oakland County, Community
College, Prerefunded 5/1/02
@ 100,
6.65%, 5/1/11................... 1,111,250
1,660,000 Oakland County Economic
Development Corp. Revenue,
Boardwalk Shopping Center,
Limited Obligation Revenue,
4.75%*, 6/30/98................. 1,664,150
615,000 Oakland County Economic
Development Corp. Revenue, Sugar
Tree Shopping Center, 4.75%*,
6/30/98......................... 611,925
3,000,000 Okemos Public School District,
Series I, GO,
6.90%, 5/1/11................... 3,330,000
3,200,000 Plymouth-Canton Community School
District, Series B, GO,
Prerefunded 5/1/01 @ 101,
6.80%, 5/1/17................... 3,512,000
415,000 Reeths-Puffer Schools, GO,
6.75%, 5/1/97 (Insured by FGIC)... 419,553
275,000 Reeths-Puffer Schools, GO,
6.75%, 5/1/98 (Insured by FGIC)... 283,938
630,000 Reeths-Puffer Schools, GO,
6.75%, 5/1/99 (Insured by FGIC)... 667,013
725,000 Reeths-Puffer Schools, GO,
6.75%, 5/1/00 (Insured by FGIC)... 779,375
735,000 Reeths-Puffer Schools, GO,
6.75%, 5/1/01 (Insured by FGIC)... 800,231
</TABLE>
Continued
27
<PAGE> 30
The Kent MICHIGAN MUNICIPAL BOND FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$ 750,000 Reeths-Puffer Schools, GO,
6.25%, 5/1/02 (Insured by FGIC)... $ 810,000
1,600,000 Rochester Community School
District, Prerefunded 5/1/98
@ 101,
7.25%, 5/1/03................... 1,682,000
2,000,000 Rockford Public Schools, GO,
Prerefunded 5/1/00 @ 101,
7.375%, 5/1/19.................. 2,202,500
1,000,000 South Lyon Community Schools,
GO, Prerefunded 5/1/98 @ 102,
7.80%, 5/1/14................... 1,068,750
1,200,000 Southfield Public Schools, GO,
3.90%, 5/1/98 (Insured by FGIC)... 1,197,000
1,095,000 Southfield Public Schools, GO,
4.00%, 5/1/99 (Insured by FGIC)... 1,089,525
1,200,000 St. Joseph Hospital Finance
Authority, Mercy Memorial
Medical Center Obligation,
3.95%, 1/1/97 (Insured by
AMBAC).......................... 1,200,000
860,000 Traverse City Area Public
Schools, GO,
4.15%, 5/1/00 (Insured by FGIC)... 853,550
1,000,000 Traverse City Area Public
Schools, Series II, GO,
Prerefunded 5/1/01 @ 101.5,
7.00%, 5/1/03................... 1,110,000
630,000 University of Michigan,
Intercollegiate Athletic
Revenue,
3.80%, 6/1/97................... 630,542
2,035,000 Walled Lake Consolidated School
District, GO,
4.70%, 5/1/01................... 2,060,438
2,235,000 Walled Lake Consolidated School
District, GO,
4.80%, 5/1/02................... 2,265,730
2,000,000 Walled Lake Consolidated School
District, Series II, GO,
Prerefunded 5/1/00 @ 102,
7.10%, 5/1/05................... 2,202,500
945,000 Warren Consolidated School
District, GO,
6.00%, 5/1/01................... 1,000,519
1,000,000 Warren Consolidated School
District, GO, Prerefunded 5/1/02
@ 102,
6.625%, 5/1/21.................. 1,110,000
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ----------- ------------
<S> <C> <C>
MUNICIPAL SECURITIES (CONTINUED)
MICHIGAN (CONTINUED)
$ 1,025,000 Washtenaw Community
College, GO,
4.70%, 4/1/03 (Insured by FGIC)... $ 1,021,156
450,000 Wayne County Downriver System
Sewer Disposal, GO, 3.75%,
5/1/97.......................... 449,495
550,000 Wayne County Downriver System
Sewer Disposal, GO, 3.75%,
5/1/98.......................... 541,063
550,000 Wayne County Downriver System
Sewer Disposal, GO, 3.75%,
5/1/99.......................... 530,063
550,000 Wayne County Downriver System
Sewer Disposal, GO, 3.75%,
5/1/00.......................... 518,375
1,500,000 West Ottawa Public School
District,
4.70%, 5/1/02 (Insured by FGIC)... 1,503,750
1,750,000 Western Michigan University,
Series A, Prerefunded 7/15/01
@ 102,
6.50%, 7/15/21 (Insured by
AMBAC).......................... 1,925,000
1,000,000 Wyandotte Electric Revenue,
6.20%, 10/1/03 (Insured by MBIA)... 1,076,250
1,150,000 Ypsilanti School District,
4.50%, 5/1/00 (Insured by FGIC)... 1,154,313
------------
144,220,970
------------
PUERTO RICO -- 5.4%
3,000,000 Puerto Rico Commonwealth Highway
& Transportation Authority
Highway Revenue, Series X,
4.90%, 7/1/01................... 3,033,750
4,000,000 Puerto Rico Electric Power
Authority Revenue, Series W,
5.00%, 7/1/98................... 4,045,000
1,300,000 Puerto Rico Individual Medical &
Environment Pollution Control
Facilities Financing Authority,
Intel Corp., Series A,
4.00%*, 9/1/98.................. 1,296,750
------------
8,375,500
------------
TOTAL MUNICIPAL SECURITIES...... 152,596,470
------------
(Cost $150,856,786)
</TABLE>
Continued
28
<PAGE> 31
The Kent MICHIGAN MUNICIPAL BOND FUND
Funds PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES -- 0.3%
1 Dreyfus Tax-Exempt Cash
Management Fund................. $ 1
450,657 Reich & Tang Daily Tax-Free
Fund............................ 450,657
------------
TOTAL INVESTMENT COMPANIES...... 450,658
------------
(Cost $450,658)
TOTAL INVESTMENTS -- 98.7%................... 153,047,128
(Cost $151,307,444)(a)
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.3%........................ 1,997,042
------------
NET ASSETS -- 100.0%......................... $155,044,170
============
<FN>
- ---------------------------------------
Percentages indicated are based on net assets of $155,044,170.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
</TABLE>
<TABLE>
<S> <C>
Unrealized appreciation......... $ 1,915,209
Unrealized depreciation......... (175,525)
------------
Net unrealized appreciation..... $ 1,739,684
=============
</TABLE>
* Variable rate security. Rate presented represents rate in effect at December
31, 1996. Maturity date reflects next rate change date.
<TABLE>
<C> <S> <C>
AMBAC AMBAC Indemnity Corp.
AMT Alternative Minimum Tax Paper
FGIC Financial Guarantee Insurance Corp.
GO General Obligation
LC Letter of Credit
MBIA Municipal Bond Insurance Association
</TABLE>
See Notes to Financial Statements.
29
<PAGE> 32
The Kent
Funds STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE TAX-FREE MICHIGAN
TERM TAX-FREE TAX-FREE INCOME MUNICIPAL
FUND FUND FUND BOND FUND
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost.......................................... $40,391,435 $274,872,252 $106,335,280 $151,307,444
Net unrealized appreciation.................................. 596,621 9,810,535 3,078,545 1,739,684
----------- ------------ ------------ ------------
Total investments at value............................... 40,988,056 284,682,787 109,413,825 153,047,128
Cash......................................................... -- -- 1,649 --
Interest and dividends receivable............................ 620,384 4,484,571 1,515,783 2,082,060
Deferred organizational expense (Note 2)..................... -- -- 4,216 --
Prepaid expenses (Note 2).................................... -- 443 -- --
----------- ------------ ------------ ------------
Total Assets............................................. 41,608,440 289,167,801 110,935,473 155,129,188
----------- ------------ ------------ ------------
LIABILITIES:
Advisory fees payable (Note 3)............................... 2,064 15,856 6,693 7,647
Payable to administrator (Note 3)............................ 6,703 43,112 16,542 24,286
Payable to transfer agent (Note 3)........................... 4,125 14,287 6,126 9,869
Distribution fees (Investment Shares)(Note 3)................ 12 656 175 285
Payable to custodian......................................... 3,008 5,276 5,160 5,363
Registration & filing fees payable........................... 1,157 15,000 3,241 9,714
Accrued expenses and other liabilities....................... 14,052 30,709 13,790 27,854
----------- ------------ ------------ ------------
Total Liabilities........................................ 31,121 124,896 51,727 85,018
----------- ------------ ------------ ------------
NET ASSETS..................................................... $41,577,319 $289,042,905 $110,883,746 $155,044,170
=========== ============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital.............................................. $40,957,086 $279,791,789 $107,745,686 $153,389,303
Accumulated undistributed net investment income.............. 7,011 44,748 8,405 22,437
Accumulated net realized gains (losses) on investments sold
and futures contracts...................................... 16,601 (604,167) 51,110 (107,254)
Net unrealized appreciation of investments................... 596,621 9,810,535 3,078,545 1,739,684
----------- ------------ ------------ ------------
TOTAL NET ASSETS......................................... $41,577,319 $289,042,905 $110,883,746 $155,044,170
=========== ============ ============ ============
INSTITUTIONAL SHARES:
Net Assets................................................... $41,471,587 $285,674,485 $109,947,537 $152,622,569
Shares Outstanding........................................... 4,080,067 27,404,331 10,708,823 15,140,896
Net Asset Value, offering and redemption price per share..... $ 10.16 $ 10.42 $ 10.27 $ 10.08
=========== ============ ============ ============
INVESTMENT SHARES:
Net Assets................................................... $ 105,732 $ 3,368,420 $ 936,209 $ 2,421,601
Shares Outstanding........................................... 10,370 323,136 90,957 240,448
Net Asset Value and redemption price per share............... $ 10.20 $ 10.42 $ 10.29 $ 10.07
=========== ============ ============ ============
Maximum Sales Charge -- Investment Shares.................... 4.00% 4.00% 4.00% 4.00%
=========== ============ ============ ============
Maximum Offering Price Per Share -- Investment Shares (100% /
(100% - Maximum Sales Charge) of net asset value adjusted
to nearest cent)........................................... $ 10.63 $ 10.85 $ 10.72 $ 10.49
=========== ============ ============ ============
</TABLE>
See Notes to Financial Statements.
30
<PAGE> 33
The Kent STATEMENTS OF OPERATIONS
Funds FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE TAX-FREE MICHIGAN
TERM TAX-FREE TAX-FREE INCOME MUNICIPAL
FUND FUND FUND BOND FUND
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 2):
Interest................................................. $ 2,196,043 $14,596,294 $5,530,986 $7,644,608
Dividends................................................ 29,364 194,026 96,276 141,198
Other Income............................................. 2,163 -- -- --
---------- ----------- ---------- ----------
Total Investment Income................................ 2,227,570 14,790,320 5,627,262 7,785,806
---------- ----------- ---------- ----------
EXPENSES:
Investment advisory fees (Note 3)........................ 225,891 1,458,010 595,616 772,339
Administration fees (Note 3)............................. 96,582 578,025 229,540 341,697
Distribution fees (Investment Shares) (Note 3)........... 162 8,726 1,900 5,410
Custodian fees........................................... 9,270 19,393 13,891 12,220
Legal and audit fees (Note 3)............................ 18,463 28,114 21,286 22,679
Transfer agent fees (Note 3)............................. 16,674 32,922 17,389 24,316
Amortization of organization costs (Note 2).............. -- -- 1,376 --
Other expenses........................................... -- 28,163 11,515 35,791
---------- ----------- ---------- ----------
Total expenses before waivers.......................... 367,042 2,153,353 892,513 1,214,452
Less: waivers (Note 3)................................. (1,018) (6,156) (2,362) (6,399)
---------- ----------- ---------- ----------
Net Expenses........................................... 366,024 2,147,197 890,151 1,208,053
---------- ----------- ---------- ----------
NET INVESTMENT INCOME...................................... 1,861,546 12,643,123 4,737,111 6,577,753
---------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTE 2):
Net realized gains on investments sold................... 82,971 1,079,288 1,968,582 86,964
Net realized losses on futures contracts................. -- -- (363,313) --
Net change in unrealized appreciation/depreciation of
investments............................................ (270,758) (3,796,119) (1,887,284) (795,155)
---------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS AND
FUTURES CONTRACTS (NOTE 2):................................ (187,787) (2,716,831) (282,015) (708,191)
---------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $ 1,673,759 $ 9,926,292 $4,455,096 $5,869,562
========== =========== ========== ==========
</TABLE>
See Notes to Financial Statements.
31
<PAGE> 34
The Kent
Funds STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LIMITED TERM INTERMEDIATE TAX-FREE MICHIGAN MUNICIPAL
TAX-FREE FUND TAX-FREE FUND INCOME FUND BOND FUND
-------------------------- --------------------------- -------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995(1) 1996 1995
------------ ------------ ------------ ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS AT
BEGINNING OF
PERIOD........ $55,401,190 $43,503,375 $287,540,348 $ 385,220,246 $122,384,290 $ -- $187,365,585 $120,464,659
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS:
Net investment
income...... 1,861,546 1,889,876 12,643,123 13,878,695 4,737,111 3,573,032 6,577,753 6,244,604
Net realized
gains on
investments
sold........ 82,971 145,910 1,079,288 1,348,408 1,968,582 148,330 86,964 180,555
Net realized
losses on
futures
contracts... -- -- -- -- (363,313) -- -- --
Net change in
unrealized
appreciation/depreciation
of investments. (270,758) 1,744,380 (3,796,119) 25,697,939 (1,887,284) 4,965,829 (795,155) 5,672,314
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
Net increase
in net
assets
resulting
from
operations... 1,673,759 3,780,166 9,926,292 40,925,042 4,455,096 8,687,191 5,869,562 12,097,473
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
FROM (NOTE 2):
INSTITUTIONAL:
Net investment
income...... (1,883,853) (1,911,674) (12,639,182) (13,398,449) (4,725,879) (3,541,310) (6,489,955) (6,043,639)
In excess of
net
investment
income...... (22,303) -- (101,729) (282,467) -- -- -- (157,669)
Net realized
gains on
investments. (45,972) -- -- -- (1,679,825) -- -- --
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
Total
Dividends
and
Distributions -- Institutional
Shares.... (1,952,128) (1,911,674) (12,740,911) (13,680,916) (6,405,704) (3,541,310) (6,489,955) (6,201,308)
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
INVESTMENT:
Net investment
income...... (2,384) (1,582) (137,261) (157,954) (32,116) (12,658) (77,375) (68,092)
In excess of
net
investment
income...... (206) -- (7,740) (3,790) -- -- (3,313) (1,615)
Net realized
gains on
investments... (87) -- -- -- (9,292) -- -- --
In excess of
realized
gains on
investments... -- -- -- -- (3,147) -- -- --
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
Total
Dividends
and
Distributions -- Investment
Shares.... (2,677) (1,582) (145,001) (161,744) (44,555) (12,658) (80,688) (69,707)
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
Total
Dividends
and
Distributions
to
shareholders.(1,954,805) (1,913,256) (12,885,912) (13,842,660) (6,450,259) (3,553,968) (6,570,643) (6,271,015)
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
FUND SHARE
TRANSACTIONS
(NOTE 4):
Proceeds from
shares
issued...... 8,696,402 31,771,069 63,415,595 56,819,071 35,182,548 134,534,815 28,108,486 116,438,055
Reinvestment
of
distributions... 18,971 3,260 120,131 104,026 68,391 26,538 74,582 77,608
Cost of shares
redeemed.... (22,258,198) (21,743,424) (59,073,549) (181,685,377) (44,756,320) (17,310,286) (59,803,402) (55,441,195)
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
Total net
increase
(decrease)
from share
transactions(13,542,825) 10,030,905 4,462,177 (124,762,280) (9,505,381) 117,251,067 (31,620,334) 61,074,468
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
Net increase
(decrease)
in net
assets.... (13,823,871) 11,897,815 1,502,557 (97,679,898) (11,500,544) 122,384,290 (32,321,415) 66,900,926
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
NET ASSETS AT
END OF PERIOD
(INCLUDING
LINE A)....... $41,577,319 $55,401,190 $289,042,905 $ 287,540,348 110,883,746 $122,384,290 $155,044,170 $187,365,585
============ ============ ============ ============ ============ ============ ============ ============
(A) Accumulated
undistributed
net investment
income........ $ 7,011 $ 24,691 $ 44,748 $ 133,320 $ 8,405 $ 29,289 $ 22,437 $ --
=========== =========== =========== ============ ============ ============ ============ ============
<FN>
- ------------------------------------------------------------------------
(1) The Fund commenced operations on March 20, 1995.
</TABLE>
See Notes to Financial Statements.
32
<PAGE> 35
The Kent
Funds NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Kent Funds (the "Trust") was organized as a Massachusetts business trust
on May 9, 1986 and is registered under the Investment Company Act of 1940 (the
"1940 Act"), as amended, as an open-end management investment company. As of the
date of this report, the Trust offered thirteen managed investment portfolios.
The accompanying financial statements and financial highlights are those of The
Kent Limited Term Tax-Free Fund, The Kent Intermediate Tax-Free Fund, The Kent
Tax-Free Income Fund and The Kent Michigan Municipal Bond Fund (individually, a
"Portfolio", collectively, the "Portfolios") only.
The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited
number of shares of beneficial interest without par value. It allows for the
creation of one or more classes of shares within each series, each of which,
regardless of class designation, represents an equal proportionate interest in
the Portfolios with each other share of that series.
The Trust may issue more than one series of shares investing in portfolios of
securities. The Trust currently issues thirteen series of shares with two
separate classes in each series, Investment Shares and Institutional Shares.
Each class of shares is entitled upon liquidation of a series to a pro rata
share in the net assets of that class of such series. Each share in each series
or class has identical voting, dividend, liquidation and other rights, except in
matters affecting only a particular series or class, in which case only shares
of the affected series or class are entitled to vote. Class specific expenses,
if any, are currently limited to expenses directly attributable to the
Investment Shares under a Distribution Plan, shareholder services fees and
certain printing and postage expenses incurred as they relate to a particular
class of shares.
The investment objective of the Limited Term Tax-Free Fund and the
Intermediate Tax-Free Fund is to seek current income, exempt from federal income
tax, while preserving capital. The Tax-Free Income Fund's investment objective
is to seek to provide as high a level of interest income exempt from federal
income tax as is consistent with prudent investing, while preserving capital.
The investment objective of the Michigan Municipal Bond Fund is to seek current
income, exempt from federal income and State of Michigan personal income taxes,
while preserving capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Portfolios in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual amounts could differ from those estimates.
PORTFOLIO VALUATION: Corporate debt securities, municipal securities and debt
securities of the U.S. government and its agencies (other than short-term
investments maturing in 60 days or less) are valued on the basis of valuations
provided by dealers or by an independent pricing service approved by the Board
of Trustees. Short-term obligations that mature in 60 days or less are valued at
amortized cost, which constitutes fair value and approximates market value. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
FUTURES CONTRACTS: Each Portfolio may invest in futures contracts. The
Portfolios generally enter into futures contracts to hedge against declines in
the value of their portfolios' securities. This investment involves, to varying
degrees, elements of market risk and risks in excess of the amount recognized in
the Statement of Assets and Liabilities. The face or contract amounts reflect
the extent of the involvement the Portfolios have in the particular classes of
instruments. Risks include an imperfect correlation between the movements in the
price of the instruments and the price of the underlying securities and interest
rates. Risks also may arise if there is an illiquid secondary market for the
instruments or due to the inability of counterparties to perform under the terms
of the contract.
Cash or securities are deposited with brokers in order to maintain a position.
Subsequent payments made or received daily by a Portfolio based on the change in
the market value of the position are recorded as unrealized gain or loss until
the contract is closed out at which time the gain or loss is realized.
Futures contracts are valued at the settlement price established each day by
the board of trade or exchange on which they are traded.
33
<PAGE> 36
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Net realized gains and losses on investments sold
are recorded on the basis of identified cost. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Portfolios declare and
distribute dividends from net investment income monthly. Net investment income
for this purpose consists of interest accrued, discount earned (including
original issue), and dividends earned less amortization of any market premium on
municipal securities and accrued expenses. Net realized capital gains, if any,
are distributed at least annually.
The amounts of income and capital gains to be distributed are determined in
accordance with income tax regulations. Such amounts may vary from income and
capital gains recognized in accordance with generally accepted accounting
principles.
FEDERAL INCOME TAXES: For federal income tax purposes, each Portfolio is
treated as a separate entity for the purpose of determining its qualification as
a regulated investment company under the Internal Revenue Code (the "Code"). It
is the policy of each Portfolio to meet the requirements of the Code applicable
to regulated investment companies, including the requirement that it distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
The amounts of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
As of December 31, 1996, the following Portfolios had capital loss
carryforwards which will expire in the years indicated:
<TABLE>
<CAPTION>
FUND AMOUNT YEAR
- --------------------------------- -------- ----
<S> <C> <C>
Intermediate Tax-Free Fund....... $604,167 2003
Michigan Municipal Bond Fund..... 107,254 2003
</TABLE>
EXPENSES: Expenses directly attributable to a Portfolio are charged to the
Portfolio, while expenses which are attributable to more than one series of the
Trust are allocated among the respective series based upon relative net assets
or another appropriate basis. In addition, investors in Investment Shares will
pay the expenses directly attributable to the Investment Shares as a class, and
investors in Institutional Shares will pay the expenses directly attributable to
the Institutional Shares as a class.
ORGANIZATIONAL COSTS: The Kent Tax-Free Income Fund bears all costs in
connection with its organization, including the fees and expenses of registering
and qualifying its initial shares for distribution under federal and state
securities laws. All such costs are amortized using the straight-line method
over a period of five years beginning with the Portfolio's commencement of
operations. In the event that any of the initial shares purchased by the
Portfolio's sponsor are redeemed during such period, the Portfolio will be
reimbursed by such holder for any unamortized organization costs in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
3. RELATED PARTY TRANSACTIONS
Old Kent Bank ("Investment Adviser") serves as the investment adviser to the
Trust. The Investment Adviser is a member of Michigan State Banking Association
and the principal subsidiary of Old Kent Financial Corporation. The Investment
Adviser is entitled to receive a fee, computed daily and paid monthly, at the
annual rate of 0.45% of the average daily net assets of each of the Limited Term
Tax-Free Fund and the Michigan Municipal Bond Fund, 0.50% of the average daily
net assets of the Intermediate Tax-Free Fund and 0.55% of the average daily net
assets of the Tax-Free Income Fund.
Effective August 5, 1996, BISYS Fund Services Limited Partnership d/b/a BISYS
Fund Services ("BISYS") assumed the duties as Administrator and Distributor for
the Trust from First Data Investor Services Group, Inc. ("First Data") and 440
Financial Distributors, Inc., an indirect wholly owned subsidiary of First Data,
respectively. Also,
34
<PAGE> 37
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
effective August 5, 1996, and October 7, 1996, respectively, BISYS Fund
Services, Inc. assumed the duties as Fund Accountant and Transfer Agent for the
Trust from First Data. BISYS and BISYS Fund Services, Inc. are both wholly owned
subsidiaries of The BISYS Group, Inc. The Administrator is entitled to receive a
fee, computed daily and paid monthly, at the annual rate of 0.185% of the
average daily net assets of the Trust up to $5 billion; 0.165% of the average
daily net assets of the Trust in excess of $5 billion up to $7.5 billion; and
0.135% of the average daily net assets of the Trust in excess of $7.5 billion.
Fund Accounting fees are computed daily and paid monthly at the annual rate of
0.015% of the average daily net assets of the Trust and are included as part of
the fees paid to the Administrator.
Transfer agent fees for each Portfolio for the year ended December 31, 1996
are as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTMENT
FUND SHARES SHARES
- ----------------------------- ------------- ----------
<S> <C> <C>
Limited Term Tax-Free Fund... $16,651 $ 23
Intermediate Tax-Free Fund... 32,542 380
Tax-Free Income Fund......... 17,263 126
Michigan Municipal Bond
Fund....................... 24,004 312
</TABLE>
The current and previous Administrators have voluntarily reduced their fees
for the Portfolios. Total administration fees waived for the year ended December
31, 1996 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTMENT
FUND SHARES SHARES
- ----------------------------- ------------- ----------
<S> <C> <C>
Limited Term Tax-Free Fund... $ 951 $ 2
Intermediate Tax-Free Fund... 6,087 69
Tax-Free Income Fund......... 2,345 17
Michigan Municipal Bond
Fund....................... 4,172 58
</TABLE>
Certain officers of the Trust are affiliated with BISYS. Such officers receive
no direct payments or fees from the Portfolios for serving as officers.
The Trust has adopted a distribution plan (the "Plan") on behalf of the
Investment Shares of the Portfolios pursuant to Rule 12b-1 of the 1940 Act. The
Plan provides for payments to the Distributor of up to 0.25% of the average
daily net assets of the Investment Shares of the Portfolios. Currently, the
Limited Term Tax-Free Fund and Michigan Municipal Bond Fund each make payments
at the rate of only 0.15% of the average daily net assets of its Investment
Shares pursuant to the Plan. For the year ended December 31, 1996, the
Distributor had waived a total of $65 of distribution fees for the Limited Term
Tax-Free Fund and $2,169 of distribution fees for the Michigan Municipal Bond
Fund.
Gross distribution fees for each Portfolio for the year ended December 31,
1996 are as follows:
<TABLE>
<CAPTION>
FUND INVESTMENT SHARES
- ----------------------------------- -----------------
<S> <C>
Limited Term Tax-Free Fund......... $ 162
Intermediate Tax-Free Fund......... 8,726
Tax-Free Income Fund............... 1,900
Michigan Municipal Bond Fund....... 5,410
</TABLE>
Expenses for the Trust include legal fees paid to Drinker Biddle & Reath. A
partner of that firm serves as an Assistant Secretary of the Trust.
35
<PAGE> 38
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Portfolios are summarized below:
<TABLE>
<CAPTION>
LIMITED TERM INTERMEDIATE
TAX-FREE FUND TAX-FREE FUND
----------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
INSTITUTIONAL:
Shares issued........................................ $ 8,644,704 $31,715,093 $62,493,861 $ 56,260,448
Reinvestment of distributions........................ 16,368 1,677 42,417 25,763
Shares redeemed...................................... (22,256,093) (21,731,961) (57,683,879) (180,059,789)
------------ ------------ ------------ -------------
Net increase (decrease) from Institutional Share
transactions....................................... $(13,595,021) $ 9,984,809 $ 4,852,399 $(123,773,578)
============ ============ ============ =============
INVESTMENT:
Shares issued........................................ $ 51,698 $ 55,976 $ 921,734 $ 558,623
Reinvestment of distributions........................ 2,603 1,583 77,714 78,263
Shares redeemed...................................... (2,105) (11,463) (1,389,670) (1,625,588)
------------ ------------ ------------ -------------
Net increase (decrease) from Investment Share
transactions....................................... $ 52,196 $ 46,096 $ (390,222) $ (988,702)
============ ============ ============ =============
Total net increase (decrease) from share
transactions..................................... $13,542,825 $10,030,905 $ 4,462,177 $(124,762,280)
============ ============ ============ =============
SHARE ACTIVITY
INSTITUTIONAL:
Shares issued........................................ 849,971 3,132,279 5,988,213 5,509,613
Reinvestment of distributions........................ 1,612 166 4,102 2,519
Shares redeemed...................................... (2,187,798) (2,152,975) (5,565,749) (17,626,244)
------------ ------------ ------------ -------------
Net increase (decrease) from Institutional Share
transactions....................................... (1,336,215) 979,470 426,566 (12,114,112)
============ ============ ============ =============
INVESTMENT:
Shares issued........................................ 5,061 5,537 89,120 54,764
Reinvestment of distributions........................ 256 156 7,510 7,646
Shares redeemed...................................... (205) (1,120) (135,420) (162,915)
------------ ------------ ------------ -------------
Net increase (decrease) from Investment Share
transactions....................................... 5,112 4,573 (38,790) (100,505)
============ ============ ============ =============
Total net increase (decrease) from share
transactions....................................... (1,331,103) 984,043 387,776 (12,214,617)
============ ============ ============ =============
<FN>
- ------------------------------------------------------------------------
(1) The Fund commenced operations on March 20, 1995.
</TABLE>
36
<PAGE> 39
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
TAX-FREE MICHIGAN MUNICIPAL
INCOME FUND BOND FUND
----------------------------- -----------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995(1) 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
INSTITUTIONAL:
Shares issued........................................ $34,651,840 $134,004,667 $27,099,860 $116,065,628
Reinvestment of distributions........................ 28,992 13,880 44,917 46,344
Shares redeemed...................................... (44,605,879) (17,275,708) (59,293,642) (54,884,598)
------------ ------------ ------------ ------------
Net increase (decrease) from Institutional Share
transactions....................................... $(9,925,047) $116,742,839 $(32,148,865) $61,227,374
============ ============ ============ ============
INVESTMENT:
Shares issued........................................ $ 530,708 $ 530,148 $ 1,008,626 $ 372,427
Reinvestment of distributions........................ 39,399 12,658 29,665 31,264
Shares redeemed...................................... (150,441) (34,578) (509,760) (556,597)
------------ ------------ ------------ ------------
Net increase (decrease) from Investment Share
transactions....................................... $ 419,666 $ 508,228 $ 528,531 $ (152,906)
============ ============ ============ ============
Total net increase (decrease) from share
transactions..................................... $(9,505,381) $117,251,067 $(31,620,334) $61,074,468
============ ============ ============ ============
SHARE ACTIVITY
INSTITUTIONAL:
Shares issued........................................ 3,371,900 13,298,723 2,693,878 11,603,278
Reinvestment of distributions........................ 2,825 1,362 4,468 4,643
Shares redeemed...................................... (4,276,961) (1,689,026) (5,886,119) (5,467,888)
------------ ------------ ------------ ------------
Net increase (decrease) from Institutional Share
transactions....................................... (902,236) 11,611,059 (3,187,773) 6,140,033
============ ============ ============ ============
INVESTMENT:
Shares issued........................................ 51,428 52,334 100,489 37,453
Reinvestment of distributions........................ 3,826 1,235 2,956 3,149
Shares redeemed...................................... (14,550) (3,316) (50,830) (56,394)
------------ ------------ ------------ ------------
Net increase (decrease) from Investment Share
transactions....................................... 40,704 50,253 52,615 (15,792)
============ ============ ============ ============
Total net increase (decrease) from share
transactions....................................... (861,532) 11,661,312 (3,135,158) 6,124,241
============ ============ ============ ============
<FN>
- ------------------------------------------------------------------------
(1) The Fund commenced operations on March 20, 1995.
</TABLE>
37
<PAGE> 40
The Kent
Funds NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ------------------------ ------------ -----------
<S> <C> <C>
Limited Term Tax-Free
Fund.................. $ 14,828,823 $24,072,233
Intermediate Tax-Free
Fund.................. 108,093,710 98,603,776
Tax-Free Income Fund.... 41,215,389 55,972,648
Michigan Municipal Bond
Fund.................. 37,843,371 39,384,042
</TABLE>
6. CONCENTRATION OF CREDIT RISK
The Michigan Municipal Bond Fund invests primarily in debt obligations issued
by the State of Michigan and its respective political subdivisions, agencies and
public authorities to obtain funds for various public purposes. The Portfolio is
more susceptible to economic and political factors adversely affecting issuers
of Michigan specific municipal bonds than funds that are not concentrated in
these issuers to the same extent.
7. FEDERAL INCOME TAXES (UNAUDITED)
During the year ended December 31, 1996, the following Portfolios declared
tax-exempt income distributions in the following amounts:
<TABLE>
<CAPTION>
FUND AMOUNT
- --------------------------------------- -----------
<S> <C>
Limited Term Tax-Free Fund............. $ 1,883,991
Intermediate Tax-Free Fund............. 12,754,092
Tax-Free Income Fund................... 4,757,995
Michigan Municipal Bond Fund........... 6,557,694
</TABLE>
During the year ended December 31, 1996, the Limited Term Tax-Free Fund
declared long-term capital gain distributions in the amount of $36,850.
38
<PAGE> 41
The Kent LIMITED TERM TAX-FREE FUND
funds FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994(1)
------------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period......................................... $ 10.22 $ 9.80 $ 10.00
------- ------- -------
Income (Loss) from Investment Operations:
Net investment income...................................................... 0.39 0.39 0.13
Net realized and unrealized gains (losses) on securities................... (0.04) 0.42 (0.21)
------- ------- -------
Total Income (Loss) from Investment Operations........................... 0.35 0.81 (0.08)
------- ------- -------
Less Dividends and Distributions from:
Net investment income...................................................... (0.40) (0.39) (0.12)
In excess of net investment income......................................... ** -- --
Net realized gains on securities........................................... (0.01) -- --
------- ------- -------
Total Dividends and Distributions........................................ (0.41) (0.39) (0.12)
------- ------- -------
Net change in net asset value................................................ (0.06) 0.42 (0.20)
------- ------- -------
Net asset value, end of period............................................... $ 10.16 $ 10.22 $ 9.80
======= ======= =======
Total return................................................................. 3.54% 8.43% (0.77%)++
Ratios/Supplemental Data:
Net Assets, end of period (000's)............................................ $41,472 $55,347 $43,497
Ratio of expenses to average net assets.................................... 0.75% 0.69% 0.79%+
Ratio of net investment income to average net assets....................... 3.84% 3.87% 3.81%+
Ratio of expenses to average net assets*................................... 0.75% 0.74% 0.96%+
Ratio of net investment income to average net assets*...................... 3.84% 3.82% 3.64%+
Portfolio turnover rate(2)................................................. 32% 51% 10%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on September 1, 1994.
(2) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 42
The Kent LIMITED TERM TAX-FREE FUND
Funds FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994(1)
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of period................................................. $10.24 $ 9.81 $9.87
------ ------ -----
Income from Investment Operations:
Net investment income.............................................................. 0.37 0.37 0.06
Net realized and unrealized gains (losses) on securities........................... (0.02) 0.44 (0.06)
------ ------ -----
Total from Investment Operations:................................................ 0.35 0.81 --
------ ------ -----
Less Dividends and Distributions from:
Net investment income.............................................................. (0.35) (0.38) (0.06)
In excess of net investment income................................................. (0.03) -- --
Net realized gains on securities................................................... (0.01) -- --
------ ------ -----
Total Dividends and Distributions:............................................... (0.39) (0.38) (0.06)
------ ------ -----
Net change in net asset value........................................................ (0.04) 0.43 (0.06)
------ ------ -----
Net asset value, end of period....................................................... $10.20 $10.24 $9.81
====== ====== =====
Total return(2)...................................................................... 3.51% 8.40% 0.03%++
Ratios/Supplemental Data:
Net Assets, end of period (000's).................................................. $ 106 $ 54 $ 7
Ratio of expenses to average net assets.......................................... 0.87% 0.84% 0.87%+
Ratio of net investment income to average net assets............................. 3.69% 3.69% 3.86%+
Ratio of expenses to average net assets*......................................... 0.97% 0.85% 0.98%+
Ratio of net investment income to average net assets*............................ 3.59% 3.69% 3.75%+
Portfolio Turnover Rate(3)....................................................... 32% 51% 10%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(1) The Investment Class date of initial public investment was November 1, 1994.
(2) Calculation does not include sales charge.
(3) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
40
<PAGE> 43
The Kent INTERMEDIATE TAX-FREE FUND
Funds FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992(1)
------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.52 $ 9.74 $ 10.45 $ 10.02 $ 10.00
-------- -------- -------- -------- -------
Income (Loss) from Investment Operations:
Net investment income.............................. 0.44 0.45 0.40 0.37 0.01
Net realized and unrealized gains (losses) on
securities....................................... (0.08) 0.79 (0.71) 0.47 0.03
-------- -------- -------- -------- -------
Total Income (Loss) from Investment Operations... 0.36 1.24 (0.31) 0.84 0.04
-------- -------- -------- -------- -------
Less Dividends and Distributions from:
Net investment income.............................. (0.46) (0.45) (0.39) (0.36) (0.01)
In excess of net investment income................. ** (0.01) (0.01) -- (0.01)
Net realized gains on securities................... -- -- -- (0.05) --
-------- -------- -------- -------- -------
Total Dividends and Distributions................ (0.46) (0.46) (0.40) (0.41) (0.02)
-------- -------- -------- -------- -------
Net change in net asset value........................ (0.10) 0.78 (0.71) 0.43 0.02
-------- -------- -------- -------- -------
Net asset value, end of period....................... $ 10.42 $ 10.52 $ 9.74 $ 10.45 $ 10.02
======== ======== ======== ======== =======
Total return......................................... 3.41% 12.90% (3.00%) 8.51% 0.40%++
Ratios/Supplemental Data:
Net Assets, end of period (000's).................. $ 285,674 $283,733 $380,715 $135,862 $36,938
Ratio of expenses to average net assets............ 0.73% 0.72% 0.78% 0.84% 0.11%++
Ratio of net investment income to average net
assets........................................... 4.34% 4.39% 4.07% 3.62% 1.77%+
Ratio of expenses to average net assets*........... 0.73% 0.72% 0.78% 0.84% 0.11%++
Ratio of net investment income to average net
assets*.......................................... 4.34% 4.39% 4.07% 3.62% 1.77%+
Portfolio Turnover Rate(2)......................... 35% 6% 36% 14% 0%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on December 16, 1992.
(2) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
41
<PAGE> 44
The Kent INTERMEDIATE TAX-FREE FUND
Funds FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992(1)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............................. $10.52 $ 9.74 $10.45 $10.04 $10.00
------- ------- ------- ------- ------
Income (Loss) from Investment Operations:
Net investment income........................................... 0.42 0.42 0.40 0.36 **
Net realized and unrealized gains (losses) on securities........ (0.09) 0.79 (0.71) 0.46 0.04
------- ------- ------- ------- ------
Total Income (Loss) from Investment Operations................ 0.33 1.21 (0.31) 0.82 0.04
------- ------- ------- ------- ------
Less Dividends and Distributions from:
Net investment income........................................... (0.41) (0.42) (0.39) (0.33) --
In excess of net investment income.............................. (0.02) (0.01) (0.01) (0.03) --
Net realized gains on securities................................ -- -- -- (0.05) --
------- ------- ------- ------- ------
Total Dividends and Distributions............................. (0.43) (0.43) (0.40) (0.41) --
------- ------- ------- ------- ------
Net change in net asset value..................................... (0.10) 0.78 (0.71) 0.41 0.04
------- ------- ------- ------- ------
Net asset value, end of period.................................... $10.42 $10.52 $ 9.74 $10.45 $10.04
======== ======== ======== ======== =======
Total return(2)................................................... 3.17% 12.66% (3.03%) 8.29% 0.40%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)............................... $3,368 $3,807 $4,505 $3,307 $ 92
Ratio of expenses to average net assets......................... 0.98% 0.97% 0.79% 1.08% 0.10%++
Ratio of net investment income to average net assets............ 4.09% 4.13% 3.99% 3.44% 1.37%+
Ratio of expenses to average net assets*........................ 0.98% 0.97% 0.79% 1.08% 0.10%++
Ratio of net investment income to average net assets*........... 4.09% 4.13% 3.99% 3.44% 1.37%+
Portfolio Turnover Rate(3)...................................... 35% 6% 36% 14% 0%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was December 18,
1992.
(2) Calculation does not include sales charge.
(3) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
42
<PAGE> 45
The Kent TAX-FREE INCOME FUND
Funds FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1995(1)
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................................................ $ 10.49 $ 10.00
-------- --------
Income from Investment Operations:
Net investment income......................................................................... 0.46 0.36
Net realized and unrealized gains (losses) on securities and futures contracts................ (0.06) 0.49
-------- --------
Total Income from Investment Operations..................................................... 0.40 0.85
-------- --------
Less Dividends and Distributions from:
Net investment income......................................................................... (0.46) (0.36)
Net realized gains on securities and futures contracts........................................ (0.16) --
-------- --------
Total Dividends and Distributions........................................................... (0.62) (0.36)
-------- --------
Net change in net asset value................................................................... (0.22) 0.49
-------- --------
Net asset value, end of period.................................................................. $ 10.27 $ 10.49
======== ========
Total return.................................................................................... 3.92% 8.64%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)............................................................. $109,948 $121,855
Ratio of expenses to average net assets....................................................... 0.82% 0.73%+
Ratio of net investment income to average net assets.......................................... 4.38% 4.44%+
Ratio of expenses to average net assets*...................................................... 0.82% 0.91%+
Ratio of net investment income to average net assets*......................................... 4.38% 4.26%+
Portfolio turnover rate(2).................................................................... 40% 10%
<FN>
- ------------------------------------------------------------------------
+ Annualized
++ Not Annualized
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated.
(1) The Institutional Class commenced operations on March 20, 1995.
(2) Portfolio turnover is calculated on the basis of the Portfolio as a whole without distinguishing between the classes of
shares issued.
</TABLE>
See Notes to Financial Statements.
43
<PAGE> 46
The Kent TAX-FREE INCOME FUND
Funds FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995(1)
------ -------
<S> <C> <C>
Net asset value, beginning of period............................................................... $10.52 $10.00
------ ------
Income from Investment Operations:
Net investment income............................................................................ 0.41 0.31
Net realized and unrealized gains (losses) on securities and futures contracts................... (0.05) 0.51
------ ------
Total Income from Investment Operations........................................................ 0.36 0.82
------ ------
Less Dividends and Distributions from:
Net investment income............................................................................ (0.43) (0.30)
Net realized gains on securities and futures contracts........................................... (0.12) --
In excess of realized gains on securities and futures contracts.................................. (0.04) --
------ ------
Total Dividends and Distributions.............................................................. (0.59) (0.30)
------ ------
Net change in net asset value...................................................................... (0.23) 0.52
------ ------
Net asset value, end of period..................................................................... $10.29 $10.52
====== ======
Total return (2)................................................................................... 3.53% 8.34%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)................................................................ $ 936 $ 529
Ratio of expenses to average net assets.......................................................... 1.07% 0.95%+
Ratio of net investment income to average net assets............................................. 4.14% 4.25%+
Ratio of expenses to average net assets*......................................................... 1.07% 1.17%+
Ratio of net investment income to average net assets*............................................ 4.14% 4.03%+
Portfolio Turnover Rate(3)....................................................................... 40% 10%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(1) The Investment Class date of the initial public investment was March 31,
1995.
(2) Calculation does not include sales charge.
(3) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
44
<PAGE> 47
The Kent MICHIGAN MUNICIPAL BOND FUND
Funds FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993(1)
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............................ $ 10.12 $ 9.72 $ 10.06 $ 10.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income......................................... 0.39 0.39 0.37 0.23
Net realized and unrealized gains (losses) on securities...... (0.04) 0.39 (0.34) 0.07
-------- -------- -------- --------
Total Income from Investment Operations..................... 0.35 0.78 0.03 0.30
-------- -------- -------- --------
Less Dividends and Distributions from:
Net investment income......................................... (0.39) (0.37) (0.36) (0.22)
In excess of net investment income............................ -- (0.01) (0.01) (0.01)
Net realized gains on securities.............................. -- -- -- (0.01)
In excess of net realized gains on securities................. -- -- -- **
-------- -------- -------- --------
Total Dividends and Distributions........................... (0.39) (0.38) (0.37) (0.24)
-------- -------- -------- --------
Net change in net asset value................................... (0.04) 0.40 (0.34) 0.06
-------- -------- -------- --------
Net asset value, end of period.................................. $ 10.08 $ 10.12 $ 9.72 $ 10.06
======== ======== ======== ========
Total return.................................................... 3.51% 8.20% 0.36% 3.06%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)............................. $ 152,623 $185,466 $118,485 $ 74,647
Ratio of expenses to average net assets....................... 0.70% 0.69% 0.49% 0.24%+
Ratio of net investment income to average net assets.......... 3.83% 3.81% 3.74% 3.34%+
Ratio of expenses to average net assets*...................... 0.70% 0.70% 0.74% 0.68%+
Ratio of net investment income to average net assets*......... 3.83% 3.80% 3.50% 3.61%+
Portfolio turnover rate(2).................................... 24% 42% 27% 10%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on May 3, 1993.
(2) Portfolio turnover is calculated on the basis of the Portfolio as a whole without distinguishing between the classes of
shares issued.
</TABLE>
See Notes to Financial Statements.
45
<PAGE> 48
The Kent MICHIGAN MUNICIPAL BOND FUND
Funds FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994 1993(1)
------ ------ ------ -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...................................... $10.11 $ 9.72 $10.08 $10.02
------ ------ ----- ------
Income from Investment Operations:
Net investment income................................................... 0.38 0.37 0.35 0.21
Net realized and unrealized gains (losses) on securities................ (0.05) 0.40 (0.34) 0.07
------ ------ ----- ------
Total Income from Investment Operations............................... 0.33 0.77 0.01 0.28
------ ------ ----- ------
Less Dividends and Distributions from:
Net investment income................................................... (0.35) (0.37) (0.34) (0.21)
In excess of net investment income...................................... (0.02) (0.01) (0.03) **
Net realized gains on securities........................................ -- -- -- (0.01)
------ ------ ----- ------
Total Dividends and Distributions..................................... (0.37) (0.38) (0.37) (0.22)
------ ------ ----- ------
Net change in net asset value............................................. (0.04) 0.39 (0.36) 0.06
------ ------ ----- ------
Net asset value, end of period............................................ $10.07 $10.11 $ 9.72 $10.08
====== ====== ===== ======
Total return(2)........................................................... 3.36% 8.01% 0.16% 2.85%++
Ratios/Supplemental Data:
Net Assets, end of period (000's)....................................... $2,422 $1,900 $1,980 $ 283
Ratio of expenses to average net assets................................. 0.85% 0.83% 0.49% 0.25%+
Ratio of net investment income to average net assets.................... 3.68% 3.68% 3.80% 3.43%+
Ratio of expenses to average net assets*................................ 0.95% 0.85% 0.84% 1.08%+
Ratio of net investment income to average net assets*................... 3.58% 3.67% 2.74% 2.60%+
Portfolio turnover rate(3).............................................. 24% 42% 27% 10%
<FN>
- ------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was May 11, 1993.
(2) Calculation does not include sales charge.
(3) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
</TABLE>
See Notes to Financial Statements.
46
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
THE KENT FUNDS:
We have audited the accompanying statements of assets and liabilities of The
Kent Funds -- Limited Term Tax-Free Fund, Intermediate Tax-Free Fund, Tax-Free
Income Fund and Michigan Municipal Bond Fund, including the portfolios of
investments, as of December 31, 1996, and the related statements of operations,
statements of changes in net assets and the financial highlights for each of the
periods indicated herein. These financial statements and the financial
highlights are the responsibility of The Kent Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1996, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds at December 31, 1996, the results of their
operations, the changes in their net assets and the financial highlights for
each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 21, 1997
<PAGE> 50
(This Page Intentionally Left Bank)
<PAGE> 51
THE BULK RATE
KENTFUNDS(R) US POSTAGE
P.O BOX 182201 PERMIT NO.1
COLUMBUS, OHIO 43218-2201 CLEVELAND, OH
KKF-0157(2/97)
