<PAGE> 1
As filed with the Securities and Exchange Commission on April 28, 2000
Securities Act File No. 33-8398
Investment Company Act File No. 811-4824
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No.____ [ ]
Post-Effective Amendment No. 33 and/or [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 34
(Check appropriate box or boxes)
THE KENT FUNDS
--------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (614) 470-8000
--------------
Amy D. Eisenbeis With a copy to:
Kent Funds W. Bruce McConnel, III, Esq.
c/o 250 Monroe Ave. NW, Ste. 400 Drinker Biddle & Reath LLP
Grand Rapids, MI 49503 One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
--------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
[KENT FUNDS LOGO]
PROSPECTUS
MAY 1, 2000 EQUITY FUNDS
Kent Growth and Income Fund
Kent Index Equity Fund
Kent Large Company Growth Fund
Kent Small Company Growth Fund
Kent International Growth Fund
BOND FUNDS
Kent Income Fund
Kent Intermediate Bond Fund
Kent Short Term Bond Fund
MUNICIPAL BOND FUNDS
Kent Tax-Free Income Fund
Kent Intermediate Tax-Free Fund
Kent Michigan Municipal Bond Fund
MONEY MARKET FUNDS
Kent Money Market Fund
Kent Government Money Market Fund
Kent Michigan Municipal Money Market Fund
FOR MORE INFORMATION
CALL 1-800-633-KENT (5368)
OR YOUR INVESTMENT REPRESENTATIVE.
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THE SHARES
DESCRIBED IN THIS PROSPECTUS OR DETERMINED
WHETHER THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<C> <C> <S>
Carefully review this important
section, which summarizes each Fund's
investments, risks, past performance,
and fees.
RISK/RETURN SUMMARY AND FUND EXPENSES
3 Overview
EQUITY FUNDS
4 Investment Objectives,
Principal Investment Strategies and
Performance Information
10 Principal Risks
12 Fees and Expenses
BOND FUNDS
13 Investment Objectives,
Principal Investment Strategies and
Performance Information
19 Principal Risks
20 Fees and Expenses
MUNICIPAL BOND FUNDS
21 Investment Objectives,
Principal Investment Strategies and
Performance Information
26 Principal Risks
28 Fees and Expenses
MONEY MARKET FUNDS
29 Investment Objectives,
Principal Investment Strategies and
Performance Information
32 Principal Risks
34 Fees and Expenses
</TABLE>
1
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<C> <C> <S>
ADDITIONAL INFORMATION
35 Investment Policies and Practices
Review this section for details
on the people and organizations
who oversee the Funds.
FUND MANAGEMENT
37 Investment Adviser
38 Portfolio Managers
39 Distributor, Administrator and Sub-Administrator
Review this section for details on
how shares are valued, how to purchase,
sell and exchange shares, related
charges and payments of dividends and
distributions.
SHAREHOLDER INFORMATION
40 Pricing of Fund Shares
41 Purchasing and Selling Your Investment Shares
47 Purchasing and Selling Your Institutional Shares
47 General Policies on Selling Shares
48 Distribution and Service Fees
49 Exchanging Your Shares
50 Dividends and Distributions
50 Taxation
52 FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Funds
</TABLE>
2
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES
OVERVIEW
This prospectus describes the following funds offered by the Kent Funds (the
"Funds").
EQUITY FUNDS
Growth and Income Fund
Index Equity Fund
Large Company Growth Fund
Small Company Growth Fund
International Growth Fund
BOND FUNDS
Income Fund
Intermediate Income Fund
Short Term Bond Fund
MUNICIPAL BOND FUNDS
Tax-Free Income Fund
Intermediate Tax-Free Fund
Michigan Municipal Bond Fund
MONEY MARKET FUNDS
Money Market Fund
Government Money Market Fund
Michigan Municipal Money Market Fund
RISK/RETURN PROFILE OF MUTUAL FUNDS
[POTENTIAL RISK/RETURN PYRAMID]
The Funds are managed by Lyon Street Asset Management Company ("Lyon Street" or
the "Adviser").
On the following pages, you will find important information about each Fund,
including:
- - the investment objective
- - principal investment strategy
- - performance information
- - fees and expenses, and
- - principal risks associated with each Fund
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
FOREIGN INTEREST
MARKET SELECTION INVESTMENT RATE CREDIT CONCENTRATION
RISK RISK RISK RISK RISK RISK
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund X X
- ----------------------------------------------------------------------------------------------------------
Index Equity Fund X X
- ----------------------------------------------------------------------------------------------------------
Large Company Growth Fund X X
- ----------------------------------------------------------------------------------------------------------
Small Company Growth Fund X X
- ----------------------------------------------------------------------------------------------------------
International Growth Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Income Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Intermediate Income Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Short Term Bond Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Tax-Free Income Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Intermediate Tax-Free Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Fund X X X X X
- ----------------------------------------------------------------------------------------------------------
Money Market Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Government Money Market Fund X X X X
- ----------------------------------------------------------------------------------------------------------
Michigan Municipal Money Market
Fund X X X X X
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A complete description of these and other risks can be found in the sections
"Equity Funds - Principal Risks," "Bond Funds - Principal Risks," "Municipal
Bond Funds - Principal Risks" and "Money Market Funds - Principal Risks."
3
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
KENT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNVIX Fund No.: 228
INSTITUTIONAL CLASS
Ticker Symbol: KNVEX Fund No.: 208
INVESTMENT OBJECTIVES Long-term capital growth with current income as
a secondary objective.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in equity securities of U.S.
companies each having $100 million or more in
market capitalization. The Fund intends to
invest at least 65% of its total assets in
equity securities that Lyon Street believes have
potential primarily for capital growth and
secondarily for income. A portion of the Fund's
assets may be invested in preferred stock or
bonds convertible into common stock. The Fund
expects to earn current income mainly from stock
dividends and from interest on convertible
bonds. The average market capitalization of the
Fund's portfolio securities was $45 billion as
of December 31, 1999.
MARKET CAPITALIZATION
is a common measure of the
size of a company. It is
the market price of a share
of the company's stock
multiplied by the number of
shares that are
outstanding.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Standard and Poor's 500 Composite Stock Price
Index (the "S&P 500") is an unmanaged index of 500 selected common stocks.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1993 11.98
1994 0.51
1995 34.91
1996 19.47
1997 24.14
1998 28.07
1999 18.79
</TABLE>
Best quarter: Q4 1998 21.19%
Worst quarter: Q3 1998 -9.38%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 12/1/92 18.53% 24.63% 18.85%
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares 11/2/92 18.79% 24.93% 19.36%
- ---------------------------------------------------------------------------------------------------------------------
S&P 500 Index 10/31/92 21.03% 28.55% 21.75%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 7
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
KENT INDEX EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNIDX Fund No.: 231
INSTITUTIONAL CLASS
Ticker Symbol: KNIEX Fund No.: 211
INVESTMENT OBJECTIVES Long-term capital appreciation with current
income as a secondary objective.
PRINCIPAL INVESTMENT
STRATEGIES To achieve its objectives, the Fund invests
substantially all of its assets in common stock
of companies that make up the S&P 500. Lyon
Street will generally try to match the industry
composition of the S&P 500; however, the Fund
may be invested in the S&P 500 companies in
different proportions. The Fund will try to
achieve a close correlation between the
performance that it generates and that of the
S&P 500. Several factors may affect the Fund's
ability to exactly track the S&P 500's
performance, including the timing of purchases
and redemptions, changes in securities markets
and in the size of the Fund.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Standard and Poor's 500 Composite Stock Price
Index (the "S&P 500") is an unmanaged index of 500 selected common stocks.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1993 9.11
1994 0.86
1995 36.23
1996 22.18
1997 32.55
1998 28.26
1999 20.55
</TABLE>
Best quarter: Q4 1998 21.26%
Worst quarter: Q3 1998 -9.99%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 11/25/92 20.24% 27.49% 20.55%
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares 11/2/92 20.55% 27.81% 21.01%
- ---------------------------------------------------------------------------------------------------------------------
S&P 500 Index 10/31/92 21.03% 28.55% 21.75%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
KENT LARGE COMPANY GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: N/A Fund No.: 235
INSTITUTIONAL CLASS
Ticker Symbol: KLCGX Fund No.: 215
INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in equity securities of U.S.
companies with at least $4 billion in market
capitalization. The Fund intends to invest at
least 65% of its total assets in securities of
companies that Lyon Street believes have
potential for above-average growth as measured
by projected earnings per share and growth in
sales.
- --------------------------------------------------------------------------------
No performance information is shown for the Large Company Growth Fund because
the Fund had not been in operation for a full calendar year as of December 31,
1999.
6
<PAGE> 9
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
KENT SMALL COMPANY GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNEMX Fund No.: 229
INSTITUTIONAL CLASS
Ticker Symbol: KNEEX Fund No.: 209
INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in the equity securities of a
diverse group of companies whose market
capitalizations are less than $2 billion at the
time of purchase. The Fund intends to invest at
least 65% of its total assets in equity
securities of companies that Lyon Street
believes have above-average potential for growth
in revenues, earnings or assets. Lyon Street
will consider selling shares if the issuer's
market capitalization increases to the point
that it is ranked in the top half of all New
York Stock Exchange companies.
MARKET CAPITALIZATION
is a common measure of the
size of a company. It is
the market price of a share
of the company's stock
multiplied by the number of
shares that are
outstanding.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Russell 2000 Index is an unmanaged index of
the smallest 2,000 companies in the Russell 3000 Index, as ranked by total
market capitalization. The Russell 2000 is widely regarded in the industry as an
index that accurately reflects the universe of small capitalization stocks.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1993 17.04
1994 -0.06
1995 23.75
1996 19.56
1997 27.94
1998 -6.15
1999 27.98
</TABLE>
Best quarter: Q4 1999 20.12%
Worst quarter: Q3 1998 -21.20%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 12/4/92 27.73% 17.57% 14.92%
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares 11/2/92 27.98% 17.85% 15.98%
- ---------------------------------------------------------------------------------------------------------------------
Russell 2000 Index 10/31/92 21.26% 16.69% 15.53%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
KENT INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNIVX Fund No.: 230
INSTITUTIONAL CLASS
Ticker Symbol: KNINX Fund No.: 210
INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in the common and preferred stocks
of companies located in at least three countries
in Europe, Australia and the Far East.
Lyon Street considers a country's Gross Domestic
Product and market capitalization relative to
other countries when determining region and
country allocations among Europe, Australia and
the Pacific Rim. Allocation among companies is
determined based on a stock's market
capitalization and industry attractiveness.
Stocks are selected from the countries
represented in the Morgan Stanley Capital
International Europe and Australasia, Far East
Equity Index (the "EAFE Index"). The allocation
of Fund assets may shift from time to time from
countries that the Fund considers overvalued to
countries that it considers undervalued.
Although the Fund seeks to equal or exceed the
return of the EAFE Index, the Fund may invest
its assets in proportions that differ from this
index. The Fund is not, therefore, an "index"
fund, which typically holds securities in
approximately the same proportion as the index
it attempts to replicate. The Fund may at times
invest more than 25% of its total assets in a
particular country.
8
<PAGE> 11
KENT INTERNATIONAL GROWTH FUND, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Morgan Stanley Capital International Europe
and Australasia, Far East Equity Index is a widely recognized, unmanaged index
composed of a sample of companies representative of the market structure of 20
European and Pacific Basin countries; the Morgan Stanley Capital International
Europe Index is an unmanaged index of European stocks; and the Morgan Stanley
Capital International Pacific Index is an unmanaged index of stocks in the
Pacific region.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1993 30.32
1994 5.73
1995 13.00
1996 5.87
1997 2.54
1998 17.92
1999 28.30
</TABLE>
Best quarter: Q4 1998 19.50%
Worst quarter: Q3 1998 -13.69%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 12/4/92 27.95% 12.89% 13.93%
- -----------------------------------------------------------------------------------------------------------------------
Institutional Shares 12/4/92 28.30% 13.17% 14.23%
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
International Europe and
Australasia Far East Equity Index 11/30/92 26.96% 12.83% 14.93%
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
International Europe Index 11/30/92 15.89% 22.12% 20.59%
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
International Pacific Index 11/30/92 57.63% 2.49% 8.10%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT RISKS --
ALL EQUITY FUNDS Investing in the Equity Funds involves risks
common to any investment in securities. By
itself, no Fund constitutes a balanced
investment program.
There is no guarantee that the Funds will meet
their goals. When you sell your shares in the
Funds, they may be worth more or less than you
paid for them. It is possible to lose money by
investing in the Funds.
An investment in an Equity Fund is not a bank
deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any
other government agency.
The Equity Funds will invest principally in
common stocks, which have historically presented
greater potential for capital appreciation than
fixed income securities, but do not provide the
same protection of capital or assurance of
income.
Two principal risks of equity investing are
market risk and selection risk. Market risk
means that the stock market in general has ups
and downs, which may affect the performance of
any individual stock. Selection risk means that
the particular stocks that are selected for a
Fund may underperform the market or other funds
with similar objectives.
ADDITIONAL PRINCIPAL
INVESTMENT RISKS INVESTMENT STYLE RISK
While stocks of smaller companies can provide
greater growth potential and potentially higher
returns, they carry higher risks than those of
larger companies. They may trade infrequently or
in lower volumes, making it difficult for a Fund
to sell its shares at a desirable price. Smaller
companies may be more sensitive to changes in
the economy overall. Historically, small company
stocks have been more volatile than those of
larger companies. As a result, the Small Company
Growth Fund's net asset value may be subject to
rapid and substantial changes.
Growth stocks offer strong revenue and earnings
potential and accompanying capital growth, with
less dividend income than value stocks. Growth
stocks present the risk that they may not
perform as well as other types of stocks, such
as value stocks. Each of the Equity Funds may
invest in growth stocks.
Value stocks are those that appear to be
underpriced based upon valuation measures, such
as lower price-to-earnings ratios and price-to-
book ratios. Value stocks present the risk that
they may not perform as well as other types of
stocks, such as growth stocks. Each of the
Equity Funds may invest in value stocks.
Indexing is a strategy whereby the Index Equity
Fund attempts to weight its securities to match
those of a broad-based securities index (the S&P
500) in an attempt to approximate the index's
performance. There is the risk that the Index
Equity Fund's investment results may fail to
match those of the S&P 500. There is also the
risk that if the S&P 500 does not perform well,
the investment results of the Index Equity Fund
may not be as favorable as other funds.
10
<PAGE> 13
PRINCIPAL RISKS, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
FOREIGN INVESTMENT RISK
Investment in the International Growth Fund
involves additional risks not present in equity
funds which invest in shares of U.S. companies.
Stocks of foreign companies are subject to
special risks, including the following:
- Currency risk means that fluctuations in
foreign exchange rates could affect the dollar
value of a Fund's securities. A decline in the
value of a foreign currency versus the U.S.
dollar reduces the dollar value of securities
denominated in that currency.
- Compared to companies in the U.S., there is
generally less publicly available information
about foreign companies and there may be less
government oversight of foreign stock
exchanges and the companies traded on them.
There may also be less stringent accounting,
auditing and financial reporting standards. In
addition, foreign markets may have lower
trading volumes, resulting in stocks that may
be more difficult to sell and more volatile in
price. Investments in some foreign countries
could be subject to such factors as
expropriation, confiscation or difficulties
enforcing contracts. All of these factors can
make foreign investments more risky than U.S.
investments.
- Furthermore, transaction fees may be higher
for foreign investments, due to higher
brokerage commissions, fees on currency
exchanges, and possible imposition of dividend
or interest withholding by foreign
governments. These may cause higher
transaction costs which can result in lower
returns or decreased liquidity.
CONCENTRATION RISK
The International Growth Fund may invest more
than 25% of its assets in a particular foreign
country. A concentration of investments in any
one country could expose the Fund to increased
risk due to changes in the economic or political
environment within that country.
A full discussion of all permissible investments
can be found in the Statement of Additional
Information.
WHO MAY WANT TO INVEST? Consider investing in an Equity Fund if you are:
- PURSUING A LONG-TERM GOAL SUCH AS RETIREMENT
- SEEKING TO ADD A GROWTH COMPONENT TO YOUR
PORTFOLIO
- WILLING TO ACCEPT HIGHER RISKS OF INVESTING IN
THE STOCK MARKET IN EXCHANGE FOR POTENTIALLY
HIGHER LONG TERM RETURNS
The Equity Funds will not be appropriate for
anyone:
- SEEKING MONTHLY INCOME
- PURSUING A SHORT-TERM GOAL OR INVESTING
EMERGENCY RESERVES
- SEEKING SAFETY OF PRINCIPAL
11
<PAGE> 14
RISK/RETURN SUMMARY AND FUND EXPENSES--EQUITY FUNDS
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Equity Funds.
<TABLE>
<CAPTION>
GROWTH AND INDEX LARGE COMPANY
INCOME FUND EQUITY FUND GROWTH FUND
Investment Institutional Investment Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases None None None None None None
ANNUAL FUND OPERATING
EXPENSES
(expenses that are
deducted from Fund
assets)
Management Fees 0.70% 0.70% 0.30%(1) 0.30%(1) 0.70% 0.70%
Distribution (12b-1) Fee 0.25% None 0.25% None 0.25% None
Other Expenses 0.23% 0.23% 0.24%(1) 0.24%(1) 0.28% 0.28%
------ ----- ----- ----- ------ ------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.18% 0.93% 0.79% 0.54% 1.23% 0.98%
FEE WAIVER 0.00% 0.00% 0.13% 0.13% 0.00% 0.00%
------ ----- ----- ----- ------ ------
NET ANNUAL FUND OPERATING
EXPENSES 1.18% 0.93% 0.66%(1) 0.41%(1) 1.23% 0.98%
====== ===== ===== ===== ====== ======
<CAPTION>
SMALL COMPANY INTERNATIONAL
GROWTH FUND GROWTH FUND
Investment Institutional Investment Institutional
Shares Shares Shares Shares
- ------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases None None None None
ANNUAL FUND OPERATING
EXPENSES
(expenses that are
deducted from Fund
assets)
Management Fees 0.70% 0.70% 0.75% 0.75%
Distribution (12b-1) Fee 0.25% None 0.25% None
Other Expenses 0.25% 0.25% 0.28% 0.28%
----- ----- ----- -----
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.20% 0.95% 1.28% 1.03%
FEE WAIVER 0.00% 0.00% 0.00% 0.00%
----- ----- ----- -----
NET ANNUAL FUND OPERATING
EXPENSES 1.20% 0.95% 1.28% 1.03%
===== ===== ===== =====
</TABLE>
1 The Investment Adviser has contractually agreed to waive a portion of the
annual management fees and the Fund's administrator and fund accountant
have contractually agreed to waive a portion of the administration and fund
accounting fees payable by the Fund at least until December 31, 2000.
EXAMPLE: This Example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The Example assumes:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
<TABLE>
<CAPTION>
GROWTH AND INDEX LARGE COMPANY
INCOME FUND EQUITY FUND GROWTH FUND
Investment Institutional Investment Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 120 $ 95 $ 67 $ 42 $ 125 $ 100
THREE YEARS AFTER
PURCHASE $ 375 $ 296 $239 $160 $ 390 $ 312
FIVE YEARS AFTER PURCHASE $ 649 $ 515 $426 $289 $ 676 $ 542
TEN YEARS AFTER PURCHASE $1,432 $1,143 $966 $665 $1,489 $1,201
<CAPTION>
SMALL COMPANY INTERNATIONAL
GROWTH FUND GROWTH FUND
Investment Institutional Investment Institutional
Shares Shares Shares Shares
- ------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 122 $ 97 $ 130 $ 105
THREE YEARS AFTER
PURCHASE $ 381 $ 303 $ 406 $ 328
FIVE YEARS AFTER PURCHASE $ 660 $ 525 $ 702 $ 569
TEN YEARS AFTER PURCHASE $1,455 $1,166 $1,545 $1,259
</TABLE>
12
<PAGE> 15
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
KENT INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KIFIX Fund No.: 234
INSTITUTIONAL CLASS
Ticker Symbol: KNIIX Fund No.: 214
INVESTMENT OBJECTIVE Current income.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in corporate and government debt
securities. The Fund is permitted to purchase
U.S. Government obligations (those that are
issued or guaranteed by the U.S. Government or
its agencies or instrumentalities) and
investment-grade corporate debt obligations
(those that are rated in one of the four highest
categories by a Nationally Recognized
Statistical Rating Organization ("Rating
Agency"), or unrated securities of comparable
quality. However, the Fund intends to invest at
least 65% of its total assets in U.S. Government
obligations and corporate debt obligations that
are rated in one of the three highest categories
by a Rating Agency (or unrated securities of
comparable quality). The Fund will maintain a
dollar-weighted average portfolio maturity of
between seven and twenty years.
While maturity and credit quality are the most
important investment factors, the Fund also
considers the following when making investment
decisions:
- Current yield and yield to maturity.
- Potential for capital gain.
While the Fund will not normally engage in
frequent trading of portfolio securities, it
will make changes in its investment portfolio
from time to time as economic conditions and
market prices dictate based on the Fund's
investment objective. The Fund may consider
selling a security if it falls below the minimum
credit quality required for purchase. If the
Fund does buy and sell securities frequently,
there will be increased transaction costs, which
can negatively impact Fund performance, and
cause additional taxable gains to shareholders.
13
<PAGE> 16
KENT INCOME FUND, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Government/ Corporate Bond
Index and the Lehman Brothers Long Government/Corporate Bond Index are unmanaged
indices comprised of U.S. Treasury issues, debt of U.S. Government agencies,
corporate debt guaranteed by the U.S. Government and all publicly issued, fixed-
rate, nonconvertible investment-grade dollar-denominated, SEC-registered
corporate debt.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1996 1.19
1997 10.55
1998 9.29
1999 -4.41
</TABLE>
Best quarter: Q2 1997 4.63%
Worst quarter: Q1 1996 -3.63%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Since Inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Shares 3/22/95 -4.76% 6.08%
- -------------------------------------------------------------------------------------------------------------------
Institutional Shares 3/20/95 -4.41% 6.37%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond
Index 3/31/95 -2.15% 6.92%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Long Government/Corporate
Bond Index 3/31/95 -7.65% 8.03%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
KENT INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNFVX Fund No.: 225
INSTITUTIONAL CLASS
Ticker Symbol: KNFIX Fund No.: 205
INVESTMENT OBJECTIVE Current income.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in corporate and government debt
securities. The Fund is permitted to purchase
U.S. Government obligations (those that are
issued or guaranteed by the U.S. Government or
its agencies or instrumentalities) and
investment-grade corporate debt obligations
(those that are rated in one of the four highest
categories by a Rating Agency), or unrated
securities of comparable quality. The Fund will
maintain a dollar-weighted average portfolio
maturity of between three and ten years.
While maturity and credit quality are the most
important investment factors, the Fund also
considers the following when making investment
decisions:
- Current yield and yield to maturity.
- Potential for capital gain.
The Fund will actively buy and sell securities
or types of securities based on changing
economic and market conditions. The Fund may
consider selling a security if it falls below
the minimum credit quality required for
purchase. If the Fund buys and sells securities
frequently, there will be increased transaction
costs, which can negatively impact Fund
performance, and cause additional taxable gains
to shareholders.
15
<PAGE> 18
KENT INTERMEDIATE BOND FUND, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged index comprised of U.S. Treasury
issues, publicly issued debt of U.S. Government agencies, corporate debt
guaranteed by the U.S. Government and all publicly issued, fixed-rate,
nonconvertible investment-grade dollar-denominated, SEC-registered corporate
debt.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1993 8.42
1994 -3.19
1995 16.18
1996 3.01
1997 7.8
1998 7.65
1999 -1.22
</TABLE>
Best quarter: Q2 1995 5.56%
Worst quarter: Q1 1994 -2.55%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 11/25/92 -1.36% 6.25% 5.12%
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares 11/2/92 -1.22% 6.52% 5.34%
- ---------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index 10/31/92 0.39% 7.09% 5.98%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
KENT SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNLIX Fund No.: 224
INSTITUTIONAL CLASS
Ticker Symbol: KNLMX Fund No.: 204
INVESTMENT OBJECTIVE Current income.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in corporate and government debt
securities. The Fund is permitted to purchase
U.S. Government obligations (those that are
issued or guaranteed by the U.S. Government or
its agencies or instrumentalities) and
investment-grade corporate debt obligations
(those that are rated in one of the four highest
categories by a Rating Agency), or unrated
securities of comparable quality. The Fund will
maintain a dollar-weighted average portfolio
maturity of between one and three years.
While maturity and credit quality are the most
important investment factors, the Fund also
considers the following when making investment
decisions:
- Current yield and yield to maturity.
- Potential for capital gain.
The Fund may consider selling a security if it
falls below the minimum credit quality required
for purchase.
17
<PAGE> 20
KENT SHORT TERM BOND FUND, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers 1-3 Year Government Bond Index
is an unmanaged index of U.S. Treasury issues and publicly issued debt of U.S.
Government agencies with maturities of one to three years, the 91-day Treasury
Bill return tracks the investment returns paid on U.S. Treasury bills maturing
in 91 days, and the Consumer Price Index is an unmanaged index measuring price
increases in a standardized "market basket" of consumer products.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1993 3.36
1994 1.03
1995 10.53
1996 4.22
1997 6.42
1998 6.14
1999 2.50
</TABLE>
Best quarter: Q2 1995 3.16%
Worst quarter: Q1 1996 -0.01%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Class Inception Past Year Past 5 Years Since Inception
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 12/4/92 2.35% 5.76% 4.67%
- ----------------------------------------------------------------------------------------------------------------------
Institutional Shares 11/2/92 2.50% 5.93% 4.82%
- ----------------------------------------------------------------------------------------------------------------------
Lehman Brothers 1-3 Year
Government Bond Index 10/31/92 2.96% 6.47% 5.43%
- ----------------------------------------------------------------------------------------------------------------------
Consumer Price Index 10/31/92 2.49% 2.43% 2.42%
- ----------------------------------------------------------------------------------------------------------------------
91-Day Treasury Bill 10/31/92 4.74% 5.11% 4.73%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT RISKS --
ALL BOND FUNDS Investing in the Bond Funds involves the risks
common to any investment in securities. By
itself, no Fund constitutes a balanced
investment program.
There is no guarantee that the Funds will meet
their goals. When you sell your shares in the
Funds, they may be worth more or less than you
paid for them. It is possible to lose money by
investing in the Funds.
An investment in a Bond Fund is not a bank
deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any
other government agency.
The Bond Funds will invest primarily in fixed
income securities, which provide income and a
level of protection of capital, but present a
lesser potential for capital appreciation than
equity securities.
Two principal risks of fixed income (bond)
investing are market risk and selection risk.
Market risk means that the bond market in
general has ups and downs, which may affect the
performance of any individual fixed income
security. Selection risk means that the
particular bonds that are selected for a Fund
may underperform the market or other funds with
similar objectives.
INTEREST RATE RISK
All bonds fluctuate in value as interest rates
fluctuate. Generally, as interest rates rise,
the value of a Fund's bond investments will
decline, resulting in capital losses to
shareholders. In general, the shorter the
maturity, the lower the risk and the lower the
return.
CREDIT RISK
The Bond Funds can acquire corporate bonds that
carry investment grade credit ratings, which are
bonds rated by a Rating Agency in the four
highest rating categories. Obligations rated in
the fourth highest rating category are
considered to have speculative characteristics.
In addition, interest and principal payments on
these securities may not be insured or
guaranteed.
An issuer of fixed income securities could
default on its obligations to pay interest and
repay principal. A bond's credit rating could be
downgraded. Both of these events could cause a
Fund to lose money.
A full discussion of all permissible investments
can be found in the Statement of Additional
Information.
WHO MAY WANT TO INVEST? Consider investing in a Bond Fund if you are:
- SEEKING TO ADD A MONTHLY INCOME COMPONENT TO
YOUR PORTFOLIO
- SEEKING HIGHER POTENTIAL RETURNS THAN THOSE
PROVIDED BY MONEY MARKET FUNDS
- WILLING TO ACCEPT THE RISKS OF PRICE AND
DIVIDEND FLUCTUATIONS
These Funds will not be appropriate for anyone:
- SEEKING SAFETY OF PRINCIPAL
19
<PAGE> 22
RISK/RETURN SUMMARY AND FUND EXPENSES--BOND FUNDS
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Bond Funds.
<TABLE>
<CAPTION>
INTERMEDIATE SHORT TERM
INCOME FUND BOND FUND BOND FUND
Investment Institutional Investment Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases None None None None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees 0.60% 0.60% 0.55% 0.55% 0.50% 0.50%
Distribution (12b-1) Fees 0.25% None 0.25% None 0.25%(1) None
Other Expenses 0.24% 0.24% 0.23% 0.23% 0.26% 0.26%
----- ----- ----- ----- ----- -----
TOTAL ANNUAL FUND OPERATING
EXPENSES 1.09% 0.84% 1.03% 0.78% 1.01% 0.76%
FEE WAIVER 0.00% 0.00% 0.00% 0.00% 0.10% 0.00%
----- ----- ----- ----- ----- -----
NET ANNUAL FUND OPERATING
EXPENSES 1.09% 0.84% 1.03% 0.78% 0.91%(1) 0.76%
===== ===== ===== ===== ===== =====
</TABLE>
1 The Fund's Distributor has contractually agreed to waive a portion of the
Fund's 12b-1 fees for Investment Shares at least until December 31, 2000.
EXAMPLE: This Example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The Example assumes:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Although your actual costs may be higher or lower, based upon these assumptions,
your costs would be:
<TABLE>
<CAPTION>
INTERMEDIATE SHORT TERM
INCOME FUND BOND FUND BOND FUND
Investment Institutional Investment Institutional Investment
Shares Shares Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE YEAR AFTER
PURCHASE $ 111 $ 86 $ 105 $ 80 $ 93
THREE YEARS AFTER
PURCHASE $ 347 $ 268 $ 328 $249 $ 312
FIVE YEARS AFTER
PURCHASE $ 601 $ 466 $ 569 $433 $ 548
TEN YEARS AFTER
PURCHASE $1,329 $1,037 $1,259 $966 $1,227
<CAPTION>
SHORT TERM
BOND FUND
Institutional
Shares
- --------------------- ---------------------
<S> <C> <C>
ONE YEAR AFTER
PURCHASE $ 78
THREE YEARS AFTER
PURCHASE $243
FIVE YEARS AFTER
PURCHASE $422
TEN YEARS AFTER
PURCHASE $942
</TABLE>
20
<PAGE> 23
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
KENT TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KTFIX Fund No.: 233
INSTITUTIONAL CLASS
Ticker Symbol: KNTIX Fund No.: 213
INVESTMENT OBJECTIVE Current income that is exempt from federal
income tax.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 80% of its
net assets in federally tax-exempt obligations.
Federally tax-exempt obligations consist of
municipal bonds, notes and commercial paper
issued by states and other local governments
that are exempt from federal taxes. Securities
whose interest is considered a tax preference
item under the federal alternative minimum tax
will be considered taxable for purposes of this
policy. The Fund maintains a dollar-weighted
average portfolio maturity of between ten and
twenty-five years.
The Fund will purchase securities rated in one
of the four highest rating categories by a
Rating Agency or unrated securities of
comparable quality.
While maturity and credit quality are the most
important investment factors, the Fund also
considers the following when making investment
decisions:
- Current yield and yield to maturity.
- Potential for capital gain.
While the Fund will not normally engage in
frequent trading of portfolio securities, it
will make changes in its investment portfolio
from time to time as economic conditions and
market prices dictate based on the Fund's
investment objective. The Fund may consider
selling a security if it falls below the minimum
credit quality required for purchase. If the
Fund does buy and sell securities frequently,
there will be increased transaction costs, which
can negatively impact Fund performance, and
cause additional taxable gains to shareholders.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Municipal Bond Index is an
unmanaged index generally representative of general obligation municipal debt
instruments with long-term maturities greater than two years.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1996 3.92
1997 8.59
1998 5.71
1999 -3.26
</TABLE>
Best quarter: Q2 1997 3.44%
Worst quarter: Q2 1999 -2.24%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Since Inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Shares 3/31/95 -3.40% 4.58%
- -------------------------------------------------------------------------------------------------------------------
Institutional Shares 3/20/95 -3.26% 4.83%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 3/31/95 -2.06% 5.76%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
KENT INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNMBX Fund No.: 226
INSTITUTIONAL CLASS
Ticker Symbol: KNMTX Fund No.: 206
INVESTMENT OBJECTIVE Current income that is exempt from federal
income tax.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 80% of its
net assets in federally tax-exempt obligations.
Federally tax-exempt obligations consist of
municipal bonds, notes and commercial paper
issued by states and other local governments
that are exempt from federal taxes. Securities
whose interest is considered a tax preference
item under the federal alternative minimum tax
will be considered taxable for purposes of this
policy. The Fund maintains a dollar-weighted
average portfolio maturity of between three and
ten years.
The Fund will purchase securities rated in one
of the four highest rating categories by a
Rating Agency or unrated securities of
comparable quality.
While maturity and credit quality are the most
important investment factors, the Fund also
considers the following when making investment
decisions:
- Current yield and yield to maturity.
- Potential for capital gain.
The Fund may consider selling a security if it
falls below the minimum credit quality required
for purchase.
22
<PAGE> 25
KENT INTERMEDIATE TAX-FREE FUND, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Three-Year General Obligation
Municipal Bond Index and the Lehman Brothers Five-Year General Obligation
Municipal Bond Index are unmanaged indices of debt instruments issued by
municipalities.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1993 8.51
1994 -3
1995 12.9
1996 3.41
1997 7.07
1998 5.37
1999 -1.01
</TABLE>
Best quarter: Q1 1995 5.42%
Worst quarter: Q1 1994 -3.95%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 12/18/92 -1.27% 5.21% 4.46%
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares 12/16/92 -1.01% 5.46% 4.67%
- ---------------------------------------------------------------------------------------------------------------------
Lehman Brothers Three-
Year General Obligation
Municipal Bond Index 12/31/92 1.92% 5.16% 4.65%
- ---------------------------------------------------------------------------------------------------------------------
Lehman Brothers Five-Year
General Obligation
Municipal Bond Index 12/31/92 0.71% 5.80% 5.13%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
KENT MICHIGAN MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNMVX Fund No.: 227
INSTITUTIONAL CLASS
Ticker Symbol: KNMIX Fund No.: 207
INVESTMENT OBJECTIVE Current income that is exempt from federal
income tax and Michigan personal income tax.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 80% of its
net assets in federally tax-exempt obligations.
Federally tax-exempt obligations consist of
municipal bonds, notes and commercial paper
issued by states and other local governments
that are exempt from federal taxes. In addition,
under normal market conditions, at least 65% of
the Fund's total assets will be invested in
municipal obligations issued by the State of
Michigan or its political subdivisions. The Fund
maintains a dollar-weighted average portfolio
maturity of between three and five years. No
security in the Fund will have a remaining
maturity of more than ten years.
The Fund will purchase securities rated in one
of the four highest rating categories by a
Rating Agency or unrated securities of
comparable quality.
While maturity and credit quality are the most
important investment factors, the Fund also
considers the following when making investment
decisions:
- Current yield and yield to maturity.
- Potential for capital gain.
The Fund may consider selling a security if it
falls below the minimum credit quality required
for purchase.
24
<PAGE> 27
KENT MICHIGAN MUNICIPAL BOND FUND, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year and as compared to a
broad-based securities index. The Lehman Brothers Three-Year General Obligation
Municipal Bond Index is an unmanaged index of debt obligations issued by
municipalities.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1994 0.36
1995 8.20
1996 3.51
1997 5.52
1998 4.75
1999 0.67
</TABLE>
Best quarter: Q1 1995 3.01%
Worst quarter: Q1 1994 -1.48%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 5/11/93 0.51% 4.34% 3.72%
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares 5/3/93 0.67% 4.50% 3.88%
- ---------------------------------------------------------------------------------------------------------------------
Lehman Brothers Three-
Year General Obligation
Municipal Bond Index 4/30/93 1.92% 5.16% 4.50%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT RISKS -
ALL MUNICIPAL BOND FUNDS Investing in the Municipal Bond Funds involves
the risks common to any investment in
securities. By itself, no Fund constitutes a
balanced investment program.
There is no guarantee that the Funds will meet
their goals. When you sell your shares in the
Funds, they may be worth more or less than you
paid for them. It is possible to lose money by
investing in the Funds.
An investment in a Municipal Bond Fund is not a
bank deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any
other government agency.
The Municipal Bond Funds will invest primarily
in fixed income securities, which provide income
and a level of protection of capital, but
present a lower potential for capital
appreciation than equity securities.
Two principal risks of fixed income (bond)
investing are market risk and selection risk.
Market risk means that the bond market in
general has ups and downs, which may affect the
performance of any individual fixed income
security. Selection risk means that the
particular bonds that are selected for a Fund
may underperform the market or other Funds with
similar objectives.
INTEREST RATE RISK
All bonds fluctuate in value as interest rates
fluctuate. Generally, as interest rates rise,
the value of a Fund's bond investments will
decline, resulting in capital losses to
shareholders. In general, the shorter the
maturity, the lower the risk and the lower the
return.
CREDIT RISK
The Municipal Bond Funds can acquire bonds that
carry investment grade credit ratings, which are
bonds rated by a Rating Agency in one of the
four highest rating categories. Obligations
rated in the fourth highest rating category are
considered to have speculative characteristics.
In addition, interest and principal payments on
these securities may not be insured or
guaranteed.
An issuer of fixed income securities could
default on its obligations to pay interest and
repay principal. A bond's credit rating could be
downgraded. Both of these events could cause a
Fund to lose money.
The types of obligations the Funds generally
invest in are listed below in descending order
of credit quality:
- general obligation bonds, which are backed by
the full faith, credit and taxing power of the
municipality
- revenue bonds, which are backed only by
revenues from a particular facility or revenue
source
- private activity bonds issued by industrial
development authorities, which are used to
finance privately owned facilities and which
are backed by private entities. The credit
quality of these bonds is a function of the
creditworthiness of the private entity.
26
<PAGE> 29
PRINCIPAL RISKS, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
- moral obligation securities, which are
typically issued by special purpose public
authorities and are backed by a reserve fund.
If the issuer draws on the reserve fund, the
municipality is under no legal obligation to
restore the funds.
ADDITIONAL PRINCIPAL
INVESTMENT RISKS CONCENTRATION (STATE) RISK - MICHIGAN MUNICIPAL
BOND FUND
Due to the level of investment in municipal
obligations issued by the State of Michigan and
its political subdivisions, the performance of
the Fund will be closely tied to the economic
and political conditions in the State of
Michigan, and, therefore, an investment in the
Fund may be riskier than an investment in other
types of municipal bond funds. The State's
economy is principally dependent upon
manufacturing (particularly automobiles, office
equipment and other durable goods), tourism and
agriculture and historically has been highly
cyclical. When a Fund's assets are concentrated
in obligations from revenues of similar projects
issued by issuers located in the same state or
in industrial development bonds, the Fund will
be subject to the particular risks (including
legal and economic conditions) related to such
securities to a greater extent than if its
assets were not so concentrated.
WHO MAY WANT TO INVEST? Consider investing in a Municipal Bond Fund if
you are:
- SEEKING TO ADD A MONTHLY INCOME COMPONENT TO
YOUR PORTFOLIO
- SEEKING HIGHER POTENTIAL RETURNS THAN THOSE
PROVIDED BY MONEY MARKET FUNDS
- WILLING TO ACCEPT THE RISKS OF PRICE AND
DIVIDEND FLUCTUATIONS
- SEEKING CURRENT INCOME THAT IS EXEMPT FROM
FEDERAL INCOME TAXES (AND, IN THE CASE OF THE
MICHIGAN MUNICIPAL BOND FUND, CURRENT INCOME
THAT IS EXEMPT FROM MICHIGAN PERSONAL INCOME
TAXES)
- WILLING TO RECEIVE DIVIDEND DISTRIBUTIONS A
PORTION OF WHICH MAY BE SUBJECT TO THE FEDERAL
ALTERNATIVE MINIMUM TAX
The Municipal Bond Funds are not appropriate
for:
- TAX-EXEMPT INSTITUTIONS AND CERTAIN RETIREMENT
PLANS THAT ARE UNABLE TO BENEFIT FROM THE
RECEIPT OF TAX-EXEMPT DIVIDENDS
- ANYONE SEEKING SAFETY OF PRINCIPAL
27
<PAGE> 30
RISK/RETURN SUMMARY AND FUND EXPENSES--MUNICIPAL BOND FUNDS
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Municipal Bond Funds.
<TABLE>
<CAPTION>
TAX-FREE INTERMEDIATE MICHIGAN MUNICIPAL
INCOME FUND TAX-FREE FUND BOND FUND
Investment Institutional Investment Institutional Investment Institutional
Shares Shares Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales (Load) Charge
Imposed on Purchases None None None None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees 0.55% 0.55% 0.50% 0.50% 0.45% 0.45%
Distribution (12b-1) Fees 0.25% None 0.25% None 0.25%(1) None
Other Expenses 0.28% 0.28% 0.24% 0.24% 0.27% 0.27%
----- ----- ----- ----- ----- -----
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.08% 0.83% 0.99% 0.74% 0.97% 0.72%
FEE WAIVER 0.00% 0.00% 0.00% 0.00% 0.10% 0.00%
----- ----- ----- ----- ----- -----
NET ANNUAL FUND OPERATING
EXPENSES 1.08% 0.83% 0.99% 0.74% 0.87%(1) 0.72%
===== ===== ===== ===== ===== =====
</TABLE>
1 The Fund's Distributor has contractually agreed to waive a portion of the
Fund's 12b-1 fees for Investment Shares at least until December 31, 2000.
EXAMPLE: This Example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The Example assumes:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Although your actual costs may be higher or lower, based upon these assumptions,
your cost would be:
<TABLE>
<CAPTION>
TAX-FREE INTERMEDIATE
INCOME FUND TAX-FREE FUND
Investment Institutional Investment Institutional
Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR AFTER
PURCHASE $ 110 $ 85 $ 101 $ 76
THREE YEARS AFTER
PURCHASE $ 343 $ 265 $ 315 $237
FIVE YEARS AFTER
PURCHASE $ 595 $ 460 $ 547 $411
TEN YEARS AFTER
PURCHASE $1,317 $1,025 $1,213 $918
<CAPTION>
MICHIGAN MUNICIPAL
BOND FUND
Investment Institutional
Shares Shares
- --------------------- -----------------------------------
<S> <C> <C> <C>
ONE YEAR AFTER
PURCHASE $ 89 $ 74
THREE YEARS AFTER
PURCHASE $ 299 $230
FIVE YEARS AFTER
PURCHASE $ 527 $401
TEN YEARS AFTER
PURCHASE $1,181 $894
</TABLE>
28
<PAGE> 31
RISK/RETURN SUMMARY AND FUND EXPENSES--MONEY MARKET FUNDS
KENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KNIXX Fund No.: 221
INSTITUTIONAL CLASS
Ticker Symbol: KIMXX Fund No.: 201
INVESTMENT OBJECTIVE Current income.
PRINCIPAL INVESTMENT
STRATEGIES The Fund invests in a broad range of U.S.
Government, bank and commercial obligations
which are considered to be of high credit
quality and easily sold in the secondary market.
These securities will have short term debt
ratings in the two highest rating categories of
at least two Rating Agencies or will be unrated
securities of comparable quality. The Fund's
dollar-weighted average portfolio maturity will
not exceed 90 days. The Fund will not purchase
any security that matures in more than 397 days.
The Fund seeks to maintain a stable net asset
value of $1.00 per share, although there is no
guarantee that the net asset value will not
vary.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1991 5.65
1992 3.4
1993 2.68
1994 3.75
1995 5.58
1996 5.06
1997 5.23
1998 5.13
1999 4.8
</TABLE>
Best quarter: Q1 1991 1.56%
Worst quarter: Q4 1993 0.55%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Class Inception Past Year Past 5 Years Since Inception
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 12/9/92 4.80% 5.16% 4.53%
- ----------------------------------------------------------------------------------------------------------------------
Institutional Shares 12/3/90 4.80% 5.16% 4.60%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
RISK/RETURN SUMMARY AND FUND EXPENSES--MONEY MARKET FUNDS
KENT GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: N/A Fund No.: 222
INSTITUTIONAL CLASS
Ticker Symbol: KGIXX Fund No.: 202
INVESTMENT OBJECTIVE Current income.
PRINCIPAL INVESTMENT
STRATEGIES The Fund invests in a broad range of U.S.
Treasury bills and notes and other obligations
issued by the U.S. Government and its agencies,
repurchase agreements based on these securities
and shares of registered money market investment
companies that invest exclusively in these
securities. The Fund's dollar-weighted average
portfolio maturity will not exceed 90 days. The
Fund will not purchase any security which
matures in more than 397 days. The Fund seeks to
maintain a stable net asset value of $1.00 per
share, although there is no guarantee that the
net asset value per share will not vary.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance for its first full fiscal year.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume reinvestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1998 5.17
1999 4.81
</TABLE>
Best quarter: Q3 1998 1.30%
Worst quarter: Q2 1999 1.11%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Class Inception Past Year Since Inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Shares 6/2/97 4.81% 5.07%
- -------------------------------------------------------------------------------------------------------------------
Institutional Shares 6/2/97 4.81% 5.08%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
RISK/RETURN SUMMARY AND FUND EXPENSES--MONEY MARKET FUNDS
KENT MICHIGAN MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
INVESTMENT CLASS
Ticker Symbol: KINXX Fund No.: 223
INSTITUTIONAL CLASS
Ticker Symbol: KMIXX Fund No.: 203
INVESTMENT OBJECTIVE Current income that is exempt from federal
income tax and Michigan personal income tax.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 80% of its
net assets in federally tax-exempt obligations,
which consist of municipal bonds, notes and
commercial paper issued by states and local
governments that are exempt from federal taxes.
The securities will have short term debt ratings
in the two highest rating categories of at least
two Rating Agencies or will be unrated
securities of comparable quality. Normally, the
Fund will invest at least 65% of its total
assets in municipal obligations issued by the
State of Michigan and its localities. The Fund's
dollar-weighted average portfolio maturity will
not exceed 90 days. The Fund will not purchase
any security which matures in more than 397
days. The Fund seeks to maintain a stable net
asset value of $1.00 per share, although there
is no guarantee that the net asset value will
not vary.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The bar chart and table provide an indication of the risks of an investment in
the Fund by showing its performance from year to year.
PERFORMANCE BAR CHART AND TABLE
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES
(Both the chart and the table assume rein-vestment of dividends and
distributions.)
The returns for Investment Shares will be lower than the Institutional Shares'
returns shown in the bar chart because expenses of the classes differ.
[BAR CHART]
<TABLE>
<CAPTION>
PERFORMANCE
-----------
<S> <C>
1992 2.63
1993 2
1994 2.4
1995 3.5
1996 3.11
1997 3.31
1998 3.06
1999 2.86
</TABLE>
Best quarter: Q4 1995 0.90%
Worst quarter: Q4 1993 0.40%
Past performance does not indicate how the Fund will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDING DECEMBER 31, 1999)
<TABLE>
<CAPTION>
Inception Class Past Year Past 5 Years Since Inception
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Shares 12/15/92 2.86% 3.16% 2.84%
- ----------------------------------------------------------------------------------------------------------------------
Institutional Shares 6/3/91 2.86% 3.17% 2.93%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
RISK/RETURN SUMMARY AND FUND EXPENSES--MONEY MARKET FUNDS
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT RISKS -
ALL MONEY MARKET FUNDS Investing in the Money Market Funds involves the
risks common to any investing in securities. By
itself, no Fund constitutes a balanced
investment program.
An investment in a Money Market Fund is not a
bank deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any
other government agency.
The Money Market Funds expect to maintain a net
asset value of $1.00 per share, but there is no
assurance that they will be able to do so on a
continuous basis.
There can be no assurance that the investment
objectives of each Money Market Fund will be
achieved.
MARKET RISK AND SELECTION RISK
The Funds' performance per share will change
daily based on many factors, including
fluctuation in interest rates, the quality of
the instruments in each Fund's investment
portfolio, national and international economic
conditions and general market conditions.
CREDIT RISK
The Money Market Funds may also be subject to
credit risks. Therefore, they could lose money
if the issuer of a security is unable to meet
its financial obligations.
ADDITIONAL PRINCIPAL
INVESTMENT RISKS CONCENTRATION (STATE) RISK - MICHIGAN MUNICIPAL
MONEY MARKET FUND
Due to the level of investment in municipal
obligations issued by the State of Michigan and
its local governments, the performance of the
Michigan Municipal Money Market Fund will be
closely tied to the economic and political
conditions in the State of Michigan, and,
therefore, an investment in the Fund may be
riskier than an investment in other types of
money market funds. The State's economy is
principally dependent upon manufacturing
(particularly automobiles, office equipment and
other durable goods), tourism and agriculture
and historically has been highly cyclical. The
Michigan Municipal Money Market Fund may also be
subject to credit risks of municipal issuers
which may have historically experienced periods
of financial difficulties. When a Fund's assets
are concentrated in obligations from revenues of
similar projects issued by issuers located in
the same state or in industrial development
bonds, the Fund will be subject to the
particular risks (including legal and economic
conditions) related to such securities to a
greater extent than if its assets were not so
concentrated.
WHO MAY WANT TO INVEST? Consider investing in a Money Market Fund if
you:
- ARE SEEKING PRESERVATION OF CAPITAL
- HAVE A LOW RISK TOLERANCE
- ARE WILLING TO ACCEPT LOWER POTENTIAL RETURNS
IN EXCHANGE FOR A HIGH DEGREE OF SAFETY
- ARE INVESTING SHORT-TERM RESERVES
- (IN THE CASE OF THE MICHIGAN MUNICIPAL MONEY
MARKET FUND) ARE SEEKING CURRENT INCOME EXEMPT
FROM FEDERAL INCOME TAXES AND MICHIGAN STATE
PERSONAL INCOME TAXES
32
<PAGE> 35
PRINCIPAL RISKS, CONTINUED
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY AND FUND EXPENSES--MONEY MARKET FUNDS
The Money Market Funds will not be appropriate
for anyone:
- SEEKING HIGH TOTAL RETURNS
- PURSUING A LONG-TERM GOAL OR INVESTING FOR
RETIREMENT
The Michigan Municipal Money Market Fund will
not be appropriate for:
- TAX-EXEMPT INSTITUTIONS AND CERTAIN RETIREMENT
PLANS THAT ARE UNABLE TO BENEFIT FROM THE
RECEIPT OF TAX-EXEMPT DIVIDENDS
- RESIDENTS OF STATES OTHER THAN MICHIGAN THAT
ARE UNABLE TO BENEFIT FROM THE RECEIPT OF
DIVIDENDS EXEMPT FROM MICHIGAN PERSONAL INCOME
TAXES
33
<PAGE> 36
RISK/RETURN SUMMARY AND FUND EXPENSES--MONEY MARKET FUNDS
FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
<TABLE>
<CAPTION>
MONEY GOVERNMENT MONEY
MARKET FUND MARKET FUND
Investment Institutional Investment Institutional
Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales (Load) Charge Imposed on
Purchases None None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund
assets)
Management Fees 0.40% 0.40% 0.40%(1) 0.40%(1)
Distribution (12b-1) Fees None None None None
Other Expenses 0.23% 0.23% 0.25%(1) 0.25%(1)
----- ----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.63% 0.63% 0.65% 0.65%
FEE WAIVER 0.00% 0.00% 0.23% 0.23%
----- ----- ----- -----
NET ANNUAL FUND OPERATING EXPENSES 0.63% 0.63% 0.42%(1) 0.42%(1)
===== ===== ===== =====
<CAPTION>
MICHIGAN MUNICIPAL
MONEY MARKET FUND
Investment Institutional
Shares Shares
- ----------------------------------------- ---------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales (Load) Charge Imposed on
Purchases None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund
assets)
Management Fees 0.40% 0.40%
Distribution (12b-1) Fees None None
Other Expenses 0.23% 0.23%
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.63% 0.63%
FEE WAIVER 0.00% 0.00%
----- -----
NET ANNUAL FUND OPERATING EXPENSES 0.63% 0.63%
===== =====
</TABLE>
1 The Investment Adviser has contractually agreed to waive a portion of its
management fees and the Fund's administrator and fund accountant have
contractually agreed to waive a portion of the administration and fund
accounting fees payable by the Fund at least until December 31, 2000.
EXAMPLE: This Example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The Example assumes:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Although your actual costs may be higher or lower, based upon these assumptions,
your costs would be:
<TABLE>
<CAPTION>
MONEY GOVERNMENT MONEY
MARKET FUND MARKET FUND
Investment Institutional Investment Institutional
Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 64 $ 64 $ 43 $ 43
THREE YEARS AFTER PURCHASE $202 $202 $185 $185
FIVE YEARS AFTER PURCHASE $351 $351 $339 $339
TEN YEARS AFTER PURCHASE $786 $786 $789 $789
<CAPTION>
MICHIGAN MUNICIPAL
MONEY MARKET FUND
Investment Institutional
Shares Shares
- ----------------------------------------- ---------------------------------
<S> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 64 $ 64
THREE YEARS AFTER PURCHASE $202 $202
FIVE YEARS AFTER PURCHASE $351 $351
TEN YEARS AFTER PURCHASE $786 $786
</TABLE>
34
<PAGE> 37
ADDITIONAL INFORMATION
INVESTMENT POLICIES AND PRACTICES
- --------------------------------------------------------------------------------
This section takes a detailed look at some of the types of securities the Funds
may hold in their portfolios and the various kinds of investment practices that
may be used in day-to-day portfolio management. A Fund may invest in the
securities and pursue the strategies described below to the extent that they are
consistent with the Fund's investment program. While a particular type of
security or investment practice may be available to a Fund, a Fund will not
necessarily invest in such security or use such investment practice.
The Funds adhere to certain investment restrictions and policies at the time
they make an investment. A later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
The Funds' investment programs are subject to further restrictions and risks
described in the Statement of Additional Information.
TYPES OF PORTFOLIO SECURITIES SCIENCE AND TECHNOLOGY STOCKS
Companies in the rapidly changing fields of
science and technology often face unusually high
price volatility, both in terms of gains and
losses. The potential for wide variation in
performance is based on the special risks common
to these stocks. For example, products or
services that at first appear promising may not
prove commercially successful or may become
obsolete quickly. Earnings disappointments can
result in sharp price declines. The Equity Funds
may invest in science and technology stocks. To
the extent that a Fund invests in these types of
companies, its net asset value may be subject to
rapid and substantial changes.
MORTGAGE DOLLAR ROLLS
Mortgage dollar rolls are transactions in which
a Fund sells securities and simultaneously
contracts with the same counterparty to
repurchase similar (same type, coupon and
maturity) but not identical securities on a
specified future date. The Fund benefits to the
extent of any difference between the price
received or the securities sold and the lower
forward price for the future purchase (often
referred to as the "drop") plus the interest
earned on the cash proceeds of the securities
sold until the settlement date of the forward
purchase. Unless such benefits exceed the
income, capital appreciation and gain or loss
due to mortgage prepayments that would have been
realized on the securities sold as part of the
mortgage dollar roll, the use of this technique
will diminish the investment performance of the
Fund compared with what such performance would
have been without the use of mortgage dollar
rolls. The Bond Funds, Municipal Bond Funds and
Money Market Funds may invest in mortgage dollar
rolls.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements to purchase
portfolio securities from financial institutions
subject to the seller's agreement to repurchase
them at a mutually agreed upon date and price. A
default by the seller would expose a Fund to
possible loss because of adverse market action
or delay in connection with the disposition of
the underlying collateral obligations.
TYPES OF INVESTMENT MANAGEMENT
PRACTICES SECURITIES LENDING
A Fund may lend its portfolios securities to
broker-dealers and other institutional
investors. When a Fund lends it securities, it
continues to receive dividends and interest on
the securities loaned and may simultaneously
earn interest on the investment of the cash
collateral. There may be risks of delay in
receiving additional collateral or in
35
<PAGE> 38
INVESTMENT POLICIES AND PRACTICES, CONTINUED
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
recovering the securities loaned or even a loss
of rights in the collateral should the borrower
of the securities fail financially.
INVESTING FOR DEFENSIVE PURPOSES
When Lyon Street determines that market
conditions are appropriate, each of the Equity,
Bond and Municipal Bond Funds may, for temporary
defensive purposes, invest up to 100% of its
assets in money market instruments. Each of the
Bond and Municipal Bond Funds may also shorten
its dollar-weighted average maturity below its
normal range if such action is deemed
appropriate by Lyon Street for temporary
defensive purposes. In addition, the Michigan
Municipal Bond Fund may invest up to 100% of its
total assets for temporary defensive purposes in
municipal bonds the income on which is exempt
from federal income tax but not exempt from
Michigan personal income taxes. The Michigan
Municipal Money Market Fund may, for temporary
defensive purposes, hold uninvested cash
reserves or invest in short-term taxable money
market obligations in such proportions as, in
the opinion of Lyon Street, prevailing market or
economic conditions warrant. If a Fund is
investing defensively, it will not be pursuing
its investment objective.
36
<PAGE> 39
FUND MANAGEMENT
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The Funds are advised by Lyon Street, a wholly owned subsidiary of Old Kent
Bank. Lyon Street maintains offices at 111 Lyon Street, NW, Grand Rapids,
Michigan 49503. Old Kent Bank is a wholly owned subsidiary of Old Kent Financial
Corporation, which is a financial services company with total assets as of
December 31, 1999, of approximately $18 billion. The Investment Management Group
("IMG") at Lyon Street has managed the Kent Funds since their inception. Prior
to 1998, IMG managed the Funds as a division of Old Kent Bank. Old Kent Bank has
managed the financial assets of individual and institutional investors for over
100 years. Lyon Street employs an experienced staff of professional investment
analysts, portfolio managers and traders, and uses several proprietary
computer-based systems in conjunction with fundamental analysis to identify
investment opportunities.
For these advisory services, the Funds paid fees as follows during the fiscal
year ended December 31, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
As a percentage of
average net assets
as of 12/31/99
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Income Fund 0.70%
- -----------------------------------------------------------------------------------------------
Index Equity Fund 0.25%*
- -----------------------------------------------------------------------------------------------
Large Company Growth Fund N/A**
- -----------------------------------------------------------------------------------------------
Small Company Growth Fund 0.70%
- -----------------------------------------------------------------------------------------------
International Growth Fund 0.75%
- -----------------------------------------------------------------------------------------------
Income Fund 0.60%
- -----------------------------------------------------------------------------------------------
Intermediate Bond Fund 0.55%
- -----------------------------------------------------------------------------------------------
Short Term Bond Fund 0.50%
- -----------------------------------------------------------------------------------------------
Tax-Free Income Fund 0.55%
- -----------------------------------------------------------------------------------------------
Intermediate Tax-Free Fund 0.50%
- -----------------------------------------------------------------------------------------------
Michigan Municipal Bond Fund 0.45%
- -----------------------------------------------------------------------------------------------
Money Market Fund 0.40%
- -----------------------------------------------------------------------------------------------
Government Money Market Fund 0.20%*
- -----------------------------------------------------------------------------------------------
Michigan Municipal Money Market Fund 0.40%
- -----------------------------------------------------------------------------------------------
</TABLE>
*Lyon Street waived a portion of its contractual fees for these Funds for the
most recent fiscal year. Contractual fees (without waivers) are 0.30% for the
Index Equity Fund and 0.40% for the Government Money Market Fund.
**The Large Company Growth Fund commenced operations on October 19, 1999.
Contractual investment advisory fees for the Fund are 0.70%.
37
<PAGE> 40
FUND MANAGEMENT
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
Lyon Street has several portfolio managers committed to the day-to-day
management of the Funds:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
MANAGER FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C>
JOSEPH T. KEATING, President Mr. Keating is responsible for developing and
and Chief Investment Officer implementing the Funds' investment policies.
at Lyon Street
- ------------------------------------------------------------------------------------------
ALLAN J. MEYERS, CFA, Chief Mr. Meyers is portfolio manager of the GROWTH AND
Equity Officer at Lyon INCOME FUND and the LARGE COMPANY GROWTH FUND and
Street co-portfolio manager of the INTERNATIONAL GROWTH FUND.
Mr. Meyers has been portfolio manager of the GROWTH
AND INCOME FUND since November, 1997. He has been
portfolio manager for the LARGE COMPANY GROWTH FUND
and co-portfolio manager of the INTERNATIONAL GROWTH
FUND since the inception of the Funds.
- ------------------------------------------------------------------------------------------
DAVID C. EDER, Director of Mr. Eder has been portfolio manager of the
Structured Equity Management INTERNATIONAL GROWTH FUND and manager of the INDEX
at Lyon Street EQUITY FUND since January 1995.
- ------------------------------------------------------------------------------------------
BRIAN J. SMOLINSKI, Mr. Smolinski has been portfolio manager of the INDEX
Investment Officer at Lyon EQUITY FUND since June 1998.
Street
Mr. Smolinski is also responsible for developing and
maintaining proprietary software that is used in
researching structured equity investments.
- ------------------------------------------------------------------------------------------
ROBERT CUMMISFORD, CFA, Mr. Cummisford is portfolio manager of the SMALL
Director of Small Company COMPANY GROWTH FUND.
Stock Management at Lyon
Street
- ------------------------------------------------------------------------------------------
MITCHELL L. STAPLEY, CFA, Mr. Stapley is the portfolio manager of the INCOME
Chief Fixed Income Officer FUND, the INTERMEDIATE BOND FUND, and the SHORT TERM
at Lyon Street BOND FUND. He has been portfolio manager of the INCOME
FUND and the INTERMEDIATE BOND FUND since their
inception. He has been portfolio manager of the SHORT
TERM BOND FUND since November 1996.
- ------------------------------------------------------------------------------------------
JOHN L. CASSADY III, Mr. Cassady is manager of the SHORT TERM BOND FUND,
Portfolio Manager the INTERMEDIATE BOND FUND and the INCOME FUND. He has
been manager of these Funds since November 1996.
- ------------------------------------------------------------------------------------------
MICHAEL J. MARTIN, CFA, Mr. Martin is co-portfolio manager of each of the
Director of Tax-Free Fixed MUNICIPAL BOND FUNDS and is responsible for their
Income Management at Lyon day-to-day management. Mr. Martin has managed the
Street TAX=FREE INCOME FUND and INTERMEDIATE TAX-FREE FUND
since November, 1997. He has been co-portfolio manager
for the MICHIGAN MUNICIPAL BOND FUND since January
1995.
- ------------------------------------------------------------------------------------------
SARAH M. QUIRK, Portfolio Ms. Quirk has been co-portfolio manager for each of
Manager the MUNICIPAL BOND FUNDS since May, 1998.
- ------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------- ----------------------------------------------------------
MANAGER EXPERIENCE
- -------------------------------- ----------------------------------------------------------
<S> <C> <C>
JOSEPH T. KEATING, President - Mr. Keating has over twenty years of portfolio
and Chief Investment Officer management experience, including twelve years with
at Lyon Street IMG.
- ------------------------------------------------------------------------------------------
ALLAN J. MEYERS, CFA, Chief - Mr. Meyers has over twenty-four years of portfolio
Equity Officer at Lyon management experience, including fifteen years with
Street IMG.
- ------------------------------------------------------------------------------------------
DAVID C. EDER, Director of - Mr. Eder has over seven years of portfolio
Structured Equity Management management experience with IMG.
at Lyon Street
- ------------------------------------------------------------------------------------------
BRIAN J. SMOLINSKI, - Prior to joining IMG in June 1998, Mr. Smolinski
Investment Officer at Lyon worked as an Applications Business Analyst at Old
Street Kent Bank for nine years.
- ------------------------------------------------------------------------------------------
ROBERT CUMMISFORD, CFA, - Mr. Cummisford has over eight years of portfolio
Director of Small Company management experience, including over three years
Stock Management at Lyon with IMG.
Street - Prior to joining Old Kent, he was a Senior
Consultant with Ibbotson Associates.
- ------------------------------------------------------------------------------------------
MITCHELL L. STAPLEY, CFA, -Mr. Stapley has over fifteen years of portfolio
Chief Fixed Income Officer management experience, including eleven years with
at Lyon Street IMG.
- ------------------------------------------------------------------------------------------
JOHN L. CASSADY III, - Mr. Cassady has over twelve years of investment
Portfolio Manager experience, including seven years of fixed income
portfolio management.
- Prior to joining Lyon Street, he was a portfolio
manager at Atlantic Portfolio Analytics & Management
from 1996 to 1999 and a Senior Financial Analyst at
Lockheed Martin from 1994 to 1996.
- ------------------------------------------------------------------------------------------
MICHAEL J. MARTIN, CFA, - Mr. Martin has over ten years of experience at Old
Director of Tax-Free Fixed Kent, including six years of portfolio management
Income Management at Lyon experience with IMG.
Street
- ------------------------------------------------------------------------------------------
SARAH M. QUIRK, Portfolio - Ms. Quirk has over twenty years of investment
Manager experience, including fifteen years in the municipal
bond industry.
- Prior to joining Lyon Street, she was a Retail
Trader-Fixed Income Securities at Tucker Anthony, Inc.
- ------------------------------------------------------------------------------------------
</TABLE>
The Statement of Additional Information has more detailed information about Lyon
Street and the Funds' other service providers.
38
<PAGE> 41
FUND MANAGEMENT
DISTRIBUTOR, ADMINISTRATOR AND SUB-ADMINISTRATOR
- --------------------------------------------------------------------------------
Kent Funds Distributors, Inc. ("Distributor") is the distributor of the Funds'
shares. The Distributor is located at 3435 Stelzer Road, Columbus, Ohio 43219.
Old Kent Securities Corporation ("OKSC") provides management and administrative
services to the Funds, including providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping and legal services. OKSC also acts as the fund accountant, transfer
agent and dividend paying agent of the Funds. OKSC is located at 111 Lyon Street
NW, Grand Rapids, Michigan 49503.
BISYS Fund Services Ohio, Inc. ("BISYS") provides certain administrative, fund
accounting, transfer agent and dividend-paying agent services to the Funds
pursuant to agreements between BISYS and OKSC. As compensation for its services,
BISYS receives fees from OKSC. The fees paid to BISYS by OKSC for such services
come out of OKSC's fees and are not an additional charge to the Funds.
39
<PAGE> 42
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
HOW NAV IS CALCULATED
The NAV for each class of shares
of a Fund is calculated by
adding the total value of the
Fund's investments and other
assets attributable to the
class, subtracting the
liabilities of the Fund
attributable to the class and
then dividing that figure by the
number of outstanding shares of
the Fund attributable to the
class:
NAV =
Total Assets
attributable to the class
- Liabilities
attributable to the class
-------------------------
Number of Shares
Outstanding
attributable to the class
1. NAV is calculated separately
for the Investment Shares and
the Institutional Shares.
2. You can find most Funds' NAV
daily in The Wall Street
Journal and in other
newspapers.
MONEY MARKET FUNDS
Each Money Market Fund's net asset value, or
NAV, is expected to be constant at $1.00 per
share, although this value is not guaranteed.
The NAV is determined at 12 noon Eastern time
for the Michigan Municipal Money Market Fund and
at 2:00 p.m. Eastern time for the Money Market
Fund and Government Money Market Fund on each
day the New York Stock Exchange is open. The
Money Market Funds value their securities at
amortized cost. The amortized cost method
involves valuing a portfolio security initially
at its cost on the date of the purchase and
thereafter assuming a constant amortization to
maturity of the difference between the principal
amount due at maturity and initial cost.
OTHER FUNDS
The per share NAV for each class of each
non-Money Market Fund is determined and its
shares are priced at the close of regular
trading on the New York Stock Exchange, normally
at 4:00 p.m. Eastern time, on each day the
Exchange is open.
Your order for purchase, sale or exchange of
shares is priced at the next NAV calculated
after your order is received in good order by
the Fund on any day that the New York Stock
Exchange is open for business. For example: If
you place a purchase order to buy shares of the
Income Fund, it must be received by 4:00 p.m.
Eastern time in order to receive the NAV
calculated at 4:00 p.m. Eastern time.
If your order is received after 4:00 p.m.
Eastern time, you will receive the NAV
calculated on the next day at 4:00 p.m. Eastern
time.
40
<PAGE> 43
SHAREHOLDER INFORMATION
The non-Money Market Funds' securities, other
than short-term debt obligations, are generally
valued at current market prices unless market
quotations are not available, in which case
securities will be valued by a method that the
Board of Trustees believes accurately reflects
fair value. Debt obligations with remaining
maturities of 60 days or less are valued at
amortized cost or based on their acquisition
cost. If a Fund invests in securities primarily
listed on a foreign exchange, the securities may
trade on days when the Fund does not price its
shares. As a result, the Fund's net asset value
may change on days when shareholders are not
able to purchase or redeem the Fund's shares.
41
<PAGE> 44
SHAREHOLDER INFORMATION
PURCHASING AND SELLING YOUR INVESTMENT SHARES
- --------------------------------------------------------------------------------
PURCHASING SHARES
You may purchase shares of the Funds through the Funds' distributor or through
banks, brokers and other investment representatives, which may charge additional
fees and may require higher minimum investments or impose other limitations on
buying and selling shares. If you purchase shares through an investment
representative or other intermediary, that party is responsible for transmitting
orders by close of business and may have an earlier cut-off time for purchase
and sale requests. Consult your investment representative or institution for
specific information.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
ACCOUNT TYPE INITIAL INVESTMENT* SUBSEQUENT INVESTMENT
<S> <C> <C>
- - Non-retirement accounts $1,000 None
- - Retirement accounts $ 100 None
- - Automatic investment plans $1,000 $50
</TABLE>
- --------------------------------------------------------------------------------
- - All purchases must be in U.S. dollars.
- - A fee will be charged for any checks that do not clear.
- - Third-party checks are not accepted.
- - Investment Shares of certain Funds may be purchased through IRAs and Rollover
IRAs, which are available through the Kent Funds.
- - For details and application forms, call 1-800-633-KENT (5368) or write to:
Kent Funds, PO Box 182201, Columbus, OH 43218-2201.
A Fund may waive its minimum investment requirements and each Fund may reject a
purchase order if it considers it in the best interests of the Fund and its
shareholders.
* Minimum initial investments may be waived for Lyon Street and Old Kent
employees, investors in tax-sheltered plans, and investors in certain qualified
retirement accounts.
- --------------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
- --------------------------------------------------------------------------------
42
<PAGE> 45
PURCHASING AND SELLING YOUR INVESTMENT SHARES, CONTINUED
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
(FOR INSTITUTIONAL SHARES, SEE "PURCHASING AND SELLING YOUR INSTITUTIONAL
SHARES")
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------
BY REGULAR MAIL OR OVERNIGHT SERVICE Initial Investment:
If purchasing through your financial adviser or broker,
simply tell your adviser or broker that you wish to purchase
shares of the Funds and he or she will take care of the
necessary documentation. For all other purchases, follow the
instructions below.
1. Carefully read and complete the application. Establishing
your account privileges now saves you the inconvenience of
having to add them later.
2. Make check, bank draft or money order payable to the
"Kent Funds" and include the name of the appropriate Fund(s)
on the check.
3. Send by regular mail to: Kent Funds, P.O. Box 182201,
Columbus, OH 43218-2201. If by overnight service, send to:
Kent Funds, c/o BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219.
Subsequent Investments:
1. Use the investment slip attached to your account
statement, or, if unavailable, include the following
information in writing:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
2. Make check, bank draft or money order payable to the
"Kent Funds."
3. If by regular mail to: Kent Funds, P.O. Box 182201,
Columbus, OH 43218-2201.If by overnight service, send to:
Kent Funds, c/o BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219.
- ---------------------------------------------------------------------------------------------------------
ELECTRONIC PURCHASES Your financial institution must participate in the Automated
Clearing House (ACH) and must be a U.S. bank, credit union
or savings and loan.
Your bank or broker may charge for this service.
Select the electronic purchase option on your account
application or call 1-800-633-KENT (5368). Your account can
generally be set up for electronic purchases within 15 days.
CALL 1-800-633-KENT (5368) to arrange a transfer from your
bank account.
- ---------------------------------------------------------------------------------------------------------
BY WIRE TRANSFER For initial and subsequent investments: Call 1-800-633-KENT
Note: Your bank may charge a wire (5368) for wire instructions, a confirmation number and
transfer fee. instructions for returning your completed application.
After instructing your bank to wire the funds, call
1-800-633-KENT (5368) to advise us of the amount being
transferred and the name of your bank.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send
funds to each other, almost instantaneously. With an
electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH). ACH
transactions usually clear within 2 to 3 days, but
may take up to 8 days. There is generally no fee for
ACH transactions.
43
<PAGE> 46
PURCHASING AND SELLING YOUR INVESTMENT SHARES, CONTINUED
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
ADDING TO YOUR ACCOUNT
You can add to your account by using the convenient options described below. The
Funds reserve the right to change or eliminate these privileges at any time with
60 days' notice.
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN You can make automatic investments in the Funds from your
(Investment Shares Only) bank account. Automatic investments can be as little as $50,
once you've invested the $1,000 minimum required to open the
account. Make sure you note:
To invest regularly from your bank account:
- Complete the Automatic Investment Plan portion on your
Account Application.
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $50)
- How often you want to invest (every month, 4 times a year,
twice a year or once a year)
- Attach a voided personal check.
To invest regularly from your paycheck or government check:
Call 1-800-633-KENT (5368) for an enrollment form.
- ---------------------------------------------------------------------------------------------------------
DIRECTED DIVIDEND OPTION By selecting the appropriate box in the Account Application,
(Investment Shares Only) you can elect to receive your distributions in cash (check)
or have distributions (capital gains and dividends)
reinvested in another Kent Fund. You must maintain the
minimum balance in each Fund into which you plan to reinvest
dividends or the reinvestment will be suspended and your
dividends will be paid to you in cash. The Funds may modify
or terminate this reinvestment option without notice. You
can change or terminate your participation in the
reinvestment option at any time.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. You can receive them in cash or by electronic funds transfer
to your bank account if you are not a participant in an IRA account or in a
tax-qualified plan. Dividends are higher for Institutional Shares than for
Investment Shares, because Institutional Shares have lower distribution
expenses. Capital gains are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED
YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME
OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A TAXABLE
DISTRIBUTION.
44
<PAGE> 47
PURCHASING AND SELLING YOUR INVESTMENT SHARES, CONTINUED
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
SELLING SHARES
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares. If you intend to redeem shares worth more than
$1,000,000, you should notify the Funds at least one day in advance.
You may sell your shares at any time the New York Stock Exchange is open for
business. Your sales price will be the next NAV after your sell order is
received by the Kent Funds, the Funds' transfer agent, or your investment
representative. Normally you will receive your proceeds within a week after your
request is received. See "General Policies on Selling Shares" below.
If selling shares through your financial adviser or broker, ask him or her for
redemption procedures. Your adviser and/or broker may have transaction minimums
and/or transaction times which will affect your redemption. For all other sales
transactions, follow the instructions on the following page.
45
<PAGE> 48
PURCHASING AND SELLING YOUR INVESTMENT SHARES, CONTINUED
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR SELLING SHARES
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------
BY TELEPHONE You can redeem up to $50,000 worth of Investment Shares by
(unless you have declined telephone calling 1-800-633-KENT (5368). If the amount redeemed is
sales privileges) less than $2,500, then a check will be mailed to you and if
equal to or greater than $2,500, then the proceeds will be
mailed or sent by wire or electronic funds transfer to the
bank listed on your account application.
- ---------------------------------------------------------------------------------------------------------
BY MAIL 1. CALL 1-800-633-KENT (5368) to request redemption forms or
(See "General Policies on Selling write a letter of instruction indicating:
Shares--When Written Redemption - your Fund and your account number
Requests are Required" below.) - amount you wish to redeem
- address where your check should be sent
*Signatures on stock certificates must - account owner signature
be guaranteed if the amount is greater If you have a stock certificate, you must sign on the back
than $50,000, if the proceeds are to be and send it to the Kent Funds.*
mailed to an address other than the
address of record, or the proceeds are 2. Mail to:
to be made payable to a party other Kent Funds
than the owner of the account. See P.O. Box 182201
"General Policies on Selling Shares" Columbus, OH 43218-2201
for instructions regarding signature
guarantees.
- ---------------------------------------------------------------------------------------------------------
BY OVERNIGHT SERVICE See instruction 1 above.
Send to:
Kent Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
- ---------------------------------------------------------------------------------------------------------
BY CHECK You may write checks against your account for redemption of
You must indicate this shares of the Money Market Funds in amounts of $500 or more.
option on your application. These checks are free; however, a fee will be charged if you
request a stop payment or if the transfer agent cannot honor
This option is only available for a redemption check due to insufficient funds or another
shares of the Money Market Funds. valid reason. Please do not postdate your checks. Checks
cannot be used to close your account.
- ---------------------------------------------------------------------------------------------------------
WIRE TRANSFER CALL 1-800-633-KENT (5368) to request a wire transfer. If
You must indicate this option on your you call by 4 p.m. Eastern time, your payment will normally
application. be wired to your bank on the next business day.
The Funds may charge a wire transfer
fee.
Note: Your financial institution may
also charge a separate fee.
- ---------------------------------------------------------------------------------------------------------
ELECTRONIC REDEMPTIONS CALL 1-800-633-KENT (5368) to request an electronic
Your bank must participate in the redemption.
Automated Clearing House (ACH) and must If you call by 4 p.m. Eastern time, the NAV of your shares
be a U.S. bank. will normally be determined on the same day and the proceeds
will be credited within 8 days.
Your bank may charge for this service.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 49
PURCHASING AND SELLING YOUR INVESTMENT SHARES, CONTINUED
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $100 and no more than
1.5% per month when your Automatic Withdrawal Plan was started. To activate this
feature:
- - Make sure you've checked the appropriate box on the Account Application or
call 1-800-633-KENT (5368).
- - Include a voided personal check.
- - Your account must have a value of $10,000 or more to start automatic
redemptions of Investment Shares.
- - If the value of your account falls below $1,000 due to redemptions, you may be
asked to add sufficient funds to bring the account back to $1,000, or the
Funds may close your account and mail the proceeds to you.
47
<PAGE> 50
SHAREHOLDER INFORMATION
PURCHASING AND SELLING YOUR INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT
To open an account:
1. Complete an application.
2. Call 1-800-633-KENT (5368) to obtain an account or wire identification number
and to place an order.*
3. Wire federal funds, which must be received by the Fund no later than the
close of business on the day the purchase order is placed. You must establish
an account with the Funds prior to sending the wire. The wire must include
your Fund account number.
To add to your account, follow instructions 2 and 3 above.
Each Fund's minimum initial investment amount for Institutional Shares is
$100,000. Subsequent investments may be made in any amount.
TO SELL SHARES
You can sell Institutional Shares by mail, by telephone or through a broker by
following the procedures described for Investment Shares. We will send your
Institutional Share proceeds by wire in federal funds to your commercial bank.
To change the bank account, you should call the Funds at 1-800-633-KENT (5368).
* Your purchase of Institutional Shares will not be completed until the Funds
receive the actual purchase proceeds by wire transfer. Banks may charge for
wiring federal funds.
GENERAL POLICIES ON SELLING SHARES
- --------------------------------------------------------------------------------
WHEN WRITTEN REDEMPTION REQUESTS ARE REQUIRED
You must request redemptions in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following:
- Redemptions over $50,000
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account with
a different registration.
Signature guarantees can be obtained from a U.S. stock exchange member, a U.S.
commercial bank or trust company, or any other financial institution that is a
member of the STAMP (Securities Transfer Agents Medallion Program), MSP (New
York Stock Exchange Medallion Signature Program) or SEMP (Stock Exchanges
Medallion Program) or is approved by the Kent Funds.
VERIFYING TELEPHONE REDEMPTIONS
The Funds make every effort to ensure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, the Funds will not be liable for
any fraudulent telephone orders.
REDEMPTIONS WITHIN 10 DAYS OF INVESTMENT
When you have made your investment by check, you cannot redeem any portion of it
until the Fund's transfer agent is satisfied that the check has cleared (which
may require up to 10 business days). You can avoid this delay by purchasing
shares with a certified check.
48
<PAGE> 51
GENERAL POLICIES ON SELLING SHARES, CONTINUED
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
REFUSAL OF REDEMPTION REQUEST
The Funds may postpone payment for shares at times when the New York Stock
Exchange is closed or under any emergency circumstances as determined by the
U.S. Securities and Exchange Commission. If you experience difficulty making a
telephone redemption during periods of drastic economic or market change, you
can send the Funds your request by regular or express mail. Follow the
instructions above under "Withdrawing Money From Your Fund Account--By Mail" in
this section.
REDEMPTION IN KIND
The Funds reserve the right to make payment in securities rather than cash,
known as a "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of a Fund's net assets). If the Funds deem it
advisable for the benefit of all shareholders, a redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $1,000 due to redemptions ($100 for IRA Accounts)
for Investment Shares or $100,000 for Institutional Shares, a Fund may ask you
to increase your balance. If it is still below the minimum level after 60 days,
the Fund may close your account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in the appropriate
Fund.
DISTRIBUTION AND SERVICE FEES
- --------------------------------------------------------------------------------
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of Investment Shares and for providing shareholder services to purchasers of
Investment Shares. 12b-1 fees are paid from Fund assets relating to Investment
Shares on an ongoing basis and will increase the cost of your investment. 12b-1
fees may cost you more than paying other types of sales charges.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
INVESTMENT SHARES
- -----------------------------------------------------------------------------------
<S> <C> <C>
Distribution (12b-1) Fees* Subject to annual distribution and shareholder
servicing fees of up to 0.25% of the average
daily net assets of each Fund's Investment
Shares
- -----------------------------------------------------------------------------------
Fund Expenses Higher annual expenses than Institutional
shares.
- -----------------------------------------------------------------------------------
<CAPTION>
- -------------------------------- ---------------------------------------------------
INSTITUTIONAL SHARES
- -------------------------------- ---------------------------------------------------
<S> <C> <C>
Distribution (12b-1) Fees* N/A
- -----------------------------------------------------------------------------------
Fund Expenses Lower annual expenses than Investment shares.
- -----------------------------------------------------------------------------------
</TABLE>
* For Non-Money Market Funds Only.
49
<PAGE> 52
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Kent Funds, P.O. Box
182201, Columbus OH 43218-2201, or by calling 1-800-633-KENT (5368). Please
provide the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number, if you
are an individual)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made.
You can exchange your shares in one Fund for shares of the
same class of another Kent Fund. No transaction fees are
charged for exchanges.
You must meet the minimum investment requirements for the Fund
into which you are exchanging. Exchanges from one Fund to
another are taxable.
See "General Policies on Selling your Shares" above for important information
about telephone transactions.
To prevent disruption in the management of the Funds due to market timing
strategies, exchange activity may be limited to five exchanges within a year, or
no more than three exchanges in a calendar quarter. The Funds may reject
exchanges, or change or terminate rights to exchange shares.
- --------------------------------------------------------------------------------
NOTES ON EXCHANGES
The registration and tax identification numbers of the two accounts must be
identical. If you don't have an account with the new Fund, a new account will be
opened with the same features unless you write to tell us to change them.
The exchange privilege (including automatic exchanges) may be changed or
eliminated at any time.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
The exchange privilege is available only in states where shares of the new Fund
may be sold.
If shares of a Fund are purchased by check, those shares cannot be exchanged
until your check has cleared. This could take 10 days or more.
All exchanges are based on the relative net asset value next determined after
the exchange order is received by the Funds.
If it becomes necessary to distribute shares directly to beneficial owners of
trust accounts, 401(k) plans, fiduciary or agency accounts, because of a
termination of the account or otherwise they can be in the form of Investment
Shares.
50
<PAGE> 53
SHAREHOLDER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Funds pay dividends to their shareholders from the Funds' respective net
investment income. The Funds distribute any net capital gains that have been
realized. Income dividends on each Fund are declared and paid monthly, except
for the Money Market Funds, which declare dividends daily and pay them monthly,
and the International Growth Fund, which pays dividends annually. Capital gains,
if any, for all Funds are distributed at least annually.
Dividends on each share class of the Funds are determined in the same manner and
are paid in the same amount. However, each share class bears all expenses
associated with that particular class. Since Investment Shares have higher
distribution and service fees than Institutional Shares, the dividends paid to
shareholders owning Investment Shares will be lower than those paid to
shareholders owning Institutional Shares.
TAXATION
- --------------------------------------------------------------------------------
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. Distributions attributable to the net capital gain of a Fund
will be taxable to you as long-term capital gain, regardless of how long you
have held your shares. Other Fund distributions will generally be taxable as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxable on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
Except in the case of the Money Market Funds, you will recognize taxable gain or
loss on a sale, exchange or redemption of your shares, including an exchange for
shares of another Fund based on the difference between your tax basis in the
shares and the amount you receive for them. (To aid in computing your tax basis,
you generally should retain your account statements for the periods during which
you held shares.) Any loss realized on shares held for six months or less will
be treated as a long-term capital loss to the extent of any capital gain
dividends that were received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The International Growth Fund. It is expected that the International Growth Fund
will be subject to foreign withholding taxes with respect to dividends or
interest received from sources in foreign countries. The International Growth
Fund may make an election to treat a proportionate amount of such taxes as
constituting a distribution to each shareholder, which would allow each
shareholder either (1) to credit such proportionate amount of taxes against U.S.
federal income tax liability or (2) to take such amount as an itemized
deduction.
The Michigan Municipal Money Market Fund and the Municipal Bond Funds. It is
expected that the Michigan Municipal Money Market Fund and the Municipal Bond
Funds will distribute dividends derived from interest earned on tax-exempt
securities, and these "exempt interest dividends" will be exempt income for
shareholders for federal income tax purposes. However, distributions, if any,
derived from net capital gains will generally be taxable to you as capital
gains. The Municipal Bond Funds may pay such capital gains distributions from
time to time. Dividends, if any, derived from taxable interest income will be
taxable to you as ordinary income.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Michigan Municipal Money Market Fund and the Municipal Bond Funds
generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the
Michigan Municipal Money Market Fund and the Municipal Bond Funds may constitute
an item of tax preference for purposes of determining federal alternative
minimum tax liability. Exempt-interest dividends will also be considered along
with other
51
<PAGE> 54
TAXATION, CONTINUED
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
adjusted gross income in determining whether any Social Security or railroad
retirement payments received by you are subject to federal income taxes.
If you receive an exempt-interest dividend with respect to any share and the
share is held by you for six months or less, any loss on the sale or exchange of
the share will be disallowed to the extent of such dividend amount.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply, however, to the portions of each
Fund's distributions, if any, that are attributable to interest on federal
securities or interest on securities of the particular state or an agency
thereof.
Because the Michigan Municipal Bond Fund and the Michigan Municipal Money Market
Fund intend to invest substantially all of their assets in tax-exempt
obligations of the State of Michigan or its political subdivisions, shareholders
who are subject to Michigan state income tax will generally not be subject to
tax on dividends paid by these Funds to the extent that the dividends are
attributable to interest income of these Funds. Shareholders should consult
their tax advisers regarding the tax status of distributions in their state and
locality.
52
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years or, if shorter, the period of each
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the tables represent the rate that an investor
would have earned or lost on an investment in a Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by KPMG LLP,
whose report, along with the Funds' financial statements, are included in the
Funds' annual report, which is available upon request.
53
<PAGE> 55
FINANCIAL HIGHLIGHTS
EQUITY FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
------------------------------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS, TOTAL
NET ASSET FUTURES CONTRACTS INCOME
VALUE, NET AND FOREIGN (LOSS) FROM
BEGINNING INVESTMENT CURRENCY INVESTMENT
OF PERIOD INCOME TRANSLATIONS OPERATIONS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GROWTH AND INCOME FUND
TICKER SYMBOL: KNVEX
1995 $10.50 0.33 3.28 3.61
1996 $13.25 0.30 2.16 2.46
1997 $13.90 0.25 3.04 3.29
1998 $15.55 0.13 4.03 4.16
1999 $18.03 0.12 3.20 3.32
- -----------------------------------------------------------------------------------
INDEX EQUITY FUND
TICKER SYMBOL: KNIEX
1995 $10.68 0.26 3.44 3.70
1996 $12.56 0.26 2.47 2.73
1997 $14.71 0.25 4.50 4.75
1998 $19.14 0.24 5.14 5.38
1999 $24.24 0.24 4.68 4.92
- -----------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
TICKER SYMBOL: KLCGX
1999(2) $10.00 0.01 1.88 1.89
- -----------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
TICKER SYMBOL: KNEEX
1995 $11.99 0.10 2.64 2.74
1996 $13.82 0.12 2.55 2.67
1997 $15.65 0.04 4.19 4.23
1998 $18.39 0.03 (1.08) (1.05)
1999 $15.46 0.02 4.16 4.18
- -----------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
TICKER SYMBOL: KNINX
1995 $13.06 0.13 1.54 1.67
1996 $14.18 0.13 0.70 0.83
1997 $14.75 0.11 0.26 0.37
1998 $14.89 0.14 2.48 2.62
1999 $15.91 0.11 4.20 4.31
- -----------------------------------------------------------------------------------
<CAPTION>
LESS DIVIDENDS AND DISTRIBUTIONS FROM
-------------------------------------------------
NET REALIZED
GAINS ON
INVESTMENTS, IN
IN EXCESS FUTURES EXCESS TOTAL NET NET ASSET
NET OF NET CONTRACTS OF NET DIVIDENDS CHANGE IN VALUE,
INVESTMENT INVESTMENT AND FOREIGN REALIZED AND NET ASSET END OF TOTAL
INCOME INCOME CURRENCY GAINS DISTRIBUTIONS VALUE PERIOD RETURN
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME FUND
TICKER SYMBOL: KNVEX
1995 (0.33) -- (0.53) -- (0.86) 2.75 $13.25 34.91%
1996 (0.30) -- (1.51) -- (1.81) 0.65 $13.90 19.47%
1997 (0.25) -- (1.39) -- (1.64) 1.65 $15.55 24.14%
1998 (0.13) (0.01) (1.54) -- (1.68) 2.48 $18.03 28.07%
1999 (0.12) -- (0.81) -- (0.93) 2.39 $20.42 18.79%
- -----------------------------------------------------------------------------------
INDEX EQUITY FUND
TICKER SYMBOL: KNIEX
1995 (0.25) -- (1.57) -- (1.82) 1.88 $12.56 36.23%
1996 (0.26) -- (0.28) (0.04) (0.58) 2.15 $14.71 22.18%
1997 (0.25) -- (0.05) (0.02) (0.32) 4.43 $19.14 32.55%
1998 (0.24) -- (0.04) -- (0.28) 5.10 $24.24 28.26%
1999 (0.24) -- (0.61) -- (0.85) 4.07 $28.31 20.55%
- -----------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
TICKER SYMBOL: KLCGX
1999(2) (0.01) -- (0.01) -- (0.02) 1.87 $11.87 18.91%(++)
- -----------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
TICKER SYMBOL: KNEEX
1995 (0.10) -- (0.81) -- (0.91) 1.83 $13.82 23.75%
1996 (0.12) -- (0.72) -- (0.84) 1.83 $15.65 19.56%
1997 (0.04) (0.02) (1.43) -- (1.49) 2.74 $18.39 27.94%
1998 (0.03) -- (1.85) -- (1.88) (2.93) $15.46 (6.15%)
1999 (0.02) -- (0.32) (0.01) (0.35) 3.83 $19.29 27.98%
- -----------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
TICKER SYMBOL: KNINX
1995 (0.13) (0.11) (0.31) -- (0.55) 1.12 $14.18 13.00%
1996 (0.10) (0.02) (0.13) (0.01) (0.26) 0.57 $14.75 5.87%
1997 (0.09) (0.06) (0.07) (0.01) (0.23) 0.14 $14.89 2.54%
1998 (0.07) (0.12) (1.41) -- (1.60) 1.02 $15.91 17.92%
1999 (0.12) -- (0.65) -- (0.77) 3.54 $19.45 28.30%
- -------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------
RATIO OF
NET
NET ASSETS, RATIO OF INVESTMENT RATIO OF
END OF EXPENSES INCOME TO EXPENSES PORTFOLIO
PERIOD TO AVERAGE AVERAGE TO AVERAGE TURNOVER
(000'S) NET ASSETS NET ASSETS NET ASSETS* RATE(1)
- -------------------------
<S> <C> <C> <C> <C> <C>
GROWTH AND INCOME FUND
TICKER SYMBOL: KNVEX
1995 $401,371 0.94% 2.73% ** 58%
1996 $500,857 0.95% 2.18% 0.95% 39%
1997 $697,973 0.92% 1.61% 0.93% 88%
1998 $827,828 0.93% 0.77% 0.94% 20%
1999 $822,414 0.92% 0.62% 0.93% 9%
- -----------------------------------------------------------------------------------
INDEX EQUITY FUND
TICKER SYMBOL: KNIEX
1995 $183,877 0.56% 2.14% 0.56% 3%
1996 $243,438 0.49% 1.91% 0.59% 2%
1997 $590,241 0.43% 1.44% 0.54% 1%
1998 $771,147 0.42% 1.10% 0.55% 12%
1999 $875,780 0.42% 0.92% 0.54% 9%
- -----------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
TICKER SYMBOL: KLCGX
1999(2) $183,259 0.97%(+) 0.39%(+) 0.98%(+) --
- -----------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
TICKER SYMBOL: KNEEX
1995 $450,072 0.97% 0.83% ** 30%
1996 $544,081 0.96% 0.78% 0.96% 16%
1997 $719,998 0.93% 0.24% 0.94% 32%
1998 $760,335 0.94% 0.18% 0.95% 41%
1999 $746,428 0.94% 0.14% 0.95% 19%
- -----------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
TICKER SYMBOL: KNINX
1995 $286,545 1.17% 1.35% ** 6%
1996 $387,799 1.09% 0.97% 1.09% 13%
1997 $492,598 1.05% 0.80% 1.06% 3%
1998 $528,500 1.05% 0.87% 1.06% 22%
1999 $579,650 1.02% 0.72% 1.03% 8%
- -------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** During the period, there were no waivers and/or reimbursements.
(+) Annualized.
(++) Not Annualized.
(1) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(2) The Institutional Class of the Large Company Growth Fund commenced
operations on October 19, 1999.
54
<PAGE> 56
FINANCIAL HIGHLIGHTS
EQUITY FUNDS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
------------------------------
NET REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS, TOTAL
NET ASSET NET FUTURES CONTRACTS INCOME
VALUE, INVESTMENT AND FOREIGN (LOSS) FROM
BEGINNING INCOME CURRENCY INVESTMENT
OF PERIOD (LOSS) TRANSLATIONS OPERATIONS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GROWTH AND INCOME FUND
TICKER SYMBOL: KNVIX
1995 $10.46 0.30 3.26 3.56
1996 $13.19 0.26 2.15 2.41
1997 $13.81 0.21 3.02 3.23
1998 $15.44 0.08 4.00 4.08
1999 $17.88 0.07 3.18 3.25
- -----------------------------------------------------------------------------------
INDEX EQUITY FUND
TICKER SYMBOL: KNIDX
1995 $10.70 0.23 3.44 3.67
1996 $12.57 0.22 2.48 2.70
1997 $14.72 0.20 4.51 4.71
1998 $19.15 0.18 5.14 5.32
1999 $24.25 0.18 4.68 4.86
- -----------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
TICKER SYMBOL: N/A
1999(3) $10.00 -- 1.88 1.88
- -----------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
TICKER SYMBOL: KNEMX
1995 $11.98 0.07 2.64 2.71
1996 $13.81 0.07 2.54 2.61
1997 $15.61 -- 4.19 4.19
1998 $18.33 (0.01) (1.08) (1.09)
1999 $15.39 (0.02) 4.15 4.13
- -----------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
TICKER SYMBOL: KNIVX
1995 $13.00 0.14 1.50 1.64
1996 $14.13 0.12 0.66 0.78
1997 $14.69 0.08 0.25 0.33
1998 $14.79 0.10 2.46 2.56
1999 $15.75 0.08 4.14 4.22
- -----------------------------------------------------------------------------------
<CAPTION>
LESS DIVIDENDS AND DISTRIBUTIONS FROM
-------------------------------------------------
NET REALIZED
GAINS ON
INVESTMENTS, IN
IN EXCESS FUTURES EXCESS TOTAL NET NET ASSET
NET OF NET CONTRACTS OF NET DIVIDENDS CHANGE IN VALUE,
INVESTMENT INVESTMENT AND FOREIGN REALIZED AND NET ASSET END OF TOTAL
INCOME INCOME CURRENCY GAINS DISTRIBUTIONS VALUE PERIOD RETURN(1)
- ------------------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME FUND
TICKER SYMBOL: KNVIX
1995 (0.30) -- (0.53) -- (0.83) 2.73 $13.19 34.61%
1996 (0.26) (0.02) (1.51) -- (1.79) 0.62 $13.81 19.14%
1997 (0.21) -- (1.39) -- (1.60) 1.63 $15.44 23.89%
1998 (0.08) (0.02) (1.54) -- (1.64) 2.44 $17.88 27.68%
1999 (0.07) -- (0.81) -- (0.88) 2.37 $20.25 18.53%
- -----------------------------------------------------------------------------------
INDEX EQUITY FUND
TICKER SYMBOL: KNIDX
1995 (0.23) -- (1.57) -- (1.80) 1.87 $12.57 35.81%
1996 (0.22) (0.01) (0.32) -- (0.55) 2.15 $14.72 21.92%
1997 (0.20) (0.01) (0.06) (0.01) (0.28) 4.43 $19.15 32.24%
1998 (0.18) -- (0.04) -- (0.22) 5.10 $24.25 27.93%
1999 (0.18) -- (0.61) -- (0.79) 4.07 $28.32 20.24%
- -----------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
TICKER SYMBOL: N/A
1999(3) (0.01) -- (0.01) -- (0.02) 1.86 $11.86 18.87%(++)
- -----------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
TICKER SYMBOL: KNEMX
1995 (0.07) -- (0.81) -- (0.88) 1.83 $13.81 23.47%
1996 (0.08) (0.01) (0.72) -- (0.81) 1.80 $15.61 19.16%
1997 -- (0.04) (1.43) -- (1.47) 2.72 $18.33 27.71%
1998 -- -- (1.85) -- (1.85) (2.94) $15.39 (6.40%)
1999 -- -- (0.32) (0.01) (0.33) 3.80 $19.19 27.73%
- -----------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
TICKER SYMBOL: KNIVX
1995 (0.09) (0.11) (0.31) -- (0.51) 1.13 $14.13 12.86%
1996 (0.08) -- (0.14) -- (0.22) 0.56 $14.69 5.57%
1997 (0.06) (0.09) (0.07) (0.01) (0.23) 0.10 $14.79 2.25%
1998 -- (0.19) (1.41) -- (1.60) 0.96 $15.75 17.60%
1999 (0.12) -- (0.65) -- (0.77) 3.45 $19.20 27.95%
- -------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------
RATIO OF
NET
INVESTMENT
NET ASSETS, RATIO OF INCOME RATIO OF
END OF EXPENSES (LOSS) TO EXPENSES PORTFOLIO
PERIOD TO AVERAGE AVERAGE TO AVERAGE TURNOVER
(000'S) NET ASSETS NET ASSETS NET ASSETS* RATE(2)
- ------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GROWTH AND INCOME FUND
TICKER SYMBOL: KNVIX
1995 $11,079 1.18% 2.48% ** 58%
1996 $15,063 1.09% 1.77% 1.09% 39%
1997 $35,343 1.17% 1.31% 1.18% 88%
1998 $50,458 1.18% 0.50% 1.19% 20%
1999 $58,336 1.18% 0.36% 1.19% 9%
- -----------------------------------------------------------------------------------
INDEX EQUITY FUND
TICKER SYMBOL: KNIDX
1995 $ 6,612 0.80% 1.86% 0.81% 3%
1996 $ 9,925 0.74% 1.67% 0.84% 2%
1997 $27,922 0.68% 1.20% 0.79% 1%
1998 $38,205 0.67% 0.85% 0.80% 12%
1999 $47,836 0.67% 0.67% 0.79% 9%
- -----------------------------------------------------------------------------------
LARGE COMPANY GROWTH FUND
TICKER SYMBOL: N/A
1999(3) $ 253 1.23%(+) 0.00%(+) 1.24%(+) --
- -----------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
TICKER SYMBOL: KNEMX
1995 $10,955 1.20% 0.59% ** 30%
1996 $14,436 1.21% 0.53% 1.21% 16%
1997 $22,784 1.18% (0.01%) 1.19% 32%
1998 $23,455 1.19% (0.07%) 1.20% 41%
1999 $26,282 1.19% (0.11%) 1.20% 19%
- -----------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
TICKER SYMBOL: KNIVX
1995 $ 7,548 1.40% 1.11% ** 6%
1996 $ 8,799 1.34% 0.74% 1.34% 13%
1997 $ 9,780 1.30% 0.53% 1.31% 3%
1998 $12,390 1.30% 0.59% 1.31% 22%
1999 $15,197 1.27% 0.47% 1.28% 8%
- -------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** During the period, there were no waivers and/or reimbursements.
(+) Annualized.
(++) Not Annualized.
(1) Calculation does not include sales charge. Effective May 1, 1997, the
Investment Shares were not assessed a sales charge.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(3) The Investment Class of the Large Company Growth Fund commenced operations
on October 19, 1999.
55
<PAGE> 57
FINANCIAL HIGHLIGHTS
BOND FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
-----------------------------
TOTAL
NET ASSET NET REALIZED AND INCOME
VALUE, NET UNREALIZED (LOSS) FROM
BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT
OF PERIOD INCOME ON INVESTMENTS OPERATIONS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME FUND
TICKER SYMBOL: KNIIX
1995(2) $10.00 0.55 0.92 1.47
1996 $10.84 0.66 (0.56) 0.10
1997 $10.16 0.68 0.34 1.02
1998 $10.30 0.65 0.27 0.92
1999 $10.33 0.60 (1.05) (0.45)
- ----------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
TICKER SYMBOL: KNFIX
1995 $ 9.29 0.65 0.81 1.46
1996 $10.12 0.60 (0.32) 0.28
1997 $ 9.76 0.59 0.14 0.73
1998 $ 9.90 0.58 0.16 0.74
1999 $10.06 0.56 (0.68) (0.12)
- ----------------------------------------------------------------------------------
SHORT TERM BOND FUND
TICKER SYMBOL: KNLMX
1995 $ 9.52 0.55 0.43 0.98
1996 $ 9.96 0.61 (0.21) 0.40
1997 $ 9.75 0.61 -- 0.61
1998 $ 9.75 0.56 0.02 0.58
1999 $ 9.77 0.53 (0.29) 0.24
- ----------------------------------------------------------------------------------
<CAPTION>
LESS DIVIDENDS
AND DISTRIBUTIONS FROM
--------------------------------------------------
IN EXCESS IN EXCESS TOTAL NET NET ASSET
NET OF NET NET REALIZED OF NET DIVIDENDS CHANGE IN VALUE,
INVESTMENT INVESTMENT GAINS ON REALIZED AND NET ASSET END OF TOTAL
INCOME INCOME INVESTMENTS GAINS DISTRIBUTIONS VALUE PERIOD RETURN
- ------------------------- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FUND
TICKER SYMBOL: KNIIX
1995(2) (0.54) -- (0.09) -- (0.63) 0.84 $10.84 15.05%(++)
1996 (0.65) (0.10) (0.03) -- (0.78) (0.68) $10.16 1.19%
1997 (0.68) -- (0.20) -- (0.88) 0.14 $10.30 10.55%
1998 (0.65) -- (0.24) -- (0.89) 0.03 $10.33 9.29%
1999 (0.60) -- -- (0.01) (0.61) (1.06) $ 9.27 (4.41%)
- ----------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
TICKER SYMBOL: KNFIX
1995 (0.63) -- -- -- (0.63) 0.83 $10.12 16.18%
1996 (0.61) (0.03) -- -- (0.64) (0.36) $ 9.76 3.01%
1997 (0.59) -- -- -- (0.59) 0.14 $ 9.90 7.80%
1998 (0.58) -- -- -- (0.58) 0.16 $10.06 7.65%
1999 (0.57) -- -- -- (0.57) (0.69) $ 9.37 (1.22%)
- ----------------------------------------------------------------------------------
SHORT TERM BOND FUND
TICKER SYMBOL: KNLMX
1995 (0.54) -- -- -- (0.54) 0.44 $ 9.96 10.53%
1996 (0.61) -- -- -- (0.61) (0.21) $ 9.75 4.22%
1997 (0.61) -- -- -- (0.61) -- $ 9.75 6.42%
1998 (0.56) -- -- -- (0.56) 0.02 $ 9.77 6.14%
1999 (0.53) -- -- -- (0.53) (0.29) $ 9.48 2.50%
- -------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------
RATIO OF
NET
NET ASSETS, RATIO OF INVESTMENT RATIO OF
END OF EXPENSES INCOME TO EXPENSES PORTFOLIO
PERIOD TO AVERAGE AVERAGE TO AVERAGE TURNOVER
(000'S) NET ASSETS NET ASSETS NET ASSETS* RATE(1)
- ------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME FUND
TICKER SYMBOL: KNIIX
1995(2) $126,056 0.91%(+) 6.65%(+) ** 50%(++)
1996 $240,060 0.83% 6.57% 0.83% 102%
1997 $229,778 0.82% 6.65% 0.83% 84%
1998 $231,017 0.83% 6.25% 0.84% 108%
1999 $295,017 0.83% 6.25% 0.84% 90%
- ----------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
TICKER SYMBOL: KNFIX
1995 $854,801 0.77% 6.50% ** 166%
1996 $769,395 0.77% 6.18% 0.78% 135%
1997 $762,740 0.75% 6.03% 0.76% 114%
1998 $885,580 0.76% 5.77% 0.77% 106%
1999 $843,520 0.77% 5.83% 0.78% 84%
- ----------------------------------------------------------------------------------
SHORT TERM BOND FUND
TICKER SYMBOL: KNLMX
1995 $310,680 0.77% 5.60% ** 75%
1996 $235,430 0.70% 6.17% 0.70% 32%
1997 $139,739 0.72% 6.04% 0.73% 89%
1998 $139,229 0.76% 5.74% 0.77% 72%
1999 $172,204 0.75% 5.56% 0.76% 60%
- -------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** During the period, there were no waivers and/or reimbursements.
(+) Annualized.
(++) Not Annualized.
(1) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(2) The Institutional Class of the Income Fund commenced operations on March
20, 1995.
56
<PAGE> 58
FINANCIAL HIGHLIGHTS
BOND FUNDS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
-------------------------
NET REALIZED
AND TOTAL
NET ASSET UNREALIZED INCOME
VALUE, NET GAINS (LOSS) FROM
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME FUND
TICKER SYMBOL: KIFIX
1995(3) $10.00 0.52 0.91 1.43
1996 $10.82 0.66 (0.56) 0.10
1997 $10.16 0.63 0.35 0.98
1998 $10.29 0.62 0.28 0.90
1999 $10.32 0.58 (1.06) (0.48)
- -------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
TICKER SYMBOL: KNFVX
1995 $ 9.32 0.61 0.82 1.43
1996 $10.14 0.58 (0.32) 0.26
1997 $ 9.78 0.57 0.15 0.72
1998 $ 9.93 0.54 0.16 0.70
1999 $10.08 0.54 (0.68) (0.14)
- -------------------------------------------------------------------------------
SHORT TERM BOND FUND
TICKER SYMBOL: KNLIX
1995 $ 9.52 0.52 0.44 0.96
1996 $ 9.95 0.59 (0.20) 0.39
1997 $ 9.74 0.57 0.02 0.59
1998 $ 9.74 0.55 0.02 0.57
1999 $ 9.76 0.52 (0.30) 0.22
- -------------------------------------------------------------------------------
<CAPTION>
LESS DIVIDENDS AND
DISTRIBUTIONS FROM
-------------------------------------------------
IN
IN EXCESS EXCESS TOTAL NET NET ASSET
NET OF NET NET REALIZED OF NET DIVIDENDS CHANGE IN VALUE,
INVESTMENT INVESTMENT GAINS ON REALIZED AND NET ASSET END OF TOTAL
INCOME INCOME INVESTMENTS GAINS DISTRIBUTIONS VALUE PERIOD RETURN(1)
- ------------------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FUND
TICKER SYMBOL: KIFIX
1995(3) (0.52) -- (0.09) -- (0.61) 0.82 $10.82 14.63%(++)
1996 (0.64) (0.09) (0.03) -- (0.76) (0.66) $10.16 1.16%
1997 (0.65) -- (0.20) -- (0.85) 0.13 $10.29 10.19%
1998 (0.60) (0.03) (0.24) -- (0.87) 0.03 $10.32 9.04%
1999 (0.58) -- -- (0.01) (0.59) (1.07) $ 9.25 (4.76%)
- -------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
TICKER SYMBOL: KNFVX
1995 (0.61) -- -- -- (0.61) 0.82 $10.14 15.76%
1996 (0.57) (0.05) -- -- (0.62) (0.36) $ 9.78 2.76%
1997 (0.57) -- -- -- (0.57) 0.15 $ 9.93 7.62%
1998 (0.55) -- -- -- (0.55) 0.15 $10.08 7.26%
1999 (0.54) -- -- -- (0.54) (0.68) $ 9.40 (1.36%)
- -------------------------------------------------------------------------------
SHORT TERM BOND FUND
TICKER SYMBOL: KNLIX
1995 (0.53) -- -- -- (0.53) 0.43 $ 9.95 10.30%
1996 (0.54) (0.06) -- -- (0.60) (0.21) $ 9.74 4.06%
1997 (0.59) -- -- -- (0.59) -- $ 9.74 6.26%
1998 (0.52) (0.03) -- -- (0.55) 0.02 $ 9.76 6.00%
1999 (0.51) -- -- -- (0.51) (0.29) $ 9.47 2.35%
- -------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------
RATIO OF
NET
NET ASSETS, RATIO OF INVESTMENT RATIO OF
END OF EXPENSES INCOME TO EXPENSES PORTFOLIO
PERIOD TO AVERAGE AVERAGE TO AVERAGE TURNOVER
(000'S) NET ASSETS NET ASSETS NET ASSETS* RATIO(2)
- ------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME FUND
TICKER SYMBOL: KIFIX
1995(3) $ 1,961 1.14%(+) 6.40%(+) ** 50%(++)
1996 $ 2,722 1.08% 6.31% 1.08% 102%
1997 $ 5,611 1.07% 6.38% 1.08% 84%
1998 $10,629 1.08% 5.97% 1.09% 108%
1999 $10,614 1.08% 5.99% 1.09% 90%
- -------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
TICKER SYMBOL: KNFVX
1995 $ 6,862 1.01% 6.24% ** 166%
1996 $ 7,327 1.02% 5.92% 1.03% 135%
1997 $ 6,972 1.00% 5.79% 1.01% 114%
1998 $12,313 1.01% 5.51% 1.02% 106%
1999 $11,537 1.02% 5.58% 1.03% 84%
- -------------------------------------------------------------------------------
SHORT TERM BOND FUND
TICKER SYMBOL: KNLIX
1995 $ 1,634 0.91% 5.40% ** 75%
1996 $ 1,667 0.85% 6.02% 0.96% 32%
1997 $ 7,433 0.88% 5.75% 0.99% 89%
1998 $ 6,126 0.91% 5.60% 1.02% 72%
1999 $ 4,573 0.90% 5.40% 1.01% 60%
- -------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** During the period, there were no waivers and/or reimbursements.
(+) Annualized.
(++) Not Annualized.
(1) Calculation does not include sales charge. Effective May 1, 1997, the
Investment Shares were not assessed a sales charge.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(3) The date of initial public investment of the Investment Class of the
Income Fund was March 22, 1995.
57
<PAGE> 59
FINANCIAL HIGHLIGHTS
MUNICIPAL BOND FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
-----------------------------
NET REALIZED AND
UNREALIZED TOTAL
NET ASSET GAINS (LOSSES) INCOME
VALUE NET ON INVESTMENTS (LOSS) FROM
BEGINNING INVESTMENT AND FUTURES INVESTMENT
OF PERIOD INCOME CONTRACTS OPERATIONS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-FREE INCOME FUND
TICKER SYMBOL: KNTIX
1995(2) $10.00 0.36 0.49 0.85
1996 $10.49 0.46 (0.06) 0.40
1997 $10.27 0.45 0.41 0.86
1998 $10.65 0.44 0.15 0.59
1999 $10.75 0.45 (0.79) (0.34)
- ----------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND
TICKER SYMBOL: KNMTX
1995 $ 9.74 0.45 0.79 1.24
1996 $10.52 0.44 (0.08) 0.36
1997 $10.42 0.45 0.26 0.71
1998 $10.68 0.45 0.11 0.56
1999 $10.76 0.44 (0.55) (0.11)
- ----------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND FUND
TICKER SYMBOL: KNMIX
1995 $ 9.72 0.39 0.39 0.78
1996 $10.12 0.39 (0.04) 0.35
1997 $10.08 0.41 0.13 0.54
1998 $10.21 0.40 0.08 0.48
1999 $10.27 0.41 (0.34) 0.07
- ----------------------------------------------------------------------------------
<CAPTION>
LESS DIVIDENDS AND
DISTRIBUTIONS FROM
--------------------------------------------------
NET REALIZED NET
IN EXCESS GAINS ON IN EXCESS TOTAL CHANGE NET ASSET
NET OF NET INVESTMENTS OF NET DIVIDENDS IN VALUE,
INVESTMENT INVESTMENT AND FUTURES REALIZED AND NET ASSET END OF TOTAL
INCOME INCOME CONTRACTS GAINS DISTRIBUTIONS VALUE PERIOD RETURN
- ------------------------- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-FREE INCOME FUND
TICKER SYMBOL: KNTIX
1995(2) (0.36) -- -- -- (0.36) 0.49 $10.49 8.64%(+)(+
)
1996 (0.46) -- (0.16) -- (0.62) (0.22) $10.27 3.92%
1997 (0.45) -- (0.03) -- (0.48) 0.38 $10.65 8.59%
1998 (0.44) -- (0.05) -- (0.49) 0.10 $10.75 5.71%
1999 (0.45) -- -- (0.01) (0.46) (0.80) $ 9.95 (3.26%)
- ----------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUN
TICKER SYMBOL: KNMTX
1995 (0.45) (0.01) -- -- (0.46) 0.78 $10.52 12.90%
1996 (0.46) ** -- -- (0.46) (0.10) $10.42 3.41%
1997 (0.45) -- -- -- (0.45) 0.26 $10.68 7.07%
1998 (0.45) -- (0.03) -- (0.48) 0.08 $10.76 5.37%
1999 (0.44) -- -- (0.01) (0.45) (0.56) $10.20 (1.01%)
- ----------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND F
TICKER SYMBOL: KNMIX
1995 (0.37) (0.01) -- -- (0.38) 0.40 $10.12 8.20%
1996 (0.39) -- -- -- (0.39) (0.04) $10.08 3.51%
1997 (0.41) -- -- -- (0.41) 0.13 $10.21 5.52%
1998 (0.41) -- (0.01) -- (0.42) 0.06 $10.27 4.75%
1999 (0.41) -- -- -- (0.41) (0.34) $ 9.93 0.67%
- ----------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------
RATIO OF
NET
NET ASSETS, RATIO OF INVESTMENT RATIO OF
END OF EXPENSES INCOME TO EXPENSES PORTFOLIO
PERIOD TO AVERAGE AVERAGE TO AVERAGE TURNOVER
(000'S) NET ASSETS NET ASSETS NET ASSETS* RATE(1)
- ------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TAX-FREE INCOME FUND
TICKER SYMBOL: KNTIX
1995(2) $121,855 0.73%(+) 4.44%(+) 0.91%(+) 10%(+)(+)
1996 $109,948 0.82% 4.38% 0.82% 40%
1997 $116,652 0.79% 4.32% 0.80% 16%
1998 $128,232 0.81% 4.16% 0.82% 53%
1999 $122,052 0.82% 4.32% 0.83% 109%
- ----------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUN
TICKER SYMBOL: KNMTX
1995 $283,733 0.72% 4.39% 0.72% 6%
1996 $285,674 0.73% 4.34% 0.73% 35%
1997 $275,641 0.72% 4.31% 0.73% 23%
1998 $296,484 0.73% 4.22% 0.74% 40%
1999 $302,948 0.73% 4.22% 0.74% 63%
- ----------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND F
TICKER SYMBOL: KNMIX
1995 $185,466 0.69% 3.81% 0.70% 42%
1996 $152,623 0.70% 3.83% 0.70% 24%
1997 $111,735 0.69% 4.04% 0.70% 13%
1998 $117,957 0.69% 3.97% 0.70% 51%
1999 $102,608 0.71% 3.98% 0.72% 14%
- ----------------------------------------------------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Amount is less than $0.005.
(+) Annualized.
(++) Not Annualized.
(1) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(2) The Institutional Class of the Tax-Free Income Fund commenced operations
on March 20, 1995.
58
<PAGE> 60
FINANCIAL HIGHLIGHTS
MUNICIPAL BOND FUNDS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
-----------------------------
NET REALIZED AND
UNREALIZED GAINS TOTAL
NET ASSET (LOSSES) ON INCOME
VALUE, NET INVESTMENTS AND (LOSS) FROM
BEGINNING INVESTMENT FUTURES INVESTMENT
OF PERIOD INCOME CONTRACTS OPERATIONS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-FREE INCOME FUND
TICKER SYMBOL: KTFIX
1995(3) $10.00 0.31 0.51 0.82
1996 $10.52 0.41 (0.05) 0.36
1997 $10.29 0.42 0.42 0.84
1998 $10.67 0.42 0.15 0.57
1999 $10.77 0.42 (0.78) (0.36)
- -------------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND
TICKER SYMBOL: KNMBX
1995 $ 9.74 0.42 0.79 1.21
1996 $10.52 0.42 (0.09) 0.33
1997 $10.42 0.43 0.26 0.69
1998 $10.68 0.42 0.11 0.53
1999 $10.76 0.43 (0.56) (0.13)
- -------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND FUND
TICKER SYMBOL: KNMVX
1995 $ 9.72 0.37 0.40 0.77
1996 $10.11 0.38 (0.05) 0.33
1997 $10.07 0.39 0.14 0.53
1998 $10.20 0.39 0.07 0.46
1999 $10.26 0.39 (0.34) 0.05
- -------------------------------------------------------------------------------------
<CAPTION>
LESS DIVIDENDS AND DISTRIBUTIONS FROM
-------------------------------------------------
NET REALIZED
GAINS ON IN
IN EXCESS INVESTMENTS EXCESS TOTAL NET NET ASSET
NET OF NET AND OF NET DIVIDENDS CHANGE IN VALUE,
INVESTMENT INVESTMENT FUTURES REALIZED AND NET ASSET END OF
INCOME INCOME CONTRACTS GAINS DISTRIBUTIONS VALUE PERIOD
- ---------------------------- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TAX-FREE INCOME FUND
TICKER SYMBOL: KTFIX
1995(3) (0.30) -- -- -- (0.30) 0.52 $10.52
1996 (0.43) -- (0.12) (0.04) (0.59) (0.23) $10.29
1997 (0.42) (0.01) (0.03) -- (0.46) 0.38 $10.67
1998 (0.42) -- (0.05) -- (0.47) 0.10 $10.77
1999 (0.42) -- -- (0.01) (0.43) (0.79) $ 9.98
- -------------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND
TICKER SYMBOL: KNMBX
1995 (0.42) (0.01) -- -- (0.43) 0.78 $10.52
1996 (0.41) (0.02) -- -- (0.43) (0.10) $10.42
1997 (0.43) -- -- -- (0.43) 0.26 $10.68
1998 (0.42) -- (0.03) -- (0.45) 0.08 $10.76
1999 (0.42) -- -- (0.01) (0.43) (0.56) $10.20
- -------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND FUND
TICKER SYMBOL: KNMVX
1995 (0.37) (0.01) -- -- (0.38) 0.39 $10.11
1996 (0.35) (0.02) -- -- (0.37) (0.04) $10.07
1997 (0.40) -- -- -- (0.40) 0.13 $10.20
1998 (0.39) -- (0.01) -- (0.40) 0.06 $10.26
1999 (0.39) -- -- -- (0.39) (0.34) $ 9.92
- ----------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------
RATIO OF
NET
NET ASSETS RATIO OF INVESTMENT RATIO OF
END OF EXPENSES INCOME TO EXPENSES PORTFOLIO
TOTAL PERIOD TO AVERAGE AVERAGE TO AVERAGE TURNOVER
RETURN(1) (000'S) NET ASSETS NET ASSETS NET ASSETS* RATE(2)
- ---------------------------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TAX-FREE INCOME FUND
TICKER SYMBOL: KTFIX
1995(3) 8.34%(++) $ 529 0.95%(+) 4.25%(+) 1.17%(+) 10%(++)
1996 3.53% $ 936 1.07% 4.14% 1.07% 40%
1997 8.32% $1,712 1.04% 4.05% 1.05% 16%
1998 5.43% $1,938 1.06% 3.91% 1.07% 53%
1999 (3.40%) $1,554 1.07% 4.05% 1.08% 109%
- -------------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND
TICKER SYMBOL: KNMBX
1995 12.66% $3,807 0.97% 4.13% 0.97% 6%
1996 3.17% $3,368 0.98% 4.09% 0.98% 35%
1997 6.80% $3,534 0.97% 4.06% 0.98% 23%
1998 5.09% $4,038 0.98% 3.97% 0.99% 40%
1999 (1.27%) $3,745 0.98% 3.97% 0.99% 63%
- -------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL BOND FUND
TICKER SYMBOL: KNMVX
1995 8.01% $1,900 0.83% 3.68% 0.85% 42%
1996 3.36% $2,422 0.85% 3.68% 0.95% 24%
1997 5.38% $4,413 0.84% 3.88% 0.95% 13%
1998 4.60% $5,946 0.84% 3.82% 0.95% 51%
1999 0.51% $4,378 0.86% 3.83% 0.97% 14%
- ----------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(+) Annualized.
(++) Not Annualized.
(1) Calculation does not include sales charge. Effective May 1, 1997, the
Investment Shares were not assessed a sales charge.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(3) The date of initial public investment of the Investment Class of the
Tax-Free Income Fund was March 31, 1995.
59
<PAGE> 61
FINANCIAL HIGHLIGHTS
MONEY MARKET FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME
(LOSS)
FROM
INVESTMENT LESS NET
NET ASSET OPERATIONS: DIVIDENDS CHANGE NET ASSET
VALUE NET FROM NET IN VALUE,
BEGINNING INVESTMENT INVESTMENT NET ASSET END OF TOTAL
OF PERIOD INCOME INCOME VALUE PERIOD RETURN
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
TICKER SYMBOL: KIMXX
1995 $1.000 0.050 (0.050) -- $1.000 5.58%
1996 $1.000 0.050 (0.050) -- $1.000 5.06%
1997 $1.000 0.051 (0.051) -- $1.000 5.23%
1998 $1.000 0.050 (0.050) -- $1.000 5.13%
1999 $1.000 0.047 (0.047) -- $1.000 4.80%
- -----------------------------------------------------------------------------------------------------------
GOVERNMENT MONEY MARKET FUND
TICKER SYMBOL: KGIXX
1997(1) $1.000 0.031 (0.031) -- $1.000 3.10%(++)
1998 $1.000 0.051 (0.051) -- $1.000 5.17%
1999 $1.000 0.047 (0.047) -- $1.000 4.81%
- -----------------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
TICKER SYMBOL: KMIXX
1995 $1.000 0.030 (0.030) -- $1.000 3.50%
1996 $1.000 0.030 (0.030) -- $1.000 3.11%
1997 $1.000 0.033 (0.033) -- $1.000 3.31%
1998 $1.000 0.030 (0.030) -- $1.000 3.06%
1999 $1.000 0.028 (0.028) -- $1.000 2.86%
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
-------------------------------------------------
RATIO OF
RATIO OF NET
EXPENSES INVESTMENT RATIO OF
NET ASSETS, TO INCOME TO EXPENSES
END OF AVERAGE AVERAGE TO AVERAGE
PERIOD NET NET NET
(000'S) ASSETS ASSETS ASSETS*
- ------------------------------------ -------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET FUND
TICKER SYMBOL: KIMXX
1995 $424,815 0.55% 5.45% 0.63%
1996 $483,919 0.52% 4.95% 0.62%
1997 $474,378 0.52% 5.11% 0.62%
1998 $693,399 0.55% 5.00% 0.64%
1999 $654,771 0.54% 4.70% 0.63%
- -----------------------------------------------------------------------------------------------------------
GOVERNMENT MONEY MARKET FUND
TICKER SYMBOL: KGIXX
1997(1) $ 94,624 0.35%(+) 5.23%(+) 0.69%(+)
1998 $166,922 0.38% 5.03% 0.69%
1999 $215,401 0.37% 4.73% 0.65%
- -----------------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
TICKER SYMBOL: KMIXX
1995 $145,215 0.56% 3.45% 0.65%
1996 $155,424 0.54% 3.06% 0.64%
1997 $211,682 0.52% 3.27% 0.63%
1998 $323,272 0.54% 3.00% 0.64%
1999 $292,619 0.53% 2.82% 0.63%
- ------------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(+) Annualized.
(++) Not Annualized.
(1) The Government Money Market Fund commenced operations on June 2, 1997.
60
<PAGE> 62
FINANCIAL HIGHLIGHTS
MONEY MARKET FUNDS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
Year ended December 31
<TABLE>
<CAPTION>
INCOME
(LOSS)
FROM
INVESTMENT LESS
NET ASSET OPERATIONS: DIVIDENDS NET NET ASSET
VALUE, NET FROM NET CHANGE IN VALUE,
BEGINNING INVESTMENT INVESTMENT NET ASSET END OF TOTAL
OF PERIOD INCOME INCOME VALUE PERIOD RETURN
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
TICKER SYMBOL: KNIXX
1995 $1.000 0.050 (0.050) -- $1.000 5.56%
1996 $1.000 0.050 (0.050) -- $1.000 5.06%
1997 $1.000 0.051 (0.051) -- $1.000 5.23%
1998 $1.000 0.050 (0.050) -- $1.000 5.13%
1999 $1.000 0.047 (0.047) -- $1.000 4.80%
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT MONEY MARKET FUND
TICKER SYMBOL: N/A
1997(1) $1.000 0.030 (0.030) -- $1.000 3.06%(++)
1998 $1.000 0.051 (0.051) -- $1.000 5.17%
1999 $1.000 0.047 (0.047) -- $1.000 4.81%
- ------------------------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
TICKER SYMBOL: KINXX
1995 $1.000 0.030 (0.030) -- $1.000 3.48%
1996 $1.000 0.030 (0.030) -- $1.000 3.11%
1997 $1.000 0.033 (0.033) -- $1.000 3.31%
1998 $1.000 0.030 (0.030) -- $1.000 3.06%
1999 $1.000 0.028 (0.028) -- $1.000 2.86%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
----------------------------------------------------
RATIO OF
NET
NET RATIO OF INVESTMENT RATIO OF
ASSETS, EXPENSES INCOME TO EXPENSES
END OF TO AVERAGE AVERAGE TO AVERAGE
PERIOD NET NET NET
(000'S) ASSETS ASSETS ASSETS*
- ---------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C>
MONEY MARKET FUND
TICKER SYMBOL: KNIXX
1995 $1,127 0.55% 5.41% 0.62%
1996 $ 804 0.52% 4.94% 0.62%
1997 $1,179 0.52% 5.11% 0.62%
1998 $3,728 0.55% 5.00% 0.64%
1999 $2,141 0.55% 4.71% 0.63%
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT MONEY MARKET FUND
TICKER SYMBOL: N/A
1997(1) $ 2 0.43%(+) 5.17%(+) 0.77%(+)
1998 $ 93 0.38% 4.92% 0.69%
1999 $ 120 0.37% 4.71% 0.65%
- ------------------------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FU
TICKER SYMBOL: KINXX
1995 $1,603 0.54% 3.48% 0.62%
1996 $ 782 0.54% 3.06% 0.64%
1997 $ 289 0.52% 3.22% 0.63%
1998 $ 346 0.54% 3.02% 0.64%
1999 $ 658 0.53% 2.82% 0.63%
- ----------------------------------
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(+) Annualized.
(++) Not Annualized.
(1) The Government Money Market Fund commenced operations on June 2, 1997.
61
<PAGE> 63
[KENT FUNDS LOGO]
THE FOLLOWING ADDITIONAL INFORMATION IS AVAILABLE TO YOU UPON REQUEST AND
WITHOUT CHARGE:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Annual/Semi-Annual Reports: Annual and Semi-Annual reports to shareholders contain
additional information about the Funds' investments. In the
Annual Report, you will find a discussion of the market
conditions and investment strategies that significantly
affected Fund performance during the previous fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed information about the Funds,
including their operations and investment policies. It is
incorporated by reference and is legally considered to be a
part of this prospectus.
</TABLE>
You can get free copies of Annual and Semi-Annual Reports and the SAI, request
other information and discuss your questions about the Funds by contacting a
broker or other financial institution that sells the Funds. In addition, you may
contact the Funds at KENT FUNDS, P.O. BOX 182201, COLUMBUS, OHIO 43218-2201 or:
TELEPHONE: 1-800-633-KENT (5368)
INTERNET: HTTP://WWW.KENTFUNDS.COM*
Information about the Funds, including the SAI, is available:
- For review and copying at the Public Reference Room of the Securities and
Exchange Commission. Information on the operation of the Public Reference
Room may be obtained by calling the Commission at 1-202-942-8090.
- At no charge on the Commission's Internet site at http://www.sec.gov.
- For a fee, by electronic request at the following E-mail address:
[email protected] or by writing the Commission's Public Reference Section,
Washington, D.C. 20549.
* The Funds' website is not part of this Prospectus.
Investment Company Act file no. 811-4824.
KKF-0390 (5/2000)
<PAGE> 64
THE KENT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FOR
INVESTMENT AND INSTITUTIONAL SHARES
OF
THE KENT GROWTH AND INCOME FUND
THE KENT INDEX EQUITY FUND
THE KENT LARGE COMPANY GROWTH FUND
THE KENT SMALL COMPANY GROWTH FUND
THE KENT INTERNATIONAL GROWTH FUND
THE KENT INCOME FUND
THE KENT INTERMEDIATE BOND FUND
THE KENT SHORT TERM BOND FUND
THE KENT TAX-FREE INCOME FUND
THE KENT INTERMEDIATE TAX-FREE FUND
THE KENT MICHIGAN MUNICIPAL BOND FUND
THE KENT MONEY MARKET FUND
THE KENT GOVERNMENT MONEY MARKET FUND
THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND
May 1, 2000
This Statement of Additional Information ("SAI") is not a prospectus
but relates to, and should be read in conjunction with the prospectus for the
Investment Shares and Institutional Shares of the foregoing Funds dated May 1,
2000. The Financial Statements included in the Funds' December 31, 1999 Annual
Report to Shareholders are incorporated by reference into this SAI. No other
part of the Annual Reports is incorporated herein. Copies of the prospectus and
the Annual Report may be obtained by writing to The Kent Funds, P.O. Box 182201,
Columbus, Ohio 43218-2201 or by calling 1-800-633-KENT (5368). Capitalized terms
not otherwise defined herein have the same meaning as in the prospectus.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, OLD KENT BANK OR ANY OF ITS AFFILIATES, AND ARE NOT
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. EACH MONEY MARKET FUND SEEKS TO
MAINTAIN A NET ASSET VALUE PER SHARE OF $1.00 ALTHOUGH THERE CAN BE NO ASSURANCE
THAT THEY WILL BE ABLE TO DO SO.
<PAGE> 65
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Trust....................................................................3
Investment Objectives and Policies...........................................3
Investment Restrictions.....................................................24
Securities Transactions.....................................................26
Valuation Of Securities.....................................................28
Trustees And Officers.......................................................31
Investment Adviser..........................................................32
Administrator...............................................................35
Distributor.................................................................36
Transfer Agent..............................................................36
Custodian, Auditors And Counsel.............................................37
Distribution Plan...........................................................37
Additional Purchase And Redemption Information..............................38
Dividends And Taxes.........................................................39
Declaration Of Trust........................................................40
Standardized Total Return And Yield Quotations..............................41
Advertising Information.....................................................47
Financial Statements........................................................48
Additional Information......................................................48
Appendix A.................................................................A-1
Appendix B.................................................................B-1
Appendix C.................................................................C-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS SAI, OR IN THE PROSPECTUS RELATED HERETO,
IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR ITS DISTRIBUTOR. THIS SAI AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFERING BY THE TRUST OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE> 66
THE TRUST
The Kent Funds (the "Trust") is an open-end management investment
company, commonly known as a mutual fund, which was organized on May 9, 1986 as
a Massachusetts business trust. The Trust changed its name from "Master
Municipal Trust" on May 1, 1990. The Trust consists of eighteen separate
investment portfolios, each of which is diversified and has a distinct
investment objective and distinct investment policies.
This SAI relates to the following fourteen series (individually, a
"Fund," and collectively, the "Funds"), each of which has established two
classes of shares, Investment Shares and Institutional Shares: The Kent Large
Company Growth Fund, The Kent Growth and Income Fund, The Kent Index Equity
Fund, The Kent Small Company Growth Fund, The Kent International Growth Fund
(collectively, the "Equity Funds"), The Kent Income Fund, The Kent Intermediate
Bond Fund, The Kent Short Term Bond Fund (collectively, the "Bond Funds"), The
Kent Tax-Free Income Fund, The Kent Intermediate Tax-Free Fund, The Kent
Michigan Municipal Bond Fund (collectively, the "Municipal Bond Funds"), The
Kent Money Market Fund, The Kent Government Money Market Fund, and The Kent
Michigan Municipal Money Market Fund (collectively, the "Money Market Funds").
The Equity Funds, Bond Funds and Municipal Bond Funds are sometimes collectively
referred to as the "Non-Money Market Funds." The Municipal Bond Funds and The
Kent Michigan Municipal Money Market Fund are sometimes collectively referred to
as the "Municipal Funds." Each Fund is advised by Lyon Street Asset Management
Company ("Lyon Street" or the "Investment Adviser").
Important information about the Trust and the Investment and
Institutional Shares of the Funds is contained in the Funds' prospectus. This
SAI provides additional information about the Trust and the Investment and
Institutional Shares of the Funds that may be of interest to some investors. The
Trust also offers additional series which are described in separate prospectuses
and statements of additional information.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the description of each Fund's
investment objective and strategies as set forth in the prospectus.
EQUITY FUNDS
GROWTH AND INCOME FUND
OTHER INVESTMENT STRATEGIES: Under ordinary circumstances, the Fund
intends to invest at least 65% of its total assets in U.S. companies with at
least $100 million in market capitalization which are listed on the New York
Stock Exchange or American Stock Exchange or are traded over the counter. Up to
10% of the Fund's assets may also be invested in foreign securities and the Fund
may invest in American Depositary Receipts ("ADRs"), which are U.S. dollar
denominated securities representing ownership in foreign securities. A portion
of the Fund's assets may be invested in preferred stock or bonds convertible
into common stock. The Fund will purchase only convertible bonds having a rating
in one of the four highest rating categories by a nationally recognized
statistical rating organization (a "NRSRO") or those which, if not rated, are of
comparable quality as determined by Lyon Street. The Fund expects to earn
current income mainly from stock dividends and interest on convertible bonds.
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<PAGE> 67
INDEX EQUITY FUND
OTHER INVESTMENT STRATEGIES: Although Lyon Street will generally try to
match the industry composition of the S&P 500 exactly, because of the difficulty
and expense of executing relatively small stock transactions, the Fund may not
always be invested in the less heavily weighted S&P 500 stocks, or may be
invested in stocks in different proportions than the S&P 500, especially when
the Fund has a low level of assets. The Fund will try to achieve a correlation
between the performance of its portfolio and that of the S&P 500 of at least
0.95 (not accounting for expenses). A correlation of 1.0 would mean that the
Fund's NAV (including the value of its dividends and capital gains
distributions) increases or decreases in exact proportion to changes in the S&P
500.
LARGE COMPANY GROWTH FUND
OTHER INVESTMENT STRATEGIES: Under ordinary circumstances, the Fund
intends to invest at least 65% of its total assets in equity securities of U.S.
companies with at least $4 billion in market capitalization which are listed on
the New York Stock Exchange or the American Stock Exchange or are traded over
the counter. Up to 10% of the Fund's assets may also be invested in foreign
securities and the Fund may invest in ADRs. A portion of the Fund's assets may
also be invested in preferred stock or bonds that are convertible into common
stock.
SMALL COMPANY GROWTH FUND
OTHER INVESTMENT STRATEGIES: Under ordinary circumstances, the Fund
intends to invest at least 65% of its total assets in a diverse group of small
U.S. companies, which are companies whose market capitalizations are less than
$2 billion. The Fund may purchase stocks which are listed on U.S. securities
exchanges or which are traded over the counter.
INTERNATIONAL GROWTH FUND
OTHER INVESTMENT STRATEGIES: The Fund will invest mostly in common and
preferred stocks. Under ordinary circumstances, the Fund intends to invest at
least 65% of its total assets in at least 3 countries other than the United
States, including (but not limited to) Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Italy, Japan, Malaysia, the Netherlands,
New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the United
Kingdom. The Fund invests in countries represented in the Morgan Stanley Capital
International Europe and Australasia, Far East Equity Index (the "EAFE Index").
Although the International Growth Fund seeks to equal or exceed the return of
the EAFE Index, the Fund may invest its assets in proportions that differ from
this index. The Fund is not, therefore, an "index" fund, which typically holds
securities in approximately the same proportion as the index it attempts to
replicate. Lyon Street believes that the EAFE Index is generally representative
of the performance of the common stocks of large companies in industrialized
countries traded outside of the United States taken as a whole. Stocks are
included in the EAFE Index based on national and industry representation and are
weighted according to their relative market values. The Fund may also invest in
ADRs, which are U.S. dollar-denominated securities representing ownership in
foreign companies, and enter into currency and other futures contracts and
related options for hedging purposes. The Fund may invest more than 25% of its
assets in a particular foreign country.
4
<PAGE> 68
BOND FUNDS
OTHER INVESTMENT STRATEGIES: Under ordinary circumstances, each Bond
Fund intends to invest at least 65% of its total assets in debt securities. In
addition, the Income Fund intends to invest at least 65% of its total assets in
a combination of (i) corporate debt obligations that are rated in one of the
three highest rating categories by a NRSRO (for example, A or higher by Standard
& Poor's Ratings Group ("S&P") or by Moody's Investors Service, Inc.
("Moody's")) or, if unrated, will be deemed to be of comparable quality by Lyon
Street, or (ii) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Debt securities, other than securities known as
zero coupon bonds, generally pay interest at set times, at either a fixed (set)
rate or a variable (changing) rate. Debt securities purchased by the Bond Funds
may include corporate debt obligations, U.S. Government securities, stripped
securities, variable and floating rate securities, mortgage-backed securities,
custodial receipts for Treasury certificates, zero-coupon bonds, asset-backed
securities, equipment trust certificates and certain so-called "derivative
securities." Each Bond Fund may also invest a portion of its assets in bonds
convertible into common stock.
Debt securities purchased by the Bond Funds will be rated in one of the
four highest rating categories by an NRSRO (for example, BBB or higher by S&P,
or Baa or higher by Moody's) or, if unrated, will be deemed to be of comparable
quality by Lyon Street. See Appendix A to the SAI for a description of
applicable S&P, Moody's and other NRSRO ratings.
MUNICIPAL BOND FUNDS
OTHER INVESTMENT STRATEGIES: Each Municipal Bond Fund intends to invest
at least 80% of its net assets in federally tax-exempt obligations, except
during periods of unusual market conditions. This policy is a fundamental policy
which cannot be changed by a Municipal Bond Fund without the approval of its
shareholders. In calculating the 80% limitation, for all Municipal Bond Funds
other than Michigan Municipal Bond Fund, a security whose interest is treated as
a specific tax preference item under the federal alternative minimum tax is
considered taxable. In calculating the 80% limitation for the Michigan Municipal
Bond Fund, securities whose interest is treated as a specific tax preference
item under the federal alternative minimum tax and is treated as exempt from
Michigan personal income tax are considered non-taxable. Under ordinary
circumstances, at least 65% of the Michigan Municipal Bond Fund's total assets
will be invested in municipal obligations issued by the State of Michigan or its
political subdivisions, authorities or corporations.
The Municipal Bond Funds will principally invest in municipal bonds
which are issued by state or local governments typically for general funding
purposes or to finance specific projects.
The amount of information regarding the financial condition of issuers
of municipal obligations may be less extensive than the information for public
corporations, and the secondary market for municipal obligations may be less
liquid than that for taxable obligations. Accordingly, the ability of a
Municipal Bond Fund to buy and sell municipal obligations may, at any particular
time and with respect to any particular securities, be limited. In addition,
municipal obligations purchased by the Municipal Bond Funds include obligations
backed by letters of credit and other forms of credit enhancement issued by
domestic and foreign banks, as well as other financial institutions and
corporations. Adverse changes in the credit quality of these institutions could
cause loss to a Municipal Bond Fund and affect its share price.
Municipal obligations purchased by the Municipal Bond Funds will be
rated in one of the four highest rating categories by an NRSRO (for example,
BBB- or higher by S&P, or Baa3 or higher by
5
<PAGE> 69
Moody's) or, if unrated, will be deemed to be of comparable quality by Lyon
Street. See Appendix A to the SAI for a description of applicable S&P, Moody's
and other NRSRO ratings.
MONEY MARKET FUNDS
The Trust currently offers the three Money Market Funds described
below. Money market funds typically seek to maintain a stable net asset value of
$1.00 per share, although there is no guarantee that their net asset value will
not vary. The Money Market Funds, in general, will only purchase U.S.
dollar-denominated "Eligible Securities" (as defined by the Securities and
Exchange Commission), which are generally securities that either (i) have
short-term debt ratings when purchased in the two highest rating categories by
at least two NRSROs, or (ii) are unrated, but are deemed by Lyon Street to be of
comparable quality pursuant to guidelines approved by the Board of Trustees, or
(iii) if only rated by one NRSRO, rated in one of the two highest rating
categories. The dollar-weighted average maturity of each Money Market Fund's
portfolio will not exceed 90 days and with certain exceptions, the Money Market
Funds will not purchase any securities which mature in more than 397 days from
the date of purchase. All securities purchased by the Money Market Funds will be
determined by Lyon Street, under guidelines established by the Board of
Trustees, to present minimal credit risks.
MONEY MARKET FUND
OTHER INVESTMENT STRATEGIES: The Fund invests in a broad range of
government, bank and commercial obligations. These instruments primarily include
obligations of banks having total assets in excess of $1 billion at the time of
purchase and commercial paper that matures in 13 months or less. The Fund may
also invest in short-term obligations guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may also invest in taxable municipal
obligations and federally tax-exempt obligations. Federally tax-exempt
obligations consist of municipal bonds, notes and commercial paper issued by
states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is, in the opinion of counsel to the issuer of such
obligations, exempt from federal income taxes.
GOVERNMENT MONEY MARKET FUND
The investment strategies and risks of investing in the Fund are
disclosed in the Prospectus.
MICHIGAN MUNICIPAL MONEY MARKET FUND
OTHER INVESTMENT STRATEGIES: At least 80% of the Fund's net assets will
be invested in federally tax-exempt obligations, except during periods of
unusual market conditions. This policy is a fundamental policy which cannot be
changed by the Fund without the approval of its shareholders. Federally
tax-exempt obligations consist of municipal bonds, notes and commercial paper
issued by states, territories or possessions of the United States, the District
of Columbia and their political subdivisions, agencies and instrumentalities,
the interest on which is, in the opinion of counsel to the issuer of such
obligations, exempt from federal income taxes. Under ordinary circumstances, the
Fund intends to invest at least 65% of its total assets in municipal obligations
issued by the State of Michigan or its political subdivisions, authorities or
corporations. Taxable obligations acquired by the Fund will not exceed 20% of
the Fund's net assets at the time of purchase under normal market conditions. In
calculating the 80% limitation for the Michigan Municipal Money Market Fund,
securities whose interest is treated as a specific tax preference item under the
federal alternative minimum tax and treated as exempt from Michigan personal
income tax are considered non-taxable.
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<PAGE> 70
DETAILED DESCRIPTION OF INVESTMENT VEHICLES AND POTENTIAL RISKS
The investment policies discussed below are applicable to all Funds
unless otherwise noted, except that the Government Money Market Fund will
purchase only U.S. Treasury bills, notes and other obligations issued by the
U.S. Government, its agencies or instrumentalities, repurchase agreements with
respect to such securities and shares of registered money market investment
companies that invest exclusively in such securities.
A Fund may, but will not necessarily, invest in the following
securities or engage in the following practices to the extent that such
securities and practices are consistent with the Fund's investment objective(s)
and policies described in the Prospectus and in this SAI.
MONEY MARKET INSTRUMENTS
To the extent described in the Funds' prospectus or statement of
additional information, each Fund may invest from time to time in "money market
instruments," a term that includes, among other things, bank obligations,
commercial paper, variable amount master demand notes and corporate bonds and
U.S. Government obligations with remaining maturities of thirteen months or
less.
Bank obligations include certificates of deposit, bankers' acceptances
and time deposits, issued or supported by the credit of U.S. or foreign banks or
savings institutions. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. All investments in bank obligations are limited to the
obligations of financial institutions having more than $1 billion in total
assets at the time of purchase.
The Funds may invest a portion of their assets in the obligations of
foreign banks and foreign branches of domestic banks. Such obligations include
Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule Bs,
which are obligations issued by Canadian branches of foreign or domestic banks;
Yankee Certificates of Deposit ("Yankee CDs") which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers' Acceptances ("Yankee BAs") which are U.S.
dollar-denominated bankers' acceptances issued by a U.S. branch of a foreign
bank and held in the United States.
Although the Funds will invest in obligations of foreign banks or
foreign branches of U.S. banks only when Lyon Street deems the instrument to
present minimal credit risk, such investments nevertheless entail risks that are
different from those of investments in domestic obligations of U.S. banks. These
additional risks include future political and economic developments, the
possible
7
<PAGE> 71
imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting and record keeping standards than those applicable to
domestic branches of U.S. banks.
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by banks or bank holding companies, corporations and
finance companies. Investments by the Funds in taxable commercial paper will
consist of issues that are rated A-1 by Standard & Poor's Ratings Group ("S&P")
or Prime-1 by Moody's Investors Service, Inc. ("Moody's"). In addition, the
Funds may acquire unrated commercial paper and corporate bonds that are
determined by Lyon Street at the time of purchase to be of comparable quality to
rated instruments that may be acquired by the Funds. Commercial paper may
include variable and floating rate instruments. Commercial paper issues include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), in reliance on the exemption in Section
3(a)(3), and commercial paper issued in reliance on the so-called "private
placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper
is restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) Paper is
normally resold to other institutional investors through or with the assistance
of investment dealers which make a market in Section 4(2) Paper, thus providing
liquidity. For purposes of each Fund's limitation on purchases of illiquid
instruments, Section 4(2) Paper will not be considered illiquid if Lyon Street
has determined, in accordance with guidelines approved by the Board of Trustees,
that an adequate trading market exists for such securities.
Variable amount master demand notes are unsecured instruments that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate. Although such notes are not normally traded and there may
be no secondary market in the notes, the Funds may demand payment of the
principal of the instrument at any time. If an issuer of a variable amount
master demand note defaulted on its payment obligation, the Funds might be
unable to dispose of the note because of the absence of a secondary market and
might, for this or other reasons, suffer a loss to the extent of the default.
GUARANTEED INVESTMENT CONTRACTS (The Bond Funds, Municipal Bond Funds and Money
Market Fund only)
The Bond Funds, the Municipal Bond Funds and the Money Market Fund may
make limited investments in guaranteed investment contracts ("GICs") issued by
highly rated U.S. insurance companies. Under a GIC, the Fund gives cash to an
insurance company which credits the Fund with the amount given plus interest
based on a certain index, which interest is guaranteed to be not less than a
certain minimum rate. A GIC is normally a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the insurance company's general assets. The Bond Funds, the Municipal
Bond Funds and the Money Market Fund will only purchase GICs from insurance
companies which, at the time of purchase, have total assets of $1 billion or
more and meet quality and credit standards established by Lyon Street pursuant
to guidelines approved by the Board of Trustees. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Therefore, GICs will
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<PAGE> 72
normally be considered illiquid investments, and will be subject to a Fund's
limitation on illiquid investments.
REPURCHASE AGREEMENTS
Each Fund may agree to purchase portfolio securities from financial
institutions subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price ("repurchase agreements"). The Funds will enter into
such repurchase agreements only with financial institutions that are deemed to
be creditworthy by Lyon Street. During the term of any repurchase agreement,
Lyon Street will continue to monitor the creditworthiness of the seller. The
Funds will not enter into repurchase agreements with Lyon Street or its
affiliates. Although the securities subject to a repurchase agreement may bear
maturities exceeding one year, settlement for the repurchase agreement will
never be more than one year after a Fund's acquisition of the securities and
normally will be within a shorter period of time. Repurchase agreements with
deemed maturities in excess of seven days are considered illiquid investments,
and will be subject to a Fund's limitation on illiquid investments. Securities
subject to repurchase agreements are held either by the Trust's custodian or in
the Federal Reserve/Treasury Book-Entry System. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement in an amount exceeding the repurchase price (including accrued
interest). Default by the seller would, however, expose a Fund to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying collateral obligations. Repurchase agreements are considered to
be loans by a Fund under the Investment Company Act of 1940, as amended (the
"1940 Act").
REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds for temporary or emergency purposes by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). Reverse repurchase agreements involve
the risk that the market value of the securities sold by a Fund may decline
below the repurchase price. A Fund will pay interest on amounts obtained
pursuant to a reverse repurchase agreement. While reverse repurchase agreements
are outstanding, a Fund will maintain in a segregated account cash, U.S.
Government securities or other liquid high-grade debt securities of an amount at
least equal to the market value of the securities, plus accrued interest,
subject to the agreement. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
VARIABLE AND FLOATING RATE INSTRUMENTS (The Bond Funds, Municipal Bond Funds and
Money Market Funds only)
The Bond, Municipal Bond and Money Market Funds may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master demand notes that permit the amount of indebtedness to
vary in addition to providing for periodic adjustments in the interest rate.
These instruments may include those that are issued by municipalities or other
public authorities. Such notes are direct lending arrangements between the Fund
and a borrower and, therefore, the notes generally are not traded and there is
no market in which to sell them to third parties. A Fund could suffer a loss if,
for example, the borrower defaults on the note. This type of note will be
subject to a Fund's limitations on illiquid investments if the Fund cannot
demand payment of the principal amount of the note within seven days. The
absence of an active secondary market with respect to particular variable and
floating rate instruments could make it difficult for a Fund to dispose of the
instruments if the issuer defaulted on its payment obligation or during periods
that the Fund is
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<PAGE> 73
not entitled to exercise demand rights, and a Fund could, for these or other
reasons, suffer a loss with respect to such instruments.
When purchasing such instruments for the Funds, Lyon Street will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and, if the instruments are subject to demand
features, will monitor their financial status to meet payment on demand. In
determining weighted average portfolio maturity, an instrument will usually be
deemed to have a maturity equal to the longer of the period remaining until the
next regularly scheduled interest rate adjustment or the time a Fund can recover
payment of principal as specified in the instrument. Variable rate U.S.
Government obligations and certain variable rate instruments having a nominal
maturity of 397 days or less when purchased, however, will be deemed to have
maturities equal to the period remaining until the next interest rate
adjustment. Variable and floating rate instruments purchased by the Money Market
Funds may carry nominal maturities in excess of those Funds' maturity
limitations if such instruments carry demand features that comply with
conditions established by the Securities and Exchange Commission.
LOAN PARTICIPATION NOTES (the Money Market Fund and Michigan Municipal Money
Market Fund only)
The Money Market Fund and Michigan Municipal Money Market Fund may
purchase loan participation notes. A loan participation note represents
participation in a corporate loan of a commercial bank with a remaining maturity
of one year or less. Such loans must be to corporations in whose obligations the
Funds may invest. Any participation purchased by a Fund must be issued by a bank
in the United States with total assets exceeding $1 billion. Because the issuing
bank does not guarantee the participation in any way, they are subject to the
credit risks generally associated with the underlying corporate borrower. In
addition, because it may be necessary under the terms of the loan participation
for a Fund to assert through the issuing bank such rights as may exist against
the corporate borrower if the underlying corporate borrower fails to pay
principal and interest when due, a Fund may be subject to delays, expenses and
risks that are greater than those that would have been involved if the Fund had
purchased a direct obligation of such borrower. Moreover, under the terms of the
loan participation a Fund may be regarded as a creditor of the issuing bank
(rather than the underlying corporate borrower), so that the Fund may also be
subject to the risk that the issuing bank may become insolvent. The secondary
market, if any, for loan participations is extremely limited and any such
participation purchased by a Fund may be regarded as illiquid.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment (sometimes called delayed delivery)
basis. These transactions involve a commitment by the Fund to purchase or sell
securities at a future date. The price of the underlying securities and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are normally negotiated directly with the other
party.
A Fund will purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or negotiate a commitment after entering into it. A Fund also may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date.
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Securities purchased or sold on a when-issued or forward commitment
basis involve a risk of loss if the value of the security to be purchased
declines, or the value of the security to be sold increases, before the
settlement date. When a Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
When a Fund purchases securities on a when-issued or forward commitment
basis, the Fund will segregate cash or liquid securities having a value
(determined daily) at least equal to the amount of the Fund's purchase
commitments. In the case of a forward commitment to sell portfolio securities,
the custodian will segregate the portfolio securities themselves while the
commitment is outstanding. These procedures are designed to ensure that the Fund
will maintain sufficient assets at all times to cover its obligations under
when-issued and forward commitment transactions. Because a Fund sets aside
liquid assets to satisfy its purchase commitments in the manner described, its
liquidity and ability to manage its portfolio might be affected in the event its
purchase commitments exceed 25% of the value of its assets. For purposes of
determining a Fund's average dollar-weighted maturity, the maturity of
when-issued or forward commitment securities will be calculated from the
commitment date.
UNITED STATES GOVERNMENT OBLIGATIONS
Each Fund may purchase U.S. Government obligations, which are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Examples of the types of U.S. Government obligations that may
be acquired by the Funds include U.S. Treasury bills, notes and bonds and
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association ("FNMA"), Government National Mortgage Association
("GNMA"), General Services Administration, Central Bank for Cooperatives,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit
Banks, Tennessee Valley Authority, Resolution Funding Corporation and Maritime
Administration. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the GNMA, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the FNMA, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, are supported only by the credit of the instrumentality. No assurance
can be given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
ZERO COUPON OBLIGATIONS (The Bond Funds, Municipal Bond Funds and Money Market
Funds only)
The Bond Funds, Municipal Bond Funds and Money Market Funds may acquire
zero coupon obligations. Zero coupon obligations do not make interest payments;
instead, they are sold at a deep discount from their face value and are redeemed
at face value when they mature. Because zero coupon obligations do not pay
current income, their prices can be volatile when interest rates change. The
Funds will accrue income on such investments for tax and accounting purposes, as
required, and such income must be distributed to shareholders. A Fund may be
required to liquidate other portfolio securities to satisfy its distribution
obligations because no cash is received at the time of such income accruals. The
return on a zero coupon obligation, when held to maturity, equals the difference
between the par value and the original purchase price.
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STRIPPED OBLIGATIONS (The Bond Funds, Municipal Bond Funds and Money Market
Funds only)
The Bond Funds, Municipal Bond Funds and Money Market Funds may
purchase U.S. Treasury Obligations and their unmatured interest coupons that
have been separated ("stripped") by their holder, typically a custodian bank or
other institution. These "stripped" U.S. Treasury obligations are offered under
the Separate Trading of Registered Interest and Principal Securities ("STRIPS")
program or Coupon Under Bank-Entry Safekeeping ("CUBES") program. These Funds
may also purchase other stripped securities issued directly by agencies or
instrumentalities of the U.S. Government. STRIPS and CUBES represent either
future interest or principal payments and are direct obligations of the U.S.
Government that clear through the Federal Reserve System. These participations,
which may be issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions, are
issued at a discount to their face value, and may, with respect to the Bond
Funds, include stripped mortgage-backed securities ("SMBS"). Stripped
securities, particularly SMBS, may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The Funds also may purchase U.S.
dollar-denominated stripped securities that evidence ownership in the future
interest payments or principal payments on obligations of foreign governments.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class receives all of the principal.
However, in some cases, one class will receive some of the interest and most of
the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
are generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped.
SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid. SMBS issued by the U.S.
Government (or a U.S. Government agency or instrumentality) may be considered
liquid under guidelines established by the Trust's Board of Trustees if they can
be disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of a Fund's per share net asset value.
Within the past several years, the Treasury Department has facilitated
transfers of ownership of stripped securities by accounting separately for the
beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal
Securities." Under the STRIPS program, the Funds will be able to have their
beneficial ownership of stripped securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
In addition, the Bond Funds, Municipal Bond Funds and Money Market
Funds may acquire other U.S. Government obligations and their unmatured interest
coupons that have been stripped by their holder. Having separated the interest
coupons from the underlying principal of the U.S. Government obligations, the
holder will resell the stripped securities in custodial receipt programs with a
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number of different names, including "Treasury Income Growth Receipts" ("TIGRs")
and "Certificate of Accrual on Treasury Securities" ("CATS"). The stripped
coupons are sold separately from the underlying principal, which is usually sold
at a deep discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or, in the
case of bearer securities (i.e., unregistered securities which are ostensibly
owned by the bearer or holder), in trust on behalf of the owners. Counsel to the
underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government obligations for federal tax purposes. The Trust is
unaware of any binding legislative, judicial or administrative authority on this
issue. The staff of the Securities and Exchange Commission believes that
participations in TIGRs, CATS and other similar trusts are not U.S. Government
securities.
Although a "stripped" security may not pay interest to holders prior to
maturity, federal income tax regulations require a Fund to recognize as interest
income a portion of the security's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in a Fund elect to receive their dividends in cash
rather than reinvest such dividends in additional Fund shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
MORTGAGE-BACKED SECURITIES (The Bond Funds, Municipal Bond Funds and Money
Market Funds only)
The Bond Funds, Municipal Bond Funds and Money Market Funds may invest
in mortgage-backed securities, including those representing an undivided
ownership interest in a pool of mortgages, such as certificates of the GNMA and
the FHLMC. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate, net of certain fees. The average
life of a mortgage-backed security varies with the underlying mortgage
instruments, which have maximum maturities of 40 years. The average life is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by factors including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. Such prepayments are
passed through to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future payments.
In periods of falling interest rates, the rate of mortgage prepayments
tends to increase. During such periods, the reinvestment of prepayment proceeds
by a Fund will generally be at lower rates than the rates that were carried by
the obligations that have been prepaid. As a result, the relationship between
mortgage prepayments and interest rates may give some high-yielding
mortgage-related securities less potential for growth in value than conventional
bonds with comparable maturities. In calculating the average weighted maturity
of each Fund, the maturity of mortgage-backed securities will be based on
estimates of average life.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes"), which are guaranteed as to the timely payment of principal and interest
by GNMA and backed by the full faith and credit of the United States. GNMA
certificates also are supported by the
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authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-backed securities issued by FNMA include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes"), which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States, but are supported by the right of the
issuer to borrow from the Treasury. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). Freddie Macs are not guaranteed and do not constitute
a debt or obligation of the United States or of any Federal Home Loan Bank.
Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Bond Funds and Municipal Bond Funds also may acquire collateralized
mortgage obligations ("CMOs"), which provide the holder with a specified
interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. Issuers of CMOs ordinarily elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways.
There are risks inherent in the purchase of mortgage-backed securities.
For example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these securities
are subject to the risk that prepayment on the underlying mortgages will occur
earlier or later or at a lessor or greater rate than expected. To the extent
that Lyon Street's assumptions about prepayments are inaccurate, these
securities may expose the Funds to significantly greater market risks than
expected.
MORTGAGE DOLLAR ROLLS (The Bond Funds, Municipal Bond Funds and Money Market
Funds only)
The Bond Funds, Municipal Bond Funds and Money Market Funds may enter
into mortgage dollar rolls in which a Fund sells securities for delivery and
simultaneously contract with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. When a Fund enters into mortgage dollar rolls, the Fund will hold and
maintain in a segregated account until the settlement date cash or other liquid
assets in an amount equal to the forward purchase price. The Funds benefit to
the extent of any difference between the price received for the securities sold
and the lower forward price for the future purchase (often referred to as the
"drop") plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of the Funds compared with what such performance would have been without the use
of mortgage dollar rolls. The benefits derived from the use or mortgage dollar
rolls may depend upon Lyon Street's ability to predict correctly mortgage
prepayments and interest rates. There is no assurance that mortgage dollar rolls
can be successfully employed. For financial reporting and tax purposes, the
Funds treat mortgage dollar rolls as two separate transactions: one involving
the purchase of a security and a separate transaction involving a sale. The
Funds do not currently intend to enter into mortgage dollar rolls that are
accounted for as financings and do not treat them as borrowings.
ASSET-BACKED SECURITIES (The Bond Funds, Municipal Bond Funds and Money Market
Funds only)
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The Bond Funds, Municipal Bond Funds and Money Market Funds may
purchase asset-backed securities, which are securities backed by installment
contracts, credit card receivables or other assets. Asset-backed securities
represent interests in "pools" of assets in which payments of both interest and
principal on the securities are made monthly, thus in effect "passing through"
monthly payments made by the individual borrowers on the assets that underlie
the securities, net of any fees paid to the issuer or guarantor of the
securities. The average life of asset-backed securities varies with the
maturities of the underlying instruments, and is likely to be substantially less
than the original maturity of the assets underlying the securities as a result
of prepayments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of a security interest in the underlying collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
CERTAIN DERIVATIVE SECURITIES (The Bond Funds and Municipal Bond Funds only)
The Bond Funds and Municipal Bond Funds may invest in structured notes,
bonds or other instruments with interest rates that are determined by reference
to changes in the value of other interest rates, indices or financial indicators
("References") or the relative change in two or more References. Such Funds also
may hold derivative instruments that have interest rates that reset inversely to
changing current market rates and/or have embedded interest rate floors and caps
that require the issuer to pay an adjusted interest rate if market rates fall
below or rise above a specified rate. These instruments represent relatively
recent innovations in the bond markets, and the trading market for these
instruments is less developed than the markets for traditional types of debt
instruments. It is uncertain how these instruments will perform under different
economic and interest-rate scenarios. Because certain of these instruments are
leveraged, their market values may be more volatile than other types of bonds
and may present greater potential for capital gain or loss. On the other hand,
the embedded option features of other derivative instruments could limit the
amount of appreciation a Fund can realize on its investment, could cause a Fund
to hold a security it might otherwise sell or could force the sale of a security
at inopportune times or for prices that do not reflect current market value. The
possibility of default by the issuer or the issuer's credit provider may be
greater for these structured and derivative instruments than for other types of
instruments. In some cases it may be difficult to determine the fair value of a
structured or derivative instrument because of a lack of reliable objective
information and an established secondary market for some instruments may not
exist. With respect to purportedly tax-exempt derivative securities, in many
cases the Internal Revenue Service has not ruled on whether the interest
received on such securities is in fact free from federal income taxes. Purchases
of such securities by the Municipal Bond Funds are therefore based on the
opinion of counsel to the sponsors of the security.
MUNICIPAL OBLIGATIONS (The Bond Funds, Municipal Bond Funds and Money Market
Funds only)
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The Bond Funds, Municipal Bond Funds and Money Market Funds may invest
in Municipal Obligations. The two principal classifications of municipal
obligations which the Funds may hold are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are generally payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of the facility being financed. Private activity bonds (e.g., bonds
issued by industrial development authorities) are issued by or on behalf of
public authorities to finance various privately-operated facilities. Private
activity bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Additionally, the principal and interest on
these obligations may or may not be payable from the general revenue of the
users of the facilities involved. The credit quality of private activity bonds
is usually directly related to the credit standing of the corporate user of the
facility involved. The Funds may also purchase "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular Federal income tax and, in the case
of Michigan municipal obligations, Michigan state personal income tax, are
rendered by counsel to the respective issuing authorities at the time of
issuance. Such opinions may contain various assumptions, qualifications or
exceptions that are reasonably acceptable to Lyon Street. Neither the Trust nor
Lyon Street will review the proceedings relating to the issuance of municipal
obligations or the bases for such opinions.
An issuer's responsibilities under its municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal Bankruptcy Code, and laws,
if any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its municipal obligations may be
materially adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal obligations. For example, under the Tax Reform Act of 1986
interest on certain private activity bonds must be included in an investor's
Federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their Federal alternative minimum taxable income. The
Trust cannot predict what legislation, if any, may be proposed in the future in
Congress as regards the federal income tax status of interest on municipal
obligations or which proposals, if any, might be enacted. Such proposals, if
enacted, might materially adversely affect the availability of municipal
obligations and a Fund's liquidity and value. In such an event the Board of
Trustees would reevaluate the Funds' investment objectives and policies and
consider changes in their structure or possible dissolution.
Certain of the municipal obligations held by a Fund may be insured as
to the timely payment of principal and interest. The insurance policies will
usually be obtained by the issuer of the municipal obligations at the time of
its original issuance. In the event that the issuer defaults on an interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders.
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There is, however, no guarantee that the insurer will meet its obligations. In
addition, such insurance will not protect against market fluctuations caused by
changes in interest rates and other factors. The Municipal Funds may invest more
than 25% of their assets in municipal obligations covered by insurance policies.
The Funds also may purchase municipal obligations known as
"certificates of participation" which represent undivided proportional interests
in lease payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by applicable municipal charter
provisions or the nature of the appropriation for the lease. In particular,
lease obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be compelled
to make such payments. Furthermore, a lease may or may not provide that the
certificate trustee can accelerate lease obligations upon default. If the
trustee could not accelerate lease obligations upon default, the trustee would
only be able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the trustee would be
able to obtain an acceptable substitute source of payment. Certificates of
participation are generally subject to redemption by the issuing municipal
entity under specified circumstances. If a specified event occurs, a certificate
is callable at par either at any interest payment date or, in some cases, at any
time. As a result, certificates of participation are not as liquid or marketable
as other types of municipal obligations and are generally valued at par or less
than par in the open market. Municipal leases may be considered liquid, however,
under guidelines established by the Trust's Board of Trustees. The guidelines
will provide for determination of the liquidity and proper valuation of a
municipal lease obligation based on factors including the following: (1) the
frequency of trades and quotes for the obligation; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) the willingness of dealers to undertake to make a market in the
security; and (4) the nature of the marketplace trades, including the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer. Lyon Street, under the supervision of the Trust's Board
of Trustees, will also consider the continued marketability of a municipal lease
obligation based upon an analysis of the general credit quality of the
municipality issuing the obligation and the essentiality to the municipality of
the property covered by the lease.
STANDBY COMMITMENTS (The Municipal Funds only)
The Municipal Funds may enter into standby commitments with respect to
municipal obligations held by them. Under a standby commitment, a dealer agrees
to purchase at a Fund's option a specified municipal obligation at its amortized
cost value to the Fund plus accrued interest, if any. Standby commitments may be
exercisable by a Fund at any time before the maturity of the underlying
municipal obligations and may be sold, transferred or assigned only with the
instruments involved.
The Funds expect that standby commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Funds may pay for a standby commitment either
separately in cash or by paying a higher price for municipal obligations which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities).
The Funds intend to enter into standby commitments only with dealers,
banks and broker-dealers which, in Lyon Street's opinion, present minimal credit
risks. The Funds will acquire standby commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. Standby commitments will be valued at zero in determining net asset
value of a Fund. Accordingly, where a Fund pays directly or indirectly for a
standby commitment, its cost will be
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reflected as unrealized depreciation for the period during which the commitment
is held by the Fund and will be reflected in realized gain or loss when the
commitment is exercised or expires.
WARRANTS (The Equity Funds only)
The Equity Funds may purchase warrants and similar rights, which
entitle the holder to subscribe to and purchase a specified number of equity
securities at a specified price during a specified period of time. The purchase
of warrants involves the risk that a Fund could lose the purchase value of a
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
FOREIGN SECURITIES
The International Growth Fund intends to invest primarily in the
securities of foreign issuers. In addition, the Large Company Growth Fund and
the Growth and Income Fund may invest up to 10% of their total assets in such
securities. These obligations may be issued by supranational entities, including
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and internal banking institutions
and related government agencies. As noted under "Detailed Description of
Investment Vehicles and Potential Risks - Money Market Instruments," all of the
Funds may invest in certain obligations of foreign banks and foreign branches of
domestic banks.
Investment in foreign securities involves special risks. The
performance of investments in securities denominated in a foreign currency will
depend on the strength of the foreign currency against the U.S. dollar and the
interest rate environment in the country issuing the currency. Absent other
events which could otherwise affect the value of a foreign security (such as a
change in the political climate or an issuer's credit quality), appreciation in
the value of the foreign currency increases the value of a foreign
currency-denominated security in terms of U.S. dollars. A rise in foreign
interest rates or decline in the value of the foreign currency relative to the
U.S. dollar generally can be expected to depress the value of a foreign
currency-denominated security.
There are other risks and costs involved in investing in foreign
securities which are in addition to the usual risks inherent in domestic
investments. Investment in foreign securities involves higher costs than
investment in U.S. securities, including higher transaction and custody costs as
well as the imposition of additional taxes by foreign governments. Foreign
investments also involve risks associated with the level of currency exchange
rates, less complete financial information about the issuers, less market
liquidity, more market volatility and political instability. Future political
and economic developments, the possible imposition of withholding taxes on
dividend income, the possible seizure or nationalization of foreign holdings,
the possible establishment of exchange controls, or the adoption of other
governmental restrictions might adversely affect an investment in foreign
securities. With respect to securities issued by foreign governments, such
governments may default on their obligations, may not respect the integrity of
such debt, may attempt to renegotiate the debt at a lower rate, and may not
honor investments by United States entities or citizens.
Although the Large Company Growth Fund, the Growth and the Income Fund
and the International Growth Fund may invest in securities denominated in
foreign currencies, their portfolio securities and other assets are valued in
U.S. dollars. Currency exchange rates may fluctuate significantly
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over short periods of time causing, together with other factors, a Fund's net
asset value to fluctuate as well. Currency exchange rates generally are
determined by the forces of supply and demand in the foreign exchange markets
and the relative merits of investments in different countries, actual or
anticipated changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by the intervention or the failure to intervene by U.S. or foreign
governments or central banks, or by currency controls or political developments
in the U.S. or abroad. The Funds are also subject to the possible imposition of
exchange control regulations or freezes on convertibility of currencies.
Dividends and interest payable on a Fund's foreign portfolio securities
may be subject to foreign withholding taxes. To the extent such taxes are not
offset by credits or deductions allowed to investors under U.S. federal income
tax law, they may reduce the net return to the shareholders.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States. For example, there may
be no comparable provisions under certain foreign laws to insider trading and
similar investor protection securities laws that apply with respect to
securities transactions consummated in the United States. Mail service between
the United States and foreign countries may be slower or less reliable than
within the United States, thus increasing the risk of delayed settlement of
portfolio transactions or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when some of a Fund's assets are uninvested and no return
is earned on such assets. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio securities or, if the Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
AMERICAN DEPOSITARY RECEIPTS (The Equity Funds only)
The Equity Funds may invest in American Depositary Receipts ("ADRs").
ADRs are receipts typically issued by a United States bank or trust company
evidencing ownership of underlying foreign securities and are denominated in
U.S. dollars. ADRs traded in the over-the-counter market, which do not have an
active or substantial secondary market, will be considered illiquid and
therefore will be subject to the Funds' respective limitations with respect to
such securities. Investments in ADRs involve risks similar to those accompanying
direct investments in foreign securities.
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Some institutions issuing ADRs may not be sponsored by the issuer. If a
Fund invests in an unsponsored ADR, there may be less information available to
the Fund concerning the issuer of the securities underlying the unsponsored ADR
than is available for an issuer of securities underlying a sponsored ADR. A
non-sponsored depository may not provide the same shareholder information that a
sponsored depository is required to provide under its contractual arrangement
with the issuer. Certain of these risks are described above under "Detailed
Description of Investment Vehicles and Potential Risks - Foreign Securities."
FOREIGN CURRENCY TRANSACTIONS (The International Growth Fund only)
In order to protect against a possible loss on investments resulting
from a decline in the value of a particular foreign currency against the U.S.
dollar or another foreign currency, the International Growth Fund is authorized
to enter into forward currency exchange contracts. A forward currency exchange
contract is an obligation to purchase or sell a specific currency, or a "basket"
of currencies, at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
contract. Although the contracts may be used to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of such
currency increase. The Fund may also engage in cross-hedging by using forward
currency exchange contracts in one currency to hedge against fluctuations in the
value of securities denominated in a different currency if Lyon Street believes
that there is a pattern of correlation between the two currencies.
The Fund may enter into forward currency exchange contracts in several
circumstances. When entering into a contract for the purchase or sale of a
security, the Fund may enter into a forward currency exchange contract for the
amount of the purchase or sale price to protect against variations, between the
date the security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
When Lyon Street anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, the Fund may enter into a forward contract to sell, for
a fixed amount, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. Similarly,
when the securities held by the Fund create a short position in a foreign
currency, the Fund may enter into a forward contract to buy, for a fixed amount,
an amount of foreign currency approximating the short position. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is entered
into and the date it matures. While forward contracts may offer protection from
losses resulting from declines in the value of a particular foreign currency,
they also limit potential gains which might result from changes in the value of
such currency. The Fund will also incur costs in connection with forward foreign
currency exchange contracts and conversions of foreign currencies and U.S.
dollars.
A separate account consisting of cash, U.S. Government securities or
other liquid securities, equal to the amount of the Fund's assets that could be
required to consummate forward contracts will be established with the Fund's
custodian except to the extent the contracts are otherwise "covered." For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be marked to market. If the value of such securities
declines, additional cash or securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
Fund. A forward contract to sell a foreign currency is "covered"
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if the Fund owns the currency (or securities denominated in the currency)
underlying the contract, or holds a forward contract (or call option) permitting
the Fund to buy the same currency at a price no higher than the Fund's price to
sell the currency. A forward contract to buy a foreign currency is "covered" if
a Fund holds a forward contract (or put option) permitting the Fund to sell the
same currency at a price as high as or higher than the Fund's price to buy the
currency.
While a Fund may enter into forward contract to reduce currency
exchange rate risks, transaction in such contracts involve certain other risks.
Thus, while a Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be an imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Forward contracts are subject to the risk that the
counterparty to such contract will default on its obligations. Since a forward
foreign currency exchange contract is not guaranteed by an exchange or clearing
house, a default on the contract would deprive a Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to cover
its purchase or sale commitments, if any, at the current market price. A Fund
will not enter into such transactions unless the credit quality of the unsecured
senior debt or the claims-paying ability of the counterparty is considered to be
investment grade by Lyon Street.
CURRENCY SWAPS (The International Growth Fund only)
The International Growth Fund may also enter into currency swaps for
hedging purposes or to increase total return. Currency swaps involve the
exchange of the rights of the Fund and another party to make or receive payments
in specific currencies. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each currency swap will be
accrued on a daily basis and an amount of liquid assets, such as cash, U.S.
Government securities or other liquid securities, having an aggregate net asset
value at least equal to such accrued excess will be maintained in segregated
accounts by the Trust's custodian. Inasmuch as these transactions are entered
into for good faith hedging purposes, Lyon Street believe that such obligations
do not constitute senior securities as defined in the 1940 Act and, accordingly,
will not treat them as being subject to the Fund's borrowing restrictions.
The use of currency swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If Lyon Street is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique was not used.
The Fund will not enter into a currency swap unless the unsecured
commercial paper, senior debt or the claims-paying ability of the other party
thereto is rated either A or A-1 or better by S&P or Moody's. If there is a
default by the other party to such transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction.
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OPTIONS (The Equity, Bond and Municipal Bond Funds only)
The above-referenced Funds may buy put and call options and write
covered call and secured put options. Such options may relate to particular
securities, indices, financial instruments or foreign currencies, and may or may
not be listed on a domestic or foreign securities exchange and may or may not be
issued by the Options Clearing Corporation. Options trading is a highly
specialized activity which entails greater than ordinary investment risk.
Options may be more volatile than the underlying instruments, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying instruments themselves. A Fund
will not purchase put or call options where the aggregate premiums on
outstanding options exceed 5% of the Fund's net assets and will not write
options on more than 25% of the value of its net assets.
A call option for a particular security gives the purchaser of the
option the right to buy, and a writer has the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligation under the option
contract. A put option for a particular security gives the purchaser the right
to sell the security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
Options on indices provide the holder with the right to make or receive a cash
settlement upon exercise of the option. With respect to options on indices, the
amount of the settlement will equal the difference between the closing price of
the index at the time of exercise and the exercise price of the option expressed
in dollars, times a specified multiple.
The Funds will write call options only if they are "covered." In the
case of a call option on a security or currency, the option is "covered" if a
Fund owns the instrument underlying the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid securities, in such amount are held in a segregated account by the
Fund's custodian) upon conversion or exchange of other securities held by it.
For a call option on an index, the option is covered if a Fund maintains with
its custodian a diversified portfolio of securities comprising the index or
liquid assets equal to the contract value. A call option is also covered if a
Fund holds a call on the same instrument or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian. The Funds will write put options only if
they are secured by liquid assets maintained in a segregated account by the
Funds' custodian in an amount not less than the exercise price of the option at
all times during the option period.
A Fund's obligation to sell an instrument subject to a covered call
option written by it, or to purchase an instrument subject to a secured put
option written by it, may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying instrument, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding option, to prevent an underlying instrument from being
called, to permit the sale of the underlying instrument or to permit the writing
of a new option containing different terms on such underlying instrument. The
cost of such a liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An
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option writer, unable to effect a closing purchase transaction, will not be able
to sell the underlying instrument (in the case of a covered call option) or
liquidate the segregated account (in the case of a secured put option) until the
option expires or the optioned instrument or currency is delivered upon exercise
with the result that the writer in such circumstances will be subject to the
risk of market decline or appreciation in the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as
an asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised, the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund will realize a gain if the premium received by the
Fund on the closing transaction is more than the premium paid to purchase the
option, or a loss if it is less. If an option written by a Fund expires on the
stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by a Fund is exercised, the proceeds of the sale will be increased by the net
premium originally received and the Fund will realize a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities or currencies; unusual or unforeseen circumstances may interrupt
normal operations on an exchange; the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
value; or one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
FUTURES CONTRACTS AND RELATED OPTIONS (The Equity, Bond and Municipal Bond Funds
only)
The Equity, Bond and Municipal Bond Funds may also purchase futures
contracts, which are contracts in which a Fund agrees, at maturity, to take or
make delivery of certain securities, other financial instruments, the cash value
of a specified index or, in the case of the International Growth Fund, a stated
quantity of foreign currency. The Equity, Bond and Municipal Bond Funds may also
purchase and sell put and call options on futures contracts traded on an
exchange or board of trade. Futures may be used for hedging purposes or to
provide liquid assets. A Fund will not enter into a futures contract unless
immediately after any such transaction the aggregate amount of margin deposits
on its existing futures positions plus premiums paid for related options is less
than 5% of the Fund's net assets. For a detailed description of futures
contracts and related options, see Appendix C to this SAI.
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ILLIQUID SECURITIES
The Funds will not invest more than 15% (10% in the case of the Money
Market Funds) of the value of their net assets in illiquid securities. Illiquid
investments are investments that cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the price at which they
are valued. Illiquid investments generally include: repurchase agreements not
terminable within seven days; securities for which market quotations are not
readily available; restricted securities not determined to be liquid in
accordance with guidelines established by the Trust's Board of Trustees;
over-the-counter (OTC) options and, in certain instances, their underlying
collateral; and securities involved in swap, cap, collar and floor transactions
RESTRICTED SECURITIES.
Each Fund may purchase restricted securities. Restricted securities are
securities with legal or contractual restrictions on resale.
Restricted securities include securities that are not registered under
the 1933 Act but that may be purchased by institutional buyers under Rule 144A
or Section 4(2). Rule 144A and Section 4(2) allow for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A and Section 4(2) establish a safe harbor from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Lyon Street believes that the market for certain
restricted securities such as institutional commercial paper may expand further
as a result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
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Lyon Street may determine securities eligible for resale pursuant to
Rule 144A of the Securities Act of 1933 or commercial paper issued in reliance
upon the exemption from registration contained in Section 4(2) of that Act to be
liquid in accordance with guidelines established by the Board of Trustees. In
reaching liquidity decisions, Lyon Street will consider such factors as: (a) the
frequency of trades and quotes for the security; (b) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (c) the willingness of dealers to undertake to make a market in the
security; and (d) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer). The use of Rule 144A and
Section 4(2) transactions could have the effect of increasing the level of
illiquidity in the Funds during any period that qualified institutional buyers
become uninterested in purchasing these restricted securities.
SECURITIES LENDING
A Fund may lend its portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. Such loans will not be made by a Fund if,
as a result, the aggregate of all outstanding loans of the Fund exceeds
one-third of the value of its total assets (including the value of the
collateral received for the loan). There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by Lyon Street to be of good
standing and when, in Lyon Street's judgment, the income to be earned from the
loan justifies the attendant risks.
Collateral for loans of portfolio securities made by a Fund may consist
of cash, securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, irrevocable bank letters of credit or any other liquid
high-grade short-term instrument approved for use as collateral by the
Securities and Exchange Commission (or any combination thereof). The borrower of
securities will be required to maintain the market value of the collateral at
not less than the market value of the loaned securities, and such value will be
monitored on a daily basis. When a Fund lends its securities, it continues to
receive dividends and interest on the securities loaned and may simultaneously
earn interest on the investment of the cash collateral. Although voting rights,
or rights to consent, attendant to securities on loan pass to the borrower, such
loans will be called so that the securities may be voted by a Fund if a material
event affecting the investment is to occur.
CONVERTIBLE SECURITIES (The Large Company Growth Fund, The Growth and Income
Fund and The Bond Funds only)
Convertible securities entitle the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
securities mature or are redeemed, converted or exchanged. Prior to conversion,
convertible securities have characteristics similar to ordinary debt securities
in that they normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore generally entail less risk than the corporation's common stock,
although the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
In selecting convertible securities, Lyon Street will consider, among
other factors, the creditworthiness of the issuers of the securities; the
interest or dividend income generated by the securities; the potential for
capital appreciation of the securities and the underlying common stocks; the
prices of the securities relative to other comparable securities and to the
underlying common stocks;
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wether the securities are entitled to the benefits of sinking funds or other
protective conditions; diversification of a Fund's portfolio as to issuers; and
whether the securities are rated by a rating agency and, if so, the ratings
assigned.
The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.
INVESTMENT COMPANIES
Each Fund may invest in securities issued by other investment
companies, including, but not limited to, money market investment companies,
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, a Fund would bear, along with other shareholders, its pro
rata portion of the expenses of such other investment company, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that a Fund bears directly in connection with its own operations, and
may represent a duplication of fees to shareholders of a Fund.
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Each Fund may also invest in Standard & Poor's Depositary Receipts
("SPDRs"). SPDRs are interests in a unit investment trust ("UIT") that may be
obtained from the UIT or purchased in the secondary market (SPDRs are listed on
the American Stock Exchange). The UIT will issue SPDRs in aggregations known as
"Creation Units" in exchange for a "Portfolio Deposit" consisting of (a) a
portfolio of securities substantially similar to the component securities
("Index Securities") of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P Index"), (b) a cash payment equal to a pro rata portion of the
dividends accrued on the UIT's portfolio securities cine the last dividend
payment by the UIT, net of expenses and liabilities, and (c) a cash payment or
credit ("Balancing Amount") designed to equalize the net asset value of the S&P
Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, the Fund must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the Fund
will receive Index Securities and Cash identical to the Portfolio Deposit
required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held
by the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basked to stocks. Disruption in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs.
The Funds may also purchase shares of investment companies investing
primarily in foreign securities, including "country funds." Country funds have
portfolios consisting primarily of securities of issuers located in one foreign
country or region. The Funds may also invest in World Equity Benchmark Shares
("WEBS") and similar securities that invest in securities included in foreign
securities indices.
YIELDS AND RATINGS
The yields on certain obligations, including the money market
instruments in which a Fund may invest, are dependent on a variety of factors,
including general economic conditions, conditions in the particular market for
the obligation, financial condition of the issuer, size of the offering,
maturity of the obligation and ratings of the issue. The ratings of an NRSRO
represent its opinion as to the quality of the obligations it undertakes to
rate. Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices.
After its purchase by a Fund, a rated security may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by the
Fund. Lyon Street will consider such an event in determining whether the Fund
should continue to hold the security. For a description of applicable securities
ratings, see Appendix A.
MISCELLANEOUS
The Funds are not restricted by policy with regard to portfolio
turnover and will make changes in their investment portfolios from time to time
as business and economic conditions as well as market prices may dictate.
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The Equity Funds may acquire corporate debt securities as a consequence of
distributions that are made to holders of equity securities by certain
corporations. The Equity Funds do not intend to hold such debt securities for
investment purposes but, rather, will liquidate their holdings in such
securities at an appropriate time following receipt.
INVESTMENT RESTRICTIONS
The following investment restrictions include those that have been
designated as "fundamental," which may not be changed with respect to a Fund
without the vote of a majority of the Fund's outstanding shares (as defined in
"Declaration of Trust - Voting Rights"), and those that have been designated as
"non-fundamental," which may be changed without shareholder approval. If a
percentage limitation is satisfied at the time of investment, a later increase
in such percentage resulting from a change in the value of a Fund's assets will
not constitute a violation of the limitation. Unless otherwise stated, each
restriction applies to all Funds.
The following investment restrictions are fundamental:
A Fund may not:
(1) Purchase any security (other than obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) of any issuer if as a
result more than 5% of its total assets would be invested in securities of the
issuer, except that up to 25% of its total assets may be invested without regard
to this limit;
(2) Borrow money, which includes entering into reverse repurchase
agreements, except that a Fund may enter into reverse repurchase agreements or
borrow money from banks for temporary or emergency purposes in aggregate amounts
up to one-third of the value of the Fund's net assets; provided that while
borrowings from banks exceed 5% of a Fund's net assets, any such borrowings and
reverse repurchase agreements will be repaid before additional investments are
made;
(3) Pledge more than 15% of its net assets to secure indebtedness; the
purchase or sale of securities on a "when issued" basis, or collateral
arrangements with respect to the writing of options on securities, are not
deemed to be a pledge of assets;
(4) Issue senior securities; the purchase or sale of securities on a
"when issued" basis, or collateral arrangements with respect to the writing of
options on securities, are not deemed to be the issuance of a senior security;
(5) Make loans, except that a Fund may purchase or hold debt securities
consistent with its investment objective, lend Fund securities valued at not
more than 33 1/3% of its total assets to brokers, dealers and financial
institutions, and enter into repurchase agreements;
(6) With respect to each Fund, other than the Municipal Funds, purchase
any security of any issuer if as a result more than 25% of its total assets
would be invested in a single industry; except that there is no restriction with
respect to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
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(7) With respect to the Municipal Funds, purchase any security (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) of any issuer if as a result more than 25% of its total
assets would be invested in a single industry, including industrial development
bonds from the same facility or similar types of facilities if backed solely by
non-governmental users; governmental issuers of municipal bonds are not regarded
as members of an industry, and the Michigan Municipal Bond Fund and the Michigan
Municipal Money Market Fund may invest more than 25% of its assets in industrial
development bonds;
(8) Purchase or sell commodities or commodity contracts or real estate,
except a Fund may purchase and sell securities secured by real estate and
securities of companies which deal in real estate and may engage in currency or
other financial futures contracts and related options transactions;
(9) Underwrite securities of other issuers, except that a Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective; or
(10) With respect to the Equity Funds, purchase any security (other
than U.S. Government securities) of any issuer if as a result the Fund would
hold more than 10% of the voting securities of the issuer.
The following investment restrictions are "non-fundamental" and may be
changed with respect to a Fund without shareholder approval:
A Fund may not:
(1) Purchase securities on margin, except that it may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of securities;
(2) Invest more than 15% of its total assets (10% of total assets for
the Money Market Funds) in (i) securities with legal or contractual restrictions
on resale; (ii) securities for which market quotations are not readily
available; and (iii) repurchase agreements maturing in more than seven days;
(3) Invest more than 5% of its total assets in securities of any
company having a record, together with its predecessors, of less than three
years of continuous operation except that each of the Small Company Growth Fund
and the International Growth Fund may invest up to 10% of its total assets in
such companies;
(4) Make short sales of securities or maintain a short position unless
at all times when a short position is open it owns an equal amount of such
securities or of securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short; or
(5) Invest in the securities of other investment companies except as
permitted by the Investment Company Act of 1940, as amended, or the rules
promulgated thereunder.
With respect to Non-fundamental Investment Restriction (2), the Funds
currently intend to limit investment in illiquid securities to no more than 15%
(10% for the Money Market Funds) of each Fund's respective net assets. With
respect to fundamental Investment Restriction (7), examples of types of
facilities using industrial development bonds purchased by the Municipal Funds
include water treatment plants, educational and hospital facilities.
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<PAGE> 93
In order to comply with Securities and Exchange Commission regulations
relating to money market funds, the Money Market Funds will limit investments in
the securities of any single issuer (other than securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements collateralized by such securities) to not more than 5% of the value
of their total assets at the time of purchase, except for 25% of the value of
their total assets which, in the case of the Michigan Municipal Money Market
Fund, may be invested without regard to the 5% limit in "First Tier Securities"
(as defined by the Securities and Exchange Commission), and, in the case of the
Money Market Fund and the Government Money Market Fund, may be invested in First
Tier Securities of any one issuer for a period of up to three business days. In
addition, no Money Market Fund will purchase or sell options or futures as
provided in fundamental Investment Restrictions (3), (4) and (8), nor will the
Money Market Funds borrow money, pursuant to fundamental Investment Restriction
(2), in excess of 10% of their total assets. With respect to fundamental
Investment Restrictions (6) and (7), the Money Market Funds are permitted to
invest in excess of 25% of their total assets in obligations of U.S. banks and
domestic branches of foreign banks that are subject to the same regulation as
U.S. banks.
SECURITIES TRANSACTIONS
Lyon Street, under policies established by the Board of Trustees,
selects broker-dealers to execute transactions for the Funds. It is the policy
of the Trust, in effecting transactions in portfolio securities, to seek best
price and execution of orders. The determination of what may constitute best
price and execution in the execution of a transaction by a broker involves a
number of considerations, including, without limitation, the overall direct net
economic result to a Fund, involving both price paid or received and any
commissions and other costs paid, the breadth of the market where the
transaction is executed, the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a large block is involved,
the availability of the broker to stand ready to execute potentially difficult
transactions in the future and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by Lyon Street in
determining the overall reasonableness of brokerage commissions paid. In
determining best price and execution and selecting brokers to execute
transactions, Lyon Street may consider brokerage and research services, such as
analyses and reports concerning issuers, industries, securities, economic
factors and trends, and other statistical and factual information provided to a
Fund. Lyon Street is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a Fund's transactions
which is in excess of the amount of commission another broker-dealer would have
charged for effecting that transaction if, but only if, Lyon Street determines
in good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer viewed in
terms of that particular transaction or the overall responsibilities of Lyon
Street to the Funds. Any such research and other statistical and factual
information provided by brokers to a Fund or Lyon Street is considered to be in
addition to and not in lieu of services required to be performed by Lyon Street
under its Investment Advisory Agreement with the Trust. The cost, value and
specific application of such information are indeterminable and hence are not
practicably allocable among the Trust and other clients of Lyon Street who may
indirectly benefit from the availability of such information. Similarly, the
Trust may indirectly benefit from information made available as a result of
transactions effected for such other clients.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of a transaction may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed. Over-the-counter issues, including corporate debt and government
securities, are normally traded on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. With respect to over-the-counter transactions, Lyon
30
<PAGE> 94
Street will normally deal directly with dealers who make a market in the
instruments involved except in those circumstances where more favorable prices
and execution are available elsewhere. The cost of newly issued securities
purchased from underwriters includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. Each Fund may participate, if and when
practicable, in group bidding for the purchase of certain securities directly
from an issuer in order to take advantage of the lower purchase price available
to members of such a group.
Neither Lyon Street nor the Funds intend to place securities
transactions with any particular broker-dealer or group thereof. However, the
Trust's Board of Trustees has determined that each Fund may follow a policy of
considering sales of the Funds' shares as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to the requirements of
best price and execution described above. The policy of each Fund with respect
to brokerage is and will be reviewed by the Trust's Board of Trustees from time
to time. Because of the possibility of further regulatory developments affecting
the securities exchanges and brokerage practices generally, the foregoing
practices may be changed, modified or eliminated.
Lyon Street expects that purchases and sales of securities for the
Equity Funds usually will be effected through brokerage transactions for which
commissions are payable. Lyon Street expects that purchases and sales of
municipal bonds and other debt instruments for the Bond Funds, Municipal Bond
Funds and Money Market Funds usually will be principal transactions. Municipal
bonds and other debt instruments are normally purchased directly from the issuer
or from an underwriter or market maker for the securities. There usually will be
no brokerage commissions paid by the Funds for such purchases.
For the fiscal years ended December 31, 1997, 1998 and 1999, the
following Funds paid commissions in the amounts indicated: $1,400,322, $324,798
and $267,981, respectively, for the Growth and Income Fund; $235,105, $124,194
and $136,465, respectively, for the Index Equity Fund; $710,902, $1,349,232 and
$743,229, respectively, for the Small Company Growth Fund; and $234,749,
$419,688 and $264,769, respectively, for the International Growth Fund. The
Large Company Growth Fund paid commissions in the amount of $88,948 for the
period ended December 31, 1999. The decrease in the amount of brokerage
commissions paid by the Growth and Income Fund, the Small Company Growth Fund
and the International Growth Fund is attributable to a decrease in each Fund's
portfolio turnover. No other Fund paid brokerage commissions during the last
three fiscal years. No Fund paid any brokerage commissions to an affiliated
broker of the Trust.
Investment decisions for each Fund are made independently by Lyon
Street from those of the other Funds and investment accounts advised by Lyon
Street. It may frequently develop that the same investment decision is made for
more than one Fund or account. Simultaneous transactions are inevitable when the
same security is suitable for the investment objective of more than one Fund or
account. When two or more Funds or accounts are engaged in the purchase or sale
of the same security, the transaction is allocated as to amount in accordance
with a formula which Lyon Street believes is equitable to each Fund or account.
It is recognized that in some cases this system could have a detrimental effect
on the price or volume of the security as far as a particular Fund is concerned.
To the extent permitted by law, Lyon Street may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for another Fund
or account.
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<PAGE> 95
In no instances will securities held by a Fund be purchased from or
sold to Lyon Street, the Trust's Distributor or any of their "affiliated
persons," as defined in the 1940 Act, except as may be permitted by any
applicable regulatory exemption or exemptive order.
As of December 31, 1999, the following Funds owned securities of the
Trust's regular broker-dealers.
<TABLE>
<CAPTION>
Fund Name of Broker-Dealer Type of Security Amount
<S> <C> <C> <C>
Growth and Income Fund Donaldson, Lufkin & Jenrette Equity $ 2,778
Morgan Stanley & Co. Equity $ 9,451
Merrill Lynch & Co. Equity $ 3,524
Federated Prime Value Obligations Fund Debt $ 34,063
Index Equity Fund Merrill Lynch & Co. Equity $ 2,280
Morgan Stanley, Dean Witter & Co. Equity $ 5,855
Bear Stearns Co., Inc. Equity $ 393
Lehman Brothers, Inc. Equity $ 762
Donaldson, Lufkin & Jenrette Equity $ 5,015
Federated Prime Value Obligations Fund Debt $ 14,345
Dreyfus Cash Management Fund Debt $ 450
Large Company Growth Fund Morgan Stanley & Co. Equity $ 1,113
Merrill Lynch & Co. Equity $ 459
Dreyfus Cash Management Fund Debt $ 2,513
Federated Prime Value Obligations Fund Debt $ 9,520
Small Company Growth Fund Donaldson, Lufkin & Jenrette Equity $ 1,913
Federated Prime Value Obligations Fund Debt $ 23,360
International Growth Fund Federated Prime Value Obligations Fund Debt $ 16,615
Donaldson, Lufkin & Jenrette Equity $ 1,842
Income Fund Donaldson, Lufkin & Jenrette Debt $ 6,822
Lehman Brothers, Inc. Debt $ 5,219
Dreyfus Cash Management Fund Debt $ 1,698
Federated Prime Value Obligations Fund Debt $ 4,741
</TABLE>
32
<PAGE> 96
<TABLE>
<S> <C> <C> <C>
Intermediate Bond Fund Goldman Sachs Group Debt $ 2,790
Dreyfus Cash Management Debt $ 17,242
Donaldson, Lufkin & Jenrette Debt $ 12,160
Federated Prime Value Obligations Fund Debt $ 19,068
Short Term Bond Fund Merrill Lynch & Co. Debt $ 5,970
Morgan Stanley, Dean Witter & Co. Debt $ 5,970
Donaldson, Lufkin & Jenrette Debt $ 2,250
Dreyfus Cash Management Fund Debt $ 1,394
Federated Prime Value Obligations Fund $ 2,026
Tax-Free Income Fund Dreyfus Tax Exempt Fund Debt $ 451
Intermediate Tax-Free Fund Dreyfus Tax Exempt Fund Debt $ 1,297
Michigan Municipal Bond Fund Dreyfus Tax Exempt Fund Debt $ 673
Money Market Fund Dreyfus Cash Management Fund Debt $ 59,484
Federated Prime Value Obligations Fund Debt $ 3,956
Government Money Market Fund Donaldson, Lufkin & Jenrette Debt $ 5,000
Federated Treasury Fund Debt $ 22,543
Michigan Municipal Money Market Fund Dreyfus Tax Exempt Fund Debt $ 95
Federated Tax Exempt Fund Debt $ 1,031
</TABLE>
VALUATION OF SECURITIES
MONEY MARKET FUNDS
As stated in the prospectus, the Money Market Funds seek to maintain a
net asset value of $1.00 per share and, in this connection, value their
instruments on the basis of amortized cost pursuant to Rule 2a-7 under the 1940
Act. This method values a security at its cost on the date of purchase and
thereafter assumes a constant accretion or amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Fund would receive if the
Fund sold the instrument. During such periods the yield to investors in the Fund
may differ somewhat from that obtained in a similar entity which uses available
indications as to market value to value its portfolio instruments. For example,
if the use of amortized cost resulted in a lower (higher) aggregate Fund value
on a particular day, a prospective investor in the Fund would be able to obtain
a somewhat higher (lower) yield and ownership interest than would result from
investment in such similar entity and existing investors would receive less
(more) investment income and ownership interest. However, the Trust expects that
the procedures and limitations referred to in the following paragraphs of this
section will tend to minimize the differences referred to above.
Under Rule 2a-7, the Trust's Board of Trustees, in supervising the
Money Market Funds' operations and delegating special responsibilities involving
portfolio management to Lyon Street, has established procedures that are
intended, taking into account current market conditions and the Funds'
33
<PAGE> 97
investment objectives, to stabilize the net asset value of each Money Market
Fund, as computed for the purposes of purchases and redemptions, at $1.00 per
share. The Trustees' procedures include periodic monitoring of the difference
between the amortized cost value per share and the net asset value per share
based upon available indications of market value (the "Market Value
Difference"). Available indications of market value consist of actual market
quotations or appropriate substitutes which reflect current market conditions
and include (a) quotations or estimates of market value for individual portfolio
instruments and/or (b) values for individual portfolio instruments derived from
market quotations relating to varying maturities of a class of money market
instruments.
In the event the Market Value Difference exceeds 1/2 of 1%, the
Trustees' procedures provide that the Trustees will take such steps as they
consider appropriate (e.g., selling portfolio instruments to shorten the
dollar-weighted average portfolio maturity or to realize capital gains or
losses, reducing or suspending shareholder income accruals, redeeming shares in
kind, or utilizing a net asset value per share based upon available indications
of market value which under such circumstances would vary from $1.00) to
eliminate or reduce to the extent reasonably practicable any material dilution
or other unfair results to investors or existing shareholders which might arise
from Market Value Differences.
The Funds limit their investments to instruments which Lyon Street has
determined present minimal credit risk (pursuant to guidelines established by
the Board of Trustees) and which are "Eligible Securities" as defined by Rule
2a-7. The Funds are also required to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to its objective of
maintaining a stable net asset value of $1.00 per share. Should the disposition
of a security result in a dollar-weighted average portfolio maturity of more
than 90 days, a Fund will invest its available cash in such a manner as to
reduce such maturity to 90 days or less as soon as practicable.
It is the normal practice of the Funds to hold securities to maturity
and realize par therefor, unless a sale or other disposition is mandated by
redemption requirements or other extraordinary circumstances. Under the
amortized cost method of valuation traditionally employed by institutions for
valuation of money market instruments, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the Funds. In periods of declining interest rates, the indicated daily yield
on shares of the Funds, computed by dividing its annualized daily income by the
net asset value computed as above, may tend to be lower than similar
computations made by utilizing a method of valuation based upon market prices
and estimates. In periods of rising interest rates, the daily yield of shares at
the value computed as described above may tend to be higher than a similar
computation made by utilizing a method of calculation based upon market prices
and estimates.
NON-MONEY MARKET FUNDS
Current values for the Non-Money Market Funds' portfolio securities are
determined as follows:
(1) Common stock, preferred stock and other equity securities listed on
the NYSE are valued on the basis of the last sale price on the exchange. In the
absence of any sales, such securities are valued at the last bid price;
(2) Common stock, preferred stock and other equity securities listed on
other U.S. or foreign exchanges will be valued as described in (1) above using
quotations on the exchange on which the security is primarily traded;
34
<PAGE> 98
(3) Common stock, preferred stock and other equity securities which are
unlisted and quoted on the National Market System (NMS) are valued at the last
sale price, provided a sale has occurred. In the absence of any sales, such
securities are valued at the last bid price;
(4) Common stock, preferred stock and other equity securities which are
quoted on the NASDAQ system but not listed on NMS are valued at the last bid
price;
(5) Common stock, preferred stock and other equity securities which are
not listed and not quoted on NASDAQ and for which over-the-counter market
quotations are readily available are valued at the mean between the current bid
and asked prices for such securities;
(6) Non-U.S. common stock, preferred stock and other equity securities
which are not listed or are listed and subject to restrictions on sale are
valued at prices supplied by a dealer selected by Lyon Street and approved by
the Board of Trustees;
(7) Bonds, debentures and other debt securities, whether or not listed
on any national securities exchange, are valued at a price supplied by a pricing
service or a bond dealer selected by Lyon Street and approved by the Board of
Trustees;
(8) Short-term debt securities which when purchased have maturities of
sixty days or less are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount) which, when
combined with accrued interest, approximates market value and which reflects
fair value as determined by the Board of Trustees ;
(9) Short-term debt securities having maturities of more than sixty
days when purchased which are held on the sixtieth day prior to maturity are
thereafter valued at amortized cost (market value on the sixtieth day adjusted
for amortization of premium or accretion of discount) which, when combined with
accrued interest, approximates market value and which reflects fair value as
determined by the Board of Trustees; and
(10) The following are valued at prices deemed in good faith to be fair
under procedures established by the Board of Trustees: (a) securities, including
restricted securities, for which market quotations are not readily available,
and (b) any other security for which the application of the above methods is
deemed by Lyon Street not to be representative of the market value of such
security.
In valuing each Fund's assets, the Trust's fund accountant will
"mark-to-market" the current value of a Fund's open futures contracts and
options. For valuation purposes, quotations of securities denominated in foreign
currencies are converted to into U.S. dollars at the prevailing currency
exchange rate on the day of the conversion.
TRUSTEES AND OFFICERS
The Trust is governed by a Board of Trustees. The Trustees are
responsible for the overall management of the Trust and retain and supervise the
Funds' Investment Adviser, administrator, distributor, transfer agent and
custodian.
35
<PAGE> 99
The names, ages and principal occupations during the last five years of
the Trustees and officers of the Trust are listed below. The address of all the
Trustees and officers is 3435 Stelzer Road, Columbus, Ohio 43219.
JOSEPH F. DAMORE, Trustee, 47; President and Chief Executive Officer of
Sparrow Hospital and Health System; formerly Director and Executive Vice
President, Sisters of Mercy Health Corporation.
* E. PHILIP FARLEY, Trustee, 60; retired; formerly Executive Vice
President of Old Kent Financial Corporation - Manager of Community Banks from
1998 to retirement; prior to that Executive Vice President of the Investment
Management and Trust Department of Old Kent Bank.
* WALTER B. GRIMM, Trustee, Chairman and Vice President, 54; Senior
Vice President of Client Services for BISYS Fund Services; formerly President of
Lehigh Investments.
JAMES F. RAINEY, Trustee, 60; Professor of Business Administration and
Associate Dean Emeritus at The Eli Broad Graduate School of Management at
Michigan State University.
RONALD F. VANSTEELAND, Trustee, 59; Vice President for Finance and
Administration and Treasurer of Grand Valley State University, Allendale,
Michigan and Treasurer of Grand Valley State University Foundation.
JAMES F. DUCA, II, President, 42; Vice President of Old Kent Financial
Corporation; and formerly Vice President and Trust Counsel for Marshall & Ilsley
Trust Company.
R. JEFFREY YOUNG, Vice President and Assistant Secretary, 35; Vice
President - Client Services for BISYS Fund Services.
MARTIN R. DEAN, Treasurer, 36; Vice President - Fund Administration for
BISYS Fund Services; and formerly employed by KPMG Peat Marwick LLP.
AMY D. EISENBEIS, Secretary, 35; Vice President - Securities Attorney
for Old Kent Securities Corporation; and formerly Assistant Vice President and
Associate General Counsel for Jackson National Life Insurance Company.
ROBERT L. TUCH, Assistant Secretary, 48; Vice President - Legal
Services for BISYS Fund Services.
W. BRUCE MCCONNEL, III, Assistant Secretary, 57; Partner in the law
firm of Drinker Biddle & Reath LLP.
ALAINA V. METZ, Assistant Secretary, 33; Chief Administrator of the
Blue Sky Department for BISYS Fund Services; and formerly employed by Alliance
Capital Management.
- -----------------------------------
* This Trustee is an interested person of the Trust as defined under the 1940
Act.
During the fiscal year ended December 31, 1999, no officer, director or
employee of the Trust's service contractors, or any of their parents or
subsidiaries, received any direct remuneration from
36
<PAGE> 100
the Trust for serving as a Trustee or officer of the Trust, although BISYS and
its affiliates, of which Messrs. Grimm, Young, Dean, and Tuch and Ms. Metz are
also employees, received fees from the Trust and from Old Kent Securities
Corporation for administrative, fund accounting and transfer agency services.
Drinker Biddle & Reath LLP, of which Mr. McConnel is a partner, receives legal
fees as counsel to the Trust. Each Trustee earns an annual fee of $8,000 and
additional fees of $1,750 for each regular meeting attended, $1,000 for each
special meeting attended and $500 for each telephonic meeting, plus
reimbursement of expenses incurred as a Trustee.
Listed below is the compensation paid to each Trustee by the Trust for
the fiscal year ended December 31, 1999. The Board of Trustees has established
The Kent Funds Deferred Compensation Plan (the "Deferred Compensation Plan")
pursuant to which the Trustees may elect to defer receipt of the compensation
payable to them by the Trust. Under the terms of the Deferred Compensation Plan,
amounts deferred by the Trustees are credited with the earnings on certain
investment options which may include one or more of the Funds. Trustees receive
payment of their deferred compensation and any related earnings upon ceasing to
be a Trustee of the Trust. Such payment is made at the election of the Trustee,
either in a lump sum or in annual installments over two to fifteen years. The
Trust's obligation to pay the Trustee's deferred compensation is a general
unsecured obligation.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM THE TRUST AND
NAME OF PERSON AGGREGATE COMPENSATION FUND COMPLEX PAID
AND POSITION FROM THE TRUST TO TRUSTEES
------------ -------------- -----------
<S> <C> <C>
Joseph F. Damore, Trustee $ 16,000* $ 16,000
E. Philip Farley, Trustee** $ 12,250 $ 12,250
Walter B. Grimm, Trustee $ 0 $ 0
James F. Rainey, Trustee $ 16,000* $ 16,000
Ronald F. VanSteeland, Trustee $ 16,000 $ 16,000
</TABLE>
- -------------------
* During the fiscal year ended December 31, 1999, Mr. Damore deferred
$16,000 of his compensation and Mr. Rainey deferred $8,000 of his
compensation pursuant to the Deferred Compensation Plan.
** Mr. Farley was elected as a Trustee of the Trust on June 3, 1999.
As of the date hereof, the Trustees and officers of the Trust as a
group beneficially owned less than 1% of the Trust's outstanding shares.
INVESTMENT ADVISER
LYON STREET ASSET MANAGEMENT COMPANY
Lyon Street is the investment adviser to the Funds. Effective as of
March 2, 1998, Lyon Street, a wholly-owned subsidiary of Old Kent Bank ("Old
Kent"), assumed the investment advisory responsibilities of Old Kent for each of
the Funds on the terms and conditions stated in the prospectus.
37
<PAGE> 101
This change did not involve a change in control or management of the investment
adviser or a change in the Funds' portfolio managers. As of December 31, 1999,
Lyon Street managed assets of approximately $6.2 billion. Lyon Street is located
at 111 Lyon Street, N.W., Grand Rapids, MI 49503.
Old Kent is a Michigan banking corporation which, with its affiliates,
provides commercial and retail banking and trust services through more than 230
banking offices in Michigan and Illinois. Old Kent offers a broad range of
financial services, including commercial and consumer loans, corporate and
personal trust services, demand and time deposit accounts, letters of credit and
international financial services.
Old Kent is a subsidiary of Old Kent Financial Corporation, a bank
holding company headquartered in Grand Rapids, Michigan, with approximately $18
billion in total consolidated assets as of December 31, 1999. Through offices in
numerous states, Old Kent Financial Corporation and its subsidiaries provide a
broad range of financial services to individuals and businesses.
Lyon Street employs an experienced staff of professional investment
analysts, portfolio managers and traders and uses several proprietary
computer-based systems in conjunction with fundamental analysis to identify
investment opportunities.
INVESTMENT ADVISORY AGREEMENT
The overall supervision and management of the Funds rests with the
Trust's Board of Trustees. Pursuant to a written Investment Advisory Agreement
with the Trust, dated October 12, 1990, as amended, Lyon Street furnishes to the
Trust investment advice with respect to the Funds, makes all investment
decisions for the Funds, and places purchase and sale orders for the Funds'
securities. Lyon Street is responsible for all expenses incurred by it in
connection with its advisory activities, other than the cost of securities and
other investments purchased or sold for the Funds and any brokerage commissions
or other transaction charges that may be associated with such purchases and
sales.
For its services to each Fund, Lyon Street is entitled to an annual fee
based on the average daily net assets of each Fund, payable monthly, at the
following rates: the Large Company Growth Fund, 0.70%; the Growth and Income
Fund, 0.70%; the Index Equity Fund, 0.30%; the Small Company Growth Fund, 0.70%;
the International Growth Fund, 0.75%; the Income Fund, 0.60%; the Intermediate
Bond Fund, 0.55%; the Short Term Bond Fund, 0.50%; the Tax-Free Income Fund,
0.55%; the Intermediate Tax-Free Fund, 0.50%; the Michigan Municipal Bond Fund,
0.45%; the Money Market Fund, 0.40%; the Government Money Market Fund, 0.40%;
and the Michigan Municipal Money Market Fund, 0.40%.
For the fiscal years ended December 31, 1997, 1998 and 1999, Lyon
Street and Old Kent, the Trust's former investment adviser, earned the following
advisory fees for each Fund: $4,568,032, $5,462,664 and $6,534,470,
respectively, for the Growth and Income Fund; $1,278,392, $2,128,823 and
$2,578,365, respectively, for the Index Equity Fund; $4,597,213, $5,258,368 and
$4,830,436, respectively, for the Small Company Growth Fund; $3,529,317,
$3,990,372 and $4,024,813, respectively, for the International Growth Fund;
$4,262,333, $4,345,604 and $4,742,941, respectively, for the Intermediate Bond
Fund; $857,575, $696,368 and $771,946, respectively, for the Short Term Bond
Fund; $1,424,578, $1,431,252 and $1,555,464 respectively, for the Intermediate
Tax-Free Fund; $563,275, $561,713 and $522,008, respectively, for the Michigan
Municipal Bond
38
<PAGE> 102
Fund; $2,092,414, $2,260,092 and $2,682,125, respectively, for the Money Market
Fund; $781,668, $1,279,122 and $1,250,280, respectively, for the Michigan
Municipal Money Market Fund; $1,489,950, $1,481,491 and $1,672,618,
respectively, for the Income Fund and $642,997, $687,774 and $693,622,
respectively, for the Tax-Free Income Fund. For the fiscal period ended December
31, 1997, and the fiscal years ended December 31, 1998 and 1999, Old Kent and
Lyon Street earned $226,041, $466,055 and $799,711, respectively in advisory
fees for the Government Money Market Fund. For the fiscal period ended December
31, 1999, Lyon Street earned $214,044 in advisory fees for the Large Company
Growth Fund.
For the fiscal years ended December 31, 1997, 1998 and 1999, Old Kent
and Lyon Street waived a portion of their advisory fees for the Index Equity
Fund. Net of such waivers, they received $1,158,610, $1,774,016 and $2,148,628,
respectively. For the fiscal period ended December 31, 1997 and the fiscal years
ended December 31, 1998 and 1999, Old Kent and Lyon Street waived a portion of
their advisory fees for the Government Money Market Fund. Net of such waivers,
Old Kent and Lyon Street received $112,896, $233,030 and $399,887, respectively.
Under the Investment Advisory Agreement, Lyon Street's liability in
connection with rendering services thereunder is limited to situations involving
a breach of its fiduciary duty, its willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The Agreement continues in effect from year to year with respect to
each Fund only if such continuance is specifically approved at least annually by
the Trustees of the Trust, including the "non-interested" Trustees, or by vote
of a majority of the outstanding voting shares of such Fund. The Investment
Advisory Agreement will terminate automatically upon its assignment and may be
terminated with respect to any Fund or Funds without penalty on 60-days' written
notice at the option of either party or by a vote of the shareholders of such
Fund or Funds.
ADMINISTRATOR
Old Kent Securities Corporation , 111 Lyon Street NW, Grand Rapids,
Michigan 49503 ("OKSC") serves as the Administrator of the Trust under an
Administration Agreement dated December 1, 1999. OKSC provides management and
administrative services and, in general, supervises the operation of each Fund
(other than investment advisory operations). The current term of the
Administration Agreement ends on December 31, 2001. Thereafter, the agreement
may be renewed for successive one-year periods. OKSC is an affiliate of Lyon
Street.
By the terms of the Administration Agreement, OKSC is required to
provide to the Funds management and administrative services, as well as all
necessary office space, equipment and clerical personnel for managing and
administering the affairs of the Funds. OKSC is required to supervise the
provision of custodial, auditing, valuation, bookkeeping, legal, stock transfer
and dividend disbursing services and provide other management and administrative
services.
As compensation for the services and facilities provided to the Funds
pursuant to the Administration Agreement, OKSC is entitled to receive an annual
fee, payable monthly as one twelfth of the annual fee, based on the Trust's
aggregate average daily net assets as follows: up to $5.0 billion -0.185% of
such assets; between $5.0 and $7.5 billion - 0.165% of such assets; and over
$7.5 billion - 0.135% of such assets, provided, however, that such annual fee
shall be subject to an annual minimum fee of $45,000 per fund that is applicable
to certain Funds of the Trust. All expenses (other than those
39
<PAGE> 103
specifically referred to as being borne by OKSC in the Administration Agreement)
incurred by OKSC in connection with the operation of the Trust are borne by the
Funds. To the extent that OKSC incurs any such expenses or provides certain
additional services to the Trust, the Funds promptly will reimburse OKSC
therefor.
OKSC also serves as the Trust's Fund Accountant pursuant to a Fund
Accounting Agreement, dated December 1, 1999. Under the Fund Accounting
Agreement, OKSC prices each Fund's shares, calculates each Fund's net asset
value, and maintains the general ledger accounting records for each Fund. For
these services, OKSC is entitled to receive a fee computed daily at the annual
rate of 0.015% of the Trust's average daily net assets, provided, however, that
such annual fee shall be subject to an annual minimum fee of $10,000 per fund
that is applicable to certain Funds of the Trust. The current term of the Fund
Accounting Agreement ends on December 31, 2001. Thereafter, the agreement may be
renewed for successive one-year periods.
For the fiscal periods ended December 31, 1997, 1998 and 1999, the
Trust paid the following administration fees to OKSC or its former
administrators: $1,169,235, $1,411,202 and $1,677,870, respectively, for the
Growth and Income Fund; $464,741, $857,078 and $1,029,159, respectively, for the
Index Equity Fund; $1,176,682, $1,358,690 and $1,239,823, respectively, for the
Small Company Growth Fund; $842,845, $962,462 and $964,831, respectively, for
the International Growth Fund; $1,386,330, $1,429,015 and $1,550,839,
respectively, for the Intermediate Bond Fund; $306,274, $251,895 and $277,362,
respectively, for the Short Term Bond Fund; $509,532, $517,725 and $558,969,
respectively, for the Intermediate Tax-Free Fund; $223,672, $225,753 and
$208,745, respectively, for the Michigan Municipal Bond Fund; $504,642, $624,863
and $739,789, respectively, for the Money Market Fund; $178,917, $321,507 and
$562,195, respectively, for the Michigan Municipal Money Market Fund; $444,179,
$446,634 and $251,229, respectively for the Income Fund; and $209,139, $226,159
and $226,834, respectively, for the Tax Free Income Fund. For the fiscal period
ended December 31, 1997 and the fiscal years ended December 31, 1998 and 1999,
the Government Money Market Fund paid $36,124, $95,865 and $238,960,
respectively, in administration fees. For the fiscal period ended December 31,
1999, the Large Company Growth Fund paid $53,999 in administration fees.
The amounts listed above as paid are net of the following waivers. For
the fiscal period ended December 31, 1998, and the fiscal year ended December
31, 1999, the administration fees waived by the Trust's current and former
administrators were $425,483 and $515,203 for the Index Equity Fund, $394,533
and $469,499 for the Money Market Fund, $255,083 and $250,062 for the Michigan
Municipal Money Market Fund, and $114,295 and $120,856 for the Government Money
Market Fund. For the fiscal year ended December 31, 1999, the administration
fees waived by the Trust's current and former administrators were $338 for the
Large Company Growth Fund.
SUB-ADMINISTRATION AND SUB-FUND ACCOUNTING AGREEMENTS
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
("BISYS"), provides certain administrative services to the Trust pursuant to a
Sub-Administration Agreement between OKSC and BISYS. BISYS also provides certain
fund accounting services to the Trust pursuant to a Sub-Fund Accounting
Agreement between OKSC and BISYS. As compensation for the services provided by
it under the Sub-Administration Agreement, Sub-Fund Accounting Agreement and
Sub-Transfer Agency Agreement (described under the heading "Transfer Agent"),
BISYS is entitled to receive a fee from OKSC computed daily at the annual rate
of 0.045% of the Trust's average daily net
40
<PAGE> 104
assets. The fees paid to BISYS by OKSC for such services come out of OKSC's fees
and are not an additional charge to the Funds.
DISTRIBUTOR
The Trust has entered into a Distribution Agreement dated July 1, 1999
with Kent Fund Distributors, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
("KFDI"). After the initial one year term, unless otherwise terminated, the
Distribution Agreement will continue in effect from year to year if approved at
least annually at a meeting called for that purpose by a majority of the
Trustees and a majority of the "non-interested" Trustees, as that term is
defined in the 1940 Act. Shares of the Funds are sold on a continuous basis by
KFDI as agent for the Trust, and KFDI has agreed to use its best efforts to
solicit orders for the sale of shares of the Funds.
For the fiscal years ended 1997, 1998 and 1999, the Trust paid its
current and former distributors total underwriting commissions of $55,000, $0
and $0, respectively. This entire amount was reallocated to broker-dealers which
had selling agreements with the distributor.
TRANSFER AGENT
OKSC serves as the Trust's transfer agent and dividend disbursing agent
pursuant to a Transfer Agency Agreement. Under the Transfer Agency Agreement,
OKSC processes purchases and redemptions of each Fund's shares and maintains
each Fund's shareholder transfer and accounting records, such as the history of
purchases, redemptions, dividend distributions, and similar transactions in a
shareholder's account. For these services, OKSC is entitled to receive an annual
fee of $16.50 per account for active accounts and $7.50 per account for closed
accounts, provided, however, that such annual fee shall be subject to an annual
minimum fee of $15,000 per fund that is applicable to certain Funds of the
Trust. All expenses (other than those specifically referred to as being borne by
OKSC in the Transfer Agency Agreement) incurred by OKSC in connection with its
services to the Trust are borne by the Funds.
BISYS provides certain transfer agent and dividend disbursing agent
services to the Trust pursuant to a Sub-Transfer Agency Agreement between OKSC
and BISYS. In addition to the fees described under the heading
"Sub-Administration and Sub-Fund Accounting Agreements," BISYS is entitled to
receive from OKSC a $15 per account annual processing fee for all Trust accounts
in excess of 22,000.
CUSTODIAN, AUDITORS AND COUNSEL
The Bank of New York, 100 Church Street, New York, New York 10286, is
custodian of all securities and cash of the Trust.
KPMG LLP, Two Nationwide Plaza, Suite 1600, Columbus, Ohio 43215,
Certified Public Accountants, are the independent auditors for the Trust.
Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry Streets,
Philadelphia, PA 19103, serves as counsel to the Trust.
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<PAGE> 105
DISTRIBUTION PLAN
THIS SECTION RELATES ONLY TO THE INVESTMENT SHARES OF THE FUNDS. THE
INSTITUTIONAL SHARES HAVE NOT ADOPTED A DISTRIBUTION PLAN.
As described in the prospectuses, the Trust has adopted with respect to
its Investment Shares a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act which regulates circumstances under which an investment
company may bear expenses associated with the distribution of its shares. The
Plan provides that the Investment Shares of a Fund may incur certain expenses
which may not exceed a maximum amount equal to 0.25% (on an annualized basis) of
the average daily net asset value of the Investment Shares. Under the Plan, the
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid monthly, of up to 0.25%. The Plan obligates a Fund,
during the period it is in effect, to accrue and pay to the Distributor on
behalf of a Fund the fee agreed to under the Distribution Plan. Payments under
the Plan are not tied exclusively to expenses actually incurred by the
Distributor, and the payments may exceed distribution expenses actually
incurred.
All persons authorized to direct the disposition of monies paid or
payable by a Fund pursuant to the Plan or any related agreement must provide to
the Trust's Board of Trustees at least quarterly a written report of the amounts
so expended and the purposes for which such expenditures were made.
Representatives, brokers, dealers or others receiving payments pursuant to the
Plan must determine that such payments and the services provided in connection
with such payments are appropriate for such persons and are not in violation of
regulatory limitations applicable to such persons.
The services under the Plan may include assistance in advertising and
marketing of Investment Shares, aggregating and processing purchase, exchange
and redemption requests for Investment Shares, maintaining account records,
issuing confirmations of transactions and providing sub-accounting with respect
to Investment Shares.
As required by Rule 12b-1, the Plan and the related Distribution and
Servicing Agreements have been approved, and are subject to annual approval, by
a majority of the Trust's Board of Trustees, and by a majority of the Trustees
who are not "interested" persons of the Trust (as defined by the 1940 Act) and
who have no direct or indirect interest in the operation of the Plan and the
agreements related thereto ("Independent Trustees"), by a vote cast in person at
a meeting called for the purpose of voting on the Plan and related agreements.
The Plan was most recently approved by the Board of Trustees as a whole and by
the Independent Trustees on November 22, 1999. In compliance with Rule 12b-1,
the Trustees requested and evaluated information they thought necessary to an
informed determination of whether the Plan and related agreements should be
implemented, and concluded, in the exercise of reasonable business judgment and
in light of their fiduciary duties, that there was a reasonable likelihood that
the Plan and the related agreements would benefit the Funds and their
shareholders. The Trustees concluded that the Plan could enhance the retail
distribution of the Funds, thereby resulting in growth of the Funds' assets and
a wider shareholder base. This could help the Funds to remain competitive with
other funds by, among other things, lessening the impact on shareholders of
redemptions, attracting talented investment managers and providing more
flexibility to portfolio managers in the execution of Fund orders. The Plan may
not be amended in order to increase materially the amount of distribution
expenses permitted under the Plan without such amendment being approved by a
majority vote of the outstanding Investment Shares of the affected Fund. The
Plan may be terminated at any time by a majority vote of the Independent
Trustees or by a majority vote of the outstanding Investment Shares of the
affected Fund.
While the Plan is in effect, the selection and nomination of Trustees
who are not "interested persons" has been committed to the discretion of the
"non-interested" Trustees then in office.
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<PAGE> 106
For the fiscal year ended December 31, 1999, the following payments
were made under the Plan: Growth and Income Fund, $135,083; Index Equity Fund,
$106,443; Small Company Growth Fund, $56,939; Large Company Growth Fund, $51;
International Growth Fund, $32,668; Income Fund, $27,107; Intermediate Bond
Fund, $29,280; Short Term Bond Fund, $7,836; Tax-Free Income Fund, $4,689;
Intermediate Tax-Free Fund, $10,408; and Michigan Municipal Bond Fund, $7,735.
All of such payments were made to broker-dealers and other selling and/or
servicing institutions. For the current fiscal year, Investment Shares of the
Growth and Income Fund, Index Equity Fund, Small Company Growth Fund,
International Growth Fund, Income Fund, Intermediate Bond Fund, Tax-Free Income
Fund and Intermediate Tax-Free Fund will be charged a fee pursuant to the Plan
at an annual rate of 0.25% of their average Investment class net assets. For the
current fiscal year, Investment Shares of the Short Term Bond Fund and Michigan
Municipal Bond Fund will be charged a fee pursuant to the Plan at an annual rate
of 0.15% of their average Investment class net assets. The Trust does not
currently intend to charge a fee under the Plan for the Money Market Funds.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Financial institutions or their designees that have entered into
agreements with the Kent Funds or its agent may enter confirmed purchase orders
on behalf of clients and customers, with payment to follow no later than a
Fund's pricing on the following business day. If payment is not received by the
Funds' transfer agent by such time, the financial institution could be held
liable for resulting fees or losses. The Kent Funds may be deemed to have
received a purchase or redemption order when a financial institution or its
designee accepts the order. Orders received by the Funds in proper form will be
priced at the Funds' NAV next computed after they are accepted by the financial
institution or its designee. Financial institutions are responsible for their
customers and The Kent Funds for timely transmission of all subscription and
redemption requests, investment information, documentation and money.
CLASSES OF SHARES
The prospectus for the Funds describes those investors who are eligible
to purchase Investment Shares and those who are eligible to purchase
Institutional Shares.
EXCHANGES
In an exchange, shares in the Fund from which an investor is
withdrawing will be redeemed at the net asset value per share next determined
after the exchange request is received. Shares of the Fund in which the investor
is investing will also normally be purchased at the net asset value per share
next determined after acceptance of the purchase order by the Trust in
accordance with its customary policies for accepting investments.
CHECK REDEMPTION PRIVILEGE
When you purchase shares of any one of the Money Market Funds, you may
establish the Check Redemption Privilege. You may select the Check Redemption
Privilege on your Account Application or you subsequently request the Privilege
by completing a separate signed Shareholder Services Form. When you establish
the Check Redemption Privilege, you will receive redemption checks ("Checks").
Checks will be sent only to the registered owner(s) of the account and only to
the address of record. The Account Application or Shareholder Services Form must
be manually signed by the registered owner(s). Checks are drawn on your Money
Market Fund shares and may be payable to the order of any person in an amount of
$500 or more. When a Check is presented to the Fund's transfer agent for
payment, the
43
<PAGE> 107
transfer agent, as your agent, will cause the Fund to redeem a sufficient number
1of shares in your account to cover the amount of the Check. Dividends are
earned until the Check clears. After clearance, a copy of the Check will be
returned to you. You generally will be subject to the same rules and regulations
that apply to checking accounts, although the election of the Privilege creates
only a shareholder-transfer agent relationship with the Fund's transfer agent.
Checks are free, but the Fund's transfer agent will impose a fee for
stopping payment of a Check upon your request or if the transfer agent cannot
honor a Check due to insufficient funds or other valid reason. If the amount of
the Check is greater than the value of the Money Market Fund shares in your
account, the Check will be returned marked insufficient funds. Checks should not
be used to close an account.
You should date your Checks with the current date when you write them.
Please do not postdate your Checks. If you do, the Fund's transfer agent will
honor, upon presentment, even if presented before the date of the check, all
postdated Checks which are dated within six months of presentment of payment, if
they are otherwise in good order.
SUSPENSION OF REDEMPTIONS
Under the 1940 Act, the Trust may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the NYSE is restricted by applicable rules and regulations of the Securities and
Exchange Commission; (b) the NYSE is closed for other than customary weekend and
holiday closings; (c) the Securities and Exchange Commission has by order
permitted such suspension; or (d) an emergency exists as determined by the
Securities and Exchange Commission. (The Trust may also suspend or postpone the
recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
INVOLUNTARY REDEMPTIONS
In addition to the situation described in the prospectus under
"Shareholder Information - Closing of Small Accounts," the Trust may redeem
shares involuntarily if it appears appropriate to do so in light of the Trust's
responsibilities under the 1940 Act, to reimburse the Funds for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder, or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the prospectus from time to time.
REDEMPTION IN KIND
A Fund may make payment for redemption in securities or other property
if it appears appropriate to do so in light of the Fund's responsibilities under
the 1940 Act. In the event shares are redeemed for securities or other property,
shareholders may incur additional costs in connection with the conversion
thereof to cash. Redemption in kind is not as liquid as a cash redemption.
Shareholders who receive a redemption in kind may receive less than the
redemption value of their shares upon sale of the securities or property
received, particularly where such securities are sold prior to maturity.
The Trust has filed an election pursuant to Rule 18f-1 under the 1940
Act which provides that each portfolio of the Trust is obligated to redeem
shares solely in cash up to $250,000 or 1% of such portfolio's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount may be made in proceeds other than cash.
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<PAGE> 108
DIVIDENDS AND TAXES
FEDERAL - GENERAL
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its income to
shareholders each year, so that each Fund itself generally will be relieved of
federal income and excise taxes. If a Fund were to fail to so qualify: (1) the
Fund would be taxed at regular corporate rates without any deduction for
distributions to shareholders; and (2) shareholders would be taxed as if they
received ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction. Moreover, if a Fund were to fail to make
sufficient distributions in a year, the Fund would be subject to corporate
income taxes and/or excise taxes in respect of the shortfall or, if the
shortfall is large enough, the Fund could be disqualified as a regulated
investment company.
As described in the prospectus for the Municipal Funds, such Funds are
designed to provide investors with tax-exempt interest income. The Municipal
Funds are not intended to constitute a balanced investment program and are not
designed for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of the Municipal Funds would
not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts because such plans and accounts are generally
tax-exempt and, therefore, would not gain any additional benefit from the Funds'
dividends being tax-exempt. In addition, the Municipal Funds may not be an
appropriate investment for persons or entities that are "substantial users" of
facilities financed by private activity bonds or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person which regularly uses a part of such facilities in its trade or
business and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues derived
by all users of such facilities, which occupies more than 5% of the usable area
of such facilities or for which such facilities or a part thereof were
specifically constructed, reconstructed or acquired. "Related persons" include
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
In order for the Municipal Funds to pay federal tax-exempt dividends
with respect to any taxable year, at the close of each taxable quarter at least
50% of the aggregate value of the Fund must consist of exempt-interest
obligations.
The provisions regarding financial instruments, foreign currencies and
foreign corporations may from time to time cause a Fund to recognize income in
excess of cash received in a transaction. Moreover, a Fund's investment
alternatives will to some extent be constrained by tax requirements applicable
to regulated investment companies.
DECLARATION OF TRUST
DESCRIPTION OF SHARES
The Trust's Restatement of Declaration of Trust authorizes the issuance
of an unlimited number of shares of beneficial interest in one or more separate
series, and the creation of one or more classes of shares within each series.
Each share of a series represents an equal proportionate interest in the Trust
with each other share of that series. Each series represents interests in a
different investment portfolio. The Trust currently offers eighteen series of
shares. Each series may
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<PAGE> 109
have one or more separate classes of shares - Investment Shares, Institutional
Shares and Retail Shares. Each share of the Trust has no par value and is
entitled to such dividends and distributions of the income earned on its
respective series' assets as are declared at the discretion of the Trustees.
Each class or series is entitled upon liquidation of such class or series to a
pro rata share in the net assets of that class or series. Shareholders have no
preemptive rights. When issued for payment as described in the prospectus,
shares will be legally issued, fully paid and non-assessable.
The proceeds received by each Fund for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of that Fund. The underlying assets of
each Fund will be segregated on the books of account, and will be charged with
the liabilities in respect to that Fund and with a share of the general
liabilities of the Trust. Expenses with respect to the portfolios of the Trust
are normally allocated in proportion to the net asset value of the respective
portfolios except where allocations of direct expenses can otherwise be fairly
made.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts
Business Trust." Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, there is a possibility that shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, even if the Trust were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Restatement of Declaration of
Trust contains an express disclaimer of shareholder liability for obligations of
the Trust and requires that notice of such disclaimer be given in every note,
bond, contract or other undertaking entered into or executed by the Trust or the
Trustees. In addition, the Restatement of Declaration of Trust provides for
indemnification out of the Trust property for any shareholder held personally
liable for the obligations of the Trust.
VOTING RIGHTS
Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each class or series affected by such matter. Rule 18f-2 further provides that a
class or series shall be deemed to be affected by a matter unless the interests
of each class or series in the matter are substantially identical or the matter
does not affect any interest of the class or series. Under the Rule, the
approval of an investment advisory agreement, or any change in a fundamental
investment policy would be effectively acted upon with respect to a class or
series only if approved by a majority of the outstanding shares of that class or
series. However, the Rule also provides that the ratification of the appointment
of independent accountants, the approval of principal underwriting contracts and
the election of Trustees may be effectively acted upon by shareholders of the
Trust voting together in the aggregate without regard to a particular class or
series.
The term "majority of the outstanding shares" of a Fund means the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the Fund.
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<PAGE> 110
Shares of the Trust do not have cumulative voting rights, which means
that the holders of more than 50% of the shares of the Trust voting for the
election of Trustees can elect 100% of the Trustees to be elected at a meeting
and, in such event, the holders of the remaining less than 50% of the shares of
the Trust voting will not be able to elect any Trustees.
As a general matter, the Trust does not hold annual or other meetings
of shareholders. At such time, however, as less than a majority of the Trustees
holding office have been elected by shareholders, the Trustees then in office
will call a shareholders meeting for the election of Trustees. The Trustees
shall continue to hold office indefinitely, unless otherwise required by law,
and may appoint successor Trustees. A Trustee may be removed from office: (1) at
any time by two-thirds vote of the Trustees; or (2) at a special meeting of
shareholders by a two-thirds vote of the outstanding shares. Trustees may also
voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Restatement of Declaration of Trust provides that the Trustees
shall not be responsible or liable for any neglect or wrongdoing of any officer,
agent, employee or adviser of the Trust, provided that they have exercised
reasonable care in the selection of such individuals. The Restatement of
Declaration of Trust also provides that a Trustee shall be indemnified against
all liabilities and expenses reasonably incurred in connection with the defense
or disposition of any action, suit or other proceeding in which said Trustee is
involved by reason of being or having been a Trustee of the Trust, except with
respect to any matter as to which such Trustee has been finally adjudicated not
to have acted in good faith in the reasonable belief that his or her actions
were in the best interest of the Trust. Nothing in the Restatement of
Declaration of Trust shall protect a Trustee against any liability for his or
her willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office as Trustee.
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
MONEY MARKET FUNDS
The yields for the Investment Shares and Institutional Shares of the
Money Market Funds as they may appear from time to time in advertisements will
be calculated by determining the net change exclusive of capital changes (all
realized and unrealized gains and losses) in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, multiplying
the base period return by (365/7) and carrying the resulting yield figure to the
nearest hundredth of one percent. The determination of net change in account
value will reflect the value of additional shares purchased with dividends from
the original share and dividends declared on both the original share and any
such additional shares and all fees charged to all shareholder accounts for each
class of shares in proportion to the length of the base period and the average
account size for each class. The 30-day yield for each Fund is determined
similarly. Based on the foregoing formula, for the 7-day period ended December
31, 1999, the yields of the Institutional Shares of the Money Market Fund,
Government Money Market Fund and Michigan Municipal Money Market Fund were
5.34%, 5.07% and 4.00%, respectively. For the same period, the 7-day yields of
the Investment Shares of the Money Market Fund, Government Money Market Fund and
Michigan Municipal Money Market Fund were 5.34%, 5.07% and 4.00%, respectively.
The yield figures reflect waivers of certain expenses.
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<PAGE> 111
If realized and unrealized gains and losses were included in the yield
calculation, the yield of a Fund might vary materially from that reported in
advertisements.
In addition to the yields for each class of shares of the Money Market
Funds, the effective yields for each class may appear from time to time in
advertisements. The effective yield will be calculated by compounding the
unannualized base period return by adding 1 to the quotient, raising the sum to
a power equal to 365 divided by 7, subtracting 1 from the result and carrying
the resulting effective yield figure to the nearest hundredth of one percent.
Based on the foregoing formula, for the period ended December 31, 1999, the
effective yields of the Institutional Shares of the Money Market Fund,
Government Money Market Fund and Michigan Municipal Money Market Fund were
5.48%, 5.20% and 4.08%, respectively. For the same period, the effective yields
of the Investment Shares of the Money Market Fund, Government Money Market Fund
and Michigan Municipal Money Market Fund were 5.48%, 5.20% and 4.08%,
respectively. These yield figures reflect waivers of certain expenses.
Each Money Market Fund may also quote from time to time its total
return in accordance with Securities and Exchange Commission Regulations.
NON-MONEY MARKET FUNDS
A Fund calculates its average annual total return by determining the
average annual compounded rate of return during specified periods that equates
the initial amount invested to the ending redeemable value of such investment
according to the following formula:
ERV 1/n
T = [(_______) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1, 5
or 10 year (or other) periods at the end of such
applicable period (or a fractional portion
thereof);
P = hypothetical initial payment of $1,000; and
n = number of years.
Based on the foregoing calculation, the average annual total returns for the
Funds for the periods ended December 31, 1999 were as follows:
INVESTMENT SHARES
<TABLE>
<CAPTION>
Inception Since
Date One Year Five Years Inception
---- -------- ---------- ---------
<S> <C> <C> <C> <C>
Growth and Income Fund 12/01/92 18.53% 24.63% 18.85%
Index Equity Fund 11/25/92 20.24% 27.49% 20.55%
Large Company Growth Fund 10/19/99 N/A N/A 18.87%
</TABLE>
48
<PAGE> 112
<TABLE>
<S> <C> <C> <C> <C>
Small Company Growth Fund 12/04/92 27.73% 17.57% 14.92%
International Growth Fund 12/04/92 27.95% 12.89% 13.93%
Income Fund 03/22/95 -4.76% N/A 6.08%
Intermediate Bond Fund 11/25/92 -1.36% 6.25% 5.12%
Short Term Bond Fund 12/04/92 2.35% 5.76% 4.67%
Tax-Free Income Fund 03/31/95 -3.40% N/A 4.58%
Intermediate Tax-Free Fund 12/18/92 -1.27% 5.21% 4.46%
Michigan Municipal Bond Fund 05/11/93 0.51% 4.34% 3.72%
Money Market Fund 12/09/92 4.80% 5.16% 4.53%
Government Money Market Fund 06/02/97 4.81% N/A 5.07%
Michigan Municipal Money Market Fund 12/15/92 2.86% 3.16% 2.84%
</TABLE>
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
Inception Since
Date One Year Five Years Inception
---- -------- ---------- ---------
<S> <C> <C> <C> <C>
Growth and Income Fund 11/02/92 18.79% 24.93% 19.36%
Index Equity Fund 11/02/92 20.55% 27.81% 21.01%
Large Company Growth Fund 10/19/99 N/A N/A 18.91%
Small Company Growth Fund 11/02/92 27.98% 17.85% 15.98%
International Growth Fund 12/04/92 28.30% 13.17% 14.23%
Income Fund 03/20/95 -4.41% N/A 6.37%
Intermediate Bond Fund 11/02/92 -1.22% 6.52% 5.34%
Short Term Bond Fund 11/02/92 2.50% 5.93% 4.82%
Tax-Free Income Fund 03/20/95 -3.26% N/A 4.83%
Intermediate Tax-Free Fund 12/16/92 -1.01% 5.46% 4.67%
Michigan Municipal Bond Fund 05/03/93 0.67% 4.50% 3.88%
Money Market Fund 12/03/90 4.80% 5.16% 4.60%
Government Money Market Fund 06/02/97 4.81% N/A 5.08%
Michigan Municipal Money Market Fund 06/03/91 2.86% 3.17% 2.93%
</TABLE>
A Fund calculates its aggregate total return by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
49
<PAGE> 113
ERV
Aggregate Total Return = [(_______) - 1]
P
Based on the foregoing calculation, the aggregate total returns for the Funds
for the periods ended December 31, 1999 were as follows:
INVESTMENT SHARES
<TABLE>
<CAPTION>
Inception Since
Date One Year Five Years Inception
---- -------- ---------- ---------
<S> <C> <C> <C> <C>
Growth and Income Fund 12/01/92 18.53% 200.68% 239.78%
Index Equity Fund 11/25/92 20.24% 236.74% 276.94%
Large Company Growth Fund 10/19/99 N/A N/A 18.87%
Small Company Growth Fund 12/04/92 27.73% 124.64% 167.43%
International Growth Fund 12/04/92 27.95% 83.32% 151.56%
Income Fund 03/22/95 -4.76% N/A 32.70%
Intermediate Bond Fund 11/25/92 -1.36% 35.42% 42.52%
Short Term Bond Fund 12/04/92 2.35% 32.32% 38.12%
Tax-Free Income Fund 03/31/95 -3.40% N/A 23.73%
Intermediate Tax-Free Fund 12/18/92 -1.27% 28.91% 35.91%
Michigan Municipal Bond Fund 05/11/93 0.51% 23.69% 27.41%
Money Market Fund 12/09/92 4.80% 28.59% 36.72%
Government Money Market Fund 06/02/97 4.81% N/A 13.61%
Michigan Municipal Money Market Fund 12/15/92 2.86% 16.85% 21.78%
</TABLE>
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
Inception Since
Date One Year Five Years Inception
---- -------- ---------- ---------
<S> <C> <C> <C> <C>
Growth and Income Fund 11/02/92 18.79% 204.38% 255.26%
Index Equity Fund 11/02/92 20.55% 241.05% 291.83%
Large Company Growth Fund 10/19/99 N/A N/A 18.91%
Small Company Growth Fund 11/02/92 27.98% 127.37% 189.21%
International Growth Fund 12/04/92 28.30% 85.62% 156.30%
Income Fund 03/20/95 -4.41% N/A 34.43%
Intermediate Bond Fund 11/02/92 -1.22% 37.15% 45.19%
Short Term Bond Fund 11/02/92 2.50% 33.35% 40.05%
Tax-Free Income Fund 03/20/95 -3.26% N/A 25.34%
</TABLE>
50
<PAGE> 114
<TABLE>
<S> <C> <C> <C> <C>
Intermediate Tax-Free Fund 12/16/92 -1.01% 30.48% 37.88%
Michigan Municipal Bond Fund 05/03/93 0.67% 24.61% 28.87%
Money Market Fund 12/03/90 4.80% 28.60% 50.45%
Government Money Market Fund 06/02/97 4.81% N/A 13.64%
Michigan Municipal Money Market Fund 06/03/91 2.86% 16.87% 28.10%
</TABLE>
The calculations are made assuming that (a) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, and (b) all recurring fees charged to
all shareholder accounts are included. The ending redeemable value (variable
"ERV" in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the end
of the measuring period.
A Fund calculates its 30-day (or one month) standard yield in
accordance with the method prescribed by the Securities and Exchange Commission
for mutual funds:
a - b
Yield = 2 [ (______ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the
period entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
Based on the foregoing calculations, for the 30-day period ended
December 31, 1999, the yields for the Investment Shares of the Bond Funds and
Municipal Bond Funds were as follows: Income Fund, 6.18%; Intermediate Bond
Fund, 5.86%; Short Term Bond Fund, 5.70%; Tax-Free Income Fund, 4.45%;
Intermediate Tax-Free Fund, 4.11%; and Michigan Municipal Bond Fund, 4.06%. For
the same period, the yields on the Institutional Shares of the Bond Funds and
Municipal Bond Funds were as follows: Income Fund, 6.43%; Intermediate Bond
Fund, 6.12%; Short Term Bond Fund, 5.85%; Tax-Free Income Fund, 4.71%;
Intermediate Tax-Free Fund, 4.36%; and Michigan Municipal Bond Fund, 4.21%.
THE MUNICIPAL FUNDS
The Investment Shares and the Institutional Shares of the Municipal
Funds may also advertise "tax equivalent yield." Tax equivalent yield is
calculated by dividing that portion of the Fund's yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's yield that is not tax-exempt. For the 30-day period ended December
31, 1999, the tax equivalent yields, assuming a 36% tax rate for the Investment
Shares of the Municipal Funds were as follows: Tax-Free Income Fund, 6.95%;
Intermediate Tax-Free Fund, 6.42%; Michigan
51
<PAGE> 115
Municipal Bond Fund, 6.34%; and Michigan Municipal Money Market Fund, 5.31%. For
the same period, the yields on the Institutional Shares of the Municipal Funds
were as follows: Tax-Free Income Fund, 7.36%; Intermediate Tax-Free Fund, 6.81%;
Michigan Municipal Bond Fund, 6.58%; and Michigan Municipal Money Market Fund,
5.31%.
ADVERTISING INFORMATION
The Funds may from time to time include in advertisements, sales
literature, communications to shareholders and other materials (collectively,
"Materials") a total return figure that more accurately compares a Fund's
performance with other measures of investment return than the total return
calculated as described above. For example, in comparing a Fund's total return
with data published by Lipper Inc., CDA Investment Technologies, Inc. or
Weisenberger Investment Company Service, or with the performance of an index, a
Fund may calculate its aggregate total return for the period of time specified
in the Materials by assuming the investment of $10,000 in shares of a Fund and
assuming the reinvestment of all dividends and distributions. Percentage
increases are determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the beginning value.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on an investment in a Fund
are paid in the form of additional shares of the Fund, any future income or
capital appreciation of the Fund would increase the value, not only of the
original investment, but also of the additional shares received through
reinvestment. As a result, the value of the investment in the Fund would
increase more quickly than if dividends or other distributions had been paid in
cash.
In addition, the Funds may also include in Materials discussions and/or
illustrations of the potential investment goals of a prospective investor,
investment management strategies, techniques, policies or investment suitability
of a Fund (such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic conditions, the relationship between sectors of the
economy and the economy as a whole, various securities markets, the effects of
inflation and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury securities. From time to time, Materials
may summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views of the
adviser as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in Materials charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Funds and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury securities and shares of a Fund and/or other mutual
funds. Materials may include a discussion of certain attributes or benefits to
be derived by an investment in a Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax and retirement planning and investment alternatives to
certificates of deposit and other financial instruments. Such Materials may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
FINANCIAL STATEMENTS
The Financial Statements included in the Funds' December 31, 1999
Annual Report to Shareholders are incorporated by reference into this SAI. The
Financial Statements included in the
52
<PAGE> 116
Annual Report have been audited by the Trust's independent auditors, KPMG LLP,
whose report thereon also appears in the Annual Report and is incorporated
herein by reference. The Financial Statements in such Annual Report have been
incorporated herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. No other part of the Annual
Reports is incorporated herein. Copies of the Financial Statements may be
obtained without charge by contacting The Kent Funds at P.O. Box 182201,
Columbus, Ohio 43218-2201 or at 1-800-633-KENT (5368).
ADDITIONAL INFORMATION
Set forth below are the record owners or, to the Trust's knowledge, the
beneficial owners of 5% or more of the outstanding Investment and Institutional
Shares of the Funds as of April 12, 2000.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS FUND CLASS OWNERSHIP
<S> <C> <C> <C>
Trent & Co. Growth and Income Institutional 81.99%
4420 44th Street, Suite A
Kentwood, MI 49512
BHC Securities Inc. Growth and Income Investment 40.62%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company Growth and Income Investment 14.78%
One Freedom Valley Drive
Oaks, PA 19456
Trent & Co. Index Equity Institutional 40.28%
4420 44th Street, Suite A
Kentwood, MI 49512
Old Kent Bank Index Equity Institutional 15.10%
Steelcase P/S Balanced Fund
4420 44th Street, Suite A
Grand Rapids, MI 49512
BISYS Brokerage Services Index Equity Institutional 13.93%
500 Ruskin Drive
Concord, CA 94524
Old Kent Bank Index Equity Institutional 9.93%
Steelcase P/S Long Term Growth Fund
4420 44th Street, Suite A
Grand Rapids, MI 49512
Bank of New York Index Equity Institutional 9.74%
Steelcase Inc. 401K Plan
One Wall Street, 12th Floor
New York, NY 10286
</TABLE>
53
<PAGE> 117
<TABLE>
<S> <C> <C> <C>
Old Kent Bank Index Equity Institutional 7.99%
Steelcase P/S General Fund
4420 44th Street, Suite A
Grand Rapids, MI 49512
BHC Securities Inc. Index Equity Investment 49.88%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
Trent & Co. Large Company Growth Institutional 78.55%
4420 44th Street, Suite A
Kentwood, MI 49512
Old Kent Bank Large Company Growth Institutional 9.69%
Old Kent Balanced Fund
4420 44Street, Suite A
Grand Rapids, MI 49512
Old Kent Bank Large Company Growth Institutional 8.98%
Old Kent Global Equity Fund
4420 44Street, Suite A
Grand Rapids, MI 49512
BHC Securities Inc. Large Company Growth Investment 47.13%
Trade House Account
2005 Market Street, Suite 2100
Philadelphia, PA 19103
Trent & Co. Large Company Growth Investment 14.08%
4420 44th Street, Suite A
Kentwood, MI 49512
Gary L. Bogenberger Large Company Growth Investment 5.03%
Roland & Virginia Bogenberger
Grandchildren's Trust No. 1
314 E. Wilson Street
Palatine, IL 60067
Gary L. Bogenberger Large Company Growth Investment 5.03%
Roland & Virginia Bogenberger
Grandchildren's Trust No. 1
314 E. Wilson Street
Palatine, IL 60067
Gary L. Bogenberger Large Company Growth Investment 5.03%
Roland & Virginia Bogenberger
Grandchildren's Trust No. 1
314 E. Wilson Street
Palatine, IL 60067
</TABLE>
54
<PAGE> 118
<TABLE>
<S> <C> <C> <C>
Trent & Co. Small Company Growth Institutional 70.15%
4420 44th Street, Suite A
Kentwood, MI 49512
Old Kent Bank Small Company Growth Institutional 6.70%
Steelcase P/S Balanced Fund
4420 44th Street, Suite A
Grand Rapids, MI 49512
BHC Securities Inc. Small Company Growth Investment 23.10%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company Small Company Growth Investment 15.40%
One Freedom Valley Drive
Oaks, PA 19456
Trent & Co. International Growth Institutional 77.15%
4420 44th Street, Suite A
Kentwood, MI 49512
BHC Securities Inc. International Growth Investment 19.97%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company International Growth Investment 23.16%
One Freedom Valley Drive
Oaks, PA 19456
Trent & Co. Income Institutional 95.45%
4420 44th Street, Suite A
Kentwood, MI 49512
BHC Securities Inc. Income Investment 25.73%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company Income Investment 52.24%
One Freedom Valley Drive
Oaks, PA 19456
Trent & Co. Intermediate Bond Institutional 83.95%
4420 44th Street, Suite A
Kentwood, MI 49512
</TABLE>
55
<PAGE> 119
<TABLE>
<S> <C> <C> <C>
Old Kent Bank Intermediate Bond Institutional 6.83%
Old Kent Balanced Fund
4420 44Street, Suite A
Grand Rapids, MI 49512
Old Kent Bank Intermediate Bond Institutional 5.54%
Steelcase P/S Long Term Growth Fund
4420 44Street, Suite A
Grand Rapids, MI 49512
BHC Securities Inc. Intermediate Bond Investment 12.84%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company Intermediate Bond Investment 45.88%
One Freedom Valley Drive
Oaks, PA 19456
Trent & Co. Short Term Bond Institutional 63.05%
4420 44th Street, Suite A
Kentwood, MI 49512
Bank of New York Short Term Bond Institutional 17.62%
Steelcase Inc. 401K Plan
One Wall Street, 12th Floor
New York, NY 10286
Old Kent Bank Short Term Bond Institutional 14.96%
Steelcase P/S General Fund
4420 44Street, Suite A
Grand Rapids, MI 49512
BHC Securities Inc. Short Term Bond Investment 63.81%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
Trent & Co. Tax-Free Income Institutional 95.33%
4420 44th Street, Suite A
Kentwood, MI 49512
BHC Securities Inc. Tax-Free Income Investment 34.16%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company Tax-Free Income Investment 46.97%
One Freedom Valley Drive
Oaks, PA 19456
</TABLE>
56
<PAGE> 120
<TABLE>
<S> <C> <C> <C>
Trent & Co. Intermediate Tax-Free Institutional 96.36%
4420 44th Street, Suite A
Kentwood, MI 49512
BHC Securities Inc. Intermediate Tax-Free Investment 16.63%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company Intermediate Tax-Free Investment 40.72%
One Freedom Valley Drive
Oaks, PA 19456
Ottawa & Co. Intermediate Tax-Free Investment 6.15%
126 Ottawa Avenue NW
Grand Rapids, MI 49503
Trent & Co. Michigan Municipal Bond Institutional 96.43%
4420 44th Street, Suite A
Kentwood, MI 49512
BHC Securities Inc. Michigan Municipal Bond Investment 30.36%
Trade House Account
2005 Market Street, Suite 1200
Philadelphia, PA 19103
SEI Trust Company Michigan Municipal Bond Investment 7.96%
One Freedom Valley Drive
Oaks, PA 19456
Trent & Co. Michigan Municipal Bond Investment 10.51%
4420 44th Street, Suite A
Kentwood, MI 49512
</TABLE>
57
<PAGE> 121
<TABLE>
<S> <C> <C> <C>
Northern Trust Co. Michigan Municipal Bond Investment 12.29%
Richard U. Light Irrev. S Trust
P.O. Box 92956
Chicago, IL 60675
Northern Trust Co. Michigan Municipal Bond Investment 17.87%
Christopher U. Light Rev. Tr.
P.O. Box 92956
Chicago, IL 60675
BISYS Brokerage Services Money Market Institutional 5.07%
NFSC FMTC IRA
500 Ruskin Dr.
Concord, CA 94524
Old Kent Bank Money Market Institutional 5.76%
Steelcase P/S General Fund
4420 44th St., Ste. A
Grand Rapids, MI 49512
Old Kent Bank Money Market Institutional 6.01%
Steelcase P/S Money Market Fund
4420 44th St., Ste. A
Grand Rapids, MI 49512
Trent & Co. Money Market Institutional 68.40%
4420 44th Street, Suite A
Kentwood, MI 49512
V. Donna Berg Money Market Investment 10.39%
1790 W. Moonshadow
Oro Valley, AZ 85737
SEI Trust Company Money Market Investment 26.52%
One Freedom Valley Drive
Oaks, PA 19456
Bruce D. Martin Money Market Investment 5.75%
Marcia K. Martin
4743 Kimball SE
Kentwood, MI 49508
Old Kent Bank Government Money Market Institutional 54.32%
111 Lyon St., N.W.
Grand Rapids, MI 49503
</TABLE>
58
<PAGE> 122
<TABLE>
<S> <C> <C> <C>
Trent & Co. Government Money Market Institutional 40.87%
4420 44th Street, Suite A
Kentwood, MI 49512
Darcy Rene Samson Government Money Market Investment 35.67%
Adam Danis
3448 Boone Avenue SW
Wyoming, MI 49509
Helen Glynn Government Money Market Investment 27.49%
Margaret A. McGovern Trust
11050 Valley Drive
Fountain Hills, AZ 85268
Allan C. Caldmeyer Government Money Market Investment 12.15%
Amanda C. Caldmeyer
977 Gladstone SE
Grand Rapids, MI 49506
Allan C. Caldmeyer Government Money Market Investment 12.07%
Matthew S. Caldmeyer
977 Gladstone SE
Grand Rapids, MI 49506
Trent & Co. Michigan Municipal Money Institutional 97.30%
4420 44th Street, Suite A Market
Kentwood, MI 49512
Matrix Capital Group LP Michigan Municipal Money Investment 83.73%
4190 Telegraph Road, Suite 3000 Market
Bloomfield Hills, MI 48302
SEI Trust Company Michigan Municipal Money Investment 6.98%
One Freedom Valley Drive Market
Oaks, PA 19456
</TABLE>
59
<PAGE> 123
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a Fund may be presumed to "control" (as that term is
defined in the 1940 Act) the Fund. As a result, those persons or organizations
could have the ability to vote a majority of the shares of the Fund on any
matter requiring the approval of shareholders of the Fund.
Except as otherwise stated in the Trust's prospectus, this SAI or
required by law, the Trust reserves the right to change the terms of the offers
stated in its prospectus or this SAI without shareholder approval, including the
right to impose or change certain fees for services provided.
PERSONAL INVESTING POLICY
The Trust, Lyon Street and KFDI have adopted codes of ethics pursuant
to Rule 17j-1 under the 1940 Act which allow for personnel subject to the codes
to invest in securities, including securities that may be purchased or held by
the Funds.
60
<PAGE> 124
APPENDIX A
DESCRIPTION OF SECURITIES
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
opinion of the creditworthiness of an obligor with respect to financial
obligations having an original maturity of no more than 365 days. The following
summarizes the rating categories used by Standard and Poor's for commercial
paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
LOCAL CURRENCY AND FOREIGN CURRENCY RISKS
Country risk considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment is a
key factor in this analysis. An obligor's capacity to repay foreign obligations
may be lower than its capacity to repay obligations in its local currency due to
the sovereign government's own relatively lower capacity to repay external
versus domestic debt. These sovereign risk considerations are incorporated in
the debt ratings assigned to specific issues. Foreign currency issuer ratings
are also distinguished from local currency issuer ratings to identify those
instances where sovereign risks make them different for the same issuer.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
<PAGE> 125
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or
interest payments.
A-2
<PAGE> 126
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the best capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates uncertain capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates a capacity for meeting financial commitments which is highly uncertain
and solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the
likelihood of an untimely payment of principal and interest of debt instruments
with original maturities of one year or less. The following summarizes the
ratings used by Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial
BankWatch's highest category and indicates a very high likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial
BankWatch's second-highest category and indicates that while the degree of
safety regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial
BankWatch's lowest investment-grade category and indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial
BankWatch's lowest rating category and indicates that the obligation is regarded
as non-investment grade and therefore speculative.
A-3
<PAGE> 127
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
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"c" - The 'c' subscript is used to provide additional
information to investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is below an
investment-grade level and/or the issuer's bonds are deemed taxable.
p - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* - Continuance of the ratings is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an 'r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R. Indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy. Debt obligations of
issuers outside the United States and its territories are rated on the same
basis as domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor but do not take into account currency exchange
and related uncertainties.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
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length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (...) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. This is the
lowest investment grade category.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
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"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade category.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC" and "C" - Bonds have high default risk. Default is
a real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all
of their obligations. Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally undergoing a
formal reorganization or liquidation process; those rated "DD" are likely to
satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "CCC" may be modified by the
addition of a plus (+) or minus (-) sign to denote relative standing within
these major rating categories.
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'NR' indicates the Fitch IBCA does not rate the issuer or
issue in question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the
amount of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify
investors that there is a reasonable probability of a rating change and the
likely direction of such change. These are designated as "Positive", indicating
a potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial BankWatch assesses the likelihood of an
untimely repayment of principal or interest over the term to maturity of long
term debt and preferred stock which are issued by United States commercial
banks, thrifts and non-bank banks; non-United States banks; and broker-dealers.
The following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," - A rating of BB suggests that the likelihood of default
is considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
"B" - Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated issues. Adverse
developments could negatively affect the payment of interest and principal on a
timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of
default, with little capacity to address further adverse changes in financial
circumstances.
"CC" - This rating is applied to issues that are subordinate
to other obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
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MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity
factors and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality.
Margins of protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
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APPENDIX B
THE KENT MICHIGAN MUNICIPAL BOND FUND
THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND
SPECIAL INVESTMENT CONSIDERATIONS RELATING
TO INVESTING IN MICHIGAN MUNICIPAL OBLIGATIONS
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn from the
Governor's Executive Budget for fiscal year 2000-2001 issued January 27, 2000,
and from other sources available as of the date of this Statement of Additional
Information. While the Trust has not independently verified such information, it
has no reason to believe that such information is not correct in all material
respects.
1999 ECONOMIC REVIEW AND 2000 ECONOMIC OUTLOOK
The State's economy is principally dependent on manufacturing
(particularly automobiles, office equipment and other durable goods), tourism
and agriculture and historically has been highly cyclical. However it has been
undergoing certain basic changes in its underlying structure and these changes
continued in 1999. These changes reflect a diversifying economy which is less
reliant on the automobile industry. As a result, the State anticipates that its
economy in the future will be somewhat less susceptible to cyclical swings and
somewhat more resilient when national downturns occur.
Total wage and salary employment is estimated to have grown by 1.2% in
1999. The rate of unemployment is estimated to have been 3.6% in 1999, below the
national average for the sixth consecutive year. Personal income grew at an
estimated 4.5% annual rate in 1999.
1998-99 STATE OF MICHIGAN BUDGET AND PRIOR RESULTS
During the past five years, improvements in the Michigan economy have
resulted in increased revenue collections which, together with restraints on the
expenditure side of the budget, have resulted in State General Fund budget
surpluses, a substantial part of which were transferred to the State's
counter-cyclical Budget and Economic Stabilization Fund. The balance of that
Fund as of September 30, 1999 is estimated to have been in excess of $1.1
billion.
The State budget for the 1999-2000 fiscal year, which began October 1,
1999, has been accepted by the Legislature. This budget projects State General
Fund/General Purpose revenues of approximately $9.6 billion, an increase of
approximately 4.0% from the prior year. Among the budget uncertainties facing
the State during the next several years are whether the recently-enacted school
finance reform package will provide adequate revenues to fund Kindergarten
through Twelfth Grade education in the future, whether international monetary or
financial crises will adversely affect Michigan's economy, particularly
automobile production, and the uncertainties presented by proposed changes in
Federal aid policies for state and local governments.
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STATE CONSTITUTIONAL PROVISIONS AFFECTING REVENUES AND EXPENDITURES
The State Constitution provides that proposed expenditures and revenues
of any State operating fund must be in balance and that any prior year's surplus
or deficit must be included in the succeeding year's budget for that fund.
The State Constitution limits the amount of total State revenues that
can be raised from taxes and certain other sources. State revenues (excluding
federal aid and revenues for payment of principal and interest on general
obligation bonds) in any fiscal year are limited to a fixed percentage of State
personal income in the prior calendar year or average of the prior three
calendar years, whichever is greater, and this fixed percentage equals the
percentage of the 1978-79 fiscal year state government revenues to total
calendar 1977 State personal income (which was 9.49%).
If in any fiscal year revenues exceed the revenue limitation by 1% or
more, the entire amount of such excess must be rebated in the following fiscal
year's personal income tax or single business tax. Any excess of less than 1%
may be transferred to the State's Budget and Economic Stabilization Fund, a cash
reserve intended to mitigate the adverse effects on the State budget of
downturns in the business cycle. The State may raise taxes in excess of the
limit for emergencies when deemed necessary by the Governor and two-thirds of
the members of each house of the Legislature.
The State Constitution also provides that the proportion of State
spending paid to all units of local government to total State spending may not
be reduced below the proportion in effect in the 1978-79 fiscal year.
The State Constitution also requires the State to finance any new or
expanded activity of local governments mandated by State law. Any expenditures
required by this provision would be counted as State spending for local units of
government for the purpose of determining compliance with the provision cited
above.
STATE AND STATE-RELATED INDEBTEDNESS
The State Constitution limits State general obligation debt to (i)
short-term debt for State operating purposes, (ii) short- and long-term debt for
the purpose of making loans to school districts, and (iii) long-term debt for
voter-approved purposes.
Short-term debt for operating purposes is limited to an amount not in
excess of 15% of undedicated revenues received during the preceding fiscal year
and must be issued only to meet obligations incurred pursuant to appropriation
and repaid during the fiscal year in which incurred. Such debt does not require
voter approval.
The amount of debt incurred by the State for the purpose of making
loans to school districts is recommended by the Superintendent of Public
Instruction, who certifies the amounts necessary for loans to school districts
for the ensuing two calendar years. The bonds may be issued in whatever amount
required without voter approval. All other general obligation bonds issued by
the State must be approved
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as to amount, purpose and method of repayment by a two-thirds vote of each house
of the Legislature and by a majority vote of the public at a general election.
There is no limitation as to number or size of such general obligation issues.
There are also various State authorities and special purpose agencies
created by the State which issue bonds secured by specific revenues. Such debt
is not a general obligation of the State.
GENERAL OBLIGATION BONDS AND NOTES AND SCHOOL BOND LOAN FUND
The State has issued and outstanding general obligation full faith and
credit bonds for Water Resources, Environmental Protection Program, Recreation
Program and School Loan purposes. As of September 30, 1999, the State had
approximately $870 million of general obligations bonds outstanding.
The State may issue notes or bonds without voter approval for the
purposes of making loans to school districts. The proceeds of such notes or
bonds are deposited in the School Bond Loan Fund maintained by the State
Treasurer and used to make loans to school districts for payment of debt on
qualified general obligations bonds issued by local school districts.
As of January 27, 2000, the ratings on State of Michigan general
obligation bonds have continued as "Aa1" by Moody's, "AA+" by S&P and "AA+" by
Fitch IBCA. There is no assurance that such ratings will continue for any period
of time or that such ratings will not be revised or withdrawn. Because all or
most of the Michigan Municipal Obligations are revenue or general obligations of
local governments or authorities, rather than general obligations of the State
of Michigan itself, ratings on such Michigan Municipal Obligations may be
different from those given to the State of Michigan.
LITIGATION
The State is a party to various legal proceedings seeking damages or
injunctive or other relief. In addition to routine litigation, certain of these
proceedings could, if unfavorably resolved from the point of view of the State,
substantially affect State programs or finances. These lawsuits involved
programs generally in the areas of corrections, tax collection, commerce, and
proceedings involving other budgetary reductions to school districts and
governmental units, and court funding. The ultimate disposition of these
proceedings was not determinable as of early 2000.
PROPERTY TAX AND SCHOOL FINANCE REFORM
The State Constitution limits the extent to which municipalities or
political subdivisions may levy taxes upon real and personal property through a
process that regulates assessments.
On March 15, 1994, Michigan voters approved a property tax and school
finance reform measure known as Proposal A. Under Proposal A, as approved,
effective May 1, 1994, the State sales and use tax increased from 4% to 6%, the
State income tax decreased from 4.6% to 4.4%, the cigarette tax increased from
$.25 to $.75 per pack and an additional tax of 16% of the wholesale price began
to be imposed on certain other tobacco products. A .75% real estate transfer tax
became effective January 1, 1995. Beginning in 1994, a state property tax of 6
mills began to be imposed on all real and personal property currently subject to
the general property tax. All local school boards are authorized, with voter
approval,
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to levy up to the lesser of 18 mills or the number of mills levied in 1993 for
school operating purposes on nonhomestead property and nonqualified agricultural
property. Proposal A contains additional provisions regarding the ability of
local school districts to levy taxes, as well as a limit on assessment increases
for each parcel of property, beginning in 1995. Such increases for each parcel
of property are limited to the lesser of 5% or the rate of inflation. When
property is subsequently sold, its assessed value will revert to the current
assessment level of 50% of true cash value. Under Proposal A, much of the
additional revenue generated by the new taxes will be dedicated to the State
School Aid Fund.
Proposal A shifted significant portions of the cost of local school
operations from local school districts to the State and raised additional State
revenues to fund these additional State expenses. These additional revenues will
be included within the State's constitutional revenue limitations and may impact
the State's ability to raise additional revenues in the future.
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APPENDIX C
As stated in the Prospectus, certain of the Funds may enter into
futures contracts and options. Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund might use interest rate futures
as a defense, or hedge, against anticipated interest rate changes. This would
include the use of futures contract sales to protect against expected increases
in interest rates and futures contract purchases to offset the impact of
interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by a Fund, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade and
the Chicago Mercantile Exchange. The Funds will deal only in standardized
contracts on recognized exchanges. Each exchange guarantees performance under
contract provisions through a clearing corporation, a nonprofit organization
managed by the exchange membership.
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A public market now exists in futures contracts covering various
financial instruments including long-term U.S. Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month U.S. Treasury Bills; and ninety-day
commercial paper. A Fund may trade in any interest rate futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
II. Index Futures Contracts
A stock or bond index assigns relative values to the stocks or bonds
included in the index, which fluctuates with changes in the market values of the
stocks or bonds included.
A Fund may sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. A Fund may do so either to hedge the value of its portfolio as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. A long
futures position may be terminated without a corresponding purchase of
securities.
In addition, a Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
III. Futures Contracts on Foreign Currencies
A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by a Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
IV. Margin Payments
Unlike purchase or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially, a
Fund will be required to deposit with the broker or in a segregated account with
its custodian an amount of cash or cash equivalents, known as initial margin,
based on the value of the contract. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker, will be made on a daily basis as the price of the
underlying instruments fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as marking-to-market.
For example, when a particular Fund has purchased a futures contract and the
price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a
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variation margin payment equal to that increase in value. Conversely, where a
Fund has purchased a futures contract and the price of the futures contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable and the Fund would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures contract,
Lyon Street may elect to close the position by taking an opposite position,
subject to the availability of a secondary market, which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or gain.
V. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a
Fund. One risk arises because of the imperfect correlation between movements in
the price of the future and movements in the price of the instruments which are
the subject of the hedge. The price of the future may move more than or less
than the price of the instruments being hedged. If the price of the future moves
less than the price of the instruments which are the subject of the hedge, the
hedge will not be fully effective but, if the price of the instruments being
hedged has moved in an unfavorable direction, the Fund would be in a better
position than if it had not hedged at all. If the price of the instruments being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged instruments, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the instruments which are the subject of the hedge. To compensate for
the imperfect correlation of movements in the price of instruments being hedged
and movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater dollar amount than the dollar amount of instruments being
hedged if the volatility over a particular time period of the prices of such
instruments has been greater than the volatility over such time period of the
futures, or if otherwise deemed to be appropriate by Lyon Street. Conversely, a
Fund may buy or sell fewer futures contracts if the volatility over a particular
time period of the prices of the instruments being hedged is less than the
volatility over such time period of the futures contract being used, or if
otherwise deemed to be appropriate by Lyon Street. It is also possible that,
where a Fund has sold futures to hedge its portfolio against a decline in the
market, the market may advance and the value of instruments held in the Fund may
decline. If this occurred, the Fund would lose money on the future and also
experience a decline in value in its portfolio securities.
When futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by
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<PAGE> 140
speculators in the futures market may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market, and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will normally not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund is also subject to Lyon Street's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may also have to
sell securities at a time when it may be disadvantageous to do so.
VI. Options on Futures Contracts
A Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased.
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<PAGE> 141
Depending on the pricing of the option compared to either the futures contract
upon which it is based, or upon the price of the securities being hedged, an
option may or may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract.
Compared to the purchase or sale of futures contracts, however, the purchase of
call or put options on futures contracts may frequently involve less potential
risk to a Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). The writing of an option on a futures contract
involves risks similar to those risks relating to the sale of futures contracts.
VII. Other Matters
Accounting for futures contracts and related options will be in
accordance with generally accepted accounting principles.
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<PAGE> 142
THE KENT FUNDS
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Registrant's Restatement of Declaration of Trust was filed with Registrant's
Post-Effective Amendment No. 24 as Exhibit 24(b)(1) and is incorporated by
reference herein.
(b) Registrant's Amended and Restated By-Laws were filed with Registrant's
Post-Effective Amendment No. 24 as Exhibit 24(b)(2) and are incorporated by
reference herein.
(c) See Articles III, V and VIII of Registrant's Restatement of Declaration of
Trust and Article II of Registrant's Amended and Restated By-Laws.
(d)(1) The Investment Advisory Agreement between Registrant and Old Kent Bank
and Trust Company (now known as Old Kent Bank) was filed with Registrant's
Post-Effective Amendment No. 4 as Exhibit 24(b)(5) and is incorporated by
reference herein.
(d)(2) The First Amendment to the Investment Advisory Agreement between
Registrant and Old Kent Bank and Trust Company (now known as Old Kent Bank) was
filed with Registrant's Post-Effective Amendment No. 24 as Exhibit 24(b)(5)(a)
and is incorporated by reference herein.
(d)(3) Amended Schedule A to the First Amendment to the Investment Advisory
Agreement between Registrant and Old Kent Bank and Trust Company was filed with
Registrant's Post-Effective Amendment No. 24 as Exhibit 24(b)(5)(b) and is
incorporated by reference herein.
(d)(4) The notice to Old Kent Bank pursuant to the Investment Advisory Agreement
between Registrant and Old Kent Bank relating to The Kent Government Money
Market Fund was filed with Registrant's Post-Effective Amendment No. 24 as
Exhibit 24(b)(5)(c) and is incorporated by reference herein.
(d)(5) Assumption Agreement between Old Kent Bank and Lyon Street Asset
Management Co. dated March 2, 1998 was filed with Registrant's Post-Effective
Amendment No. 24 as Exhibit 24(b)(5)(d) and is incorporated by reference herein.
(d)(6) The notice to Lyon Street Asset Management Co. pursuant to the Investment
Advisory Agreement between Registrant and Old Kent Bank (which has been assumed
by Lyon Street Asset Management Co.) relating to The Kent Large Company Growth
Fund was filed with Registrant's Post-Effective Amendment No. 25 as Exhibit
24(d)(1) and is incorporated by reference herein.
(d)(7) The notice to Lyon Street Asset Management Co. pursuant to the Investment
Advisory Agreement between Registrant and Old Kent Bank (which has been assumed
by Lyon Street Asset Management Co.) relating to The Lyon Street Institutional
Money Market Fund was filed with Registrant's Post-Effective Amendment No. 26 as
Exhibit 24(d)(2) and is incorporated by reference herein.
(e) The Distribution Agreement between Registrant and Kent Funds Distributors,
Inc. dated July 1, 1999 was filed with Registrant's Post-Effective Amendment No.
32 as Exhibit 23(e) and is incorporated by reference herein.
(f) The Kent Funds Deferred Compensation Plan and form of Deferred Compensation
Agreement relating to the Deferred Compensation Plan were filed with
Registrant's Post-Effective Amendment No. 21 as Exhibit 24(b)(7) and are
incorporated by reference herein.
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<PAGE> 143
(g) The Custody Agreement between Registrant and Bank of New York was filed with
Registrant's Post-Effective Amendment No. 31 as Exhibit 23(g) and is
incorporated by reference herein.
(h)(1) The Administration Agreement between Registrant and Old Kent Securities
Corporation dated December 1, 1999 was filed with Registrant's Post-Effective
Amendment No. 32 as Exhibit 23(h)(1) and is incorporated by reference herein.
(h)(2) The Fund Accounting Agreement between Registrant and Old Kent Securities
Corporation dated December 1, 1999 was filed with Registrant's Post-Effective
Amendment No. 32 as Exhibit 23(h)(2) and is incorporated by reference herein.
(h)(3) The Transfer Agency Agreement between Registrant and Old Kent Securities
Corporation dated December 1, 1999 was filed with Registrant's Post-Effective
Amendment No. 32 as Exhibit 23(h)(3) and is incorporated by reference herein.
(h)(4) The Sub-Administration Agreement between Old Kent Securities Corporation
and BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed with
Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(4) and is
incorporated by reference herein.
(h)(5) The Sub-Fund Accounting Agreement between Old Kent Securities Corporation
and BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed with
Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(5) and is
incorporated by reference herein.
(h)(6) The Sub-Transfer Agency Agreement between Old Kent Securities Corporation
and BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed with
Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(6) and is
incorporated by reference herein.
(h)(7) The Omnibus Fee Agreement between Old Kent Securities Corporation and
BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed with
Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(7) and is
incorporated by reference herein.
(i) Opinion of Drinker Biddle & Reath LLP was filed with Registrant's
Post-Effective Amendment No. 32 as Exhibit 23(i) and is incorporated by
reference herein.
(j)(1) Consent of Drinker Biddle & Reath LLP is is filed herewith as Exhibit
23(j)(1).
(j)(2) Consent of KPMG LLP is filed herewith as Exhibit 23(j)(2).
(k) Not applicable.
(l) The subscription agreement was filed with Registrant's Registration
Statement as Exhibit 24(b)(13) and is incorporated by reference herein.
(m)(1) Amended and Restated Master Distribution Plan for Investment Shares and
related form of agreement were filed with Registrant's Post-Effective Amendment
No. 21 as Exhibit 24(b)(15)(a) and Exhibit 24(b)(15)(b), respectively, and are
incorporated by reference herein.
(m)(2) Master Distribution Plan for Retail Shares and related form of agreement
to be filed by Amendment.
(n) Rule 18f-3 Plan to be filed by Amendment.
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<PAGE> 144
(o) Not Applicable.
(p)(1) Code of Ethics of The Kent Funds was filed with Registrant's
Post-Effective Amendment No. 32 as Exhibit 23(p)(1) and is incorporated by
reference herein.
(p)(2) Code of Ethics of Lyon Street Asset Management Company is filed herewith
as Exhibit 23(p)(2).
(p)(3) Code of Ethics of Kent Funds Distributors, Inc. was filed with
Registrant's Post-Effective Amendment No. 32 as Exhibit 23(p)(3) and is
incorporated by reference herein.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Indemnification of the Registrant's investment adviser, principal
underwriter, administrator, fund accountant and transfer agent against certain
losses is provided for, respectively, in Section 5 of the Advisory Agreement
incorporated herein by reference as Exhibit (d)(1), in Section 1.12 of the
Distribution Agreement incorporated herein by reference as Exhibit (e), in
Article V of the Administration Agreement incorporated herein by reference as
Exhibit (h)(l), in Section 7 of the Fund Accounting Agreement incorporated
herein by reference as Exhibit (h)(2) and in Section 9 of the Transfer Agency
Agreement incorporated herein by reference as Exhibit (h)(3). The Registrant has
obtained form a major insurance carrier a trustees' and officers' liability
policy covering certain types of errors and omissions. In addition, Article
VIII, Section 1 of the Registrant's Restatement of Declaration of Trust dated
May 1, 1990, incorporated herein by reference as Exhibit (a), provides as
follows:
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of
its present or former employees or agents, and shall indemnify any
persons who serve or have served at the Trust's request as Directors,
officers or Trustees of another organization, and may indemnify persons
who serve or have served at the Trust's request as employees or agents
of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person") against all liabilities and expenses, including but
not limited to amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees reasonably incurred by any
such Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before
any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, while in office,
employed or acting as agent thereafter, by reason of being or having
been such a Trustee, officer, Director, employee or agent, except with
respect to any matter as to which such Covered Person shall have been
finally adjudicated in any such action, suit or other proceeding not to
have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interest of the Trust and except that
no person shall be indemnified against any liability to the Trust or
its Shareholders to which such Covered Person shall otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Expenses, including counsel fees so incurred by any Covered
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<PAGE> 145
ITEM 24. (continued)
Person, may in the discretion of the Trustees be paid from time to time
by the Trust in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification against such expenses is not
authorized under this Article.
Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against
any liability asserted against him and incurred by him in his capacity
as a Covered Person, or arising out of this status as such, whether or
not the Trust would have the power to indemnify him against the
liability under the provisions of this Section.
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended, may be permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in the connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information as to any other business, profession, vocation or employment of
a substantial nature in which each director and officer of Lyon Street Asset
Management Company is, or at any time during the past two years has been,
engaged for his or her own account or in the capacity of director, officer,
employee, partner or trustee is incorporated by reference to Schedules A and D
of Lyon Street Asset Management Company's Form ADV (File No. 801-55015) filed on
or about March 24, 2000, as amended.
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<PAGE> 146
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Kent Funds Distributors, Inc. (KFDI) acts as distributor for the
Registrant.
(b) Officers and Directors of KFDI are as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Addresses with KFDI with Registrant
- ------------------ ------------------------ ---------------------
<S> <C> <C>
Lynn J. Magnum Chairman None
William J. Tomko President None
Kevin J. Dell Vice President and None
Secretary
Robert Tuch Assistant Secretary Assistant Secretary
R. Jeffrey Young Supervisory Principal Vice President and
Assistant Secretary
Andrew Corbin Vice President None
Gregory A. Trichtinger Vice President None
Olu T. Lawal Fin-Op None
</TABLE>
The principal business address for all officers and directors of KFDI is 3435
Stelzer Road, Columbus, Ohio 43219.
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 to 31a-3 thereunder are maintained by the Registrant at 250 Monroe
Avenue NW, Suite 400, Grand Rapids, Michigan 49503. Certain accounts, books and
other documents required to be maintained by Registrant pursuant to Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder
are maintained by Lyon Street Asset Management Company, 111 Lyon Street NW,
Grand Rapids, Michigan 49503. Certain accounts, books and other documents
required to be maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by BISYS Fund Services at 3435 Stelzer Road, Columbus, Ohio 43219.
Registrant's minute books are maintained by
Drinker Biddle & Reath LLP, 1 Logan Square, 18th & Cherry Streets, Philadelphia,
Pennsylvania 19103-6996.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
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<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment under rule
485(b) under the Securities Act and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Grand Rapids, in the State
of Michigan, on the 28th day of April, 2000.
THE KENT FUNDS
By: /s/ James F. Duca, II
---------------------------
James F. Duca, II
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registrant's Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ James F. Duca, II President April 28, 2000
- -----------------------------
James F. Duca, II
*/s/ Martin R. Dean Treasurer (Principal Accounting April 28, 2000
- ----------------------------- and Financial Officer)
Martin R. Dean
*/s/ Walter B. Grimm Chairman and Trustee April 28, 2000
- -----------------------------
Walter B. Grimm
*/s/ Joseph F. Damore Trustee April 28, 2000
- -----------------------------
Joseph F. Damore
*/s/ James F. Rainey Trustee April 28, 2000
- -----------------------------
James F. Rainey
*/s/ Ronald F. VanSteeland Trustee April 28, 2000
- -----------------------------
Ronald F. VanSteeland
*/s/ E. Philip Farley Trustee April 28, 2000
- ------------------------------
E. Philip Farley
*By: /s/ Amy D. Eisenbeis
-----------------------
Amy D. Eisenbeis
Attorney-in-Fact
* Amy D. Eisenbeis, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Trustees and Officers of
Registrant pursuant to powers of attorney duly executed by such persons.
<PAGE> 148
THE KENT FUNDS
POWER OF ATTORNEY
I, E. Philip Farley, hereby appoint James F. Duca, II and Amy D. Eisenbeis,
and either of them, my true and lawful attorneys and agents, with power of
substitution and resubstitution, to perform any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or advisable or which may be required to enable The
Kent Funds, a Massachusetts business trust (the "Fund"), to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended ("Acts"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement pursuant to said Acts, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in my name and on my behalf as a trustee and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and I hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
do or cause to be done by virtue hereof.
/s/ E. Philip Farley
--------------------------------
E. Philip Farley
Date: February 24, 2000
<PAGE> 149
THE KENT FUNDS
POWER OF ATTORNEY
I, Walter B. Grimm, hereby appoint James F. Duca, II and Amy D. Eisenbeis,
and either of them, my true and lawful attorneys and agents, with power of
substitution and resubstitution, to perform any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or advisable or which may be required to enable The
Kent Funds, a Massachusetts business trust (the "Fund"), to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended ("Acts"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement pursuant to said Acts, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in my name and on my behalf as a trustee and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and I hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
do or cause to be done by virtue hereof.
/s/ Walter B. Grimm
---------------------------------
Walter B. Grimm
Date: February 24, 2000
<PAGE> 150
THE KENT FUNDS
POWER OF ATTORNEY
I, Joseph F. Damore, hereby appoint James F. Duca, II and Amy D. Eisenbeis,
and either of them, my true and lawful attorneys and agents, with power of
substitution and resubstitution, to perform any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or advisable or which may be required to enable The
Kent Funds, a Massachusetts business trust (the "Fund"), to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended ("Acts"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement pursuant to said Acts, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in my name and on my behalf as a trustee and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and I hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
do or cause to be done by virtue hereof.
/s/ Joseph F. Damore
--------------------------------
Joseph F. Damore
Date: February 24, 2000
<PAGE> 151
THE KENT FUNDS
POWER OF ATTORNEY
I, James F. Rainey, hereby appoint James F. Duca, II and Amy D. Eisenbeis,
and either of them, my true and lawful attorneys and agents, with power of
substitution and resubstitution, to perform any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or advisable or which may be required to enable The
Kent Funds, a Massachusetts business trust (the "Fund"), to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended ("Acts"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement pursuant to said Acts, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in my name and on my behalf as a trustee and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and I hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
do or cause to be done by virtue hereof.
/s/ James F. Rainey
---------------------------------
James F. Rainey
Date: February 24, 2000
<PAGE> 152
THE KENT FUNDS
POWER OF ATTORNEY
I, Ronald F. VanSteeland, hereby appoint James F. Duca, II and Amy D.
Eisenbeis, and either of them, my true and lawful attorneys and agents, with
power of substitution and resubstitution, to perform any and all acts and things
and to execute any and all instruments which said attorneys and agents, or
either of them, may deem necessary or advisable or which may be required to
enable The Kent Funds, a Massachusetts business trust (the "Fund"), to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in my name and on my behalf as a trustee and/or
officer of the Fund any and all such amendments filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and I hereby ratify and confirm all that said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
/s/ Ronald F. VanSteeland
--------------------------------
Ronald F. VanSteeland
Date: February 24, 2000
<PAGE> 153
THE KENT FUNDS
POWER OF ATTORNEY
I, Martin R. Dean, hereby appoint James F. Duca, II and Amy D. Eisenbeis,
and either of them, my true and lawful attorneys and agents, with power of
substitution and resubstitution, to perform any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or advisable or which may be required to enable The
Kent Funds, a Massachusetts business trust (the "Fund"), to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended ("Acts"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the filing and
effectiveness of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement pursuant to said Acts, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in my name and on my behalf as a trustee and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and I hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
do or cause to be done by virtue hereof.
/s/ Martin R. Dean
--------------------------------
Martin R. Dean
Date: April 3, 2000
<PAGE> 154
EXHIBIT LIST
Exhibit No. Description
- ---------- ----------------------------------------------------------------
23(j)(1) Consent of Drinker Biddle & Reath LLP is filed herewith as
EX.99-23(j)(1).
23(j)(2) Consent of KPMG LLP is filed herewith as EX-99-23(j)(2).
23(p)(2) Code of Ethics of Lyon Street Asset Management Company is filed
herewith as EX.99-23(p)(2).
<PAGE> 1
EXHIBIT 99.23(J)(1)
CONSENT OF COUNSEL
We hereby consent to use of our name and to the reference to our firm under the
caption "Counsel" in the Statement of Additional Information that is included or
incorporated by reference in Post-Effective Amendment No. 33 to the Registration
Statement (No. 33-8398) on Form N-1A under the Securities Act of 1933, as
amended, of the Kent Funds. This consent does not constitute a consent under
Section 7 of the Securities Act of 1933, as amended, and in consenting to the
use of our name and the references to our firm under such caption we have not
certified any part of the Registration Statement and do not otherwise come
within the categories of persons whose consent is required under Section 7 or
the rules and regulations of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
---------------------------------------------
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Dated: April 25, 2000
<PAGE> 1
EXHIBIT 99.23(J)(2)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
the Kent Funds:
We consent to the use of our report dated February 18, 2000 for the Kent Funds,
incorporated by reference herein, and to the references to our firm under the
headings "Financial Highlights" in the Prospectus and "Custodian, Auditors and
Counsel" and "Financial Statements" in the Statement of Additional Information.
/s/ KPMG LLP
Columbus, Ohio
April 28, 2000
<PAGE> 1
EXHIBIT 99.23(P)(2)
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS
FOR SECURITIES TRANSACTIONS
EFFECTIVE APRIL 20, 2000
<PAGE> 2
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS
FOR
SECURITIES TRANSACTIONS
<TABLE>
<S> <C>
I. Preamble.................................................................................................1
II. Definitions..............................................................................................2
A. "Access Persons"....................................................................................2
B. "Account"...........................................................................................2
C. "Asset Manager".....................................................................................2
D. "Control"...........................................................................................2
E. "Designated Compliance Person"......................................................................2
F. "Family Members"....................................................................................2
G. "Initial Public Offering"...........................................................................2
H. "Investment Personnel"..............................................................................3
I. "Limited Offering"..................................................................................3
J. "Person Subject to this Code of Ethics".............................................................3
K. "Personal Account"..................................................................................3
L. "Purchase or Sale of a Subject Security"............................................................4
M. "Rule 17j-1"........................................................................................4
N. "SEC"...............................................................................................4
O. "Subject Security"..................................................................................4
III. Statement of General Principles..........................................................................5
A. General Fiduciary Principals........................................................................5
B. Principals Applicable to Registered Investment Companies Managed by
Lyon Street Asset Management Company................................................................5
IV. Applicability............................................................................................6
V. Specific Restrictions on Transactions....................................................................6
A. Access Persons......................................................................................6
1. Substantive Restrictions........................................................................6
a. Blackout Period.............................................................................6
b. New Issues..................................................................................6
c. Restrictions Applicable to Related Securities...............................................6
2. Compliance Procedures...........................................................................6
a. Prenotification.............................................................................6
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
B. Investment Personnel................................................................................7
1. Substantive Restrictions........................................................................7
a. Blackout Period.............................................................................7
b. New Issues..................................................................................7
c. Short-Term Trading..........................................................................7
d. Prior Approval..............................................................................7
e. Restrictions Applicable to Related Securities...............................................7
2. Compliance Procedures...........................................................................8
a. Prenotification.............................................................................8
C. Asset Managers......................................................................................8
1. Substantive Restrictions........................................................................8
a. Blackout Period.............................................................................8
b. New Issues..................................................................................8
c. Short-Term Trading..........................................................................8
d. Prior Approval..............................................................................8
e. Restrictions Applicable to Related Securities...............................................9
2. Compliance Procedures...........................................................................9
a. Prenotification.............................................................................9
D. Exceptions..........................................................................................9
VI. Reporting................................................................................................9
A. Initial Reports.....................................................................................9
B. Quarterly Transaction Reports......................................................................10
C. Annual Reports.....................................................................................10
D. Exceptions from Reporting Requirements.............................................................11
VII. Sanctions...............................................................................................11
VIII. Administration..........................................................................................11
A. Responsibilities of the President of Lyon Street Asset Management
Company............................................................................................11
B. Responsibilities of the Designated Compliance Person...............................................12
C. Responsibilities of the Board of Directors.........................................................13
IX. Interpretations.........................................................................................13
X. Effective Date..........................................................................................13
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
Prenotification and Preapproval Request Memorandum........................................................Exhibit A
Initial Reports...........................................................................................Exhibit B
Quarterly Transaction Report..............................................................................Exhibit C
Annual Reports............................................................................................Exhibit D
Appointment of Asset Manager for Prenotification Review
and Preapproval Authority.................................................................................Exhibit E
Summary Chart of Responsibilities.........................................................................Exhibit F
</TABLE>
iv
<PAGE> 5
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS
FOR
SECURITIES TRANSACTIONS
I. PREAMBLE.
The officers, directors, employees and certain other affiliated persons
of Lyon Street Asset Management Company, a Michigan investment advisor, in
varying degrees participate in or are aware of fiduciary and investment services
provided to registered investment companies, institutional investment clients,
mutual fund asset allocation programs, personal trusts and estates,
guardianships, employee benefit trusts, and other types of investment advisory
accounts. The fiduciary relationships thus created require adherence to the
highest standards of conduct and integrity. Common law and federal regulations
establish that the foremost duty owed by a fiduciary to its beneficiaries is
that of undivided loyalty. Accordingly, personnel acting in a fiduciary capacity
must carry out their duties for the exclusive benefit of the beneficiaries or
shareholders and must always seek to avoid any situation in which corporate or
personal interests may conflict with fiduciary interests. In order to avoid such
situations, this Code of Ethics establishes guidelines intended to prevent any
intentional or unintentional transgressions, without unnecessarily interfering
with the privacy and freedom of the individuals concerned. This Code of Ethics
has been adopted by the Board of Directors of Lyon Street Asset Management
Company.
In addition to the requirements of this Code of Ethics, Lyon Street
Asset Management Company officers, directors and employees who are also officers
or employees of Old Kent Bank and engaged in the provision of fiduciary services
are required to comply with bank policies and procedures, many of which are set
forth in the Investment Services Policy Book of Old Kent Bank. In general,
employees may not solicit or accept anything of value from anyone in connection
with the business of Lyon Street Asset Management Company, or its corporate
affiliate Old Kent Bank, unless the gift is of minimal value and does not in any
way influence the recipient or suggest to others that the recipient might be
influenced. Similarly, both Lyon Street Asset Management Company's policy and
the Old Kent Bank Investment Services policy regarding confidentiality require
that employees keep all confidential and proprietary information in complete
confidence.
Lyon Street Asset Management Company, its officers, directors and
employees may also be required to comply with other rules or policies imposing
separate requirements. For example, these persons may be subject to state and
federal laws imposing restrictions with respect to personal securities
transactions, including, but not limited to, Rule 17j-1 issued by the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended.
1
<PAGE> 6
II. DEFINITIONS. The following definitions apply to this Code of Ethics:
A. "Access Person" means:
1. Any officer or director of Lyon Street Asset Management
Company;
2. Any employee of Lyon Street Asset Management Company, Old
Kent Bank or Old Kent Financial Corporation (or of any other
company in a control relationship to Lyon Street Asset
Management Company), including all Investment Personnel and
all Asset Managers, as defined below, who in connection with
his or her regular functions or duties makes, participates in,
or obtains information regarding the purchase or sale of
Subject Securities by a registered investment company, or
whose functions relate to the making of any recommendations
with respect to the purchase or sale of Subject Securities by
a registered investment company; and
3. Any natural person in a control relationship to Lyon Street
Asset Management Company who obtains information concerning
recommendations made to a registered investment company with
regard to the purchase or sale of Subject Securities by the
registered investment company.
All Access Persons will be so identified by the President of
Lyon Street Asset Management Company and notified by the Designated
Compliance Person.
B. "Account" means an account through which Lyon Street Asset
Management Company provides investment services to one or more
registered investment companies or other persons, corporations or
entities.
C. "Asset Manager" means an employee of Lyon Street Asset Management
Company entrusted with the direct responsibility and authority to make
investment decisions affecting an Account. All Asset Managers will be
so identified by the President of Lyon Street Asset Management Company
and notified by the Designated Compliance Person.
D. "Control" has the same meaning as in section 2(a)(9) of the
Investment Company Act of 1940, as amended.
E. "Designated Compliance Person" means the person appointed by the
Board of Directors of Lyon Street Asset Management Company, or his/her
designee if (s)he is absent or otherwise unavailable.
F. "Family Members" of any person subject to this Code of Ethics means
the spouse, any minor children, older children living at the subject
person's home, older children primarily financially supported by the
subject person, and any other relatives (by marriage or otherwise)
living in the household of the person subject to this Code of Ethics.
G. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of sections 13 or 15(d) of the Securities Exchange Act of 1934.
2
<PAGE> 7
H. "Investment Personnel" means:
1. Any employee of Lyon Street Asset Management Company, Old
Kent Bank or Old Kent Financial Corporation (or of any other
company in a control relationship to Lyon Street Asset
Management Company), who, in connection with his or her
regular functions or duties, makes or participates in making
recommendations regarding the purchase or sale of securities
by a registered investment company; and
2. Any natural person who controls Lyon Street Asset
Management Company and who obtains information concerning
recommendations made to a registered investment company
regarding the purchase or sale of securities by the registered
investment company.
All Investment Personnel will be so identified by the
President of Lyon Street Asset Management Company and notified by the
Designated Compliance Person.
I. "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to section 4(2)
or section 4(6) or pursuant to rule 504, rule 505, or rule 506 under
the Securities Act of 1933.
J. "Person Subject to this Code of Ethics" is any person who is an
Access Person, Investment Personnel and/or an Asset Manager.(1)
K. "Personal Account" of any Person Subject to this Code of Ethics
means:
1. Any account as to which such person has direct or indirect
beneficial ownership(2);
2. Accounts of any other individual or entity, which accounts
are managed or controlled by or through the Person Subject to
this Code of Ethics, other than any of the Accounts managed by
Lyon Street Asset Management Company;
- --------
(1) The persons excluded from this Code's coverage are excluded because they are
not in a position to abuse their fiduciary obligations to engineer personal
investment gain. Nevertheless, all persons employed by Lyon Street Asset
Management Company are subject to the general rules of ethical conduct adopted
by or required from Lyon Street Asset Management Company. Dual employees are
subject also to the rules of ethical conduct of Old Kent Bank, when acting as
its representative.
(2) For purposes of this Code, beneficial ownership is interpreted in the same
manner as it would be under rule 16a-1(a)(2) under the Securities and Exchange
Act of 1934 in determining whether a person is the beneficial owner of a
security for purposes of section 16 of the Securities and Exchange Act of 1934
and the rules and regulations thereunder.
3
<PAGE> 8
3. Accounts of any other individual or entity to whom the
Person Subject to this Code of Ethics gives advice with regard
to the acquisition or disposition of securities, other than
any of the Accounts managed by Lyon Street Asset Management
Company; and
4. Accounts over which the Family Members of the Person
Subject to this Code of Ethics exercise discretion or control
outside the scope of their business employment.
Provided, however, that the term "Personal Account" shall not
be construed in a manner which would impose a limitation or restriction
upon the normal conduct of business by directors, officers, employees
and affiliates of Lyon Street Asset Management Company.
L. "Purchase or Sale of a Subject Security" includes, among other
things, the writing of an option to purchase or sell a Subject
Security.
M. "Rule 17j-1" means Rule 17j-1 promulgated by the Securities and
Exchange Commission under the Investment Company Act of 1940, as
amended.
N. "SEC" means the Securities and Exchange Commission.
O. "Subject Security" shall have the following meaning: any note,
stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option or privilege on any security or any group or index of
securities (including any interest therein or based on the value
thereof), or any put, call straddle, option, or privilege entered into
on a national securities exchange relating to foreign currency, or in
general, any interest or instrument commonly known as a "security", or
any certificate of interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
For purposes of this Code of Ethics, "Subject Security" shall
NOT include: securities which are issued by the Government of the
United States, shares of registered open-end investment companies
(mutual funds), securities which are acquired through dividend
reinvestment programs, bankers' acceptances, bank certificates of
deposit, commercial paper or high quality short-term debt instruments,
including repurchase agreements. A high quality short-term debt
instrument is any instrument that has a maturity at issuance of less
than 366 days and that is rated in one of the two highest rating
categories by a Nationally Recognized Statistical Rating Organization.
4
<PAGE> 9
III. STATEMENT OF GENERAL PRINCIPLES.
A. GENERAL FIDUCIARY PRINCIPLES. The following general fiduciary
principles govern the personal investment activities of Lyon Street
Asset Management Company officers and employees:
1. The interests of Lyon Street Asset Management Company's
fiduciary customers come first. In any matter involving both a
Personal Account and securities held or to be acquired by any
Account for which Lyon Street Asset Management Company serves
as fiduciary, Lyon Street Asset Management Company employees
resolve any known or reasonably anticipated conflict of
interest in favor of the fiduciary Account.
2. All Persons Subject to this Code of Ethics conduct their
personal securities transactions in a manner consistent with
the Code of Ethics and in such a manner as to avoid any actual
or potential conflict of interest.
3. Lyon Street Asset Management Company personnel do not take
inappropriate advantage of their positions.
B. PRINCIPLES APPLICABLE TO REGISTERED INVESTMENT COMPANIES MANAGED BY
LYON STREET ASSET MANAGEMENT COMPANY. It is unlawful for any affiliated
person of, or any affiliated person of an investment adviser of, a
registered investment company, in connection with the purchase or sale,
directly or indirectly, by the person of a security held or to be
acquired by a registered investment company:
1. To employ any device, scheme or artifice to defraud the
registered investment company;
2. To make any untrue statement of a material fact to the
registered investment company or omit to state a material fact
necessary in order to make the statements made to the
registered investment company, in light of the circumstances
under which they are made, not misleading;
3. To engage in any act, practice or course of business that
operates or would operate as a fraud or deceit on the
registered investment company; or
4. To engage in any manipulative practice with respect to the
registered investment company.
A security held or to be acquired by a registered investment
company is any Subject Security which, within the most recent 15 days,
is or has been considered by Lyon Street Asset Management Company for
purchase by a registered investment company, is being or has been
considered by Lyon Street Asset Management Company for purchase by a
registered investment company, and any option to purchase or sell, and
any security convertible into or exchangeable for, such a Subject
Security.
5
<PAGE> 10
IV. APPLICABILITY.
The provisions of this Code of Ethics shall apply to all Persons
Subject to this Code of Ethics. Any person notified by the Designated Compliance
Person that he or she is an Access Person, Investment Personnel and/or an Asset
Manager shall have the individual duty to comply with the provisions of this
Code of Ethics applicable to the category to which the person belongs.
V. SPECIFIC RESTRICTIONS ON TRANSACTIONS.
This Code of Ethics applies the following specific restrictions to the
categories of persons named.
A. ACCESS PERSONS. Access Persons shall do (or refrain from doing) the
following:
1. Substantive Restrictions.
a. BLACKOUT PERIOD. An Access Person shall not
purchase or sell a Subject Security for a Personal
Account on a day during which any Account has a "buy"
or "sell" order for the same security, until that
order is executed or withdrawn. For the purposes of
these blackout restrictions only, Personal Accounts
do not include accounts of Family Members, unless the
Access Person directed or otherwise participated in
decisions regarding investments made for the Family
Member's account.
b. NEW ISSUES. Access Persons shall not acquire for a
Personal Account any Subject Security in an Initial
Public Offering.
c. RESTRICTIONS APPLICABLE TO RELATED Securities.
Transactions in securities related in value to a
Subject Security, including warrants, convertible
securities, and options, are restricted in the same
manner as are transactions in the Subject Security
itself.
2. Compliance Procedures.
a. PRENOTIFICATION. All Access Persons shall have all
Subject Security transactions for Personal Accounts
reviewed by the President of Lyon Street Asset
Management Company prior to the transactions being
executed (see Exhibit A, attached). If the President
approves the transaction, then the Access Person
shall have 24 hours to execute the transaction.
During the 24-hour period, the President may verbally
revoke the approval if additional information is
obtained indicating that the transaction may violate
the provisions of this Code of Ethics. Verbal
revocations are effective immediately, are applicable
to previously approved transactions that have not yet
been executed, and will be confirmed in writing.
6
<PAGE> 11
For purposes of this prenotification
requirement, Personal Accounts do not include
accounts of Family Members unless the Access Person
directed or otherwise participated in decisions
regarding investments made for the Family Member's
account.
B. INVESTMENT PERSONNEL. All Investment Personnel shall do (or refrain
from doing) the following:
1. Substantive Restrictions.
a. BLACKOUT PERIOD. Investment Personnel shall not
purchase or sell a Subject Security for a Personal
Account on a day during which any Account has a "buy"
or "sell" order for the same security, until that
order is executed or withdrawn. For the purposes of
these blackout restrictions only, Personal Accounts
do not include accounts of Family Members, unless the
Investment Personnel directed or otherwise
participated in decisions regarding investments made
for the Family Member's account.
b. NEW ISSUES. Investment Personnel shall not acquire
for a Personal Account any Subject Security in an
Initial Public Offering.
c. SHORT-TERM TRADING. Investment Personnel must
request authority from the President of Lyon Street
Asset Management Company to profit from the purchase
and sale, or sale and purchase, of the same Subject
Securities within 60 calendar days.
d. PRIOR APPROVAL. Investment Personnel shall not,
without the express prior approval of the President
of Lyon Street Asset Management Company, (i) acquire
for a Personal Account any Subject Security in a
Limited Offering or (ii) serve on the board of
directors of a publicly traded company. Where an
Investment Personnel has been authorized to obtain
Subject Securities of an issuer in a Limited
Offering, such person shall disclose that investment
when involved in the consideration of the same
issuer's Subject Securities for an Account, and any
subsequent decision to purchase Subject Securities of
the same issuer for an Account shall be independently
reviewed by appropriate personnel of Lyon Street
Asset Management Company having no personal interest
in the issuer. Where service as a director is
authorized, safeguards such as a "Chinese Wall" may
be required.
e. RESTRICTIONS APPLICABLE TO RELATED Securities.
Transactions in securities related in value to a
Subject Security, including warrants, convertible
securities, and options, are restricted in the same
manner as are transactions in the Subject Security
itself.
7
<PAGE> 12
2. Compliance Procedures.
a. PRENOTIFICATION. All Investment Personnel shall
have all Subject Security transactions for Personal
Accounts reviewed by the President of Lyon Street
Asset Management Company prior to the transactions
being executed (see Exhibit A, attached). If the
President approves the transaction, then the
Investment Personnel shall have 24 hours to execute
the transaction. During the 24-hour period, the
President may verbally revoke the approval if
additional information is obtained indicating that
the transaction may violate the provisions of this
Code of Ethics. Verbal revocations are effective
immediately, are applicable to previously approved
transactions that have not yet been executed, and
will be confirmed in writing.
For purposes of this prenotification
requirement only, Personal Accounts do not include
accounts of Family Members unless the Investment
Personnel directed or otherwise participated in
decisions regarding investments made for the Family
Member's account.
C. ASSET MANAGERS. All Asset Managers shall do (or refrain from doing)
the following:
1. Substantive Restrictions.
a. BLACKOUT PERIOD. An Asset Manager shall not
purchase or sell a Subject Security for a Personal
Account within at least seven calendar days before or
after that Subject Security is traded by an Account
for which the Asset Manager is a manager. An Asset
Manager who manages a registered investment company
that the Board of Directors has identified as an
index fund is exempt from this restriction for
purposes of that index fund. For the purposes of
these blackout restrictions only, Personal Accounts
do not include accounts of Family Members, unless the
Asset Manager directed or otherwise participated in
decisions regarding investments made for the Family
Member's account.
b. NEW ISSUES. Asset Managers shall not acquire for
any Personal Account any Subject Security in an
Initial Public Offering.
c. SHORT-TERM TRADING. Asset Managers must request
authority from the President of Lyon Street Asset
Management Company to profit from the purchase and
sale, or sale and purchase, of the same Subject
Securities within 60 calendar days.
d. PRIOR APPROVAL. Asset Managers shall not, without
the express prior approval of the President of Lyon
Street Asset Management Company, (i) acquire for any
Personal Accounts any Subject Security in a Limited
Offering or (ii) serve on the board of directors of a
publicly traded company. Where an Asset Manager has
been authorized to obtain Subject Securities of an
issuer in a
8
<PAGE> 13
Limited Offering, such person shall disclose that
investment when involved in the consideration of the
same issuer's Subject Securities for an Account, and
any subsequent decision to purchase Subject
Securities of the same issuer for an Account shall be
independently reviewed by personnel with no personal
interest in the issuer. Where service as a director
is authorized, safeguards such as a "Chinese Wall"
may be required.
e. RESTRICTIONS APPLICABLE TO RELATED Securities.
Transactions in securities related in value to a
Subject Security, including warrants, convertible
securities, and options, are restricted in the same
manner as are transactions in the Subject Security
itself.
2. Compliance Procedures.
a. PRENOTIFICATION. All Asset Managers shall have all
Subject Security transactions for Personal Accounts
reviewed by the President of Lyon Street Asset
Management Company prior to the transactions being
executed (see Exhibit A, attached). If the President
approves the transaction, then the Asset Manager
shall have 24 hours to execute the transaction.
During the 24-hour period, the President may verbally
revoke the approval if additional information is
obtained indicating that the transaction may violate
the provisions of this Code of Ethics. Verbal
revocations are effective immediately, are applicable
to previously approved transactions that have not yet
been executed, and will be confirmed in writing.
For purposes of this prenotification
requirement only, Personal Accounts do not include
accounts of Family Members unless the Asset Manager
directed or otherwise participated in decisions
regarding investments made for the Family Member's
account.
D. EXCEPTIONS. Upon demonstration of a hardship involving special
circumstances, the President of Lyon Street Asset Management Company
may grant an exception from time to time to one of the above
restrictions for Access Persons, Investment Personnel or Asset
Managers, but only if the President knows of no abuse.
VI. REPORTING.
A. INITIAL REPORTS. No later than 10 days after a person becomes
subject to this Code of Ethics, he or she must provide the information
listed below to the Designated Compliance Person (see Exhibit B,
attached):
1. A certification that the Person Subject to this Code of
Ethics has read and understands the Code of Ethics and agrees
to comply with its terms and conditions;
2. The title, number of shares and principal amount of each
Subject Security in any Personal Account of the Person Subject
to this Code of Ethics as of the date the person became
subject to this Code of Ethics;
9
<PAGE> 14
3. The name of any broker, dealer or bank with whom any
Personal Account maintained by the Person Subject to this Code
of Ethics was held as of the date the person became subject to
this Code of Ethics; and
4. The date that the report is submitted by the Person Subject
to this Code of Ethics.
B. QUARTERLY TRANSACTION REPORTS. No later than 10 days after the end
of a calendar quarter, every Person Subject to this Code of Ethics must
report the information listed below to the Designated Compliance Person
(see Exhibit C, attached):
1. With respect to any transaction during the quarter in a
Subject Security in a Personal Account:
a. The date of the transaction, the title, the
interest rate and maturity date (if applicable), the
number of shares, and the principal amount of each
Subject Security involved;
b. The nature of the transaction (i.e., purchase,
sale or any other type of acquisition or disposition;
c. The price of the Subject Security at which the
transaction was effected;
d. The name of the broker, dealer or bank with or
through which the transaction was effected; and
e. The date that the report is submitted by the
Person Subject to this Code of Ethics.
2. With respect to any Personal Account established by the
Person Subject to this Code of Ethics during the quarter:
a. The name of the broker, dealer or bank with whom
the Person Subject to this Code of Ethics established
the account;
b. The date the account was established; and
c. The date that the report is submitted by the
Person Subject to this Code of Ethics.
C. ANNUAL REPORTS. No later than January 30 of each year, every Person
Subject to this Code of Ethics must provide the information listed
below to the Designated Compliance Person (see Exhibit D, attached):
1. A certification that the Person Subject to this Code of
Ethics has read and understands the Code of Ethics and has
complied and will continue to comply with its terms and
conditions;
10
<PAGE> 15
2. The title, number of shares and principal amount of each
Subject Security in a Personal Account on December 31 of the
previous year;
3. The name of any broker, dealer or bank with whom the Person
Subject to this Code of Ethics maintained a Personal Account
as of December 31 of the previous year; and
4. The date the report is submitted by the Person Subject to
this Code of Ethics.
D. EXCEPTIONS FROM REPORTING REQUIREMENTS. No report needs to be filed
with respect to transactions effected for any account over which the
Person Subject to this Code of Ethics does not have any direct or
indirect influence or control.
VII. SANCTIONS.
Any Person Subject to this Code of Ethics who violates any part of it
will be subject to disciplinary actions including, possibly, dismissal. In
addition, any securities transaction executed in violation of this Code of
Ethics, such as short-term trading or trading during blackout periods, shall be
unwound or, if that is not practical, profits will be disgorged to a designated
charity. Finally, violations and suspected violations of criminal laws will be
reported to the appropriate authorities as required by applicable law or
regulation.
VIII. ADMINISTRATION.
A. RESPONSIBILITIES OF THE PRESIDENT OF LYON STREET ASSET MANAGEMENT
COMPANY. The President of Lyon Street Asset Management Company shall
identify each Person Subject to this Code of Ethics and provide the
Designated Compliance Person with such person's name and the date on
which such person became subject to this Code of Ethics. The President
shall review with the Board of Directors at least quarterly the list of
persons subject to this Code of Ethics.
The President shall be responsible for the prenotification and
preapproval requirements contained in this Code of Ethics. The
President shall review all prenotification and preapproval requests
with the object of identifying any applicable prohibition or limitation
and keeping a record of good faith efforts to meet the requirements of
this Code of Ethics. The President may grant a prenotification request
if the transaction would not violate any provision of this Code of
Ethics. The President may grant short-term trading authority so long as
he or she concludes there is no abuse. The President may approve
acquisitions of securities in a Limited Offering or service on the
board of directors of a publicly traded company only where such actions
are consistent with the interest of the Accounts and the beneficiaries
or shareholders. The President may verbally revoke any approval if
additional information is obtained indicating that the transaction may
violate the provisions of this Code of Ethics.
11
<PAGE> 16
If the President is or will be unavailable to perform the
prenotification and preapproval responsibilities, he or she may, by
means of the form attached as Exhibit E or other similar written
instructions, designate another Asset Manager to substitute for
purposes of affirming or denying trades. The President (or any
temporarily designated Asset Manager) may not approve transactions for
his or her own Personal Accounts, but instead shall seek any required
approval from and make any required reporting to the Designated
Compliance Person.
The President shall determine what action should be taken in
response to any violation of this Code of Ethics. In determining the
disposition of a violation, the President shall consider, among other
things, whether there have been previous violations by the same
individual, whether the Person Subject to this Code of Ethics knew or
should have known that the transaction was a prohibited transaction and
whether the Person Subject to this Code of Ethics engaged in the
transaction with the view to making a profit on the anticipated market
action of the Subject Security resulting from Account transactions. In
rare instances where a violation has occurred but no abuse is involved
and the equities of the situation strongly support an exemption, the
President may find it equitable that no sanctions be imposed. If it has
been determined that an officer, director or employee of Lyon Street
Asset Management Company has material nonpublic information, the
President shall cause measures to be implemented to prevent
dissemination of such information, and, if necessary, restrict
officers, directors and employees from trading the securities.
If the President is or will be unavailable to determine what
action should be taken in response to a violation, the Board of
Directors shall determine the disposition of the violation.
B. RESPONSIBLITIES OF THE DESIGNATED COMPLIANCE PERSON. The Designated
Compliance Person is responsible for administering the requirements of
this Code of Ethics, except for those particular responsibilities
otherwise assigned herein.
The Designated Compliance Person shall provide each Person
Subject to this Code of Ethics with a copy of the Code of Ethics
initially upon such person being determined to be subject to the Code
and annually thereafter.
The Designated Compliance Person shall furnish to the board of
directors of any registered investment company for which Lyon Street
Asset Management Company acts as investment adviser, no less frequently
than annually, a written report that: (1) describes any issues relating
to an access person of the investment company that arose under this
Code of Ethics or procedures adopted pursuant to this Code of Ethics
since the last report to the board of directors of the investment
company, including, but not limited to, information about material
violations of this Code or any applicable procedures and sanctions
imposed in response to the material violations; and (2) certifies that
Lyon Street Asset Management Company has adopted procedures reasonably
necessary to prevent access persons of the investment company from
violating this Code.
The Designated Compliance Person shall maintain all records
required by this Code of Ethics and Rule 17j-1(f).
12
<PAGE> 17
If the Designated Compliance Person believes or has been
notified that a Person Subject to this Code of Ethics may have engaged
in any transaction prohibited by this Code, the Designated Compliance
Person shall cause an investigation to be conducted. The Designated
Compliance Person shall report all investigations, any actual or
suspected violations of this Code, and any actions taken in response to
such violations to the President of Lyon Street Asset Management
Company and/or the Board of Directors, in a timely manner.
If the Designated Compliance Person is or will be absent or
unavailable, he or she will, by written instructions in the form of a
memorandum, designate another Compliance Department staff member to
substitute temporarily as the Designated Compliance Person. If the
Designated Compliance Person is unable to serve but has not designated
a temporary replacement, then the Board of Directors shall serve as the
Designated Compliance Person or shall appoint a temporary or permanent
successor Designated Compliance Person.
C. RESPONSIBILITIES OF THE BOARD OF DIRECTORS. The Board of Directors
shall review and monitor this Code of Ethics and shall appoint a
Designated Compliance Person as needed from time to time.
IX. INTERPRETATIONS.
Any questions regarding the applicability, meaning or administration of
this Code of Ethics shall be referred in advance of any contemplated transaction
to the Designated Compliance Person for interpretation. A summary chart of the
responsibilities of the Persons Subject to this Code of Ethics is attached as
Exhibit F, but such persons are directed to consult the full text of the Code of
Ethics to determine their exact responsibilities.
X. EFFECTIVE DATE.
Upon adoption by the Board of Directors, this Code of Ethics shall be
effective as of April 20, 2000, and any amendments shall become effective when
adopted or as otherwise designated when adopted.
13
<PAGE> 18
EXHIBIT A
LYON STREET ASSET MANAGEMENT COMPANY
PRENOTIFICATION/PREAPPROVAL REQUEST MEMORANDUM
TO: Joe Keating
FROM:
------------------------------------
DATE:
------------------------------------
SUBJECT: Purchase for Personal Account
------
Sale from Personal Account
------
Please approve the following transaction(s):
BUY SELL SHARES SUBJECT SECURITY DESCRIPTION:
- ----- ----- ------ ------------------------------------------------
- ----- ----- ------ ------------------------------------------------
- ----- ----- ------ ------------------------------------------------
CHECK IF YOU ARE:
Access Person
------
Investment Personnel
------
Asset Manager
------
IF TRANSACTION IS FOR A FAMILY MEMBER, CHECK ONE:
Spouse
------
Minor Child
------
Dependent Child
------
Other Household Member
------
CHECK IF THE TRANSACTION IS:
Initial Public Offering
------
Limited Offering
------
Short-term trade (buy/sell within 60 days)
------
- ------- ---------- ----------------------------------- ---------
Approve Disapprove Joseph T. Keating, President Date
<PAGE> 19
EXHIBIT B
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS
INITIAL ACKNOWLEDGEMENT
I acknowledge that I have received a copy of Lyon Street Asset Management
Company's Code of Ethics. I have read and understand the policies and procedures
set forth in the Code of Ethics and I agree to comply in all respects with such
policies and procedures, including the making of required reports and
disclosures. I know such failure may constitute a violation of federal and state
securities laws and regulations that may subject me to civil liabilities,
criminal penalties and/or employment sanctions.
- ---------------------------------- ------------------------------------
Signature Date
Please return this signature page to
- ---------------------------------- the Designated Compliance Person
Print Name
<PAGE> 20
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS INITIAL REPORT OF SECURITIES HOLDINGS
o THIS REPORT MUST BE RETURNED TO THE DESIGNATED COMPLIANCE PERSON NO
LATER THAN 10 DAYS AFTER THE DATE OF APPLICABILITY, SET FORTH BELOW o
- --------------------------------------------------------------------------------
DATE OF APPLICABILITY OF CODE OF ETHICS:
NAME OF OFFICER, DIRECTOR OR EMPLOYEE: {1}
- --------------------------------------------------------------------------------
1. I _____ DO ______ DO NOT (CHECK ONE) HAVE ANY SECURITIES HOLDINGS THAT
ARE REQUIRED TO BE REPORTED UNDER LYON STREET ASSET MANAGEMENT
COMPANY'S CODE OF ETHICS.
2. FOLLOWING IS THE REQUIRED INFORMATION FOR ALL MY SECURITIES HOLDINGS AS
OF THE DATE OF APPLICABILITY:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES OF PRICE PER SHARE NAME OF ACCOUNT IN WHICH YOUR RELATIONSHIP
STOCK OR PRINCIPAL OR SECURITY HELD (IF OTHER THAN TO
NAME OF ISSUER AND DESCRIPTION OF SECURITY AMOUNT OF BONDS PER BOND YOUR NAME SINGLY) THE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. FOLLOWING IS THE REQUIRED INFORMATION FOR ALL BROKERS, DEALERS OR BANKS
WITH WHOM I MAINTAINED A PERSONAL ACCOUNT AS OF THE DATE OF
APPLICABILITY:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YOUR RELATIONSHIP
NAME ON ACCOUNT (IF OTHER THAN TO
NAME OF BROKER, DEALER OR BANK ADDRESS OF BROKER, DEALER OR BANK YOUR NAME SINGLY) THE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DATE: SIGNATURE:
------------------ ----------------------------------------
<PAGE> 21
EXHIBIT C
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS QUARTERLY REPORT OF SECURITIES TRANSACTIONS
o UNDER SEC REGULATIONS, THIS REPORT MUST BE RETURNED TO THE DESIGNATED
COMPLIANCE PERSON NO LATER THAN 10 DAYS AFTER QUARTER-END o
QUARTER ENDING:
- ------------------------------------- -----------------------------------
NAME OF OFFICER, DIRECTOR OR EMPLOYEE: {1}
1. I _____ DID ______ DID NOT (CHECK ONE) HAVE ANY TRANSACTIONS IN SUBJECT
SECURITIES DURING THE QUARTER WHICH ARE REQUIRED TO BE REPORTED UNDER
LYON STREET ASSET MANAGEMENT COMPANY'S CODE OF ETHICS.
2. REPORTABLE TRANSACTIONS: (COMPLETE EITHER (a) OR (b))
(a) ________ I CERTIFY THAT THE TRANSACTION REPORTS ATTACHED
HERETO ARE A COMPLETE AND ACCURATE RECORD OF ALL OF MY
REPORTABLE TRANSACTIONS DURING THE QUARTER.
(b) FOLLOWING IS THE REQUIRED INFORMATION FOR ALL MY REPORTABLE
TRANSACTIONS DURING THE QUARTER:
<TABLE>
<CAPTION>
====================================================================================================================================
DATE OF NAME OF ISSUER NUMBER OF INTEREST NATURE OF PRICE PER NAME OF NAME OF ACCOUNT YOUR
TRANSACTION AND DESCRIPTION SHARES OF RATE AND TRANSACTION (BUY, SHARE OR BROKER/DEALER OR IN WHICH RELATIONSHIP
OF SECURITY STOCK OR MATURITY SELL, MAKE OR PER BOND BANK EFFECTING SECURITY HELD TO THE
PRINCIPAL DATE (IF RECEIVE A GIFT, OR TRANSACTION (IF OTHER THAN ACCOUNT
AMOUNT OF APPLICABLE) OTHER TRANSACTION) YOUR NAME
BONDS SINGLY)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE> 22
3. BROKERS, DEALERS OR BANKS WITH WHOM I ESTABLISHED A PERSONAL ACCOUNT:
(COMPLETE EITHER (a) OR (b))
(a) I CERTIFY THAT THE BROKERS, DEALERS OR BANKS SHOWN ON THE
STATEMENTS WHICH ARE ATTACHED HERETO ARE THE ONLY BROKERS,
DEALERS OR BANKS WITH WHOM I MAINTAINED A PERSONAL ACCOUNT AT
ANY TIME DURING THE QUARTER.
(b) FOLLOWING IS THE REQUIRED INFORMATION FOR ALL BROKERS, DEALERS
OR BANKS WITH WHOM I ESTABLISHED A PERSONAL ACCOUNT DURING THE
QUARTER:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YOUR RELATIONSHIP
DATE ACCOUNT NAME ON ACCOUNT (IF OTHER TO
ESTABLISHED NAME OF BROKER, DEALER OR BANK ADDRESS OF BROKER, DEALER OR BANK THAN YOUR NAME SINGLY) THE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DATE: SIGNATURE:
------------------ ----------------------------------------
<PAGE> 23
EXHIBIT D
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS ANNUAL ACKNOWLEDGEMENT
I have read and understand the policies and procedures set forth in Lyon Street
Asset Management Company's Code of Ethics. I certify that I have, to date,
complied and will continue to comply in all respects with such policies and
procedures, including the making of required reports and disclosures. I know
such failure may constitute a violation of federal and state securities laws and
regulations that may subject me to civil liabilities, criminal penalties and/or
employment sanctions.
- ---------------------------------- ------------------------------------
Signature Date
- ---------------------------------- Please return this signature page to
Print Name the Designated Compliance Person
<PAGE> 24
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS ANNUAL REPORT OF SECURITIES HOLDINGS
- --------------------------------------------------------------------------------
o UNDER SEC REGULATIONS, THIS REPORT MUST BE RETURNED TO THE DESIGNATED
COMPLIANCE PERSON NO LATER THAN JANUARY 30 o
YEAR ENDING: DECEMBER 31,
- --------------------------------------------------------------------------------
NAME OF OFFICER, DIRECTOR OR EMPLOYEE: {1}
1. I _____ DID ______ DID NOT (CHECK ONE) HAVE ANY SECURITIES HOLDINGS AS
OF THE DATE SET FORTH ABOVE THAT ARE REQUIRED TO BE REPORTED UNDER LYON
STREET ASSET MANAGEMENT COMPANY'S CODE OF ETHICS.
2. SECURITIES HOLDINGS: (COMPLETE EITHER (a) OR (b))
(a) I CERTIFY THAT THE LIST OF SECURITIES ATTACHED HERETO IS A
COMPLETE AND ACCURATE RECORD OF ALL SUBJECT SECURITIES HELD BY
ME IN A PERSONAL ACCOUNT ON DECEMBER 31, {YEAR}.
(b) FOLLOWING IS THE REQUIRED INFORMATION FOR ALL MY SECURITIES
HOLDINGS AS OF DECEMBER 31, {YEAR}:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES OF PRICE PER SHARE NAME OF ACCOUNT IN WHICH YOUR RELATIONSHIP
STOCK OR PRINCIPAL OR SECURITY HELD (IF OTHER THAN TO
NAME OF ISSUER AND DESCRIPTION OF SECURITY AMOUNT OF BONDS PER BOND YOUR NAME SINGLY) THE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
3. BROKERS, DEALERS OR BANKS WITH WHOM I MAINTAINED A PERSONAL ACCOUNT:
(COMPLETE EITHER (a) OR (b))
(a) ________ I CERTIFY THAT THE LIST OF BROKERS, DEALERS OR BANKS
ATTACHED HERETO ARE THE ONLY BROKERS, DEALERS OR BANKS WITH WHOM I MAINTAINED A
PERSONAL ACCOUNT ON DECEMBER 31, {YEAR}.
(b) FOLLOWING IS THE REQUIRED INFORMATION FOR ALL BROKERS, DEALERS OR
BANKS WITH WHOM I MAINTAINED A PERSONAL ACCOUNT AS OF DECEMBER 31, {YEAR}:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YOUR RELATIONSHIP
NAME ON ACCOUNT (IF OTHER THAN TO
NAME OF BROKER, DEALER OR BANK ADDRESS OF BROKER, DEALER OR BANK YOUR NAME SINGLY) THE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DATE: SIGNATURE:
------------------ ----------------------------------------
<PAGE> 26
EXHIBIT E
Appointment of Asset Manager for Prenotification Review and
Preapproval Authority
I, Joseph T. Keating, hereby appoint _______________________ to provide trade
prenotification review and preapproval in my place during my anticipated absence
from _________________________ to ________________________. If (s)he is unable
or unwilling to serve in this capacity then the Board of Directors shall
exercise this function under the Code of Ethics.
----------------------------------
Joseph T. Keating
- ------------------------------
Signature of Designee
cc: Kenneth C. Krei
<PAGE> 27
EXHIBIT F
This chart is designed as a quick reference for your convenience. The full terms
of the Code of Ethics control and should be consulted to amplify or explain
anything set forth herein.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BLACKOUT PERIOD NEW ISSUES
- --------------------------------------------------------------------------------
<S> <C> <C>
ACCESS Can't effect a purchase or sale Shall not acquire
PERSONS of a Subject Security for a in a Personal
Personal Account on a day during Account any Subject
which any Account has a "buy" or Securities in an
"sell" order for the same Subject Initial Public
Security. Offering.
- --------------------------------------------------------------------------------
Can't effect a purchase or sale Shall not acquire
INVESTMENT of a Subject Security for a in a Personal
PERSONNEL Personal Account on a day during Account any Subject
which any Account has a "buy" or Securities in an
"sell" order for the same Subject Initial Public
Security. Offering.
- --------------------------------------------------------------------------------
ASSET Can't purchase a Subject Security Shall not acquire
MANAGERS for a Personal Account within at in a Personal
least seven calendar days after Account any Subject
that Subject Security is traded Securities in an
by an Account for which the Asset Initial Public
Manager is a manager. (This Offering.
restriction is not applicable to
index funds identified as such by
the Board of Directors).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transactions in securities related in value to a Subject Security, including
warrants, convertible securities and options, are restricted in the same manner
as are transactions in the Subject Security itself. "Subject Security" means any
note, stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit sharing agreement,
collateral-trust certificate, preorganization certificate or subscription,
transferable share, investment contract, voting-trust certificate, certificate
of deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option or privilege on any security or
any group or index of securities (including any interest therein or based on the
value thereof), or any put, call straddle, option, or privilege entered into on
a national securities exchange relating to foreign currency, or in general, any
interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to or purchase, any of the
foregoing.
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRENOTIFICATION REPORTING SHORT-TERM PRIOR APPROVAL
REQUIREMENTS TRADING
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACCESS All Subject Securities Initial, N/A N/A
PERSONS transactions in Personal Quarterly and
Accounts must be Annual
approved by the
President prior to the
transactions being
executed.
- --------------------------------------------------------------------------------------------------------------------------
All Subject Securities Initial, Must request authority Express prior approval of
INVESTMENT transactions in Personal Quarterly and from the President to the President is required
PERSONNEL Accounts must be Annual profit from the to either (a) acquire
approved by the purchase and sale, or securities in a Limited
President prior to the sale and purchase, of Offering or (b) serve on
transactions being the same Subject the board of directors of a
executed. Securities within 60 publicly traded company.
calendar days.
- --------------------------------------------------------------------------------------------------------------------------
ASSET All Subject Securities Initial, Must request authority Express prior approval of
MANAGERS transactions in Personal Quarterly and from the President to the President is required
Accounts must be Annual profit from the to either (a) acquire
approved by the purchase and sale, or securities in a Limited
President prior to the sale and purchase, of Offering or (b) serve on
transactions being the same Subject the board of directors of a
executed. Securities within 60 publicly traded company.
calendar days.
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
"Subject Security" does NOT include: securities which are issued by the Government of the United
States, shares of registered open-end investment companies (mutual funds), securities which are
acquired through dividend reinvestment programs, bankers' acceptances, bank certificates of
deposit, commercial paper or high quality short-term debt instruments, including repurchase
agreements. A high quality short-term debt instrument is any instrument that has a maturity at
issuance of less than 366 days and that is rated in one of the two highest rating categories by a
Nationally Recognized Statistical Rating Organization
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
